COMMISSIONER OF INCOME-TAX vs. KIRAN CORP.

ITR/74/1998HC GujaratGJHC24024432199811 October 2006Author: HONOURABLE MR. JUSTICE D.H.WAGHELA,HONOURABLE MR. JUSTICE R.S.GARG5 pages
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What were the facts?

The assessee, Kiran Corp., a partnership firm dealing in dyes and chemicals, filed its income tax return for Assessment Year 1989-90. The Assessing Officer (AO) determined the total income at Rs. 9,13,187/-, disallowing a secret commission of Rs. 4,73,714/-. The AO's disallowance was based on the assessee's inability to correlate the sales transactions with the alleged commission payment and to substantiate the genuineness of the payment. The CIT (Appeals) dismissed the assessee's appeal. The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench 'B', allowed 50% of the secret commission as a deduction, relying on its decision in the case of M/s. Vyas & Co., a sister concern. The Revenue, dissatisfied with the ITAT's order, preferred this Reference to the High Court.

What did the High Court hold?

The High Court held that the Tribunal was not unjustified in relying upon its own judgment in the matter of M/s. Vyas & Co., which was later confirmed by the High Court. The Tribunal had recorded a finding of fact that the assessee had submitted details of the secret commission paid. Taking into consideration the totality of the circumstances, the Tribunal concluded that it would be justifiable to allow 50% of the secret commission as a deduction. The High Court found no reason to interfere with this finding of fact and the Tribunal's reliance on its earlier judgment. The question referred to the Court was answered in the affirmative, against the interest of the Revenue. The Reference stands disposed of.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Hon'ble ITAT was justified in law in allowing 50% of the secret commission as admissible deduction under section 37 of the Income Tax Act, 1961, in the absence of any corroborative evidence to support it? Assessee's Contentions: Not recorded in the judgment. Revenue's Contentions: Mrs. Mona Bhatt, learned counsel for the applicant (Revenue), submitted that in the case of M/s. Vyas & Co. (ITR No. 55 of 1994), the Tribunal and the High Court allowed the deduction because one of the partners had submitted vouchers relating to the payment. However, in the present case, in the absence of any supporting material or valid vouchers, the Tribunal could not rely on the judgment in M/s. Vyas & Co. and grant the concession.

Which sections of the Income-tax Act were involved?

Section 37,Section 256 (1),Section 143 (3)

AI-generated summary — verify with the full judgment below

ITR/74/1998 1/5 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE No. 74 of 1998 For Approval and Signature: HONOURABLE MR.JUSTICE R.S.GARG HONOURABLE MR.JUSTICE D.H.WAGHELA ========================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ========================================================= COMMISSIONER OF INCOME-TAX - Applicant(s) Versus KIRAN CORP. - Respondent(s) ========================================================= Appearance : Mrs. Mona Bhatt for MR MANISH R BHATT for Applicant(s) : 1, SERVED BY RPAD - (N) for Respondent(s) : 1, ========================================================= CORAM : HONOURABLE MR JUSTICE R. S. GARG

and

HONOURABLE MR JUSTICE D.H. WAGHELA Date : 11/10/2006 ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE R.S.GARG)

1.

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