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2016 (1) TMI 533 - AT - Income TaxTrading additions - addition by not accepting the trading results and applying gross profit rate of 20% as against 13.90% declared by the assessee - Held that:- As the facts and circumstances of the current year are admittedly similar to those of the preceding year, except for an additional item of trading, being Almirahs, in respect of which again the average GP rate comes to 25.29%, we are inclined to go with the results of the preceding year. In our considered opinion, the AO was more than reasonable in applying the GP rate of 20% as against the last year’s GP rate of 22.94%. We, therefore, uphold the view taken by the ld. CIT(A) in upholding the addition of ₹ 31.12 lakhs. - Decided against assessee Addition of commission to its directors and sister concern covered u/s 40A(2)(b) - Held that:- It is noticed that the assessee paid salary/commission to its directors in the preceding year as well and such payment of commission at ₹ 7.87 lakhs stood allowed as deduction. The mere fact that no new parties were introduced by these directors etc. of the company, cannot be a reason for making disallowance of commission if the continuation of business is due to the services rendered by the commission agents/directors. The terms of Agreement, referred to in the assessment order, provide that they had undertaken the entire responsibility of the realization of sale proceeds. In such circumstances, the factum of having rendered services for earning commission cannot be denied. Reasonableness of the amount of commission - In this regard, we find that as against turnover of ₹ 3.02 crores in the preceding year, the assessee paid commission of ₹ 7.87 lakhs. This gives percentage of 2.60%. In this year, the assessee has paid commission of ₹ 14.14 lakhs against total turnover of ₹ 5.10 crores. This gives rate of commission at 2.77%. Considering the fact that the payees are related to the assessee and there is no other evidence of commission payable at arm’s length rate, we are of the considered opinion that it would be just and fair if the deduction for commission is allowed at the same rate on which it was paid and allowed in the preceding year. This would result into disallowance of excess commission to the tune of ₹ 86,700/-. We reduce the addition to this level.
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