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2017 (8) TMI 271 - AT - Income TaxAddition u/s 40A(2) - addition treating commission payment as unreasonable and excessive - Held that:- Commission was not outside the scope of the transaction agreement as well as the documents produced before the lower authorities. Section 40A (2) (b) set out the circumstances in which certain expenses or payments are not deductable. In the present case there were no circumstances for invoking the same. Though Shri Manish Patodia is brother of the assessee, he has actually worked for the assessee. Therefore, the CIT(A) as well as the Assessing Officer was not justified for invoking provisions of Section 40A (2) (b). The incentive of ₹ 5,27,602/- to Shri Manish Patodia was paid on the basis fixed percentage of the total turnover of sulpher at 0.2% on total turnover of sulpher of ₹ 26,38,01,114/-. This commission was paid as services, both administrative and managerial rendered by Mr. Manish Patodia for their sales. Merely because the commission was paid to Shri Manish Patodia was computed on turnover basis as fixed percentage thereof and the commission paid to others were on the basis of quantity sold cannot be the basis to hold that the payment as excessive and unreasonable. Merely because a person is not an employee but rendered the professional services cannot be the basis to hold that the payment made to such person is excessive and unreasonable. The 0.2 % commission for the turnover of ₹ 26,38,01,114/- cannot be held as excessive or unreasonable payment - Decided in favour of assessee Addition of notional interest income observing that appellant has charged lesser rate of interest - accrual of income - Held that:- The borrowed funds were mainly availed during the previous assessment years and brought forward to the year under assessment. During the year under consideration loans were given to Smt. Jaya Patodia and Mr. Manish Patodia (HUF) from the funds available in personal capacity and not out of the funds borrowed which is evident from the personal statement of affairs. When the assessee has both interest free funds and interest bearing funds, the presumption is that interest free funds are utilized for interest free loans. Hence, there is no justification for making the proportionate disallowance. The Assessing Officer failed to establish the nexus between the interest bearing borrowed funds and their utilization for loan given at a lesser rate of interest. The addition was made purely on notional interest income which neither was charged nor the same accrued to the assessee.- Decided in favour of assessee Allowable business expenditure - expenses incurred under the head vehicle repair and maintain, telephone expenses and business promotion - Held that:- The expenses incurred by the assessee are properly justified by the Assessee through vouchers. Neither the assessee was confronted nor any show cause notice was issued to the assessee before making the addition of ₹ 56,052/- for disallowance on ad-hoc basis being 20% expenses incurred under the head vehicle repair and maintainance, telephone expenses and business promotion while holding the same as personal in nature by the Ld. A.O. The Assessing Officer has not pointed out any specific expenses which as per him are personal expenses. The expenses were fully vouched and duly recorded in the regular books of accounts maintained by the assessee separately for his proprietary concern namely M/s Atul International. The books of accounts were duly audited u/s 44AB of the Act and nothing adverse was reported by the tax auditor regarding personal use of the business assets. All expenses were supported by the bills and vouchers. The same were before the Assessing Officer. The disallowance on Ad-hoc basis cannot be sustained - Decided in favour of assessee
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