NARAIN MOTORS Vs. COMMISSIONER OF INCOME-TAX

JUDGEMENT

(1.) THIS order will dispose of Income-tax Cases Nos. 22 of 1975 and 50 of 1976.

(2.) THE assessee is an authorised dealer of Messrs. Escorts Ltd. , Faridabad, and deals in the sale of Rajdoot motor cycles, tractors, implements and spare parts. During the proceedings for the assessment year 1969-70, the assessee debited to its profit and loss account a sum of Rs. 42,865 on account of service charges paid to M/s. Narain Sales Corporation. The case of the assessee was that it closed down its workshop with effect from 1st January, 1969, and handed over the service job to M/s. Narain Sales Corporation, a sister concern, under a deed of agreement dated 3rd January, 1969.

(3.) SIMILARLY, for the assessment year 1970-71, the assessee debited a sum of Rs. 1,22,030, to its profit and loss account on account of service charges paid to M/s. Narain Sales Corporation for servicing the tractors and motor cycles sold by the assessee. The ITO found that the provisions of Section 40a (2) of the I. T. Act, 1961 (hereinafter referred to as "the Act"), were applicable and consequently he disallowed the claim of Rs. 20,498, for the assessment year 1969-70, and a sum of Rs. 61,015 for the assessment year 1970-71. In appeal, the AAC, after examining the evidence produced on the record, agreed with the ITO that the provisions of Section 40a (2) of the Act were applicable and concluded that it could reasonably be inferred that 50% of the gross payment made to M/s. Narain Sales Corporation was for considerations other than business and was in excess of the fair market value of the services rendered by M/s. Narain Sales Corporation. He, therefore, upheld the disallowance of Rs. 20,498 for the assessment year 1969-70 and a sum of Rs. 61,015 for the assessment year 1970-71. In appeal, the finding of the AAC was upheld by the Income-tax Appellate Tribunal, Amritsar Bench (hereinafter referred to as " the Tribunal" ).