M.M.KUMAR, J. - (1.) AT the instance of the Revenue the Tribunal, Amritsar Bench, Amritsar (for brevity, "the Tribunal"), has referred the following question of law for determination of this Court by exercising jurisdiction under s. 256(1) of the IT Act, 1961 (Asr)/1991, in respect of the asst. yr. 1988 -89 : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that commission paid by the assessee to the agents is an allowable expenditure -
(2.) BRIEF facts may first be noticed. The assessee respondent filed its return of income for the asst. yr. 1988 -89 claiming allowance on commission paid by it to various agents who are stated to be relatives/friends of the partners of the assessee firm. The commission amounted to Rs. 7,30,939. The AO disallowed the claim with the observation that the payment of commission was devised by the assessee -firm to reduce the tax liability. He also held that the commission was paid to close relations and friends of the partners of the assessee -firm.
(3.) ON appeal before the CIT(A), it was held that although there was no documentary evidence regarding service being done, the assessee -firm could not procure business without making payment of the commission. Accordingly, the CIT(A) allowed the commission of Rs. 2,82,957 and sustained the addition to the extent of Rs. 4,44,979. On further appeals filed by the parties, the Tribunal allowed the commission paid and reversed the order of the CIT (A), which sustained the addition to the extent of Rs. 4,44,979. The Tribunal noticed in para 10 of its order that all the agents except one, were examined by the AO and he rejected their testimony without properly appreciating the facts of the case. It noticed the terms of the agreement which required the orders to be placed direct to the company by the Government institutions/public sector undertakings but the assessee had to procure the orders which in fact were placed direct by the institutions with M/s Indian Drugs Pharmaceuticals Ltd. (IDPL). The main job of the assessee -firm was that of liaison and the agents appointed by the assessee -firm assisted in persuading the institutions to place the orders with IDPL and arrange acceptance of supply made by the IDPL. It was to remit the sale price as per the bills raised by the IDPL. Therefore, the agents were instrumental in getting all the terms of the contract between IDPL and the assessee - firm complied with and they were appointed for commercial expediency. The Tribunal went on to observe as under : "10. . . To achieve the turnover of Rs. 1,90,37,959 it has to appoint sales agents to whom it has paid commission on the same patterns as it was receive from IDPL but retaining 1/2 per cent for itself. The payment to these agents have been made by account payee cheques and the fact it could not be paid during the assessment year under consideration is also explainable because at the close of the accounting year, the IDPL was to pay to the assessee a sum of Rs. 7,77,764. The payment to the sales agents were made by cheques so as to avoid disallowance under s. 40A(3) and it is for that purpose that the partners of the assessee -firm helped the agents to open accounts in their bank by introducing them and the money paid by the assessee was deposited in the accounts of the agents and from there it was withdrawn for making investment by the agents in FDR's with private parties, purchase of plots, etc., and the assessee has furnished a chart of pp. 48 -89 of the paper book, which clearly indicate that out of the commission, payments which were made by the assessee -firm to the agents and those agents withdrew the amount for making investment with private parties like M/s R. K. Electrical, Bathinda, M/s Singla General Store, Bathinda, M/s Singla Medical Agencies, Bathinda, M/s Bathinda Diagnostic Centre, Bathinda, M/s Bharat Drug Store, Bathinda, and purchase of plots. The utilisation of the amount by the agents was less than the commission paid in their accounts because part of the commission was utilised in for reimbursement payment of the expenditure incurred by the agents for the purpose of the business of the assessee - firm." ;