9911796707
TMI Blog2022 (8) TMI 851X X X X Extracts X X X X X X X X Extracts X X X X ..... appreciating the fact that M/s. MCPL is related party within the meaning of sec.40A(2)(b) and nothing on record to conclusively prove that services has been rendered by M/s. MCPL." 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of commission expenses paid to M/s. MCPL without appreciating the fact that there is no commensurate increase in Revenue of the assessee company which warrants payment of commission to M/s. MCPL. 4. The appellant prays that the order of the Ld. CIT(A) on the grounds be set aside and that of the Assessing Officer be restored." 3. The only grievance of the Revenue in the present appeal is against deletion of disallowance of commission expenses paid by the assessee to its related concern. 4. The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is engaged in the business of manufacturing of printed labels for liquor industry and production of cartons. For the year under consideration, the assessee filed its return of income on 27/09/2014, declaring total income at Rs. 4,83,61,620. During the course of assessment proceedings, it was observ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying anything to MCPL, especially in view of the fact that even without the payment of such commission the assessee company was showing a healthy growth and no documentary or even circumstantial evidence has been produced to prove that any service was rendered by MCPL. Accordingly, the Assessing Officer made addition of entire commission expenses of Rs. 2,39,45,501. 6. In appeal, learned CIT(A) vide impugned order allowed the appeal filed by the assessee, by observing as under: "6. Decision: I have considered the facts of the case and submissions made by the appellant. The appellant company has submitted copy of agreement for commission agency with MCPL as also a copy of the Board resolution dated 26th March 2013 appointing MCPL as their marketing and commission agent. It is submitted that the diversion of business from label marketing to carton manufacturing involved a lot of efforts and time and energy to increase the rapport with various customers from different industries. It is brought to my notice that the AO has referred that the only customer was United Spirits Ltd. It is true that USL was the main customer for label manufacturing which also required lot of interaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther, the recipient company has declared the commission amount in its Return of Income and paid taxes and both the companies are paying taxes at maximum marginal rate. The department also accepted the income disclosed by the recipient company. Similar issue was dealt by the Hon'ble High Court of Delhi in the case of CIT vs. Hind Proteins (P) Ltd. 91 Taxmann.43 and considered in favour of the assessee. In view of the above, I direct the AO to allow the commission of Rs. 2,13,10,818/- paid. The balance commission of Rs.26.34.683/- was paid on import purchase and paid to one Mr. Kamdar for arranging import of cheap raw material from China Same also being a legitimate expenditure and is wholly and exclusively laid out for the business of the company. I direct the AO to allow the same. Thus, this ground of appeal is allowed." Being aggrieved, the Revenue is in appeal before us. 7. During the course of hearing, learned Departmental Representative submitted that no evidence of rendition of service was filed by the assessee before any of the lower authorities and mere fact that the payment has been made under contract or agreement is not conclusive. 8. On the other hand, learned Au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fied. 10. In the present case, it has not been denied by the assessee that MCPL is a related entity. The assessee has only claimed that the commission payment to MCPL is not excessive and unreasonable and tax was deducted at source as well as both the companies are falling under maximum marginal rate of tax, thus there is no tax evasion. It is pertinent to note that as per the provision of section 40A(2), if the Assessing Officer is of the opinion that payment made by the assessee to its related entity is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to the assessee therefrom, so much of the expenditure as is considered to be excessive or unreasonable shall not be allowed as a deduction to the assessee. As per section 40A(2) of the Act, excessiveness or unreasonableness of the expenditure incurred by the assessee is to be examined vis-à-vis the goods, services or facilities for which the payment is made. However, as noted above evidence in respect of rendition of service was neither prod ..... X X X X Extracts X X X X X X X X Extracts X X X X
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