ACIT, Coimbatore V. M/s. Veejay Lakshmi Engineering Works Ltd., Coimbatore

ITA 1641/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64421 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 25-09-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 07-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K E B RENGARAJAN JUNIOR
• Assessee Lawyers: K RAGHU
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER I.T.A. NO. 1641/MDS/2011 (ASSESSMENT YEAR : 2007-08) THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE IV(2), INCOME-TAX BUILDING, RACE COURSE ROAD, COIMBATORE. (APPELLANT) V. M/S VEEJAY LAKSHMI ENGINEERING WORKS LTD., SENGALIPALAYAM, NGGO COLONY POST, COIMBATORE 641 022. PAN : AAACV7207R (RESPONDENT) APPELLANT BY : SHRI K.E.B. RENGARAJAN, JUNIOR STANDING COUNSEL RESPONDENT BY : SHRI K. RAGHU, CA DATE OF HEARING : 25.09.2012 DATE OF PRONOUNCEMENT : 17.10.2012 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY THE REVENUE, AGAINST ORDE R DATED 8.7.2011 OF COMMISSIONER OF INCOME TAX (APPEALS)-I, COIMBATO RE, IT HAS RAISED TWO EFFECTIVE GROUNDS. BOTH THESE GROUNDS RELATE T O SALES COMMISSION PAID TO ONE M/S MAHALAKSHMI STEEL INDUSTRIES, DURIN G THE RELEVANT PREVIOUS YEAR. 2 I.T.A. NO. 1641/MDS/11 2. FACTS APROPOS ARE THAT ASSESSEE, ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF TEXTILE MACHINERIES, HAD FI LED ITS RETURN FOR IMPUGNED ASSESSMENT YEAR DECLARING AN INCOME OF ` 6,01,33,680/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTED BY THE ASSESSING OFFICER THAT ASSESSEE HAD APPOINTED ONE M /S VEEJAY LAKSHMI SALES AND SERVICES LTD. (VSSL) AS ITS SALES AGENT T HROUGH AN AGREEMENT DATED 1.4.2005. THE SALES AGENT WAS ELIGIBLE FOR CO MMISSION OF 3% OF SALE VALUE AS PER THE INVOICES EXCEPT FOR SALE OF A UTOMATIC CONE WINDERS. FOR AUTOMATIC CONE WINDERS, THE COMMISSION WAS ` 1.25 LAKHS PER MACHINE. AS PER THIS AGREEMENT, M/S VSSL WAS REQUI RED TO ATTEND TO AFTER SALES SERVICE AND ALSO LOOK AFTER THE ERECTIO N AND COMMISSIONING OF THE MACHINERY. HOWEVER, ASSESSEE DURING THE RELEVA NT PREVIOUS YEAR, HAD EFFECTED A PAYMENT OF COMMISSION OF ` 1,92,00,592/- TO ONE M/S MAHALAKSHMI STEEL INDUSTRIES AS WELL. AS PER THE A SSESSEE, THE SAID PAYMENT WAS MADE FOR PROCURING ORDERS FROM ONE M/S SANGAM SPINNERS AND THE CLAIMS WERE MADE BASED ON DEBIT NOTES RAISE D ON THE ASSESSEE BY M/S MAHALAKSHMI STEEL INDUSTRIES, AS UNDER:- DEBIT NOTE DATED 31.3.2006 ` 31,67,049 DEBIT NOTE DATED 30.6.2006 ` 52,05,006 DEBIT NOTE DATED 31.3.2007 ` 1,08,28,540 ` 1,92,00,595 3 I.T.A. NO. 1641/MDS/11 3. ASSESSEE WAS REQUIRED TO EXPLAIN WHY IT HAD TO P AY COMMISSION TO M/S MAHALAKSHMI STEEL INDUSTRIES, WHEN IT HAD ALREA DY APPOINTED M/S VSSL AS ITS SALES AGENT. ASSESSEE WAS ALSO REQUIRE D TO EXPLAIN WHY SUCH COMMISSION WAS HIGHER WHEN COMPARED TO THE PAY MENTS MADE TO M/S VSSL. REPLY OF THE ASSESSEE WAS THAT SUCH HIGH ER COMMISSION WAS PAID TO M/S MAHALAKSHMI STEEL INDUSTRIES SO AS TO G ET MORE ORDERS. AS PER THE ASSESSEE, IT WAS PRODUCING TWO MACHINERY, O NE NAMED AS TWISTER AND THE OTHER NAMED AUTOCONE WINDER, AN D IN BOTH THERE WAS HEAVY COMPETITION. HOWEVER, THE ASSESSING OFFICER WAS NOT IMPRESSED BY THE REPLY GIVEN BY THE ASSESSEE. ACCORDING TO H IM, THERE WAS NO AGREEMENT WHATSOEVER ENTERED BETWEEN ASSESSEE AND M /S MAHALAKSHMI STEEL INDUSTRIES AND NOTHING WAS BROUGH T ON RECORD BY THE ASSESSEE TO SUBSTANTIATE THE HIGHER COMMISSION PAID TO SAID M/S MAHALAKSHMI STEEL INDUSTRIES. FURTHER, THE A.O. NO TED THAT ONE OF THE DEBIT NOTES RAISED BY THE ASSESSEE WAS DATED 31.3.2 006 WHICH DID NOT PERTAIN TO RELEVANT PREVIOUS YEAR. ASSESSEE WAS MA INTAINING BOOKS OF ACCOUNTS ON MERCANTILE BASIS AND THEREFORE, ACCORDI NG TO A.O., LATTER AMOUNT COULD BE CONSIDERED ONLY DURING PREVIOUS YEA R RELEVANT TO ASSESSMENT YEAR 2006-07. 4. WITH REGARD TO BALANCE AMOUNT OF ` 1,60,33,546/-, ASSESSING OFFICER NOTED THAT THE COMMISSION PAID CAME TO ABOU T 11.6% AGAINST 4 I.T.A. NO. 1641/MDS/11 COMMISSION OF 3% PAYABLE TO M/S VSSL. AS PER THE A .O., M/S VSSL WAS GIVING MUCH BROADER SERVICES TO THE ASSESSEE BU T STILL IT WAS PAID ONLY LESSER COMMISSION. FURTHER, THE SAID M/S VSSL HAD APPOINTED ONE MRS. RAJESH GUPTA FOR CANVASSING ORDERS FROM VERY S AME M/S SANGAM SPINNERS AND M/S VSSL HAD RECEIVED COMMISSION ON TH E ORDERS RECEIVED THROUGH HER SERVICES FROM ASSESSEE. ASSES SEE HAD PAID A COMMISSION OF ` 41,30,511/- TO M/S VSSL FOR PROCURING ORDERS IN AN D AROUND BHILWARA, WHERE M/S SANGAM SPINNERS WAS LOCA TED. NEVERTHELESS, THE A.O. DID NOTE THAT INTERMEDIERIES LIKE MAHALAKSHMI STEEL INDUSTRIES MIGHT HAVE BEEN USED AND THEREFORE THE WHOLE OF THE COMMISSION PAID TO THEM COULD NOT BE DISALLOWED. H E, THEREFORE, CONSIDERED 3% OF THE INVOICES VALUE AS A REASONABLE COMMISSION THAT OUGHT HAVE BEEN PAID TO M/S MAHALAKSHMI STEEL INDUS TRIES AND LIMITED THE CLAIM OF THE ASSESSEE ACCORDINGLY. THE EFFECT WAS THAT OUT OF TOTAL COMMISSION OF ` 1,92,00,595/-, A SUM OF ` 31,67,049 WAS DISALLOWED AS FALLING OUTSIDE THE RELEVANT PREVIOUS YEAR AND FROM THE BAL ANCE, A SUM OF ` 1,18,90,123/- WAS DISALLOWED. 