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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: Issue 1: Disallowance of selling agency commission The appeal was filed against the disallowance of a sum of Rs. 20,000 as selling agency commission paid by the assessee to a specific firm. The Income Tax Officer (ITO) rejected the claim for deduction citing two main reasons. Firstly, the approval of the Central Government under s. 294AA of the Companies Act, 1956 was not obtained by the assessee, making the payment legally unjustified. Secondly, the ITO believed there was no necessity for the payment as the existing staff was deemed sufficient to conduct the company's activities. Consequently, the ITO disallowed the claim, a decision upheld by the CIT (A). Issue 2: Contravention of statutory provisions The CIT (A) upheld the disallowance based on the contravention of s. 294AA of the Companies Act and the lack of effective service provided by the firm to the assessee company. However, the assessee contested this decision before the Appellate Tribunal, arguing that the reliance on s. 294AA of the Companies Act for disallowing the deduction was unjustified. The assessee cited previous court decisions to support their claim that the deduction should be considered under the IT Act provisions. The Tribunal noted that the appointment of the selling agents did not have prior approval of the Company Law Board, but referred to precedents where such infringements did not preclude deduction under the IT Act. Issue 3: Effectiveness of services rendered The Tribunal considered the merit of the case and found that the payment was made under a genuine agreement where the firm was required to provide various services related to the company's products. The firm had responsibilities such as bearing traveling and advertisement expenses, as well as recovering dues from purchasers. Additionally, the turnover of the assessee firm had substantially increased after appointing the selling agents. Citing a precedent where a similar disallowance was not justified, the Tribunal ruled in favor of the assessee, stating that there was no reason to disallow the claim. Consequently, the disallowance of the commission was deleted, and the appeal was allowed.
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