Law:

Section:

SECTION 40(b) OF THE INCOME-TAX ACT, 1961 [AS IT STOOD PRIOR TO 1-4-1985]-BUSINESS DISALLOWANCE - INTEREST, SALARY, COMMISSION, ETC., PAID TO PARTNERS - IN ACCORDANCE WITH AN AGREEMENT DATED 17-11-1960, AND SUBSEQUENT PARTNERSHIP DEED DATED 23-11-1964, ASSESSEE-FIRM SOLD ALL ITS PRODUCTS THROUGH PROPRIETARY CONCERN OF ONE OF ITS PARTNERS T, TO WHOM A 10 PER CENT COMMISSION WAS PAID ON SALES EFFECTED - SAID PROPRIETARY CONCERN WAS ALSO DOING SIMILAR BUSINESS ON BEHALF OF OTHER MANUFACTURERS - DESPATCH MEMOS ISSUED BY ASSESSEE SHOWED THAT IT DID ALLOW 10 PER CENT COMMISSION TO T BUT IN TRADING ACCOUNT ONLY NET AMOUNT OF SALE PROCEEDS, AFTER DEDUCTION OF COMMISSION PAID, WERE INDICATED - WHETHER IMPUGNED AMOUNT PAID TO T WAS IN NATURE OF COMMISSION AND NOT TRADE DISCOUNT AND WAS SUBJECT TO DISALLOWANCE UNDER SECTION 40(B) - HELD, YES SECTION 147(a) OF THE INCOME-TAX ACT, 1961 - REASSESSMENT - NON-DISCLOSURE OF PRIMARY FACTS - WHETHER ON FACTS MENTIONED UNDER HEAD 'BUSINESS DISALLOWANCE' - INTEREST, SALARY, COMMISSION, ETC., PAID TO PARTNERS' IT COULD BE SAID THAT ASSESSEE HAD FAILED TO DISCLOSE ALL MATERIAL FACTS WHERE ASSESSEE HAD ONLY PRESENTED PARTNERSHIP DEED AND DESPATCH MEMOS TO ITO AND NO MENTION OF COMMISSION WAS MADE IN STATEMENT OF ACCOUNTS FILED BY ASSESSES - HELP, YES Facts The assessee-firm sold all its products through the proprietary concern of one of its partners, T in accordance with an agreement dated 17-11-1960, under which T was to be given a 10 per cent commission on the sales effected. This agreement was stated to be supplemental to the partnership deed dated 15-11-1960. A subsequent partnership deed dated 23-11-1964 also contained similar provisions. The said proprietary concern was also doing similar business on behalf of other manufacturers. In the actual conduct of business, the assessee issued sale bills allowing 10 per cent commission but in the trading accounts, only the net amount of the sale proceeds were indicated. The despatch memos issued by the assessee also showed that it did allow 10 per cent commission to T. In the original assessments for the relevant years, the ITO did not add back the commission paid, but during the course…

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