5. IN ITS APPEAL BEFORE CIT(APPEALS), ASSESSEE RAIS ED TWO MAIN CONTENTIONS. FIRST WAS WITH REGARD TO DISALLOWANCE FOR THE DEBIT NOTE RAISED BY M/S MAHALAKSHMI STEEL INDUSTRIES ON 31.3. 2006. ACCORDING TO ASSESSEE, THE COMMISSION RELATING TO FINANCIAL YEAR 2005-06 COULD BE 5 I.T.A. NO. 1641/MDS/11 FINALIZED ONLY AFTER THE END OF THAT YEAR AND DEBIT NOTE WAS RECEIVED FROM M/S MAHALAKSHMI STEEL INDUSTRIES ONLY IN THE MONTH OF JULY, 2006. THEREFORE, AS PER THE ASSESSEE, EVEN THOUGH IT WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THE CLAIM WAS JUSTIFIED. ASS ESSEE ALSO POINTED OUT THAT TAX WAS DEDUCTED AT SOURCE ON SUCH PAYMENTS ON LY IN THE PREVIOUS YEAR RELEVANT TO IMPUGNED ASSESSMENT YEAR AND BY VI RTUE OF SECTION 40(A)(IA) OF INCOME-TAX ACT, 1961 (IN SHORT 'THE AC T'), IT COULD CLAIM THE EXPENSES WHEN TAX WAS DEDUCTED AND REMITTED. 6. AS FOR THE RESTRICTION OF THE COMMISSION PAID TO M/S MAHALAKSHMI STEEL INDUSTRIES TO 3%, SUBMISSION OF THE ASSESSEE BEFORE CIT(APPEALS) WAS THAT IT HAD FURNISHED PARTY-WISE DETAILS OF SAL ES COMMISSION PAID AND MATCHED IT WITH INVOICES RAISED. AGREEMENT ENT ERED BETWEEN ASSESSEE AND M/S VSSL COULD NOT BE CONSIDERED FOR C OMPARISON FOR A REASON THAT M/S VSSL WAS AN ASSOCIATED CONCERNED OF THE ASSESSEE, WHEREAS, M/S MAHALAKSHMI STEEL INDUSTRIES WAS NOT A N ASSOCIATE CONCERN. AS PER THE ASSESSEE, M/S VSSL WAS A REPRE SENTATIVE OF THE ASSESSEE AND IT COULD NOT BE CONSIDERED AS A COMMIS SION AGENT LIKE M/S MAHALAKSHMI STEEL INDUSTRIES. M/S MAHALAKSHMI STEE L INDUSTRIES WAS ENGAGED IN SETTING UP AND IMPLEMENTING A TEXTILE PR OJECT FOR M/S SANGAM SPINNERS LIMITED. THEY HAD RECOMMENDED PURCHASE OF MACHINERY FROM THE ASSESSEE AND THEREFORE, HAD GOOD RAPPORT WITH M /S SANGAM 6 I.T.A. NO. 1641/MDS/11 SPINNERS LTD. ORDER RECEIVED THROUGH M/S MAHALAKSH MI STEEL INDUSTRIES WAS 25% TO 30% OF THE ANNUAL SALE OF THE ASSESSEE A ND THEREFORE, IT HAD ONLY BENEFITTED FROM SUCH ORDER. AS FOR THE LACK O F A FORMAL AGREEMENT WITH M/S MAHALAKSHMI STEEL INDUSTRIES, ARGUMENT OF THE ASSESSEE WAS THAT IT WAS NOT NECESSARY TO HAVE SUCH AN AGREEMENT , SINCE ASSESSEE WAS BOUND TO PAY COMMISSION ONLY AFTER RECEIVING TH E ORDERS FROM M/S SANGAM SPINNERS LTD. FURTHER, AS PER THE ASSESSEE, THE MACHINERY, WHICH WAS SOLD TO M/S SANGAM SPINNERS LTD., WERE PR ICED MUCH HIGHER WHEN COMPARED TO SIMILAR MACHINERY SUPPLIED THROUGH M/S VSSL. 7. CIT(APPEALS) REQUIRED A REMAND REPORT FROM ASSES SING OFFICER ON THE SUBMISSIONS OF THE ASSESSEE. HOWEVER, IN THE R EMAND REPORT, ASSESSING OFFICER SIMPLY REITERATED HIS FINDINGS IN THE ASSESSMENT ORDER. 