2021 (1) TMI 790 - HC - Income Tax

Disallowance u/s 37 of commission payment - HELD THAT - Material was produced by the assessee which has not been considered by the tribunal. It is also noteworthy that the tribunal has not considered its order passed in respect of AY 2006-07 by which it had restored the case back to the file of the AO who after appreciation of material on record had allowed the claim of the assessee for deduction. Tribunal has upheld the disallowance u/s 37 of the Act merely on the basis of order passed in respect of preceding year. The order passed by the tribunal is cryptic and suffers from the vice of non application of mind. Substantial question of law is answered in favour of the assessee and against the revenue.

Summary

Issues:
1. Justification of disallowance under Section 37 of the Income Tax Act based on the order for the preceding year without considering the facts and evidence for the relevant years.

Analysis:

Issue 1:
The appeal pertained to the assessment years 2009-10 and 2010-11, where the assessee, a company engaged in manufacturing and sale of Hydro Turbines, challenged the disallowance of commission payments by the Assessing Officer. The assessee contended that the Assessing Officer did not independently examine the details provided to justify the disallowance and merely relied on the findings of the previous year's assessment. The Commissioner of Income Tax (Appeals) deleted the addition for the assessment year 2009-10 but sustained it for 2010-11. Subsequently, the Income Tax Appellate Tribunal dismissed the appeal filed by the assessee. The High Court observed that the tribunal's decision was based solely on the preceding year's order, without considering the material provided by the assessee and the tribunal's own decision for the assessment year 2006-07, where the claim was allowed after an independent enquiry. The High Court found the tribunal's order to be cryptic and lacking proper application of mind.

The High Court, after considering the submissions and perusing the record, concluded that the tribunal's decision to uphold the disallowance was unjust as it did not consider the material presented by the assessee and failed to apply its own decision from a previous assessment year. Therefore, the substantial question of law was answered in favor of the assessee, and the High Court quashed the tribunal's order for the assessment years 2009-10 and 2010-11. The matter was remitted back to the tribunal for a fresh decision in accordance with the law. The appeal was disposed of accordingly.