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Issues:
1. Disallowance of commission paid to M/s Shah Enterprises under sections 37 and 40A(2)(v) of the IT Act, 1961. 2. Disallowance of export charges paid to M/s Shah Enterprises under section 40A(2). Analysis: Issue 1: Disallowance of Commission The assessee, a registered firm, paid a commission of Rs. 5,18,471 to M/s Shah Enterprises for procuring export orders for tea. The Assessing Officer disallowed the entire commission under sections 37 and 40A(2)(v) of the IT Act, 1961. The CIT(A) upheld the disallowance partially, considering the relationship between the partners of both firms. The CIT(A) found that the services rendered by Shah Enterprises were crucial in introducing the assessee to foreign clients, leading to a breakthrough in the export trade. The tribunal disagreed with the CIT(A) and allowed a further 2% commission, restricting the disallowance to 1% of the export value of tea. The tribunal emphasized the significant role played by Shah Enterprises in securing export orders for the assessee. Issue 2: Disallowance of Export Charges The AO disallowed a portion of the export charges paid to M/s Shah Enterprises, considering a profit margin included in the payment. The CIT(A) further enhanced the disallowance based on his analysis of expenses incurred by both parties. However, the tribunal disagreed with the CIT(A) and deleted the enhancement, stating that it is not the concern of the assessee to determine the benefit received by the recipient of the payment. The tribunal upheld the original disallowance of 25 paise per kg of tea exported, considering the significant difference between the payment received and expenses incurred. In conclusion, the tribunal partly allowed the assessee's appeal, granting further allowance for commission paid to M/s Shah Enterprises and sustaining the original disallowance of export charges. The judgment highlights the importance of considering the nature of services rendered and the reasonableness of payments in such commercial transactions.
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