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TMI Blog1997 (10) TMI 91X X X X Extracts X X X X X X X X Extracts X X X X ..... ra Chemicals (P) Ltd. to the total income. (3) The learned CIT(A) ought not to have held that the payment of commission to Indira Chemicals Agencies (P) Ltd., was not genuine. (4) The learned CIT(A) failed to appreciate that the agreement between the appellant and the agents was in force during the relevant accounting year and that the payment was made in accordance with the terms and conditions of the agreement." 2. The learned counsel for the assessee Sri G. Kakshminarasimhan narrated the facts of the case. He submitted that the assessment in the instant case was completed after making detailed enquiries. He submitted that the AO in his order, a copy of which was provided during the course of hearing, had categorically noted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee needed the assistance of Indira Chemical Agencies (P) Ltd. concerning customers and for procuring orders, etc. For such services the assessee-firm agreed to pay 50 per cent of the commission received to M/s Indira Chemicals Agencies (P) Ltd. The said agreement was dt. 15th March, 1979. The objections of the AO was that only a copy of the said agreement was filed and not the original. He pleaded that the AO had tried to misunderstand certain additional features to the agreement namely, adding up for 3 years only. He was of the view that it was a case of interpolation. The AO insisted on production of evidence concerning the payment of commission to Indira Chemicals Agencies (P) Ltd. and the assessee produced copy of accounts of Indira Che ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f of the various facts including the so-called interpolation, overwritings, etc. In this order the Tribunal also considered the statement given by one of the partners Sri Kathare which statement was recorded in 1994 approximately 7 years after the order of penalty was passed. In this statement Sri Kathare had apparently stated that there was no agreement between the assessee and Indira Chemicals Agencies (P) Ltd. He pointed out that the Tribunal found considerable merit in the argument of the assessee that till December, 1978 Indira Chemicals Agencies (P) Ltd. was enjoying the distribution rights of Atul Products (P) Ltd. The agency agreement came to be transferred to the assessee-firm which was its sister concern for and from 15th March, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it could at best be stated as relatable to the asst. yr. 1980-81 and not for the asst. yr. 1983-84. He strongly supported the orders of the authorities and placed reliance on Swadeshi Cotton Mills Ltd. vs. CIT (1967) 63 ITR 57 (SC) and CIT vs. Jalan Trading Co. (P) Ltd. (1985) 48 CTR (SC) 182 : (1985) 155 ITR 536 (SC). He strongly insisted that mere payment to a particular party cannot be the basis for coming to the conclusion that the expenditure incurred was a business expenditure. He pleaded that business expenditure can be allowed only if it is incurred as such and is closely related to the business. He pleaded that there was nothing to indicate the business connection. In so far as the reopening of assessment is concerned, he strongly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said agency business." 6. From the facts as are on record, the Department has no dispute that Indira Chemicals Agencies (P) Ltd. were the agents of Atul Products till the said agency was given over to the assessee. The Department has no dispute that for and from 15th March, 1979, Indira Chemicals Ltd. had nothing to do with the sale of M/s Atul Products except to the extent mentioned in the said agreement. It is also not the case of Department that Indira Chemicals Agencies (P) Ltd. had ever stated that they were not in receipt of the commission and that they were not so assessed. In fact, the Department has not brought in any record to suggest that Indira Chemicals Agencies (P) Ltd. were not being assessed at Madras including the commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsequence of the developments that took place during the course of assessment proceedings for the asst. yr. 1982-83 that he had felt the need for issuing notice for reopening the case. The learned Departmental Representative was directed to provide photocopies of the order-sheet. During the course of hearing Mr. Khan who had the original record led us through the original file including the order-sheets as noted by the AO. The order-sheet included the observations concerning the reasons which were the basis for reopening the assessment. It is one of those cases, in our view, where at the first instance the AO took up the matter a little too lightly and was almost perhaps carried away and came to the conclusion that no further examination wa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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