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TMI Blog1995 (3) TMI 185X X X X Extracts X X X X X X X X Extracts X X X X ..... mission paid. He further found that most of the sales effected by the assessee were to the Government, semi-Government agencies and regular and reputed dealers. He has further noted that the assessee had never suffered any loss on account of bad debts in the past. Considering all these facts, the Assessing Officer was of the opinion that the amount of del credere commission at 0.6% was excessive. He, therefore, concluded that the commission had not been paid to cover the loss likely to be incurred by the assessee on account of doubtful debts. However, considering the risk factor, he held that del credere commission at 0.4% to be reasonable and disallowed the balance to the extent of 0.2% under section 40A(2) of the Income-tax Act. 6. During the course of the first appeal, the learned CIT(A) felt that the whole transaction of appointment of del credere agent and payment of del credere commission was a sham transaction and the payment was also unreasonable in terms of section 40A(2). He accordingly required the asseessee's representative to show cause as to why the commission paid to the Corporation be not disallowed in its entirety resulting in enhancement of assessment. According ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the three years under reference. M/s Antler Corporation, by entering into agency commission had undertaken to recover doubtful debts. It in fact made such efforts in recovering such doubtful debts, thereby avoiding any debt becoming bad. On behalf of the assessee, it was further submitted before us that the appointment of del credere agents and payment of commission, therefore, is not an unusual or abnormal commercial feature. Even the payment of guarantee commission to its own directors of a company is being allowed for income-tax purposes. As such, it would not be just and reasonable to disallow the commission payment or any part thereof in the present case. Reliance for this purpose was placed upon the following decisions : (1) J.K. Steel & Industries Ltd v. CIT [1978] 112 ITR 285 (Cal.), (2) L.H. Sugar Factories & Oil Mills (P.) Ltd v. CIT [ 1979] 118 ITR 985 (All.), and (3) Anand Dyes Industries (P.) Ltd v. ITO [1986] 17 ITD 1041 (Ahd.). 9. As against the above, it was submitted by the learned departmental representative that there was no risk involved in the recovery of the price of goods sold by the assessee. The sales were made mainly to the Government/semi-Government a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T [1967] 63 ITR 57 (SC). 10. We have considered the facts on the record and the relevant and surrounding circumstances of the case and find no hesitation in agreeing with the learned CIT(A) that there was absolutely no justification for the payment of del credere commission or any part thereof and, therefore, if was liable to be disallowed in its entirety. We similarly agree with the learned CIT(A) that the agency arrangement between the parties was a sham transaction and was entered into for extra commercial consideration. It is not disputed that the partners of M/s Antler Corporation are sons and wives of the directors of the assessee-company. The appointment of del credere commission agents is generally made with a view to firstly to ensure expeditious recovery of outstanding dues, secondly, to ensure risk against bad debts and, thirdly, to entrust the recovery part of the business function to a third party and thereby enabling the principal to concentrate fully on manufacture/production and marketing of its goods. In the present case, the facts of the case and the surrounding circumstances clearly indicate that the appointment of M/s Antler Corporation as del credere agent was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the assessee has not adduced any evidence in support of the fact that any efforts were in fact made by the wives and sons of the assessee's directors to recover the doubtful debts. The fact that there was no problem at all with regard to the recovery of the sale price of the goods is further indicated by the fact that not a single bad debt has arisen during the three-year period. 11. So far as the decisions relied upon by the learned counsel for the assessee are concerned, we find that they hardly offer any material assistance to the case of the assessee before us. In the case of J.K. Steel & Industries Ltd., the payment of commission was allowed by the High Court on the basis of the reason that there was no finding that commission was excessive or was paid on extra commercial consideration. In the present case, the learned CIT(A) has recorded an emphatic finding - with which we agree - that no services were in fact rendered by M/s Antler Corporation and the payment has been made purely for extra commercial considerations. As regards the case of L.H. Sugar Factories & Oil Mills (P.) Ltd, that case deals with the payment of guarantee commission to the directors of the assessee-c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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