MS/.KONARK EARTHMOVER PVT. LIMITED,BHUBANESWAR vs. INCOME TAX OFFICER, WARD-1, ROURKELA

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ITA 559/CTK/2025Status: DisposedITAT Cuttack06 October 2026AY 2018-194 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal considered the rival submissions. It noted that the partnership firm had responded to the AO's notice and provided requested details. The Tribunal held that the fact that commission was not paid in earlier years does not preclude the assessee from paying it in the impugned assessment year. While an assessee can adjust its affairs to reduce tax liability, it cannot evade tax or engage in transactions where the other party has not performed any activity. The Tribunal observed that the AO had not examined whether the partnership firm had offered the income, claimed the benefit of TDS, or whether an assessment had been done in the firm's case. Therefore, the issues were restored to the file of the AO for readjudication after a thorough examination and providing the assessee an adequate opportunity of being heard. The appeal was partly allowed for statistical purposes.

What were the facts?

The assessee, M/s Konark Earth Movers Pvt Ltd, filed an appeal against the order of the CIT(A), NFAC, Delhi, for Assessment Year 2018-2019. The assessee company paid commission to a partnership firm, M/s Konark Automobiles, in which its directors were also partners. The Assessing Officer (AO) and CIT(A) disallowed Rs. 2,40,00,000/- of this commission. The disallowance was based on the fact that this was the first year commission was paid and the possibility of profit diversion. The AO treated the payment as a loan. The assessee contended that TDS was deducted, the partnership firm offered the income to tax, and though the firm incurred losses, the transaction was genuine. The revenue argued it was a colourable device to reduce tax liability, pointing to a drop in the assessee's profit before tax despite increased revenue.

What were the issues?

1. Whether the disallowance of commission paid to a related partnership firm is justified, considering it's a genuine business transaction where TDS was deducted and the income was offered by the recipient firm? (Question of law and fact, turning on Section 37 of the Income Tax Act, 1961). Assessee's contentions: The payment of commission was a genuine business expense. The fact that it was the first year of payment does not invalidate the transaction. TDS was deducted, and the partnership firm offered the income to tax. The transaction, though involving related parties and resulting in losses for the partnership, was a genuine business arrangement and not an act of tax evasion. Revenue's contentions: The payment of commission was a colourable device adopted by the assessee to reduce its tax liability. The significant drop in the assessee's profit before tax, despite substantial revenue increase, indicated a manipulative strategy. Such devices should not be permitted.

Which sections of the Income-tax Act were involved?

Section 37,Section 133(6)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, CUTTACK BENCH CUTTACK

Before: SHRI GEORGE MATHAN & SHRI GOPALAN GURUSAMY

Hearing: 06/10/2026Pronounced: 06/10/2026

आयकरअपीलीयअधिकरण,कटकन्यायपीठ,कटक IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK (THROUGH HYBRID HEARING) BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI GOPALAN GURUSAMY, ACCOUNTANT MEMBER आयकर अपील सं/ITA No.559/CTK/2025 (नििाारणवर्ा / Assessment Year : 2018-2019) M/s Konark Earth Movers Pvt Ltd Vs ITO, Ward-1, Rourkela Plot No.D2/2, Rasulgarh Industrial Estate Bhubaneswar PAN No. : AAECK 8929 K (अपीलार्थी/Appellant) .. (प्रत्यर्थी / Respondent) नििााररतीकीओरसे /Assessee by : Shri Basudev Panda, Senior Advocate and Shri B.R.Panda, Advocate राजस्वकीओरसे /Revenue by : Shri Vijay Singh, Sr. DR सुनवाईकीतारीख/ Date of Hearing : 06/10/2026 घोषणाकीतारीख/Date of Pronouncement : 06/10/2026 आदेश / O R D E R Per Bench: This is an appeal filed by the assessee against the order of the ld. CIT(A), NFAC, Delhi, in appeal No.NFAC/2017-18/10077284, dated 14/08/2025 for the assessment year 2018-2019. 2. Shri Basudev Panda, Senior Advocate with Shri B.R.Panda, Advocate appeared on behalf of the assessee and Shri Vijay Singh, ld. Sr.DR appeared on behalf of the revenue. 3. It was submitted by the ld. AR that during the course of assessment year the assessee company had entered into an agreement with a partnership firm M/s Konark Automobiles wherein the directors of the assessee company were also partners. It was the submission that the assessee company had paid commission to the partnership firm for the assistance in the business of the assessee company. It was the submission

