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2006 (12) TMI 113 - HC - Income TaxDisallowance u/s 40A(2) - Payment of commission - sales turnover - unreasonable and excessive commission paid - HELD THAT:- It is seen that the sister company was the sole selling agent for several years and it had earned the reputation of sole selling agent of the assessee-company. As mentioned earlier, disallowance is only 4 per cent. 10 per cent. commission in terms of clause 8 as mentioned earlier is not absolute. It provides for various discounts. In these circumstances, we are of the view that there cannot be any microscopic consideration and a broader view has to be taken, taking into consideration the business intention and business consideration. So long as there is no intention to evade tax and so long as the commission is not shocking, the said commission has to be accepted particularly in the light of the wordings of section 40A(2) of the Act. It is not the quantum alone that governs in such cases. Fair market value of the goods, services, legitimate needs of the business or profession of the assessee, would be the guiding factor in terms of section 40A(2) of the Act. In the case on hand, though the Assessing Officer has chosen to give 5 per cent., the Commissioner himself has chosen to increase the same to 6 per cent. and only 4 per cent. is disallowed. Even that 4 per cent. is not absolute and it is after deductions in terms of the agreement. Taking into consideration the long standing relationship and also taking into consideration the reputation of the brand and the agent and also taking into consideration that there is no intention to avoid tax, the Tribunal rightly in our view has chosen to accept the case of the assessee with regard to 4 per cent. commission. We, therefore, do not find any unreasonableness in the given circumstances. In fact this Bench recently has chosen to consider some what a similar case in Recon Machine Tools P. Ltd. v. CIT [2006 (5) TMI 70 - KARNATAKA HIGH COURT] and thereafter this court has chosen to hold that reduction from 5 per cent. to 2 per cent. is an arbitrary reduction. An overall view of the matter would compel us to confirm the order of the Tribunal in the given circumstances. In the result, the questions of law are answered in favour of the assessee and against the Revenue.
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