TMI Blog2017 (2) TMI 988X X X X Extracts X X X X X X X X Extracts X X X X ..... 2) are not automatic and can be called into play only if the assessing officer establishes that the expenditure incurred is, in fact, in excess of fair market value. This had not been done in the present case. The quantum of commission paid is thus at arms length. The decision to streamline business activities and establish a division of labour or hierarchy of operations is within the domain of the entities and cannot be trespassed upon by the assessing officer except where the officer establishes that such design or method is a ruse to circumvent legitimate payment of tax. The Supreme Court in the case of Vodafone International Vodafone International Holdings BV. Vs. Union of India and another (2012 (1) TMI 52 - SUPREME COURT OF INDIA) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal was right in holding that the additional price paid to sister concerns with respect to goods already purchased during the year, without any prior commitment to the same, could be treated as revenue expenditure and deducted? 3. The questions admitted in TCA.No.830 of 2004, wherein the assessee is M/s.Swastic Chem (P) Limited, are couched differently though the issues are identical. We extract the same below: 1. Whether on the facts and in the circumstances of the case the Income Tax Appellate Tribunal was right in holding that the disallowance of the claim of commission payment of ₹ 67,48,500/- by the assessee to its loss making sister concern M/s.Swastic Corporation could not be considered as a sham transaction? ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 04), Kasi Chemicals, (assessee in TC(A).No.701 of 2004) Swastic Dye Stuff Corporation (assessee in TC(A) No.719 of 2004) and Swastic Chem (P) Ltd (assessee in TC(A) No.830 of 2004) which are related concerns controlled by the same group of assessees. The issues as well as persons/entities being inter-related, we propose to deal with all appeals by way of a common order. The financials of M/s Swastic Corporation Limited (assessee in TC(A) 831/2004) for the year ending 31.3.1998 revealed a credit of an amount of ₹ 1,37,46,000/- representing commission paid to it by Kasi Chemicals, Swastic Dye Stuff Corporation, Swastic Corporation Limited, E.K.Lingamurthy and L.Parameswari Prop.Swastic Corporation (Erode). 6. The assessing officer wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being brought on record by the assessing officer to justify the same. The Commissioner notes that Swastic Corporation Limited had been appointed as sales agent for the sake of maintaining uniformity in sale prices and to avoid unnecessary and uneconomical competition between the sister concerns. A decision thus came to be taken by the entities that a bifurcation of duty was called for and one concern identified to act as the selling agent for the entire group. The transaction thus found favour with the Commissioner as being bonafide and genuine. 9. The orders of the Commissioner of Income Tax (Appeals) were confirmed by the Income Tax Appellate Tribunal vide a common order dated 15.9.2003. The tribunal discussed the matter in detail fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igating authorities cannot be ruled out. Then again, the mere fact that the settlement commission had been approached cannot mean that every act of the assessee has to be dubious or colourable, except if supported by collaborative material. In the present case, a plausible explanation has been offered that has found favour with the appellate authorities. 11. There is no prohibition that related parties cannot engage in business transactions. Such an interpretation would render the provisions of Section 40A (2) of the Act redundant. Section 40A(2) empowers the assessing officer to effect a disallowance of payments that are, in his opinion excessive or unreasonable giving regard to fair market value of the goods, services or facilities for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to interfere with the concurrent findings of the authorities. Substantial question of Law No.1 is answered against the revenue and in favour of the assessee. 14. Substantial question of law No.2 in TC (A) Nos.700, 701, 702 and 719 of 2004 deals with additional price paid to sister concerns with respect to purchases. The conclusion of the tribunal at para 17.12 is in the following terms: 17.12 Thus we are inclined to hold that the sales commission/ price difference paid/allowed to the sister concerns cannot be disallowed by treating them as sham transactions or invoking provisions of section 40(A) of the IT Act, as we have already held that the Assessing Officers could not have/had not resorted to Section 40(A)(2). 15. The fact ..... X X X X Extracts X X X X X X X X Extracts X X X X
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