TMI Blog2015 (2) TMI 54X X X X Extracts X X X X X X X X Extracts X X X X ..... to sit over the judgment of the assessee that how the business has to be conducted and the expenditure incurred could not be disallowed, till it shows that the payment itself was not genuine or was made for some purpose other than the business purpose of the assessee. No valid reason for the said disallowance could be made out by the Revenue. In these facts, we are of the view that the amount of loyalty commission paid by the assessee could not be disallowed. CIT(A) has passed a well reasoned speaking order on this issue. The assessee has derived enduring benefits by paying loyalty commission to PSL and has effected sales in crores in the subsequent years to PSL. It is not the case of the assessee that PSL has procured the goods from the assessee-company only for relevant Asstt.Year 2006-07. We find that the assessee is well aware of the fact that by paying loyalty commission, it shall be entitled to enduring benefits for subsequent many years, and PSL will retain as its customer. In these facts of the case, we confirm the order of the CIT(A) in holding that the assessee has paid the amount for enduring benefits for many years, and therefore, it should be treated as capital exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The learned counsel for the assessee has opposed the submission of the learned DR. He submitted that the PSL is not a related party to the assessee. He submitted that the expenditure in question was incurred for obtaining first preference to supply for PSL s requirements and for getting the status of the most preferred supplier, the expenditure was incurred for business consideration only, and the department should not sit over the judgment of the assessee in this regard. He submitted that it is not the case of the department that the said commission was not paid to PSL and that it was an arm s length transaction. H submitted that PSL has purchased about 75% of the requirement from this assessee, and therefore, the payment of commission was justified. He referred to the figure of actual sales made by the assessee to PSL in the subsequent years running in cores, which justifies one-time payment of loyalty commission to PSL . He referred to series of decisions of Hon ble High Courts including that of Hon ble Supreme Court in CIT Vs. Dhanrajgirji Raja Narasingirji, 91 ITR 544 (SC) and ITAT, Ahmedabad Bench in Hathiwala Silk Mills Vs. ITO, 19 TTJ 284 (Ahd) in support of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee as loyalty commission to the PSL is capital or revenue expenditure in the hands of the assessee would be adjudicated separately, as the same is an issue in the CO preferred by the assessee. Accordingly, the ground no.1 of the appeal of the Revenue is dismissed. CO No.257/Ahd/2010 (Assessee s CO) 6. The ground no.1 and 2 of the CO are as under: 1. The ld.CIT(A) erred in holding that the loyalty commission of ₹ 65,25,000/- is a capital expenditure. 2. The ld.CIT(A) ought to have directed the ld.JCIT to allow loyalty commission of ₹ 65,25,000/- as revenue expenditure under section 37(1) of the IT Act. 7. The learned counsel for the assessee submitted that the CIT(A) has erred in holding that the loyalty of ₹ 65.25 lakhs was a capital expenditure and has allowed only depreciation on the same, as against the claim of the same as revenue expenditure under section 37(1) of the Act. He submitted that entire amount is paid during the year for business consideration, and is clearly a revenue expenditure. He submitted that although PSL has made bulk purchases in subsequent many years, but as far as the deduction of expenditure is concerned, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the AO. We have considered the rival submissions of the parties. In the facts and circumstances of the case, we restore this issue to the file of the CIT(A) with direction to decide the ground no.8 before him on merits after allowing due opportunity of hearing to the parties. We direct accordingly. ITA No.1779/Ahd/2010 (Revenue s appeal - penalty under section 271(1)(c) of the Act. 13. The only ground of the Revenue in this appeal is as under: 1. On the facts and circumstances of the case and in law, the ld.CIT(A) erred in deleting the levy of penalty of ₹ 23,20,193/- u/s.271(1)(c) of the Act on addition made of ₹ 65,25,000/- loyalty payment paid to PSL on the ground that such payment was not made as a part of normal business transaction and interest expenses incurred of ₹ 3,68,000/- on purchase of machinery not put to use were disallowed on the ground that such expenditure forms character of revenue expenditure. 14. The learned DR submitted that the only issue in this appeal of the Revenue is regarding levy of penalty under section 271(1)(c) of the Act on the assessee. He submitted that disallowance of loyalty commission has been confirmed by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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