2008 (9) TMI 110 - HC - Income Tax

Admissibility of the commission, paid to the sister concern - Whether ITAT was justified in confirming the order passed by CIT (A) whereby the payment of commission @ 15% of the net sales has been held to be justified - Whether ITAT was justified in allowing the assessee s claim of deduction of bank guarantee commission to its directors and the relatives - both the questions are answered, against the Revenue and in favour of the assessee

Summary

Issues:
1. Justification of payment of commission @ 15% of net sales.
2. Deduction of bank guarantee commission to directors and relatives for business purposes.

Analysis:

Issue 1:
The first issue pertains to the justification of the payment of commission at the rate of 15% of net sales. The court referred to a previous decision in the case of M/s Laxmi Engineering Industries vs. ITO Udaipur, where the admissibility of commission paid to a sister concern was discussed. Additionally, the court cited a ruling from the Hon'ble Supreme Court in the case of M/s Upper India Publishing House Pvt. Ltd. vs. Commissioner of Income-tax, which emphasized that the reasonableness of expenditure is a factual determination. The court concluded that based on the referenced judgments, the question should be answered in favor of the assessee, indicating that the commission payment was justified.

Issue 2:
The second issue revolves around the deduction of bank guarantee commission paid to directors and relatives for business purposes. The court relied on the judgment in CIT vs. Ayurvedic Sevashram P.Ltd. and a subsequent decision in a bunch of Income Tax Appeals involving CIT vs. M/s Metalizing Equipment Co.(P) Ltd. The court determined that these judgments favored the assessee, indicating that the deduction of bank guarantee commission was permissible. Consequently, both issues were resolved against the Revenue and in favor of the assessee. As a result, the appeals were dismissed for lacking merit.