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2021 (12) TMI 1255 - ITAT MUMBAINon-apportionment of expenses in respect of its share with holding company - CIT-A deleted the addition - assessee is a public limited company engaged in the business of merchant banking - HELD THAT:- As the assessee had only parted the net profit from the collaboration project with its holding company. We find that the ld. AO had wrongly misunderstood the fact by stating that assessee had only shared the gross revenue and had claimed the entire expenses as deduction in its books. This is factually incorrect. Accordingly, the disallowance of ₹ 3,44,24,282/- ( being 50% of expenses incurred on collaboration project of ₹ 6,88,48,564/-) on account of non-apportionment of expenses is hereby directed to be deleted as the ld. CIT(A) had rightly understood the fact and modus operandi adopted by the assessee. Accordingly, the ground No.1 raised by the Revenue is dismissed. Disallowance on account of apportionment of bad debts - CIT-A deleted the addition - HELD THAT:- As categorical factual finding of the ld. CIT(A) has not been controverted by the Revenue before us. Hence, we hold that there is no question of sharing of bad debts written off with the holding company. Once, it is found that assessee had indeed offered the fee income in earlier years in its entirety, any non-realisation of the said fee which resulted in bad debt would be eligible for deduction if the same is written off in the books of accounts. In the instant case a sum of ₹ 1,79,66,908/- remain irrecoverable and the same was duly written off by the assessee in its books in A.Y.2011-12, which becomes squarely eligible for deduction in the hands of the assessee company. There is no question of sharing the same with the holding company. This fact has been duly appreciated by the ld. CIT(A). Accordingly, the ground No.2 raised by the Revenue is dismissed. Disallowance of bonus paid to employees including the key management persons - HELD THAT:- Certain employees who have been made Director or Managing Director of specific department inside the company. They are not the Directors of the assessee company as per the Companies Act. The assessee also furnished the list of Directors of the assessee company to justify this contention. Hence, the entire reliance placed on the provisions of Section 40A(2)(b) of the Act was totally unjustified. The ld. CIT(A) also observed that on perusal of the tax audit report, only one person namely Shri Tapasije Mishra, Group CEO, to whom bonus was paid figures in the list of related party transactions, specified u/s.40A(2)(b) - CIT(A) also observed that there is no tax arbitrage involved in the same as the said employee also suffers tax at the maximum marginal rate of 30%. In any case, the disallowance was made by the ld. AO only on an adhoc basis at the rate of 25% without rejection of books of accounts by pointing out some defects thereof. None of these factual observations controverted by the Revenue before us. We hold that the bonus was paid to the employees including the key management personnel only in the ordinary course of business and the same are squarely allowable as deduction u/s. 37 - ground No.3 raised by the Revenue is dismissed.
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