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TMI Blog1984 (1) TMI 76X X X X Extracts X X X X X X X X Extracts X X X X ..... Silk Traders and M/s Hathiwala Silk Industries. In these firms, sons of the partners of the assessee from who were earlier employed by an associate firm M/s Hathiwals Cloth Mfg. Co. were partners. The agreement dt. 22nd March, 1965 provides for selling to the extent of 50 per cent of the total production by the agent against 5 per cent commission. The agents were to bear all the expenses of collection, recovery, costs etc. and also to bear bad debts, if any. It is stated that such onerous conditions were not in the case of the earlier agent who was paid 2.5 per cent. In accordance with this agreement, the payments were made and claimed as deduction. 3. In the course of assessment, the ITO raised certain queries about the allowance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld repose the requisite confidence in them. The assessee was not motivated by any desire to help the sons or by extra commercial or personal considerations. It was further explained that after giving a time for 3 years, when the business was better established, the assessee brought down the agent's commission to 2.5 per cent as it was felt that the commercial needs could be met by paying the lower commissions as the assessee firm had established its market as above. This action of reducing the commission from 5 per cent to 2.5 per cent would actually prove the bona fides of the assessee. 4. All these arguments were examined by the ITO who however felt that in this line of trading, the commission payment normally does not exceed 2.5 per c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 of the order of the CIT (A) and submitted that the close blood relationship between the partners of the agent firm and the assessee firm would show clearly that the assessee was motivated more by a desire to promote the interest for the sons for the partners rather than by purely commercial considerations. The conduct of the assessee in earlier and later years, far from proving the bona fides. Actually shows that when the assessee could get the same service at 2.5 per cent commission, the assessee went out of its way to oblige the relatives by paying unwarranted 5 per cent commission. It was conceded that the provisions of s. 40A were not on the statute book for the relevant assessment, but it was pointed out that disallowance could be m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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