Delhi H.C : commission dis-allowance on ground no service was given by party needs relook

High Court Of Delhi

Pawan Kumar Jain Vs. CIT

Assessment Year : 2006-07

Section : 37(1)

A.K. Sikri And M.L. Mehta, JJ.

IT Appeal No. 647 Of 2011

April 8, 2011


1. The appellant herein is a proprietor of M/s. Pawan Jain and Sons and is engaged in the business of manufacture of stainless steel utensils and trading and export of stainless steel utensils, rice and other items.

2. This case pertains to the assessment year 2006-07, for which year, the appellant has filed return of income declaring total income of Rs. 99,00,454. The Assessing Officer in the assessment proceedings noticed that the assessee had paid commission of Rs. 31,25,312 to one M/s. Laxcon Steels (P) Ltd., purportedly, in consideration for the said company standing guarantee for purchases from certain firms/companies.

3. The Assessing Officer was of the view that this transaction was not genuine and, therefore, he had disallowed the aforesaid commission and shown the income at Rs. 1,30,25,766. The assessee preferred an appeal thereagainst before the Commissioner of Income-tax (Appeals) who also confirmed the findings of the Assessing Officer.

4. The decision remains the same even at the level of the Income-tax Appellate Tribunal which has dismissed the appeal of the assessee. From the orders passed by the three authorities below, we find that they have examined the transaction in question, and keeping in view various consideration, they come to the conclusion that no services were rendered by the said company for which it was paid the commission by the assessee. Another factor which has also weighed with the authorities is that there was no necessity to pay such a commission to the said party for standing guarantee when the party owed him more than Rs. 1.4 crores in loan.

5. These findings of facts are on the basis of proper appreciation of the material on record and, therefore, in the normal course there is no reason to interfere with the same, that too in this appeal preferred under section 260A of the Income-tax Act which is acceptable only on substantial question of law.

6. However, Dr. Gupta, learned counsel appearing for the assessee has brought to our notice one significant fact, which according to him, is not taken note of by the authorities below.

7. He points out that M/s. Laxcon Steels (P) Ltd., to whom commission was paid, had filed income-tax return for the assessment year 2006-07 declaring income of Rs. 1,48,50,705 and had paid tax thereupon. This indicates the aforesaid commission paid by the assessee to the aforesaid company. On this basis, it is argued that it was not the intention of the assessee to divert the income or to evade taxes. It is also argued that the Revenue has not suffered any loss, inasmuch as, the taxes are paid by M/s. Laxcon Steels (P) Ltd. which received the aforesaid commission. It is also stated by learned counsel for the appellant that the acknowledgment of income-tax return in the case of M/s. Laxcon Steels (P) Ltd. was filed before the Assessing Officer and the same is a part of record book and is glossed over by the authorities below.

8. Since this is vital information and has not been considered by the authorities below, we restore the case back to the Assessing Officer for a limited purpose, namely, to find out as to whether the aforesaid information is on record, as claimed by the appellant and if it is found on record what would be the effect thereof.

9. The present appeal is disposed of in the aforesaid terms.

[Citation : 334 ITR 23]

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