TMI Blog2014 (8) TMI 752X X X X Extracts X X X X X X X X Extracts X X X X ..... emitted back to the AO for fresh adjudication – Decided in favour of Assessee. Registration expenses deleted – Held that:- FAA had not deleted the addition of ₹ 10.22 lakhs, as mentioned in the ground of appeal - While deciding the appeal the issue before him was the expenditure of ₹ 7.87 lakhs only - Out of the total expenditure of ₹ 22. 29 lakhs, incurred by the assessee, the foreign principals had reimbursed ₹ 14.42 lakhs - the commission income received from sale of products supplied by the foreign suppliers was offered to tax by the it - the expenditure was incurred wholly and exclusively for business purposes - an increase in the expenditure cannot be basis for disallowing it - Without registration of the product with appropriate authority at Delhi, it was not possible for the assessee to earn income - payments made under the heads consultancy fees, bank charges and other expenses cannot be held to be not incurred for the business for year - All the expenses had direct nexus with earning of the income offered for taxation - Genuineness of the expenditure is not in doubt and the assessee had also deducted tax at source on those payments - the FAA was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 36(1)(iii) on account of diverting interest bearing loans to interest free loans. 3. The appellant prays that the order of the CIT(Appeals) on the above ground to be set aside and that of the assessing officer be restored. 4. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary. The grounds of appeal filed by the assessee for the cross objections are as under: I. DISALLOWANCE OUT OF PRODUCT REGISTRATION EXPENSES AMOUNTING TO ₹ 1, 64, 210/- 1. 1 On the facts and circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) hereinafter referred to as CIT (A) has erred in sustaining the disallowance of ₹ 1, 64, 210 out of the products development expense of ₹ 10, 12, 231. 1. 2 The appellant has never accepted that the disallowance of ₹ 1, 64, 210 may be sustained as mentioned in para 3. 2. 3 , page 6 of the CIT (A) order. 1. 3 The amount of ₹ 1, 64, 210 is an allowable deduction u/s28/37(1) of the Income Tax being incurred wholly and exclusively for the purpose of the business. 1. 4 Without prejudice to the above, the AO has erred in taking the ground that dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lakhs as on 01. 04. 2006, that the closing balance figures had changed because the it had credited a goodwill reserve of ₹ 3. 57Crores, that the goodwill was credited to all the partners accounts, that no interest was charged from the partners on the negative capital balance though the assessee was paying interest to the partners. He held that the onus was on the assessee to prove that interest bearing funds were given as interest free loan out of commercial expediency, that in the case under consideration full facts were not available, that corresponding interest had to be disallowed. Finally, he held that total interest free loans given to sister concern and partners amounted to ₹ 3. 42 crores. He adopted the interest rate of 11. 2% and made a disallowance of ₹ 38, 36, 917/-. 3. 1. Aggrieved by the order of the AO, the assessee filed an appeal before the First Appellate Authority(FAA). Before him, it was argued that there was commercial expediency about the trans - actions carried out by the assessee with its associate concern, that loan amounting to ₹ 2. 70 crores and not of ₹ 2. 86 crores, was advanced to APL, that the amount advanced to APL i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eet the interest free unsecured loan given to its associate concern, that AO was not justified in holding that interest free loan given to APL was out of interest bearing funds. Taking note of the submission of the assessee and the details filed by it, he held that total amount due from APL as on 31. 03. 2007 was of ₹ 2. 70 crores, that the assessee was having two accounts of APL, that till FY 1996-97 it was having only one combined account in its books of accounts, that at the end of that year it bifurcated the account into business transaction account and loan account, that in the business transaction account there were various debite-group entries pertaining to job work, leasing of plant and machinery and commerce, that it was paying as well as receiving amounts from APL in this regard, that the transactions resulted into debit as well as credit balances in the said account from time to time, that the it had not charged interest from APL on the amounts due for the FY. 1996-97, 2000-2001, 2001- 02, that the AO was not justified to hold that the proportionate interest on such debit balance as on 31. 03. 2007 was to be disallowed, that AO had wrongly presumed that same was so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to prove that the IFL given to APL was directly out of IFL available, that it had not proved the direct nexus, that it could not establish that it was having sufficient IFF on 31. 03. 2007 to the extent of giving IFF/IFL to the partners and associate concern. Thus, the FAA partly allowed the appeal filed by the assessee. 3. 3. Before us, Authorised Representative(AR) argued that the assessee had sufficient funds for advancing loan APL, that it was maintaining two accounts of APL and one of them was business account, that interest expenditure on debit balance of partners was out of the IFF available to the assessee, that there was no justification for partial confirmation of the disallowance made by the AO under the head interest expenditure paid. He relied upon the cases of . He also referred to the page no. of the paper book. Departmental Representative(DR)stated that the assessee itself had admitted before the AO that the assessee was not having any business relation with APL, that maintaining of two accounts was never brought to the notice of the assessee, that FAA did not seek comments from the AO in this regard, that there was proof that the assessee had sufficient IFF f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uliar facts and circumstances of the matter the effective ground of appeal filed by the assessee and ground no. 2 filed by the AO are allowed in their favour, in part. ITA/1198/Mum/2011: 5. First ground of appeal is about deletion of addition of ₹ 10. 12 lakhs out of the registration expenses. During the assessment proceedings the AO found that the assessee had claimed registration expenses of ₹ 22, 29, 255/-under the head registration charges as debited to its P L account. The relevant expenditure in its immediately preceding assessment year was only of ₹ 17, 800/-, therefore, the assessee was asked to furnish the details as well as to explain the nature of expenses as claimed by it. In response to the same, the assessee vide its letter dtd. 26. 11. 2009 submitted that the it was engaged in the business of a commission/indenting agent on behalf of major pharmaceutical companies situated abroad, that as per the Drugs and Cosmetics Act, any Indian Company desirous of importing any bulk drug or formulation into India had to import the same from a manufacturer approved by the office of Drug Controller General of India(DCGI), that the manufacturing site and produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eques on which TDS as required under the various provisions of chapter XVI-B of the Act was deducted, that the expenditure was incurred in connection with the obtaining of registration formalities done on behalf of its principals, that the expenditure was incurred for normal wholly and exclusively for the purpose of the business, that these charges were incurred to obtain the registration of the products of its principals to be eligible for selling those products in India on which the assessee was to get commission, that the assessee did not have the expertise to obtain the registration formalities to be completed at Delhi, that necessity of the incurrence of the expenditure had to be seen and judged from the business man s point of view and the department could not decide which expenditure the assessee should incur and should not incur. 5. 2. Before us, the DR supported the order of the AO. AR advanced the same arguments that were agitated before the FAA and supported the order of the FAA to the extent of deletion of addition. For the addition sustained by the FAA, it has raised ground in the CO and same is being dealt with in subsequent paragraph. 5. 3. We have heard the ri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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