C.I.T. JALANDHAR vs. M/S AMBIKA FORGINGS JALANDHAR

JUDGMENT: Following question of law has been referred for opinion of this court by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar, in respect of assessment year 1987-88:- “Whether, on the facts and in the circumstances of the case, the Commissioner of Income Tax (Appeals) and the Tribunal have rightly upheld the claim of the assessee for deduction of Rs.3,33,658/- and Rs.7,10,029/- allegedly paid as commission to Shri Neeraj Goel and late Shri B.M.Goel and whether the findings recorded by the Commissioner of Income-tax (Appeals) and the Tribunal are perverse?” The assessee is an exporter of Hand-tools. Return declaring income of Rs.3,82,990/- was filed by the assessee on 31.8.1987. During the course of assessment proceedings, the AO found that the assessee claimed to have paid an amount of Rs.3,33,652/- to Shri Neeraj Goel Prop. of M/s. N.K.Rubber Industries, Jalandhar. Similarly, it was also found that the assessee had paid two cheques of Rs.4,98,933/- and Rs.2,11,096/- to M/s.

Punjab Rubber & Allied Industries, a proprietary concern of Shri B.M.Goel, who happened to be the father of Shri Neeraj Goel. The AO disallowed these amounts holding that the claim of commission paid was not a genuine claim vide order dated 28.4.1988. The CIT(A) and the Tribunal did not approve the said view and held that the commission paid was genuine business expenditure. We find that in The Commissioner of Income Tax, Jalandhar v. M/s Knit Foulds (P) Limited, Kapurthala, ITR No.191 of 1995, decided on 9.8.2004, this court held that amounts paid as commission are permissible deductions. It was observed by this court in Commissioner of Income-tax v. Indo Asian Switchgears (P) Ltd. (2002) 257 ITR 645:- “Admittedly, the provisions of section 37(3A) of the Act place an embargo on the expenses incurred on the advertisement, publicity and sales promotion. This would mean that the expenses claimed by an assessee in connection with the advertisement, etc., have to be scrutinised and reduced in accordance with the slab prescribed in section 37(3A) of the Act. However, a discount allowed by an assesseed to an agent is not an expense in connection with the publicity or advertisement, etc. It is an amount forgone by the assessee in favour of the dealer for effecting the actual sale. It is not like the fashion show conducted by a garment manufacturer, but a commission allowed to a dealer. Trade discount cannot be treated as a wasteful expenditure incurred by an assessee in connection with the sales' promotion. It is not a gift as given on a festival or a free sample as distributed by a pharmaceutical company to the doctors but an actual commission allowed or paid to a dealer. It does not fall within the mischief of section 37(3A) of the Act.”

Only question is to be decided whether finding of the Tribunal that commission paid was genuine business expenditure, was perverse.

Finding recorded by the Tribunal is as under:- “6. We have considered the rival submissions, Sh. B.M. Goel Prop. M/s Punjab Rubber and Allied Industries was an established person in the export trade and he himself was carrying on business at a large scale, as noted by the Ld. CIT(A) in para 4.5 of the impugned order Sh. B.M. Goel has declared a gross profit of Rs.10,60,942/- in respect of his own business over and above the commission income of Rs.7,10,029/- recived by him from the assessee. Sh. B.M. Goel also paid commission of Rs.4,68,218/- but it is not the case of the Assessing Officer that the above commission of Rs.4,68,218/- has been paid to the assessee or any of its nominees. Therefore, it cannot be said that M/s Punjab Rubber and Allied Industries was a bogus concern.