1976 (9) TMI 48 - AT - Income Tax

Issues Involved:
1. Allowability of commission paid to M/s Goodwill Enterprises and M/s Goodwill Dye Chemicals Industry.
2. Deduction of commission paid to M/s Goodwill Dye Chemicals Industry for the assessment year 1971-72.
3. Allowability of staff welfare and entertainment expenses.

Detailed Analysis:

1. Allowability of Commission Paid to M/s Goodwill Enterprises and M/s Goodwill Dye Chemicals Industry:

The assessee, a registered firm, paid a commission of Rs. 88,864 to M/s Goodwill Enterprises and Rs. 36,383 to M/s Goodwill Dye Chemicals Industry for services rendered. The Income Tax Officer (ITO) disallowed these commissions, arguing that the assessee failed to prove the actual services rendered by these agents. The ITO noted that both firms shared common partners and premises, and the orders were allegedly received verbally or by phone, which he found unconvincing.

The Appellate Assistant Commissioner (AAC) initially allowed a part of the commission but disallowed Rs. 73,834. The Tribunal set aside the AAC's order, directing a reconsideration of whether the services were rendered for non-manufactured goods and whether the commission was wholly and exclusively for business purposes.

Upon reassessment, the AAC found that the commission payments were justified, noting that the agents provided necessary services such as securing orders, helping with payments, and providing market reports. The AAC concluded that the payments were not excessive or unreasonable and that the agents were genuine firms assessed by the IT Department. Consequently, the AAC deleted the disallowance of Rs. 73,834, a decision upheld by the Tribunal.

2. Deduction of Commission Paid to M/s Goodwill Dye Chemicals Industry for the Assessment Year 1971-72:

For the assessment year 1971-72, the Delhi branch claimed a commission payment of Rs. 67,977 to M/s Goodwill Dye Chemicals Industry. The ITO disallowed Rs. 16,886 of this amount, arguing it was paid on sales of goods purchased by the branch. The AAC, following his order for the previous year, deleted the addition, a decision upheld by the Tribunal, which found the facts of the case identical to the previous year.

3. Allowability of Staff Welfare and Entertainment Expenses:

The assessee claimed staff welfare and entertainment expenses amounting to Rs. 9,144 for the head office and Rs. 9,810 for the branch. The ITO allowed only Rs. 1,666 for the branch and disallowed the rest. The AAC allowed Rs. 4,757 for the branch and Rs. 894 for the head office, finding that these expenses were incurred for the purpose of the assessee's business and were therefore allowable.

The Tribunal upheld the AAC's decision, agreeing that the expenses were incidental to the business and allowable under the provisions of section 37(2) of the Income Tax Act, 1961.

Conclusion:

The Tribunal dismissed the departmental appeals, maintaining the AAC's findings on all issues. The commission payments to M/s Goodwill Enterprises and M/s Goodwill Dye Chemicals Industry were deemed justified and allowable, and the staff welfare and entertainment expenses were found to be legitimate business expenditures.

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