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TMI Blog2008 (11) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... ate with Prakash Kumar for the Respondent JUDGMENT The judgment of the court was delivered by RAJIV SHAKDHER, J -1. This is an appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as "the Act") against a common judgment dated 23.12.2005 passed by the Income Tax Appellate Tribunal (hereinafter referred to as the "Tribunal") in ITA No. 180/Del/2000 and ITA No.598/Del/2000, in respect of, assessment year 1996-97. Before the Tribunal both the assessee, as well as, Revenue had preferred appeals against the order of the Commissioner of Income Tax (Appeals) (hereinafter referred to as "CIT(A)"). Before the Tribunal the appeal filed by the assessee was numbered as ITA No. 180/Del/2000, whereas the appeal filed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee held 39% shares and, was also, one of the three directors, managing CIL. It was further disclosed that due to the efforts of the consignment agent i.e., CIL, the turnover of the assessee had increased over the past few years. The figures disclosed by the assessee to the Assessing Officer were as follows:- A.Y. Turnover (Rs) 1994-95 Rs.92,47,736.40 1995-96 Rs.1,01,79,754.08 1996-97 Rs.2,14,46,562,28 3.1 The assessee also informed the Assessing Officer that for the services rendered in respect of sales made by the assessee through CIL, commission @ 15% was paid to CIL. These were classified by assessee as indirect sales. As regards sales made by the assessee direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee to CIL were disallowed and added back to the income of the assessee. 4. In the result, an assessment order dated 24.3.1999 was passed under Section 143(3) of the Act. 5. Aggrieved by the order passed by the Assessing Officer, the assessee preferred an appeal with the CIT(A). The CIT(A) by an order dated 04.10.1999 allowed, completely, the expenditure incurred by the assessee on commission charges paid to CIL. However, the CIT(A) in respect of service charges restricted the allowable expenditure to 3%. As against total service charges of Rs.8,21,621/- the CIT(A) allowed a sum of Rs.1,36,935/- and sustained disallowance of a sum of Rs.6,84,686/-. 5.1 The CIT(A) gave detailed reasons for allowing the expenditure in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e view of the Assessing Officer that there was no development of the market since, sales of the products had been made to the old customers, it was found that there was a substantial increase in turnover in the assessment year 1996-97 as compared to the earlier years, from which, it was deduced that CIL had worked to develop the market and boost sales by retaining old customers and; (vii) as regards the Assessing Officer"s observations that other consignment agent i.e, Mahendru Chemicals Private Ltd, who was appointed on the same day as CIL, was paid commission at a lower rate of 5%, as against, that which is paid to CIL, it was explained by observing that the quality of services rendered by CIL was different. Mahendru Chemicals Pvt Ltd w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue; (ii) the sales of the assessee had increased from Rs 1.02 crores, in assessment year 1995-96, to Rs 2.14 crores, in the assessment year under consideration i.e., 1996-97. Therefore, the Assessing Officer was wrong in brushing aside this material aspect of the matter, by simply observing, that the, sales by the assessee in the year under consideration had been made to existing customers; (iii) the Assessing Officer by allowing commission to the extent of 5% as against 18% claimed by the assessee had in a sense accepted the fact that services had been rendered by CIL to the assessee. Given the fact that the services rendered by CIL were qualitatively different from that of the other consignment agent i.e, Mahendru Chemicals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y reflected in the profit and loss account and return of income filed by CIL. 7. Having perused the record of the case, and after hearing the counsel for both the Revenue, as well as, the assessee, we are of the view that the issue involved before the authorities below was whether the expenses claimed by the assessee towards payment of commission, as well as, service charges to CIL was reasonable having regard to the provisions of Section 40A of the Act. This issue according to us is a pure question of fact. The Supreme Court in Upper India Publishing House Pvt Ltd v. CIT: (1979) 117 ITR 569 and the Division Bench of this Court in the case of CIT v. Northern India Iron and Steel Company Ltd: ( 1989) 179 ITR 599 and CIT v. Mohta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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