9911796707
Advanced Search 
TMI Blog2010 (1) TMI 68X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing 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 in the business of manufacture of HDPE pipes. The relevant assessment year is 1997-1998 and the corresponding accounting year ended on 31.03.1997. The assessee/respondent has filed return of income admitting 'nil' income for the said assessment year after setting off unabsorbed loss, investment allowance and business losses of earlier years to the extent of Rs.20,12,148/-. The said return was processed under Section 143(1)(a) of the Income Tax Act, 1961 and notice under Section 143(2) of the Act was also issued. The assessing officer has completed the assessment under Section 143(3) of the Act and demanded a sum of Rs.59,292/-. While completing the assessment, the assessing officer disallowed the assessee's claim of deduction on account of sales commission amounting to Rs.4,20,000/- paid to three Directors and proportionate disallowance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 appellant and perused the materials available on record. In respect of the first question of law, the assessee- respondent has claimed deduction towards payment of sales commission at Rs.4,20,000/- to its three Directors. The details regarding the same are as under: 1. A.Ramadoss amount paid Rs.1,20,000/-; 2. R.Lalathi amount paid Rs.1,20,000/- and 3. R.Chakravarthy amount paid Rs.1,80,000/- Total claim Rs.4,20,000/- The said directors secured orders from M/s Shree Balaji Poly Pack to the value of Rs.30.72 lakhs for the assessment year 1996-1997; Rs.32.24 lakhs for the assessment year 1997-98 and Rs.25.34 lakhs for the assessment year 1998-99. The said sales commission payment were made to these three Directors at 5% of the total value of orders received by the assessee. Besides the commission, on securing order from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmissioner 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 not show the commission in question under the head "guarantee commission" which would have been appropriate. It is seen from the order of the Commissioner of Income Tax (Appeals) that the three Directors have given personal guarantees to several concerns for securing loan for M/s Virgo Polymers India Ltd. The learned Commissioner of Income Tax (appeals), in his order has tried to find a nexus between the guarantees given by the three directors and the net worth and that in the business it is common and usual that guarantees are given and taken. By these means, expenditure on sales commission cannot be disallowed. Rather, it shows that the three directors are men of 'mean' especially when Tamil Nadu Industrial Investment Corporation Ltd., the Lakshmi Vilas Bank Ltd., the Commercial Tax Department of the Govt. of Tamil Nadu and M/s Industrial Development Bank of India have accepted their guarantees as per the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see 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 Virgo Polymers India Limited and to the extent of 80 to 90 per cent of the orders are from the said company. Therefore, the Tribunal has come to the conclusion that the investment was made for the purpose of commercial interest of the assessee. It is also pertinent to note that one of the objects of the Memorandum of Association is that the assessee company can make investment in shares in companies. The assessee has received a sum of Rs.60,00,000/- from TIIC on 23.05.1996. The assessing officer was of the view that the said amount was invested in the shares. Actually investment was made on or before 03.04.1996 by the assessee. The said borrowal from TIIC on 23.05.1996 is much later than the investment already made by the assessee i.e. on 03.05.1996. So, the revenue has also not produced any evidence to show that the borrowal money was diverted for investment. There is no material available on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 partners and also advanced amounts to relatives of the partners and sister concerns; but no interest was charged and the assessing officer disallowed the proportionate interest in respect of the amounts so advanced by the assessee firm. On an appeal to the CIT (Appeals), the Commissioner has confirmed the order of the assessing officer. On further appeal by the assessee, the Tribunal allowed the claim of the assessee. The Kerala High Court reversed the order of the Tribunal and confirmed the order passed by the assessing officer on the ground that the assessee had not derived any benefit from the advances to the partners, their relatives and the sister concerns and therefore, held that the same was not for business purpose. In the present case, the assessee solely depends upon the orders of the M/s Virgo Polymers India Limited and therefore in the interest of the assessee the investment was made a ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
