TMI Blog1981 (2) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the business carried on by the assessee ? " The reference arises out of the assessment of M/s. Precision Instrument Manufacturing Co. for the assessment year 1965-66, the relevant previous year being the calendar year 1964. The assessee above named is a partnership concern. Its partners are Shri Sri Gopal, his two sons, Kailash Narain and Raj Narain, and one Prem Chand. Sri Gopal and his sons are entitled to 80 per cent. of the profits of the firm. The firm was carrying on a business in the manufacture and sale of voltmeters and ammeters. Its turnover during the calendar year 1963 came to Rs. 1,96,280. It was claimed that on 28th December, 1963, the assessee had appointed M/s.Chandra Sales Corporation as their sole selling agents. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to tax by the ITO on 2nd July, 1965, after the add back of minor items of expenditure of Rs. 550. When the assessment of the present assessee for the assessment year 1965-66 was taken up, it claimed as a deductible expenditure a sum of Rs. 35,619 as the commission paid to Chandra Sales Corporation. The turnover of the assessee during the previous year was Rs. 3,56,231 and the commission was paid at 10 per cent. as stated in the agreement. The ITO, however, disallowed a part of the claim made by the assessee. He pointed out that the firm was stated to have come into existence on 1st January, 1964, and to have been dissolved on 31st December, 1964, that the firm consisted of relations of the partner, Sri Gopal, that the account books of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investment made by the partners was very negligible. The assessee preferred an appeal to the AAC who confirmed the findings of the ITO.. He pointed out that Chandra Sales Corporation had three partners who did not take any active part in the conduct of the business. Even Rajinder Prasad did not have any experience in the line of business of the firm. The assessee bad its own stockists through whom most of the business was done. No evidence had been produced to show that M/s. Chandra Sales Corporation had booked any order for the appellant-firm or that the increase in the turnover was due to any efforts made by the selling agents. The AAC was of the opinion that in estimating the expenses incurred on sales promotion at Rs. 10,619, the ITO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion which, we are told, were made in connection with the assessment of Chandra Sales Corporation some time in 1969 after the AAC had passed his order. The Tribunal considered the arguments addressed on both sides and came to the conclusion that a certain part of the amount paid to Chandra Sales Corporation had rightly been held not to be expenditure incurred wholly and exclusively for the purpose of the business of the assessee and that the revenue was perfectly right in disallowing Rs. 25,000 as not having been made out of commercial expediency. The Tribunal pointed out that the mere existence of an agreement was not enough to justify the claim for deduction. The Tribunal appears to have been under the impression that the entire payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar to Rs. 3.5 lakhs in the year under appeal was due to the efforts of the sale promotion agents. On the other hand, the assessee had its own stockists and there was no evidence to show that the partners of the agency firm had rendered any services to the assessee for promoting its business. The statements made by Shanti Devi and Rajinder Prasad also reinforced the same opinion. Rajender Prasad had passed his B.A. examination in April, 1963, and he stated that he was a part-time accountant with the assessee and another firm on a stipend of Rs. 50. Though he claimed that he had rendered certain services to the firm, the concurrent finding of the authority is that there is no evidence to show that any orders had been booked by the agency firm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unable to agree. Though the ITO and the AAC came to the conclusion that the selling agency firm was not genuine and that the arrangement entered into with that firm was not genuine, the ITO has, pointed out that certain expenses incurred by the assessee in respect of advertisement and travelling expenses had been accounted for in the name of the firm. It is for this reason that he has allowed a part of the, claim made by the assessee. In any event, the department is not in appeal or reference against the allowance of that part. We are unable to say that the partial allowance was in any way inconsistent with the conclusion of, the ITO on the basis of which the amount paid to the selling agents has been disallowed to the extent of Rs. 25,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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