TMI Blog2010 (1) TMI 68X X X X Extracts X X X X X X X X Extracts X X X X ..... mercial interest of the assessee. - 625 of 2004 - - - Dated:- 6-1-2010 - Mr. D.Murugesan and Mr. P.P.S.Janarthana Raja, JJ. For appellant: Mr.K.Subramaniam For respondent: Mr.M.P.Senthil Kumar for Mr.Philip George JUDGMENT P.P.S.JANARTHANA RAJA, J. - The appeal is filed by the revenue as against the order of the Income Tax Appellate Tribunal, Chennai 'D' Bench dated 19.12.2003 made in ITA No.1967/Mds/2002. 2. The appeal was admitted on 01.09.2004 on the following substantial questions of law: "1.Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding and justifying the commission paid to the Directors of the company and set aside the order of the Commissioner of Income-tax (Appeals) in confirming the order of the assessing officer? 2.Whether on the facts and in the circumstances of the case, the Appellate Tribunal was justified in granting deduction a sum of Rs.13,47,894/- being the interest payable in respect of investments made in M/s Virgo Polymers India Limited as mentioned in the Tribunal's order? 3. The assessee is a private limited company engaged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seeks to set aside the same. 5.The learned counsel appearing for the assessee submitted that the sales commission paid to the Directors is business expenditure and also the said amount comes to less than 5% of the total value of the orders secured by the Directors from M/s Shree Balaji Poly Packs and the Directors also gave bank guarantee to the said company and therefore, it is allowable expenditure and the Tribunal is correct in allowing the claim of the assessee in respect of the commission paid to the three Directors. In respect of disallowance of the proportionate interest, the learned counsel appearing for the assessee submitted that no part of the investment in shares of M/s Virgo Polymers Ltd., had been made out of interest bearing borrowed funds and there was no nexus between the interest bearing borrowed funds and the investments and also the revenue has not established that the borrowed amount was actually diverted for the purpose of investment. Therefore, the Tribunal has considered all the facts and circumstances of the case and rendered its finding, which is in accordance with law and the same has to be confirmed. 6. Heard the learned counsel appearing for the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 per cent of the total value of the order secured from M/s Balaji Poly Packs for the value of Rs.30.72 lakhs for the year 1996-97, 32.24 lakhs for 1997-98 and Rs.25.34 lakhs for the year 1998-99 for thse years, all the three directors stood personal guarantee for the performance of value of goods and in order to meet the above demand of personal guarantee by the directors, the appellant company had paid sales commission/guarantee commission as insisted by M/s Shree Balaji Poly Packs vide letter dated 26.02.1996 and all the directors had declared the income from sales commission to the extent of Rs.4,20,000/- in their respective Returns of Income for the relevant assessment years. Even it is not denied by the Assessing Officer or it is claimed by the Assessing Officer that excess payments have been made. Even the first Appellate Authority had not doubted these payments or its reasonableness. Rather, the Commissioner of Income Tax (Appeals) had admitted that the three Directors have offered personal guarantee to M/s Shree Balaji Poly Packs for performance and value of goods. Rather, the Commissioner of Income Tax (Appeals) suggested that there was no reason why the appellant did no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned, the assessing officer disallowed the interest at Rs.13,47,894/- with reference to the investments made by the assessee in M/s Virgo Polymers India Ltd. During the assessment years 1996-97 and 1997-98, the assessee had acquired Rs.3,98,200/- worth shares of M/s Virgo Polymers India Ltd., at a total consideration of Rs.95,09,550/-. The assessee had shown loss of Rs.31,70,350/- in the profit and loss account for the year ended on 31.03.1997 and the investment made by them. The assessing Officer was of the view that the investment made by the assessee was not relating to the business and therefore, he disallowed a sum of Rs.13,47,894/- towards interest attributable on investment to the extent of 18% per annum. The assessing officer further held that money borrowed from various concerns including TIIC Limited was diverted for non business purpose. The Tribunal had given a factual finding that the assessee used to get orders from M/s Virgo Polymers India Limited and also the existence of the assessee company depended on the orders received from the said M/s Virgo Polymers India Limited. It is also to be noted that the assessee/respondent depended on the orders received from M/s Vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see the transfer of the borrowed funds to a sister concern from the point of view of commercial expediency and not from the point of view whether the amount was advanced for earning profits." In this case, the assessee has an object for investment and has also got orders from the said M/s Virgo Polymers India Limited to the extent of 80 to 90 percent and hence, there is a commercial expediency. Further there is no proof that the borrowed amount has actually been diverted to investment. Therefore, after taking into consideration the object of the assessee as well as the investment was made due to commercial expediency and also there is no nexus between the borrowed amount, the Tribunal is correct in holding that the investment in shares was made keeping in view the commercial interest of the assessee. 8. The learned counsel appearing for the revenue relied on the decision of Kerala High Court in the case of COMMISSIONER OF INCOME TAX V. V.I.BABY AND CO., reported in 2002 (254) ITR 248, wherein the assessee, a firm dealing in piece goods, had paid interest on its borrowings from banks and since, the assessee had transferred sizeable amounts to the personal accounts of its partne ..... X X X X Extracts X X X X X X X X Extracts X X X X
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