Tc/240/2004 Of Commissioner Of Income Tax v. M/S.textool Co Ltd

N THE HIGH COURT OF JUDICATURE AT MADRAS Dated : 23.06.2009 Coram The Honourable Mr.Justice F.M.IBRAHIM KALIFULLAandThe Honourable Mr.Justice B.RAJENDRAN TC(A). No.240 of 2004 Commissioner of Income TaxCoimbatore....Appellant-vs-M/s. Textool Co. Ltd...Respondent Tax Case Appeal against the order of the Income TaxAppellate Tribunal, Madras 'A' Bench dated 07.03.2003 in ITANo.635/Mds/95 for the Assessment year 1991-92 and against theorder of the Commissioner of Income Tax (Appeals) Coimbatorevide order dated 23.01.1995 in I.T. Appeal No.239-C/94-95 andagainst the order of the Dy Commissioner of Income Tax, SpecialRange II, Coimbatore dated 31.3.1994 vide No.637/SR-II/CBEAssessment year 1991-92 PAN/GIR No.47-023-CY-5637. For Appellant:Mr. K.SubramanyamFor Respondent :Mr.R.Venkata Narayananfor M/s. Subbaraya Aiyar JUDGMENT (The Judgment of the court was delivered by F.M.IBRAHIM KALIFULLA,J) The Revenue has come forward with this appeal on thefollowing substantial questions of law.:-1) Whether in the facts and circumstances ofthe case, the Tribunal was right in deletingthe addition made on account of payments tothird parties contrary to the terms ofagreement with the agent? https://hcservices.ecourts.gov.in/hcservices/ 2) Whether in the facts and circumstances ofthe case, payments made to third parties atthe request of the agent, without anyevidence of service having been rendered bythe third parties can be treated as abusiness expenditure? 2. The assessee is a manufacturer of textile machine tools.The only issue is relating to payment of additional commissionto M/s. Texind Corporation. The Texind Corporation is anaccredited agent for sale of textile machineries. During theassessment year 1991-92, a sum of Rs.44,57,020/- was shown aspayment of commission to M/s. Texind Corporation. Out of thesaid sum, a sum of Rs.9,13,247/- was shown as additionalcommission. Before the Assessing authority, the asseeseecontended that during the relevant assessment year, there was adull in the sale of textile products and therefore, at theinstance of their accredited agent viz., M/s. TexindCorporation, they availed services of certain individuals forwhom the assessee was obliged to pay the commission, which wasshown as additional commission. The Assessing Authority declinedto accept the said explanation offered by the asseessee bystating that the assessee was not able to establish the natureof services rendered by such third parties to the assessee or toM/s. Texind Corporation, that in the agreement with TexindCorporation, there was no provision for payment of additionalcommission or third party commission, that no material wasproduced in proof of payment at the time of hearing, that theonly explanation was that such payments were made on the adviseof M/s. Texind Corporation. On the above stated reasoning, theAssessing Authority disallowed the sum of Rs.9,13,247/- towardsadditional commission. Before the CIT appeals, the CharteredAccounts of the assessee placed various materials in support ofits claim and the CIT appeals has rendered the finding asunder:- "......... The Chartered Accountant hasalso furnished before me the fullparticulars of this additional commissionindicating the Invoice No. and date, theparticular item of the machinery sold suchas cone winder, double winder, ring spinningframe, ring doubling frame etc., along withthe name of the customer, the amount ofcommission in each case, the cheque No. anddate of payment of each such amount. I findno justification for the disallowance of theclaim. The addition of Rs.9,13,247/- isaccordingly deleted. " "......... The Chartered Accountant hasalso furnished before me the fullparticulars of this additional commissionindicating the Invoice No. and date, theparticular item of the machinery sold suchas cone winder, double winder, ring spinningframe, ring doubling frame etc., along withthe name of the customer, the amount ofcommission in each case, the cheque No. anddate of payment of each such amount. I findno justification for the disallowance of theclaim. The addition of Rs.9,13,247/- isaccordingly deleted. " 3. The Tribunal was pleased to confirm the order of CITappeal, inasmuch as even in the earlier year, such a claim ofadditional commission came to be allowed which was also affirmedby the Tribunal. When we examined the reasoning of the AssessingAuthority vis-a-vis the finding of the CIT appeal, we find thatwhatever reasons which has been given by the Assessing Authorityfor not allowing the additional commission came to be fullyexplained and satisfied before the CIT appeals with materialparticulars in the form of facts, figures and documents. Thefinding of the CIT appeals disclose that the full particularsrelating to the products, quantity, names of customers to whomthe sale was effected, the amount of commission mentioned ineach invoice and mode of payment in the form of cheque towardssuch commission were all fully placed before the CIT appealscovering the entire sum of Rs.9,13,247/-. 4. As far as the details furnished in those materialdocuments are concerned, there was no dispute raised eitherbefore the CIT appeals or before the Tribunal. In suchcircumstances, when the CIT appeals is equally empowered as thatof the Assessing Authority to be satisfied as regards thedocumentary evidence, in support of any claim made by theassessee and such exercise has been done by the CIT appeals, whorendered the finding based on the relevant documents placedbefore him, the ultimate conclusion of the said authority andthe confirmation of the same by the Tribunal cannot be foundfault with. 5. Our conclusion is supported by the decision of our HighCourt in the case of [2008] 305 ITR 438 – CIT v. SAPTHAGIRITRADERS LTD., wherein it is held that in order to claim adeduction under Section 37 of the Income Tax Act, two conditionsmust be satisfied (a) the expenditure should have incurredwholly and exclusively for the purpose of business and (b) suchexpenditure should not be in the nature of capital expenditure.After setting out the said legal principle, the Division Benchon being satisfied with the findings of the Tribunal held thatit cannot be doubted and the same cannot be interfered with.When the above principle will apply to the facts of the presentcase, we too find that the assessee satisfactorily establishedbefore the CIT appeals that the expenditure incurred by it wasexclusively for the purpose of business and was not in thenature of capital expenditure. Therefore, the impugned order ofthe CIT appeal as confirmed by the Tribunal cannot be interferedwith. 6. As far as the reliance placed on the decision of the[2007] 294 ITR 592 Delhi High Court, [2007] 294 ITR 592 (Delhi) SAWHNEY RUBBER INDUSTRIES v. COMMISSIONER OF INCOME TAX isconcerned, where the Tribunal gave a finding of fact that asregards the relief claimed by the assessee, which was disallowedwith reference to which the Delhi High Court took a view thatwith regard to a such power of finding of fact interferencecannot be made. The said decision having been rendered in theregular facts involved in that case, we are not in a position toapply the said decision to the facts of this case, which turnsout on entirely different set of facts. 7. The appeal fails the same is dismissed and the questionsof law is answered against the Revenue. bg Sd/Asst.Registrar /true copy/ To Sub Asst.Registrar 1.The Commissioner of Income Tax (Appeals)Coimbatore 2. The Registrar,Income Tax Appellate Tribunal, Madras 'A' Bench Madras. 7. The appeal fails the same is dismissed and the questionsof law is answered against the Revenue. bg Sd/Asst.Registrar /true copy/ To Sub Asst.Registrar 1.The Commissioner of Income Tax (Appeals)Coimbatore 2. The Registrar,Income Tax Appellate Tribunal, Madras 'A' Bench Madras. 3. The Deputy Commissioner of Income Tax, Special Range II, Coimbatore + 1 cc to M/s. T. Naresh Kumar St Counsel for Appellant SRNo.25597 RSN(CO)SR/2.7.2009 TC (A) No. 240 of 2004