2017 (4) TMI 613 - HC - Income Tax

Commission to sole selling agent disallowed - Reasonableness of payment of specified persons - additions u/s 40A(2)(a) - Held that - As decided for for the assessment years 1990-91 and 1991-92 2013 (11) TMI 1247 - ALLAHABAD HIGH COURT the constitution of M/s. Laxmi & Co shows Sri L.C. Gupta (HUF) and others were ladies and house wives representing the interest of HUF, they were not in a position to offer any professional advise on matters relating to production, market survey or procurement of orders etc. Sri L.C. Gupta was engaged as Manager (Finance) with the assessee firm - Assessee has taken substantial amount as loan from the relatives including partners of Commission Agent M/s. Laxmi & Co, and had paid a high rate of interest - There was no service provided by the partners of M/s. Laxmi & Co. in respect of manufacture and sale of production to justify huge commission. Also the questions whether assessment of commission was excessive or unreasonable is subject of discretion of the income tax authorities to be exercised under section 40A (2) (a) of the Act on the basis of material on records. In the present case, the findings have been recorded on the basis of material produced before the income authorities - Decided against assessee.

Summary

Issues:
1. Interpretation of income tax appeal against the order of the Income Tax Tribunal for the assessment year 1991-92.
2. Legality of partly disallowing the commission paid to a marketing and sole selling agent for the same services rendered in previous years.

Analysis:
1. The appeal before the High Court was against an order of the Income Tax Tribunal for the assessment year 1991-92. The principal question raised was whether the tribunal was legally justified in partly disallowing the commission paid to a company acting as a marketing and sole selling agent, considering similar services were rendered in previous years. The court referred to a previous case where it was held that assessment must be made for each year separately under the Income Tax Act. The tribunal had disallowed the commission based on a decrease in sales compared to the earlier year, lack of professional advice from the commission agent, and high interest payments made by the assessee. The court upheld the tribunal's findings as they were based on material on record and factual determinations.

2. The court emphasized that the assessment of commission being excessive or unreasonable falls under the discretion of income tax authorities as per section 40A (2) (a) of the Act. The decision to disallow the commission was based on the material presented before the income authorities. The court concluded that the findings regarding the lack of services justifying the commission were factual and did not warrant interference. Therefore, the court dismissed the appeal in line with a previous order passed in a similar case in 2012, stating that the appeal is decided on the same terms and order as the previous case.

In summary, the High Court dismissed the income tax appeal against the tribunal's order for the assessment year 1991-92, upholding the decision to partly disallow the commission paid to the marketing and sole selling agent based on factual findings and the discretion of income tax authorities. The court's decision was in line with a previous judgment from 2012, emphasizing the separate assessment for each year and the authority's discretion in determining the reasonableness of commission payments.