1998 (5) TMI 48 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of commission payment of Rs. 1,54,385.
2. Addition of Rs. 54,000 on account of unexplained investment in the capital account of a partner.

Summary:

1. Disallowance of Commission Payment:

1.1 The assessee, a partnership firm, claimed a deduction for commission paid to Ajay Kumar Gupta for procuring a contract and ensuring timely payments. The AO disallowed the commission, and the CIT(A) confirmed the disallowance.

1.2 The assessee's counsel argued that direct efforts to obtain orders from Cimmco International failed, necessitating Gupta's services. Correspondence and a certificate were submitted to support this claim.

1.3 Ajay Kumar Gupta, a commission agent, offered his services via letter, and after discussions, the assessee agreed to pay a commission of 11% on sales to Cimmco, contingent on payment receipt.

1.4 Orders from Cimmco were received, and the assessee documented commission payments to Gupta, who confirmed receipt and his status as an income-tax assessee.

1.5 The AO noted contradictions in Gupta's statements and suspected the correspondence was fabricated to support a false commission claim. Payments of Rs. 91,272 in cash violated s. 40A(3).

1.6 The assessee's counsel argued there were no contradictions and that cash payments were made due to Gupta's insistence. Gupta confirmed receiving cash payments and later accepting cheques.

1.7 The counsel cited Tribunal decisions supporting the allowability of commission payments under similar circumstances.

1.8 The senior Departmental Representative argued no evidence of services rendered was provided and supported the disallowance under s. 40A(3).

1.9 The Tribunal found the assessee provided sufficient evidence of genuine commission transactions, including letters, confirmations, and Gupta's statements. The burden shifted to the Revenue, which failed to disprove the claim.

1.10 The Tribunal referenced decisions in VIP Industries Ltd. vs. IAC and ITO vs. French Dyes & Chemicals (I) Ltd., supporting the allowability of commission payments.

1.11 The Tribunal concluded the assessee was entitled to the deduction of Rs. 1,54,385 for commission paid to Gupta, directing the AO to allow the same.

2. Addition of Unexplained Investment:

2.1 The assessee's counsel argued that the addition of Rs. 54,000 in the capital account of partner Ajay Saxena was unjustified, citing judgments supporting the position that the firm need not prove the source of the partner's investment.

2.2 The senior Departmental Representative supported the addition, citing judgments where similar additions were upheld.

2.3 The Tribunal noted that the partner, Ajay Saxena, confirmed the capital contribution and provided details of the sources. Saxena's status as an income-tax assessee discharged the initial onus on the assessee.

2.4 The Tribunal found the facts of the present case distinguishable from those cited by the Departmental Representative and concluded that the addition of Rs. 54,000 was unjustified.

2.5 The Tribunal directed the AO to delete the addition of Rs. 54,000.

Conclusion:
The assessee's appeal was allowed, with the Tribunal directing the AO to allow the commission payment deduction and delete the addition of unexplained investment.