TMI Blog1991 (7) TMI 383X X X X Extracts X X X X X X X X Extracts X X X X ..... d the accounting period is 31-3-1988. The firm was carrying on business of manufacturing and trading in suitings and shining cloth. It purchased gray cloth and yarns and after getting it processed from the process houses sold finished goods. While scrutinising the accounts, the assessing officer noticed that the assessee firm had paid brokerage of ₹ 2,03,582 to three concerns viz., (1) Shree Krishna Silk Mills, (2) Veekayam Textiles Mills P. Ltd. and (3) Mahawar Silk Synthetics to whom the assessee had effected sales of ₹ 2,03,58,096. Assessee s Representative when asked to explain why so much brokerage was paid, explained in a letter dated 13-2-1989 that the firm had strictly followed the business principles and in the previous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was not made to an individual but to the firm. She has filed copies of the credit notes in respect of all the three parties along with the copy of the accounts of the three parties as appearing in the books of the assessee-firm in support of the argument that what was paid to these three parties was in fact a rebate or discount at one per cent on total sales effected at the end of the year and this was not in the nature of commission. It was, therefore, argued that the provisions of section 40A(2) were not properly invoked because, firstly, the rebate was allowed at one per cent as was the case in the past and the Income-tax Officer had not established that the expenditure was excessive or unreasonable having regard to the fair m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee that what was paid was in the nature of rebate or a discount at one percent of the total purchases effected by the parties at the end of the year has not been taken into account at all by the Commissioner of Income-tax (Appeals) of by the Income-tax Officer. Secondly, the argument that the payment were not for services rendered and that therefore, the question of invoking of section 40A(2) could not arise has also not been properly appreciated by the revenue authorities and thirdly, the argument that the payment has been made by one firm to another or by one firm to a limited company and not to any individuals who are related to the partners of the firm has also not been taken into account by the revenue authorities. We may refer to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wance of this type in earlier years. 6. We have considered the various arguments advanced and have gone through the records. Firstly, we find that the payments are made by the assessee - Heera Textiles to three firms viz., (1) Mahawar Silk Synthetics, (2) Shree Krishna Silk Mills and (3) Veekayam Textiles Mills Pvt. Ltd. Copies of accounts of these parties as appearing in the books of the assessee have been filed by the Advocate, before us. It is seen from the perusal of the accounts that what is described as commission calculated at one per cent of the turnover is credited to the account of each of these parties at the end of the accounting year which is the financial year i.e. on 31-3-1988. Thus the true nature of the payment is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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