While considering the question of perversity of a finding of fact, the test applicable are strict-High Court
ABCAUS Case Law Citation:
ABCAUS 2181 (2018) (01) HC
The appellant Revenue had filed the instant appeal challenging that findings recorded by the Income Tax Appellate Tribunal (ITAT) were perverse and therefore, require interference on substantial question under Section 260 A of the Income Tax Act, 1961 (the Act).
The ITAT had deleting the addition made by the AO on account of commission paid to two partnership firms in which the parties related to the directors of the respondent assessee were partners. According to the Revenue the action of the ITAT was not justified and should not have been allowed as business expenditure under Section 37 of the Act.
The Hon’ble High Court observed that the Tribunal had recorded findings that assessee had entered into agreements with the agent firms for payment of commission on the orders procured by them. The receipt of commission was duly shown by the firms in their Balance-sheet and Profit & Loss Accounts and paid the tax thereon which was accepted by the Revenue. The assessee had been paying commission to the Agents regularly year after year and in some of the years it was not doubted by the Revenue and was accepted.
The observed that as per findings, the assessee had filed the confirmations and the statements of accounts of the recipients besides the commission agreements to prove the genuineness of the payment of commission, the receipt of payment of commission was duly reflected in the books of account of the recipients and was offered to tax. The Revenue did not dispute the receipt of commission and accepted the income offered by the agents.
The Hon’ble High Court noted that the firms were paying taxes at maximum marginal rate, therefore the allegation that commission was paid to avoid tax or divert income was rejected as baseless and wrong. Moreover, the respondent assessee was entitled to deduction, both under Sections 80-HH and 80-I of the Act. In case the aforesaid expenditure had not been incurred, deduction under the two provisions would have increased.
The Hon’ble High Court opined that the reasoning given by the ITAT and the factual matrix being contrary to the reasoning given by the AO and the CIT(A), the order if the ITAT can be treated as perverse.
The Hon’ble High Court further clarified that while considering the question of perversity of a finding of fact, the test applicable are strict. The finding should be such which is arrived at without any material, or upon a view of the facts which could not reasonably be entertained or the facts found are such that no person acting judicially and properly instructed as to the relevant law would have come to that determination.
The Hon’ble High Court opined that applying the test and benchmark to be satisfied, it was not possible to hold the order as perverse and interfere.
It was held that the decision of the ITAT was not perverse.