1989 (11) TMI 90 - AT - Income Tax

Issues Involved:
1. Addition of Rs. 4,68,468 as income under Section 41(1) regarding commission payable to M/s Industrial Traders of Ranchi.
2. Addition of Rs. 5,93,644 as income under Section 41(1) regarding commission payable to M/s Macheil & Magor Ltd.
3. Disallowance of Rs. 36,000 claimed as advertisement expenses.
4. Disallowance of Rs. 1,35,000 paid to M/s Morans Consulting Engineers Hyderabad.
5. Disallowance of Rs. 1,73,748 paid to Shree Venkutesh Industrial & Electrical Agencies Nagpur.

Detailed Analysis:

1. Addition of Rs. 4,68,468 as Income under Section 41(1):
The assessee company had retained M/s Industrial Traders of Ranchi for promoting sales of belt conveyors to government undertakings. The commission liability was debited in the company's books on a mercantile basis. During the assessment year 1982-83, the IAC(A) observed a credit balance of Rs. 4,68,468, which was not discharged. The IAC(A) treated this amount as income under Section 41(1) due to the dissolution of the Ranchi firm and the non-payment of the liability. However, the CIT(A) held that mere non-payment and dissolution did not result in cessation or remission of liability. The Tribunal agreed with the CIT(A), stating there was no evidence of remission by the Ranchi party and upheld the CIT(A)'s decision that Section 41(1) was not applicable.

2. Addition of Rs. 5,93,644 as Income under Section 41(1):
The company had engaged M/s Macheil & Magor Ltd. (MML) as a sole selling agent, and a commission of Rs. 5,93,644 was claimed. The IAC(A) included this amount as income under Section 41(1), citing a letter from MML indicating non-receipt and disputes over the commission. The CIT(A) found no evidence of cessation or remission of liability and held that Section 41(1) was not applicable. The Tribunal upheld the CIT(A)'s decision, noting that the agreement between the assessee and MML acknowledged the commission liability and there was no remission or cessation of the liability.

3. Disallowance of Rs. 36,000 Claimed as Advertisement Expenses:
The IAC(A) had disallowed Rs. 36,000 claimed as advertisement expenses. The CIT(A) found that the expenditure was incurred for business purposes and allowed the claim. The Tribunal upheld the CIT(A)'s decision, agreeing that the expenditure was for the business of the assessee.

4. Disallowance of Rs. 1,35,000 Paid to M/s Morans Consulting Engineers Hyderabad:
The assessee had paid Rs. 1,35,000 to M/s Morans Consulting Engineers Hyderabad as commission for securing orders and following up payments. The IAC(A) disallowed the claim due to lack of confirmatory letters and permanent account numbers. The CIT(A) upheld the disallowance, citing insufficient evidence. The Tribunal restored the matter to the IAC(A) for re-adjudication, directing verification of the authenticity of the payment and allowing the assessee to produce additional evidence.

5. Disallowance of Rs. 1,73,748 Paid to Shree Venkutesh Industrial & Electrical Agencies Nagpur:
The IAC(A) disallowed Rs. 1,73,748 paid to Shree Venkutesh Industrial & Electrical Agencies Nagpur due to lack of confirmatory letters and permanent account numbers. The CIT(A) upheld the disallowance, noting discrepancies in the commission figures. The Tribunal restored the matter to the IAC(A) for re-adjudication, directing verification of the evidence and allowing the assessee to produce additional evidence.

Conclusion:
The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal for statistical purposes, directing re-adjudication of the disallowed commission payments to M/s Morans Consulting Engineers Hyderabad and Shree Venkutesh Industrial & Electrical Agencies Nagpur. The Tribunal upheld the CIT(A)'s decisions on the other issues, confirming that Section 41(1) was not applicable to the disputed commission liabilities and allowing the advertisement expenses as business expenditure.

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