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2010 (7) TMI 156 - HC - Income TaxNew Vehicle and Handling charges - Interest free advances to relatives of the partners – Discount and commission expenses – Additions on the basis of book entries – discount and commission expenses - Held that: - As to the provisions of section 40A(2)(b), the same can be invoked only where it is shown that the expenditure is excessive or unreasonable having regard to the legitimate needs of the business of the assessee or the benefit derived by or accruing to the assessee - M/s. Gautam Auto Limited (sister concern) was liable to pay taxes at the same rate as the assessee, if not higher. There is no case made out by the Department that any tax avoidance has been attempted by these arrangements - it is not at all stated as to whether the claim of the assessee was otherwise bogus for claiming petrol expenses – deduction allowed Regarding advance to sister concern - the nexus between the borrowed funds and the interest free advances made by the assessee to its sister concern is to be established. - in cases like the instant one, where the finding of fact is arrived at that the money which was borrowed from the bank is utilized by the assessee for its own business purposes and that the money has not been given to the relatives of the partners, this condition stands satisfied and in such an eventuality the question of establishing the nexus or the business expediency does not arise at all. – Deduction allowed The fact of the matter is that incentive credits received by the assessee were duly account for in the books of account of the assessee the basis of which annual income statement has been prepared. An income chargeable to tax cannot be generated for the reason only that in the opinion of the assessing authorities, certain entries should have been found place in the books of account under another head. Regarding discounts and commission - As pointed out by the assessing officer, the assessee had made claims for the aforesaid discounts and commissions of marginally low amounts for the period of 11 months, i.e., April, 1999 to February, 2000. It is only in March, 2000 that a whopping claim is made. No explanation is coming forward as to why such a claim of huge amount was made in the month of March, 2000. In March, 2000, only 10% of the sales were effected. If the discounts were given to the customers every month when the sales were made, there was no reason not to show those discounts in those months. That apart, most important aspect which cannot be ignored is the contradictory explanation given by the assessee which falsifies the genuineness of this claim. – this issue decided against the assessee and in favor of revenue – additions allowed
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