ONAM AGARBATHI COMPANY REP BY ITS PARTNERS Vs. THE DEPUTY COMMISSIONER OF INCOME TAX SPECIAL RANGE-II BANGALORE

JUDGEMENT

(1.) THIS appeal is filed by the assessee calling in question the order of the Tribunal dated 21.4.2004 in ITA.No.709/Bang/1998.

(2.) THE appellant/assessee is a partnership firm carrying on the business of manufacture and sale of Agarbati under various brands. For the assessment year 1992-93 a return of income was filed declaring a loss of Rs.25,70,965/- which was accepted under Section 143(1))(a) of the income Tax Act on 29.1.1993. Subsequently, a regular assessment under Section 143(3) of the Act was made on 27-3-1995 determining the total loss at Rs.1,29,495/- as against Rs.25,70,965/-. In computing the regular assessment, certain additions were made. During the relevant assessment year the assessee firm claimed deduction of Rs.21,91,867/- as commission to its agents. Out of which Rs.7,34,713/- was paid to M/s. Rangashree Marketing Private Limited (M/s.R.M.C) and Rs.6,03,546/- was paid to M/s.Onam Marketing Company (M/s.O.M.C). According to the assessee the said commission was paid to the agents on the basis of the turn over attributable to the agents and the percentage of commission varying from 3 to 16% depending on the area and party. Besides this commission, the assessee firm also allowed trade discount, cash discount and sales promotion incentives and the assessee had claimed Rs.16,31,000/- as marketing and sales promotion expenses to M/sR.M.C. M/s.R.M.C and M/s O.M.C are sister concerns of assessee firm. THE assessee firm comprises of eight partners who are all close relatives and some of the partners of assessee firm are partners of M/s.R.M.C and M/s.O.M.C. THEse partners also draw salary from the company and some of the Directors of M/s.R.M.C. besides drawing salary form this company also enjoy the benefits from the assessee firm. Both R.M.C and O.M.C are carrying on activities as that of the assessee.

(3.) BEING aggrieved by the said order an appeal was filed before the Commissioner of Income Tax (Appeals) who held that the dis-allowance made by the Assessing Officer under the above heads were not to be interfered with. The order of the Appellate Authority was challenged before the Tribunal which also dismissed the appeal of the assesee.