1976 (10) TMI 48 - AT - Income Tax

Summary

Issues:
1. Disallowance of secret commission claimed by the assessee.
2. Quantum of interest to be allowed on refund of advance-tax under s. 214 of the IT Act, 1961.

Detailed Analysis:

1. Disallowance of Secret Commission:
The appeal filed by the assessee questioned the disallowance of secret commission claimed, and the quantum of interest on refund of advance-tax under the IT Act, 1961. The assessee, a limited company acting as the sole distributor of dyes and chemicals, claimed secret commission as allowable revenue expenditure. The Tribunal, in earlier years, allowed the secret commission based on factors such as the prevailing practice in the industry, percentage of commission paid, approval by directors, and absence of adverse comments from auditors. However, the ITO and AAC disallowed the claim for the relevant year, citing lack of details and reasons for payment, absence of checks and counter-checks, and non-compliance with s. 40A(3) due to cash payments exceeding a specified limit.

2. Affidavit and Tribunal's Decision:
After receiving the AAC's order, the Marketing Director of the company filed an Affidavit affirming the industry custom of paying secret commissions for sales promotion. The company had reduced the commission percentage over the years. The assessee's counsel argued for considering the Affidavit and following the Tribunal's earlier decision. The Departmental Representative opposed the claim, emphasizing the application of s. 40A(3) to disallow the commission. The Tribunal criticized the AAC for not following the earlier Tribunal's order without new facts and directed a re-examination considering the Affidavit. The case was restored to the AAC for further review based on the new evidence presented.

3. Legal Precepts and Restoration of the Matter:
The Tribunal highlighted the principle that a lower Tribunal must accept the order of a higher Tribunal unless new facts warrant a different conclusion. The Tribunal found the AAC's disagreement with the earlier order improper. However, due to the new Affidavit, the matter was restored to the AAC for a fresh review. The Tribunal stressed the need for authorities to consider the Affidavit and conduct any necessary investigations before making a final determination. Additionally, the AAC was directed to re-examine the interest payable under s. 214 in light of the latest legal developments regarding the appealability of interest payment on advance-tax.

In conclusion, the Tribunal deemed the assessee's appeal allowed for statistical purposes, pending further review by the AAC in light of the new evidence presented through the Affidavit. The judgment emphasized the importance of following legal precedents and considering all relevant evidence before making a final decision on the disallowance of secret commission and the quantum of interest on advance-tax refund.