1998 (8) TMI 119 - AT - Income Tax

Summary

Issues Involved:

1. Disallowance of commission paid to Mrs. Samira Mallya.
2. Addition of C & F handling charges paid to Blue Chip Co.
3. Disallowance of payment to Corporate Management Division (CMD) of United Breweries Ltd.
4. Disallowance of service charges paid to Bombay Brewery Ltd.
5. Levy of interest under section 217(1A) of the Income-tax Act.
6. Non-allowance of triple shift allowance on machinery.
7. Deletion of addition made out of service charges paid to marketing agents.

Detailed Analysis:

1. Disallowance of Commission Paid to Mrs. Samira Mallya:

The assessee claimed a commission payment of Rs. 4,46,667 to Mrs. Samira Mallya, a director of the company. The Assessing Officer and the Commissioner of Income-tax (Appeals) disallowed this payment due to lack of direct evidence of services rendered by Mrs. Mallya. The Tribunal had previously upheld a similar disallowance for the assessment year 1986-87. The assessee argued that the payment was made pursuant to board resolutions and was necessary for business purposes. However, the Judicial Member disagreed, citing the absence of sufficient reasons in the resolutions and lack of evidence of services rendered. The Third Member upheld the disallowance, agreeing with the Judicial Member that no part of the payment was allowable as a deduction.

2. Addition of C & F Handling Charges Paid to Blue Chip Co.:

The assessee paid Rs. 10,45,000 to Blue Chip Co. as C & F handling charges. The Assessing Officer and the Commissioner of Income-tax (Appeals) disallowed this payment, considering it a sham transaction. The Judicial Member upheld the disallowance, noting that two partners of Blue Chip Co. were not found at the given addresses and the staff strength remained the same despite a decline in sales. The Accountant Member, however, accepted the assessee's arguments, noting that Blue Chip Co. was separately assessed to tax and had taken on independent premises and staff. The Third Member agreed with the Accountant Member, concluding that the payment was genuine and the addition should be deleted.

3. Disallowance of Payment to Corporate Management Division (CMD) of United Breweries Ltd.:

The assessee paid Rs. 2 lakhs to the CMD of United Breweries Ltd. for services rendered. The Assessing Officer and the Commissioner of Income-tax (Appeals) disallowed this payment due to lack of evidence of specific services rendered. The Accountant Member accepted the assessee's arguments in part, noting that the CMD incurred a total expenditure of Rs. 1.76 crores, out of which Rs. 2 lakhs was debited to the assessee. However, he directed a proportionate disallowance in the assessee's case. The Judicial Member upheld the full disallowance. The Third Member agreed with the Accountant Member, allowing the claim in part and directing proportionate disallowance.

4. Disallowance of Service Charges Paid to Bombay Brewery Ltd.:

The assessee paid Rs. 2,39,550 as service charges to Bombay Brewery Ltd. The Commissioner of Income-tax (Appeals) upheld the disallowance, but the Tribunal had previously allowed similar payments in earlier years. The Accountant Member followed the Tribunal's earlier decisions and directed the deletion of the addition. The Judicial Member did not comment on this issue, implicitly agreeing with the Accountant Member.

5. Levy of Interest Under Section 217(1A) of the Income-tax Act:

The assessee challenged the levy of interest under section 217(1A). The Tribunal dismissed this ground, directing the Assessing Officer to recalculate the interest at the time of giving effect to the order.

6. Non-Allowance of Triple Shift Allowance on Machinery:

The assessee claimed triple shift allowance on machinery used in beer production. This ground was not pressed by the assessee's counsel during the hearing and was dismissed by the Tribunal.

7. Deletion of Addition Made Out of Service Charges Paid to Marketing Agents:

The Revenue appealed against the deletion of Rs. 11,03,550 made out of service charges paid to marketing agents. The Commissioner of Income-tax (Appeals) deleted the addition, noting that the Assessing Officer had not doubted the genuineness of the expenses. The Accountant Member upheld this deletion, citing the Tribunal's earlier decision in the assessee's favor. The Judicial Member, however, restored the issue to the Assessing Officer for fresh adjudication. The Third Member agreed with the Accountant Member, maintaining the deletion of the addition.

Conclusion:

The Tribunal's decision involved mixed outcomes for the assessee and the Revenue, with some disallowances being upheld and others being deleted. The Third Member played a crucial role in resolving differences between the Accountant Member and the Judicial Member, ultimately providing a balanced resolution based on detailed factual analysis and precedents.