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Issues:
1. Disallowance of selling agency commission. 2. Contravention of statutory provisions of the Companies Act. 3. Effectiveness of services rendered by the firm. Analysis: 1. The appeal was filed against the disallowance of a selling agency commission paid by the assessee to a firm. The Income Tax Officer (ITO) disallowed the deduction on the grounds that approval under s. 294AA of the Companies Act was not obtained and there was no necessity for the payment. The Commissioner of Income Tax (Appeals) upheld the disallowance citing statutory contravention and lack of effective service by the firm. 2. The assessee argued that the disallowance based on s. 294AA was not justified, citing relevant case laws. They maintained that the payment was made as per a genuine agreement for services rendered by the firm. The department, however, contended that the payment contravened statutory provisions and was unnecessary as the firm did not contribute significantly to sales increase. 3. The Tribunal considered previous judgments where payments made in contravention of Companies Act provisions were still allowed as deductions under the Income Tax Act. They emphasized that failure to obtain prior permission under the Companies Act should not hinder the assessee's claim. Additionally, the Tribunal found merit in the payment made under a valid agreement for services rendered by the firm, leading to a substantial increase in the assessee's turnover. Citing a relevant case law, the Tribunal concluded that disallowance was not justified, and the claim of the assessee was allowed. The appeal was allowed, and the disallowance of the commission was deleted.
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