2012 (12) TMI 459 - HC - Income Tax

Commission paid to the sub-distributors - disallowance as no evidence furnished regarding work done/services rendered by three dealers - CIT(A) allowed the claim - Held that - The assessee appointed three sub-distributors as stockists for selling cement. Sub-distributors were providing services of stockist, taking orders from local customers for sale of cement and supplying/selling the cements to the local customers as such they were entitled to get commission on the sales effected by them. It has been proved by the assessee that actual commission was paid to the sub-distributors. Earlier for the financial years 1988-89, 1989-90 and 1990-91, deduction of the payment of commission has been allowed. Income Tax Appellate Tribunal has not applied it s mind to the evidence on record and has illegally set aside the order the Commissioner of Income Tax (Appeals) without considering the reasons recorded by it. Appellate Tribunal is illegal and is liable to be set aside - case remanded back for reconsideration.

Summary

Issues:
1. Appeal under Section 260-A of the Income Tax Act, 1961 from the order of the Income Tax Appellate Tribunal.
2. Justification of setting aside the order of the Commissioner of Income Tax (Appeals).
3. Remand of the case to the Assessing Officer.
4. Consideration of evidence and previous orders by the Income Tax Appellate Tribunal.

Analysis:

Issue 1:
The appeal was filed under Section 260-A of the Income Tax Act, 1961, challenging the order of the Income Tax Appellate Tribunal, Lucknow dated 29.10.2004. The appellant raised substantial questions of law regarding the justification of setting aside the Commissioner of Income Tax (Appeals) order, remanding the case to the Assessing Officer, and following previous orders.

Issue 2:
The facts of the case involved the assessment year 1993-94 where the assessee, a trading company, claimed a deduction for the commission paid to sub-distributors. The Assessing Officer disallowed the deduction due to lack of evidence on services rendered by the sub-distributors. The Commissioner of Income Tax (Appeals) allowed the appeal based on previous tribunal decisions, but the Income Tax Appellate Tribunal set aside both orders for lack of discussion on collected evidence.

Issue 3:
The counsel for the appellant argued that the appointment of sub-distributors and the payment of commission were essential for increasing cement sales. The evidence of stock supply, sales, and commission payment was presented to the Assessing Officer. The Commissioner of Income Tax (Appeals) considered these materials and past tribunal decisions to allow the deduction. The Income Tax Appellate Tribunal's failure to review the evidence and reasons for the Commissioner's decision led to the appeal being allowed, setting aside the Tribunal's order.

Issue 4:
The High Court found that the sub-distributors provided services, took orders, and sold cement, justifying the commission payment. Previous years' deductions for commission were allowed, indicating a consistent practice. The Income Tax Appellate Tribunal was criticized for not assessing the evidence properly and remanding the case unnecessarily. Consequently, the Tribunal's order was deemed illegal and set aside.

In conclusion, the High Court allowed the appeal, setting aside the Income Tax Appellate Tribunal's order dated 29.10.2004, based on the lack of proper consideration of evidence and failure to provide adequate justification for remanding the case.