Refund of excise duty is directly related to the manufacturing activity and commission paid to related party on sale is allowed up to 2 and half percent

Court :
INCOME TAX APPELLATE TRIBUNAL

Brief :
Facts of the case in brief are that the A.O. noted that the assessee has received Sales Tax incentive of Rs. 12,94,109/- in respect of Unit I and Sales Tax incentive of Rs. 84687/- in respect of Unit II on which deduction u/s 80IB has been claimed. According to the A.O. Sales Tax incentive claimed is benefit given to the asasessee by the State Government and this income also cannot be said to be derived from the business of the assessee as there is no direct nexus with the manufacturing activity of the assessee. Relying the decision of the Hon’ble Supreme Court in the case of CIT v Sterling Foods reported in [1999] 237 ITR 579 and in the case of Pandian Chemicals Ltd. v. CIT reported in [2003] 262 ITR 278, the A.O. held that Sales tax incentive is not income derived from the business for the purpose of deduction u/s 80IB. Facts of the case in brief are that the assessee is engaged in the business of manufacturing of all types of stone cutting tools in its factory at Goa. During the course of assessment proceedings, the A.O. noted that the assessee has paid an amount of Rs. 66,07,486/- as commission on sale which includes commission of Rs. 34,72,646/- to Shatul Commercial Co. Pvt. Ltd., which is a group concern of the assessee. The above commission works out to 3.75% on consignment sale of Rs. 8,69,62,266/-. The A.O. noted that the assessee has paid commission @ 1.5% to 3% to other parties whereas the same is 3.75% to the related party. He, therefore, asked the assessee to justify the payment of higher commission paid to related party and explain as to why the excess commission paid to the related party should not be disallowed.

Citation :
M/s Diamond Tool Industries,108, Udyog Bhavan,Sonawala Road,Gorregaon (East),Mumbai 400 051.(Appellant)Vs J.C.I.T. Circle 24(3),Pratyaksha Kar Bhavan,m C-11 Bandra Kurla Complex,Bandra (East),Mumbai. 400 051. (Respondent)