8. CIT(APPEALS), AFTER GOING THROUGH THE SUBMISSION S OF THE ASSESSEE AND REMAND REPORT OF THE ASSESSING OFFICER, CAME TO A CONCLUSION THAT M/S MAHALAKSHMI STEEL INDUSTRIES HAD CONFIRMED THE DEBIT NOTE RAISED BY THEM FOR SALES COMMISSION FOR SERVICE RENDERED B Y THEM TO THE ASSESSEE. ACCORDING TO HIM, THE AMOUNTS WERE PAID BY THE ASSESSEE FINALLY AND THE RECIPIENT HAD CONFIRMED THE RECEIPT OF THE COMMISSION. ASSESSEE HAD PROCURED ORDERS THROUGH THE WORK DONE BY M/S MAHALAKSHMI STEEL INDUSTRIES, FROM M/S SANGAM SPINN ERS LTD. WHICH 7 I.T.A. NO. 1641/MDS/11 SUBSTANTIALLY INCREASED ITS TURNOVER. THE SAID M/S MAHALAKSHMI STEEL INDUSTRIES HAD ALSO SHOWN THE COMMISSION RECEIPTS I N THEIR RETURN OF INCOME AND THEY HAD ALSO FURNISHED THEIR PERMANENT ACCOUNT NUMBER. AS PER THE CIT(APPEALS), TO CLAIM DEDUCTION UNDER S ECTION 37 OF THE ACT, TWO CONDITIONS ARE NECESSARILY TO BE SATISFIED. FI RST WAS THAT THE EXPENDITURE SHOULD HAVE BEEN INCURRED WHOLLY AND EX CLUSIVELY FOR THE PURPOSE OF BUSINESS AND SECOND WAS THAT THE EXPENDI TURE SHOULD NOT BE IN THE NATURE OF A CAPITAL OUTGO. CIT(APPEALS) NOT ED THAT ASSESSEE HAD SATISFIED BOTH THESE CONDITIONS. ASSESSEE HAD RECE IVED HUGE ORDERS BY WAY OF COMMISSION WORK DONE BY M/S MAHALAKSHMI STEE L INDUSTRIES AND THEREFORE, DISALLOWANCE OF COMMISSION CHARGED BY M/ S MAHALAKSHMI STEEL INDUSTRIES WAS NOT WARRANTED. 9. AS FOR THE ADDITION MADE FOR THE DEBIT NOTE RAIS ED BY M/S MAHALAKSHMI STEEL INDUSTRIES ON 31.3.2006, CIT(APPE ALS) WAS OF THE OPINION THAT ASSESSEE HAD DEDUCTED TAX AT SOURCE ON THE PAYMENT EFFECTED AGAINST SUCH DEBIT NOTE, DURING THE PREVIO US YEAR RELEVANT TO THE IMPUGNED ASSESSMENT YEAR. HENCE, ACCORDING TO HIM, BY VIRTUE OF SECTION 40(A)(IA) OF THE ACT, IT WAS ELIGIBLE FOR C LAIMING SUCH EXPENDITURE IN THE IMPUGNED ASSESSMENT YEAR. IN THIS VIEW OF T HE MATTER, HE DELETED BOTH THE ADDITIONS MADE BY THE ASSESSING OFFICER. 8 I.T.A. NO. 1641/MDS/11 10. NOW BEFORE US, LEARNED D.R., STRONGLY ASSAILING THE ORDER OF CIT(APPEALS), SUBMITTED THAT THE FIRST DEBIT NOTE R AISED BY M/S MAHALAKSHMI STEEL INDUSTRIES ON 31.3.2006, WAS FOR SERVICES RENDERED BY THEM FOR A PERIOD PRIOR TO RELEVANT PREVIOUS YEA R. ACCORDING TO LEARNED D.R., ASSESSEE WAS FOLLOWING MERCANTILE SYS TEM OF ACCOUNTING AND HENCE IT COULD ACCOUNT THE EXPENDITURE ONLY IN THE YEAR IN WHICH IT WAS INCURRED. LIABILITY HAD CRYSTALIZED