1985 (6) TMI 59 - AT - Income Tax

Summary

Issues:
1. Addition of Rs. 3,000 in savings account by the AAC.
2. Payment of secret commission of Rs. 8,222 by the assessee.

Analysis:

Issue 1: Addition of Rs. 3,000 in savings account by the AAC
The assessee contested the addition of Rs. 3,000 in the savings account, arguing that the expenses were disallowed unjustly. The contention was based on the fact that despite low sawing receipts of Rs. 2,979, wages paid were higher at Rs. 8,130. The assessee maintained that having a helper and a mistri was essential due to the installation of a sawing machine, even though the sawing receipts were minimal compared to timber and plywood sales. The Tribunal agreed with the assessee, ruling that the disallowance of Rs. 3,000 was unwarranted since there was no dispute regarding the accuracy of the sawing charges in the books. Consequently, the disallowance was ordered to be deleted, and the assessee succeeded on this ground.

Issue 2: Payment of secret commission of Rs. 8,222 by the assessee
The Revenue's appeal focused on the payment of a secret commission amounting to Rs. 8,222. The Departmental Representative raised concerns about the lack of details regarding the payees and the verifiability of the payment. In response, the assessee's counsel highlighted the necessity of such commissions for conducting business successfully, citing previous year's commission payments as a reference. The Tribunal considered the arguments from both sides and upheld the AAC's decision. It was noted that the payment of secret commissions was not a new practice for the assessee and was crucial for the business operations. Referring to a Tribunal decision, it was emphasized that such payments were permissible to enhance sales. Therefore, the Tribunal confirmed the AAC's decision, stating that the commission paid was not excessive and was essential for the business. As a result, the Revenue's appeal was dismissed, while the assessee's appeal was partially allowed.

In conclusion, the Tribunal's consolidated order addressed the issues raised by both the assessee and the Revenue for the assessment year 1980-81. The Tribunal ruled in favor of the assessee regarding the addition in the savings account but upheld the decision on the payment of the secret commission. The judgment highlighted the importance of maintaining essential expenses for business operations and the permissible nature of certain payments to boost sales.