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Commissioner of Income Tax, Dehradun Versus M/s. Tehri Steel Ltd.

Disallowance of expenditure - ITAT held Payment was not illegal expenditure and was a regular business expenditure - assessee was assured of 28% commission for doing liaisoning work to get the contract in favour of M/s Pharma Ventures International Private Limited. In turn, the respondent assessee paid 13% commission to M/s K.P. Steel Products (P) Ltd. for getting the contact and it is in such circumstances, the amount was claimed as revenue expenditure.- Held that:- Undoubtedly, under Section 3 .....

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ing a contract awarded in favour of M/s Pharma Ventures International Private Limited. It cannot be found faulted with in the context of the explanation as being one which is prohibited by any law; no law has been bought to our notice also by the learned counsel for the Revenue prohibiting the kind of activities, which the respondent assessee indulged in. The only obstacle in the path of the respondent assessee claiming it as revenue expenditure is the premise that it is illegal. As already note .....

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this Appeal under Section 260A of the Income Tax Act (hereinafter referred to as the Act ) reads as follows: Whether the ITAT was correct in holding that the payment was not illegal expenditure and was a regular business expenditure inspite of the admitted fact that K.P. Steel Products Ltd. had used its contacts in the Government to ensure that the contract was awarded to the assessee s principal, thereby suggesting that unfair means had been used for procuring the contract and the Commission ha .....

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tract from the Ministry of Health. M/s Pharma Ventures vide its letter dated 12/08/2001 appointed M/s Tehri Steels Ltd., the appellant as the authorized liasioning agent to pursue its case in the tender of supplying of cotton bandages floated by Ministry of Health and Family Welfare through Hindustan Latex Ltd. with following terms and conditions:- 1. You shall purchase the above tender documents in our name. 2. Assisting in preparation of bid. 3. Shall attend tender opening. 4. Day to day follo .....

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er dated 14/08/2001 approached the appellant with the offer that because of the very good contacts in the Ministry of Health and Family Welfare, M/s K.P. Steels was in a position of getting the order in favour of M/s Pharma Ventures. M/s Tehri Steels vide their letter dated 25/08/2001 appointed M/s K.P. Steels as authorized liaisoning agent to look after the interest of M/s Pharma Ventures on the following terms and conditions:- i) M/s K.P. Steels shall purchase the tender documents in M/s Pharm .....

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can be seen from above, M/s Tehri Steels Ltd. Appointed M/s K.P. Steels as their authorized liaisoning agent on the same terms and conditions mentioned above except that the commission payable to M/s K.P. Steels was to be 13% of the total value of the order. Finally, Ministry of Health and Family Welfare gave a supply order vide its order dated 26/04/2002 to M/s Pharma Ventures for supplying 78189 packs of cotton bandages @ ₹ 288/- per unit and another order for supply of 55285 unit packs .....

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₹ 16,623/- 20/11/2002Rs. 10,00,000/- ₹ 5,250/- 03/09/2002 ₹ 14,77,570/- ₹ 7,758/- 24/10/2002Rs. 40,00,000/- ₹ 21,000/- 21/11/2002Rs. 11,19,543/- ₹ 6,005/- The appellant, in turn, paid commission of ₹ 49,97,266/- as under:- Date Cheque No. Amount 20/03/2003 584280 ₹ 6,00,000/- 24/03/2003 584287 ₹ 5,00,000/- 27/03/2003 294051 ₹ 10,00,000/- 31/03/2003 294054 ₹ 10,00,000/- 31/03/2003 TDS ₹ 52,475/- Amount of ₹ 18,44,791/- .....

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xpenditure. Coming to the merits of the case, there can be, in my opinion, three possibilities, taking into account the entire facts and circumstances of the case. 3. Thus, in short, the respondent assessee was assured of 28% commission for doing liaisoning work to get the contract in favour of M/s Pharma Ventures International Private Limited. In turn, the respondent assessee paid 13% commission to M/s K.P. Steel Products (P) Ltd. for getting the contact and it is in such circumstances, the amo .....

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