The Commissioner Of Income Tax-I v. M/S. Emco Ltd

IN THE HIGH COURT OF JUDICATURE AT BOMBAY O. O. C. J. INCOME TAX APPEAL NO.2331 OF 2009 WITH INCOME TAX APPEAL NO.4068 OF 2009 WITHINCOME TAX APPEAL NO.4069 OF 2009WITHINCOME TAX APPEAL NO.4070 OF 2009WITH INCOME TAX APPEAL NO.4071 OF 2009 WITHWITH INCOME TAX APPEAL NO.4072 OF 2009 INCOME TAX APPEAL NO.4073 OF 2009 The Commissioner of Income Tax-I ..Appellant. Vs. M/s. Emco Ltd...Respondent. .... Mr. S.K. Bhatnagar with Mr. N.R. Prajapati for the Appellant.Ms Aarti Sathe with Mr. Kalpesh Turalkar for the Respondent. .... CORAM : DR. D.Y.CHANDRACHUD &J.P. DEVADHAR, JJ. P.C.: 24[th] February, 2010. 1.In the appeal by the Revenue under Section 260-A of the Income Tax Act, 1961 the question of law which is raised relates to whether the Tribunal was wrong in allowing relief to the extent of Rs.28.79 lacs to the assessee on the ground of a commission paid to its sole selling agent. Incidental thereto, the second issue which is raised relates to the reasonableness of the payment made by way of commission by the assessee to its sister concern. The contention of the Revenue is that the payments were excessive and unreasonable, considering the nature of the service rendered to the assessee. 2.The batch of appeals pertains to the decision of the Tribunal for Assessment Years 1995-96 to 2001-02. 3.The assessee appointed Energy Equipment Distributors (EED) as its sole selling agent under the provisions of Section 294-AA of the Companies Act, 1956. The assessee is in the business of manufacturing and selling transformers and its allied products. The approval of the Central Government was obtained as required by law. The assessing officer, while allowing the amount of the commission paid to the sole selling agent as an expenditure wholly laid out for the purpose of business, disallowed a sum of Rs.2.51 Crores. In appeal the CIT(A) took due note of the circumstance that the sole proprietress of the sole selling agent was the mother of a director of the company, but held that this ground in itself could not sustain the inference that the payment of commission to the agent was only a book entry. The CIT(A) noted that the sole selling agent had in turn made appointments of agents which were approved by the assessee. The finding of fact which is recorded was that the sole selling agent rendered services with its employees which it had regularly employed and by outsourcing its activities to 35 persons who are in the employment of the company, but for whose service payment was made. However, the CIT(A) directed that a disallowance in the amount of Rs.26.64 lacs be made out of a total commission paid of Rs.2.08 Crores. 4.From the findings of the Tribunal it emerges that a similar claim was allowed to the assessee during the course of Assessment Years 1986-87 to 1994-95. The claim in respect of the payment of commission came to be disallowed only from Assessment Years 1995-96. The agreement provided for the appointment of the sole selling agent and the approval of the Central Government was taken in accordance with the provisions of the Companies Act, 1956. The payment of commission was treated to be one which arose on account of business exigencies and in accordance with past practice which had been accepted earlier by the Revenue. The Tribunal, however, held that the CIT(A) had no justification to effect a disallowance of Rs.26.64 lacs observing that the CIT(A) had restricted the claim to the extent to which the sole selling agent had not paid further commission to its sub agent or had made a saving after incurring expenditure on its regular staff for administration. The Tribunal was of the view that the ground for disallowance was unsustainable since a commission of 5% was provided in the agreement and was paid in pursuance thereto. If the agent were to save something that would be to his own account and not on account of the assessee. sole selling agent had not paid further commission to its sub agent or had made a saving after incurring expenditure on its regular staff for administration. The Tribunal was of the view that the ground for disallowance was unsustainable since a commission of 5% was provided in the agreement and was paid in pursuance thereto. If the agent were to save something that would be to his own account and not on account of the assessee. 5.Though an attempt was made on behalf of the Revenue in these proceedings to contend that the Tribunal has not arrived at a finding of fact that any work was in fact carried out by the agent, we are of the view that this would not be a correct reading of the order of the Tribunal. The fact that the agent had carried out work was duly established both before the CIT(A) and before the Tribunal. In fact, that was the basis on which the CIT(A) had allowed a substantial part of the claim, but had restricted a disallowance to the extent of Rs.26.64 lacs. Therefore, the fact that the agent carried out work for the assessee cannot be disputed particularly in these proceedings. The reasonableness of the commission which is paid is again a finding of fact on which no substantial question of law would arise. That these issues would essentially raise questions of fact, needs no reference to authority, but for the sake of the record it would be necessary to note that counsel appearing on behalf of the assessee has relied upon the judgments of the Punjab and Haryana High Court in Commissioner of Income Tax v. Kumar Engineers[1]and of the Delhi High Court in Commissioner of Income Tax v. Padmini Packaging (P) Ltd.[2] and Commissioner of Income Tax v. Dr. R.N.Goel[3]. Werespectfully agree with the approach which has been taken in the judgments of the Punjab and Haryana High Court and Delhi High Court noted earlier. In these circumstances, we are of the view that the appeals in the present case only relate to the appreciation of the material on the record by the assessing officer in the first instance and subsequently in appeal by the CIT(A) and by the Tribunal. The concurrent findings by the CIT(A) and by the Tribunal in regard to the nature of the work that was rendered by the sole selling agent would not warrant interference in these proceedings. There is no merit in the appeals which do not raise any substantial question of law. The appeals are accordingly dismissed. (Dr. D.Y.Chandrachud, J.) (J.P. Devadhar, J.) 1178 ITR 630 (1989). 2(2006) 155 Taxman 268 (Del) 3(2009) 177 Taxman 374.