IN THE PRE CEDING YEAR AND ASSESSEE SHOULD HAVE BEEN ACCOUNTED IT IN THE PREVI OUS YEAR RELEVANT TO ASSESSMENT YEAR 2006-07. HAVING FAILED TO DO SO, A SSESSEE WAS NOT ELIGIBLE FOR MAKING A CLAIM IN THE IMPUGNED ASSESSM ENT YEAR. 11. AS FOR THE PART DISALLOWANCE OF COMMISSION CHAR GED BY M/S MAHALAKSHMI STEEL INDUSTRIES, SUBMISSION OF THE LEA RNED D.R. WAS THAT OBVIOUSLY SUCH COMMISSION WAS ON A HIGHER SIDE. AS SESSEE WAS PAYING ONLY 3% COMMISSION TO M/S VSSL, WHEREAS, FOR M/S MA HALAKSHMI STEEL INDUSTRIES, IT WAS PAYING 11.7%. M/S VSSL WAS ALSO DOING SERVICE THROUGH ITS OWN AGENT FOR CANVASSING ORDER FROM M/S SANGAM SPINNERS LTD. THEREFORE, ASSESSEE COULD NOT SAY THAT M/S MA HALAKSHMI STEEL INDUSTRIES ALONE WAS RESPONSIBLE FOR CANVASSING ORD ERS FROM M/S SANGAM SPINNERS LTD. M/S VSSL HAD TO DO MUCH WIDER JOB THAN M/S MAHALAKSHMI STEEL INDUSTRIES, BUT STILL WAS PAID 3% COMMISSION ONLY. ACCORDING TO LEARNED D.R., COMMISSION PAID TO M/S M AHALAKSHMI STEEL 9 I.T.A. NO. 1641/MDS/11 INDUSTRIES WAS NOT COMMENSURATE WITH THE SERVICES R ENDERED BY THEM. THE COMMISSION WAS NOT ONLY HIGHER BUT FIXED AT ODD FIGURE OF 11.7%. EVEN THE CONFIRMATION LETTER PRODUCED BY THE ASSESS EE WAS IN THE NAME OF M/S SHREE MAHALAKSHMI STRUCTURES (P) LTD. AND NO T IN THE NAME OF M/S MAHALAKSHMI STEEL INDUSTRIES. CIT(APPEALS) HA D PLACED RELIANCE ON THE CONFIRMATION LETTER PRODUCED BY M/S SHREE MA HALAKSHMI STRUCTURES (P) LTD. WHILE ACCEPTING THE CLAIM OF AS SESSEE. ITS CLAIM WAS ACCEPTED DESPITE ITS INABILITY TO SHOW A ONE TO ONE RELATIONSHIP BETWEEN COMMISSION PAID AND INVOICES RAISED FOR SALE OF MAC HINERY TO M/S SANGAM SPINNERS LTD. THEREFORE, ACCORDING TO HIM, DISALLOWANCES WERE RIGHTLY MADE BY THE A.O. AND INAPPROPRIATELY DELETE D BY CIT(APPEALS). 12. PER CONTRA, LEARNED A.R. STRONGLY SUPPORTED THE ORDER OF CIT(APPEALS). 13. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. FIRST QUESTION THAT IS TO BE ANSWERED IS WHETHER TH E PAYMENT MADE TO M/S MAHALAKSHMI STEEL INDUSTRIES IS ALLOWABLE UNDER SECTION 37 OF THE ACT. THERE IS NO DISPUTE THAT CHARGE OF COMMISSION WAS CONFIRMED BY THE PARTY CONCERNED. NO DOUBT, LEARNED D.R. HAS SU BMITTED THAT THE CONFIRMATION DATED 22 ND MARCH, 2010 WAS GIVEN BY M/S SHREE MAHALAKSHMI STRUCTURES (P) LTD. AND NOT M/S MAHALAK SHMI STEEL INDUSTRIES. HOWEVER, PAPER-BOOK PAGE 1, WHICH IS T HE COPY OF THE 10 I.T.A. NO. 1641/MDS/11 CONFIRMATION LETTER RELIED ON BY CIT(APPEALS), CLEA RLY MENTIONS MAHALAKSHMI STEEL INDUSTRIES AND THE PROPRIETOR O F THE SAID CONCERN WAS SHOWN AS MAHALAKSHMI STRUCTURES (P) LTD. THE S AID CONFIRMATION READS AS FOLLOWS:- WE CONFIRM WE HAVE RAISED THE FOLLOWING DEBIT NOTE S TOWARDS SALES COMMISSION FOR THE SERVICES PROVIDED BY US TO M/S VEEJAY LAKSH MI ENGINEERING WORKS LIMITED. DEBIT NOTE NO./DATE COMMISSION SERVICE TAX TOTAL MSI/COMM/06 - 07/06 31.3.07 10828540 1325413 12153953 MSI/COMM/06 - 07/01 30.6.06 5205006 637093 5842099 MSI/COMM/05 - 06/012 31.3.06 3167049 387647 3554696 19200595 2350153 21550748 THE CHARGES ARE FOR OUR SERVICES PROVIDED TO M/S VE EJAY LAKSHMI ENGINEERING WORKS LIMITED TO SECURE ORDERS FOR THEIR TEXTILE MAC HINERY FROM M/S SANGAM SPINNERS LIMITED. WE HAVE BEEN INVOLVED IN THE BUS INESS BY CLOSELY INTERACTING BOTH WITH THE SUPPLIERS OF THE MACHINERY AND THE US ERS RIGHT FROM THE FINALIZATION OF SPECIFICATIONS TILL EXPIRY OF THE WA RRANTY PERIOD FOR ARRANGING PAYMENTS, DELIVERY, CO-ORDINATION FOR ERECTION, SER VICE AND TRAINING OF OPERATORS AND ALSO IN ALL ISSUES CONNECTED WITH THE PRODUCTIV ITY AND QUALITY OF THE MACHINES SUPPLIED. THIS HAS ENSURED SMOOTH EXECUTION OF THE ORDERS PLACED WITH DELIVERIES SPREAD OVER MORE THAN TWO YEARS WITH REP EATED ORDERS. THE COMMISSION AMOUNT HAS BEEN FINALIZED AFTER PROL ONGED NEGOTIATION CONSIDERING OUR SERVICES AND THE RISKS INVOLVED. W E HAVE RECEIVED COMMISSION AT SIMILAR RATES FROM OTHER MANUFACTURERS ALSO. THE C OMMISSION RECEIVED HAS BEEN INCLUDED IN THE RETURN OF INCOME FILED BY US FOR IN COME TAX. OUR INCOME TAX PAN IS AADCM 7884N. 14. THERE IS ALSO NO DISPUTE THAT SUCH COMMISSION W AS EVENTUALLY PAID TO THE SAID CONCERN BY THE ASSESSEE AFTER DEDUCTING TAX AT SOURCE. THUS, 11 I.T.A. NO. 1641/MDS/11 GENUINENESS OF THE PAYMENT CANNOT BE DENIED AND HAS NOT BEEN QUESTIONED BY THE ASSESSING OFFICER. THE ONLY REAS ON FOR MAKING THE DISALLOWANCE WAS THAT COMMISSION PAID WAS ON A HIGH ER SIDE WHEN COMPARED TO THE COMMISSION PAID TO M/S VSSL. BUT, SUBMISSION OF THE ASSESSEE THAT M/S VSSL WAS ITS ASSOCIATE CONCERN, H AS NOT BEEN REBUTTED. IT WILL BE NAVE TO EXPECT AN OUTSIDER T O RENDER THE SAME SERVICE AS RENDERED BY A SISTER CONCERN, AT THE SAM E RATE. A SISTER CONCERN WILL HAVE NUMBER OF REASONS FOR CHARGING A LOWER COMMISSION. HOWEVER, AN OUTSIDE PARTY WILL NOT HAVE ANY CONSTRA INTS. ASSESSEE HAD PRODUCED DETAILS OF THE MACHINERY SOLD BY IT TO M/S SANGAM SPINNERS LTD. AND COMMISSION ON EACH SUCH MACHINERY WITH INV OICE NUMBERS WERE ALSO GIVEN. THIS HAS BEEN PRODUCED BY THE ASS ESSEE AT PAPER- BOOK PAGES 7 TO 10. THE SAID