- (1.) The Income-tax Appellate Tribunal, Delhi Bench "B", Delhi has referred the following questions of law under section 256(2) of the Income-tax Act, 1961, hereinafter referred to as "the Act", for opinion to this court. (i) Whether, on the facts and in the circumstances of the case, the learned Tribunal was justified in holding that the amount of commission paid was excessive and there was no commercial consideration or business expediency for the payment of such an excessive commission? (ii) Whether, on the facts and in the circumstances of the case, there was any evidence before the Tribunal to come to the conclusion that the amount of commission amounting to Rs. 36,078 paid to Sri Habib Akhtar was excessive and that there was no commercial consideration or business expediency for the payment of such commission? (iii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in applying the provisions of section 40A(2) of the Income-tax Act, 1961, in disallowing the commission paid to the extent of Rs. 30,078 as against Rs. 36,078 paid by the assessee absolutely for business purpose and for the technical expertise of Sri Habib Akhtar in preparing the exportable quality of tobacco? Briefly stated the facts giving rise to the present reference are as follows: The reference relates to the assessment year 1977-78 to which the previous year is the year ending on March 31,1977. The applicant-assessee is a partnership firm, which enjoys the income from manufacture and sale of tobacco. For the assessment year in question it had filed its return of income declaring an income of Rs. 2,01,438. The proceeding under section 143(2) of the Act was undertaken by the assessing authority and during the course of assessment proceedings it was noticed that the assessee had paid a commission of Rs. 36,078 to one Sri Habib Akhtar, son of the one of the partners. The assessee was asked to prove the services rendered by Sri Habib Akhtar for which commission was paid. The assessee took the stand that it had started a new factory in addition to the earlier one and that his services were utilised in execution of orders and supervision of the production. It was claimed that the production had increased from Rs. 20,56,956 in the preceding assessment year to Rs. 39,23,753 in the year under consideration.- The payment of commission of Rs. 36,078 to Sri Habib Akhtar was, therefore, justified. However, the assessing authority examined Sri Habib Akhtar on oath and invoked the provisions of section 40A(2)(a) of the Act. He allowed the deduction of Rs. 3,000 and the balance commission amounting to Rs. 33,078 was disallowed. The assessee preferred an appeal before the Commissioner of Income-tax (Appeals), who, vide order dated March 17, 1982, did not accept the plea of the assessee and confirmed the disallowance on this ground. Still feeling aggrieved the assessee presented a second appeal before the Income-tax Appellate Tribunal, Delhi Bench, which, vide order dated July 1,1983, partly allowed the appeal and enhanced the commission to Rs. 6,000 from Rs. 3,000 as allowed by the Assessing Officer. The balance amount of Rs. 30,078 remained disallowed.
(2.) We have heard the learned counsel for the parties.
(3.) Learned counsel for the applicant submitted that Sri Habib Akhtar had expertise in preparing mixture of perfumed tobacco and by his effort the production was increased almost 100 per cent, and, therefore, the commission of Rs. 36,078 paid to Sri Habib Akhtar was fully justified and the view to the contrary taken by the authorities including that by the Tribunal is erroneous and cannot be sustained.;