CIT Vs. SPECIALITY PAPER CO.

JUDGEMENT

(1.) THIS appeal is filed by the revenue against the order of the Tribunal, Madras 'C Bench dated 30 -11 -2007 in ITA No. 1778/Mad/2006 for the assessment year 2001 -02 raising the following substantial question of law: Whether in the facts and circumstances of the case, the Tribunal was right in holding that the payment of commission by the assessee to a private limited company where its partners were directors is valid in law, when there is no evidence to show that the company had in fact rendered any service?

(2.) THE brief facts are as follows: The assessee is a registered partnership firm consisting of two partners. It is engaged in the business of purchase and sale of paper and boards. The assessment year is 2001 -02 and corresponding accounting year ended on 31 -3 -2001. The assessee has filed a return of income on 31 -10 -2001 admitting the total income of Rs. 25.25,803. The same was processed under Section 143(1) of the Income Tax Act. Later on, notice under Section 143(2) of the Act was issued and served on the assessee on 30 -10 -2002. The assessing officer has completed the assessment under Section 143(3) of the Act determining the total income at Rs. 44,77,348. While computing the assessment, the assessing officer has disallowed the commission payment of Rs. 19,51,465 made to M/s Rose Flower Company Papers (P) Ltd., Sivakasi, on the ground that the said company has not rendered any service and also one of the partners is the director in the said company and also it is not for the purpose of business. Aggrieved by that order, the assessee has filed an appeal to the Commissioner (Appeals) -XI, Chennai. The appellate authority allowed the appeal and set aside the order of the assessing officer. Aggrieved by the same, the revenue has filed an appeal to the Tribunal, in which, the Tribunal has confirmed the order of the Commissioner (Appeals) and dismissed the appeal filed by the revenue. Hence, the present appeal.

(3.) HEARD the learned Counsel for the revenue. The assessee has paid a sum of Rs. 19,51.465 to M/s Rose Flower Company Papers (P) Ltd., Sivakasi, on account of commission. The assessee has also filed evidence to that effect that there was an agreement entered into between the assessee firm and M/s Rose Flower Company Papers (P) Ltd. on 1 -4 -1999. It is seen from the records that the appellant firm was managed by the partners, who do not have adequate expertise in the area of product quality etc. Under these circumstances, the services of the said M/s Rose Flower Company Papers (P) Ltd. were engaged for promoting sales of its products by making personal meetings with customers, mills, etc. Further, the assessee has filed details regarding the volume of business and profitability increased substantially between 1989 -90 to 2001 -02 as a result of engaging M/s Rose Flower Company Papers (P) Ltd. The details with regard to the volume of business increasing turnover and profitability between 1998 -99 and 2001 -02 are as follows: