Revenue can't sit in bussinessmen chair to decide reasonableness its decisions.

Facts in Brief:

1. Assessee Company which is engaged in the business of trading and servicing of electronic instruments and Ferro graphic analysis.

2. In assessment proceedings under section 143(3) of the I.T. Act, various details were called for by the A.O. and furnished by the assessee.

3. Assessee claimed expenditure ITA.Nos.1735 to 1738/H/2014 Predict Technologies (India) P. Ltd., Hyderabad. Towards commission on sales.

4. On verification of the information filed by the assessee, the A.O. observed that it cannot be said that the non- returnable material gate passes filed as evidence relate to the business of the assessee company which was done through M/s. SPMIIPL as it might have been for the business of M/s. SPMIIPL itself.

5. Further, AO observed that in similar line of business, the rate of commission paid to a foreign agent is in the ratio of 1% to 2%. He accordingly allowed 1% as commission and disallowed the ITA.Nos.1735 to 1738/H/2014 Predict Technologies (India) P. Ltd., Hyderabad. balance of Rs.9,31,164 under section 40A(2b) of the I.T. Act and brought it to tax.

6. A.O. completed the assessment under section 143(3) read with section 263 of the I.T. Act making disallowance of interest under section 14A and of loss on sale of investment.

On appeal CIT(A) held,

7. It would be justified if the commission payments out of total sales is allowed at 5% to maintain the consistency and uniformity, as against 10% claimed by the appellant. Hence, the A.O. is directed to allow commission payments @ 5% on the total sales of Rs.1,03,46,274, which comes to Rs.5,17,314. The assessee claimed 10% commission payments @ Rs.10,34,627 on the total sales. Hence, the A.O. is directed to add the balance 5% of Rs.5,17,314 to the total income in the place of Rs.9,31,164."

On appeal ITAT held,

8. We are of the opinion that the revenue authorities have to follow a uniform and consistent method and cannot arbitrarily decide the rate of commission to be paid for the services rendered to the assessee.

9. The Hon'ble Supreme Court in the case of S.A. Builders Ltd. Vs. CIT(A) and Another, [2007] 288 ITR 1 (SC) has held that the revenue officials cannot sit in the chair of a businessman to decide the reasonableness of a decision taken by the businessman. In the case before us, as the services rendered by the M/s. SPMIIPL is not doubted by the revenue authorities, but has only restricted the rate of commission, we deem it fit and proper to direct the A.O. to accept the commission @ 10% of sales as done in the earlier assessment years.

10. In the result, appeal is allowed.

Case Reference - Predict Technologies (I) Private ... vs Assessee.