M/S MAHALAKSHMI STEEL INDUSTRIES HAD ALSO PRODUCED COMMISSION BILLS RAISED ON THE ASSESS EE AND COPIES OF SUCH BILLS HAVE ALSO BEEN PLACED AT PAPER-BOOK PAGE S 6 AND 8. JUST BECAUSE COMMISSION PAID TO M/S MAHALAKSHMI STEEL IN DUSTRIES WAS HIGHER WHEN COMPARED TO THE COMMISSION PAID TO M/S VSSL, IN OUR OPINION, A DISALLOWANCE WAS NOT WARRANTED. WITHOUT DOUBT, ASSESSEE HAD PROCURED SUBSTANTIAL ORDERS FROM M/S SANGAM SPI NNERS LTD. AND ALMOST 30% OF THE ANNUAL SALE OF THE ASSESSEE HAD C OME FROM THAT. SUCH SALES HAD CONTRIBUTED TO ITS PROFIT AND DID NO T RESULT IN A LOSS TO IT. AS A PRUDENT BUSINESSMAN, ASSESSEE MIGHT HAVE DECID ED TO PAY A 12 I.T.A. NO. 1641/MDS/11 HIGHER AMOUNT OF COMMISSION FOR PROCURING ORDERS FR OM M/S SANGAM SPINNERS LTD. THE PAYMENT WAS NOT DOUBTED AND GENU INENESS COULD NOT BE QUESTIONED, IN OUR OPINION. WHETHER THE COMMISS ION PAID IS COMMENSURATE WITH THE SERVICES RENDERED IS BEST TO LEFT TO THE CONCERNED BUSINESSMAN TO DECIDE. PARTY CONCERNED WAS NOT REL ATED TO THE ASSESSEE IN ANY WAY. AS NOTED BY THE CIT(APPEALS), TWO CONDITIONS WHICH WERE REQUIRED UNDER SECTION 37 OF THE ACT, VI Z. EXPENDITURE SHOULD BE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND EXPENDITURE SHOULD NOT BE IN THE NATURE OF CAPITAL OUTGO, HAVE BEEN SATISFIED HERE. WE ARE OF THE OPINION THAT THE CIT (APPEALS) WAS RIGHT IN DELETING THE DISALLOWANCE MADE BY THE A.O. 15. AS FOR THE DISALLOWANCE OF THE DEBIT NOTE DATED 31.3.2006 RAISED BY M/S MAHALAKSHMI STEEL INDUSTRIES, AS NOT FOR RELEVA NT PREVIOUS YEAR, WITHOUT DOUBT, ASSESSEE HAD EFFECTED PAYMENT ONLY D URING RELEVANT PREVIOUS YEAR AND TAX WAS DEDUCTED AT SOURCE. BY V IRTUE OF SECTION 40(A)(IA) OF THE ACT, SUCH PAYMENT QUALIFIES FOR DE DUCTION ONLY WHEN TAX IS DEDUCTED AT SOURCE. THIS HAVING BEEN DONE DURIN G THE RELEVANT PREVIOUS YEAR, ASSESSEE WAS JUSTIFIED IN CLAIMING T HE DEDUCTION. CIT(APPEALS) RIGHTLY RELIED ON THE DECISION OF HON BLE DELHI HIGH COURT IN THE CASE OF CIT V. SMCC CONSTRUCTION INDIA (320 ITR 534) AND ALLOWED 13 I.T.A. NO. 1641/MDS/11 THE CLAIM OF THE ASSESSEE. WE ARE OF THE OPINION T HAT NO INTERFERENCE IS REQUIRED. 15. IN THE RESULT, APPEAL FILED BY THE REVENUE IS D ISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON WEDNESDAY, THE 17 TH OF OCTOBER, 2012, AT CHENNAI. SD/- SD/- (VIKAS AWASTHY) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 17 TH OCTOBER, 2012. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A)-I, COIMBATORE (4) CIT-II, COIMBATORE (5) D.R. (6) GUARD FILE