2 ITA No.559/CTK/2025 that the AO and the ld. CIT(A) on the ground that this is the first year in which the commission was paid as also on the ground that the possibility of diversion of profits being high, had disallowed the commission paid to the partnership firm to an extent of Rs.2,40,00,000/-. It was the submission that the AO had recognized that the amount was transferred to the partnership firm but treated the same as loan and disallowed the assessee’s claim for deduction towards commission. It was the submission that the TDS had also been deducted. It was the further submission that the partnership had also offered the income to tax. It was fairly agreed by the ld. Sr. Counsel that admittedly the partnership had incurred losses. It was the submission that though it may look like a colourable action but it was a genuine transaction. 4. In reply, ld. Sr. DR drew our attention to the order of the ld. CIT(A) to submit that this was clearly a colourable device adopted by the assessee to reduce its tax liability. The ld. Sr. DR also drew our attention to page 20 of the order of the ld. CIT(A) to submit that the profit before tax in the case of assessee on account of the payment of the commission dropped to Rs.3.6 crores, whereas the revenue had substantially increased to Rs.46.88 crores. It was the submission that such colourable device should not be permitted. 5. We have considered the rival submissions. A perusal of the facts in the present case clearly shows that the partnership firm had responded to the notice issued u/s.133(6) of the Act by the AO and has given the details as called for by the AO. Just because the assessee has not been paying

3 ITA No.559/CTK/2025 the commission in the earlier years, does not mean that the assessee cannot start to pay commission during the impugned assessment year. It is very much possible for an assessee to pay commission during one year. The assessee is entitled to adjust its affairs in such a manner to reduce its tax liability but the assessee is barred from doing such act so as to evade the tax or that the partnership firm has not done any activity. This, admittedly, is not an act for evasion of tax. There is no claim that the assessee has done any fraudulent activity to evade tax. Admittedly, the AO has not examined the fact as to whether the partnership had actually offered the income and whether they have claimed the benefit of TDS and whether they have been granted the benefit of TDS nor has anybody shown before us that an assessment has been done in the case of Konark Automobiles. This being so, the issues in this appeal are restored to the file of ld. AO for readjudication after examining the issues threadbare and after granting the assessee adequate opportunity of being heard. 6. In the result, appeal of the assessee is partly allowed for statistical purposes. Order dictated and pronounced in the open court on 06/10/2026. Sd/- Sd/- GOPALAN GURUSAMY GEORGE MATHAN लेखा सदस्य/ACCOUNTANT MEMBER न्यानयक सदस्य/JUDICIAL MEMBER दिनाांक Dated 06/10/2026 RS आदेशकीप्रनतललपपअग्रेपर्त/Copy of the Order forwarded to : अपीलार्थी/ The Appellant- 1. प्रत्यर्थी/ The Respondent- 2. 3. आयकरआयुक्त(अपील) / The CIT(A), 4. आयकरआयुक्त/ CIT

4 ITA No.559/CTK/2025 ववभागीयप्रतततनधि, आयकरअपीलीयअधिकरण, कटक / DR, ITAT, 5. Cuttack 6. गार्डफाईल / Guard file. सत्यावपतप्रतत //True Copy// आदेशािुसार/ BY ORDER,

(Assistant Registrar) आयकरअपीलीयअधिकरण, कटक/ITAT, Cuttack

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