TMI Blog2014 (9) TMI 202X X X X Extracts X X X X X X X X Extracts X X X X ..... ly concerns were competent to bring the business for the assessee which the assessee itself could not have done – CIT(A) was of the view that the assessee could not establish the nature of services rendered by the persons to whom the brokerage was paid – assessee relied upon Aluminium Corporation of India vs. CIT [1972 (8) TMI 2 - SUPREME Court] The contention of the assessee that all the details regarding nature of services rendered by the persons to whom the commission was paid were filed but not considered by the authorities below – the contentions of the assessee required verification at the end of the AO – thus, the matter is to be remitted back to the AO for fresh adjudication – Decided in favour of assessee. Interest subsidy received – Nature of receipt revenue or not – Held that:- The interest subsidy has been granted by Government of Gujarat, Industries & Mines Department, Resolution No.APN/102004/1161(2)/1, Sachivalaya, Gandhinagar, dated 10th June- 2004 - the interest subsidy is granted under the scheme of Government of India, following the decision in CIT vs. Ponni Sugars and Chemicals Ltd. [2008 (9) TMI 14 - SUPREME COURT] - The AO is directed to treat the interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort) dated 22/01/2010 pertaining to Assessment Year (AY) 2007-08. These cross-appeals were heard together and are being disposed of by way of this consolidated order for the sake of convenience. 2. First, we take up the Assessee s appeal in ITA No.615/Ahd/2010 for AY-2007-08. The assessee has raised the following grounds of appeal:- 1. The Ld.CIT(A) has erred in holding that complete foreign tour expenses claimed by the appellant were not for purpose of business as no evidence was filed to show that the expenses were for business purpose. 2. The Ld.CIT(A) has erred in disallowance of entire claim of foreign travelling expenses ₹ 3,62,112/-. The expenditure was incurred for the purpose of business and is allowable deduction. 3. The Ld.CIT(A) has erred in holding that the appellant failed to show what services were rendered by the agent to whom payment of brokerage/commission were made. 4. The Ld.CIT(A) has erred in disallowing the claim of payment of commission/brokerage ₹ 10,08,707/- which was allowable as deduction as the appellant had procured job work through these agents and the assessee had filed supporting evidence. 5. The ld.CIT(A) has erred in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel for the assessee submitted that the authorities below failed to appreciate the fact that the Directors have traveled abroad for the purpose of business and, therefore, expenditure incurred for traveling ought to have been allowed. 3.1. On the contrary, ld.Sr.DR supported the orders of the authorities below. 4. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the AO disallowed the expenses on the basis that the assessee could not furnish the supporting evidences in respect of the expenditure incurred. The finding of the AO was confirmed by the ld.CIT(A) on the basis that neither during the assessment proceedings nor during the appellate proceedings the assessee could file any evidence and point out that the people traveled to China actually for the purpose of business. The contention of the assessee is that the Director of the Company Shri Vipul Saraf visited Switzerland and China for the purpose of business. We find that the assessee has placed on record a ledger account of foreign travelling expenses at page 34 of the paper-book. However, no details of the foreign parties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otes, balance-sheet etc. which are placed at page Nos.51 to 68 of the paper-book. After considering the totality of the facts of the case, we are of the considered view that the contention of the ld.counsel for the assessee is required verification at the end of the AO, therefore, ground Nos.3 4 of assessee s appeal are restored back to the file of AO for decision afresh and the order of the ld.CIT(A) on this issue is hereby set aside. Thus, ground Nos.3 4 are allowed for statistical purposes. 7. Ground Nos.5 6 are against the finding given by the ld.CIT(A) that the interest subsidy received by the appellant was of revenue nature and hence taxable. The ld.counsel for the assessee submitted that the issue is covered by the decision of Hon ble Apex Court rendered in the case of CIT vs. Ponni Sugars and Chemicals Ltd. reported at (2008) 306 ITR 392 (SC). He also placed reliance on the judgement of Hon ble Madras High Court rendered in the case of CIT vs. Prasad Art Pictures P.Ltd. reported at 257 ITR 699 (Mad.). 7.1. On the contrary, ld.Sr.DR supported the orders of the Authorities below. 8. We have heard the rival submissions, perused the material available on record an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsaction of borrowing attracts the provisions of section 36(1)(iii). Thus, the decision of the Bombay High Court in Calico Dyeing and Printing Works [1958] 34 ITR 265 and the judgment of the Supreme Court in India Cements Ltd. [1966] 60 ITR 52 have been given with reference to the borrowings made for the purposes of a running business, while the decision of the Supreme Court in Challapalli Sugars Ltd. [1975] 98 ITR 167 was given with reference to the borrowings which could not be treated as made for the purposes of business as no business had commenced in that case. Therefore, there is no inconsistency between the above decisions. 6.3.2. The appellant has failed to show that as per the sanction letter the subsidy has been given on capital account. In the entire scheme dated 10.06.2004 nowhere the Govt.of Gujarat has stated that this interest subsidy is towards purchase of capital goods. Therefore, it is clear that the interest subsidy is basically for reducing the interest burden. This subsidy only reduces the interest which was otherwise claimable by the assessee as revenue expenditure. Hence, I agree with the A.O. that the interest subsidy is purely on revenue nature. Hence th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t will be required to pay minimum 5% interest per annum to the Financial Institutions. Accordingly, if the rate of interest is less than 10%, the interest subsidy shall be reduced to that extent. If the unit is availing benefit under Government of India, Scheme, total interest subsidy by Government of India the State Government shall be granted in such a way that the unit shall have to bear minimum 5% interest on the loan. (vi) The interest subsidy will be available only on interest levied by the Financial Institution. Penal interest or other charges will not be reimbursed. (vii) The interest subsidy will be available for maximum 5 years limited to maximum ₹ 5 lakhs per year. 9. Since the interest subsidy is granted under the scheme of Government of India, respectfully following the judgement of Hon ble Apex Court rendered in the case of CIT vs. Ponni Sugars and Chemicals Ltd.(supra). The AO is hereby directed to treat the interest subsidy received by the assessee as capital receipt and make necessary charges in the computation of income of the assessee. Hence, the ground Nos.5 and 6 are disposed of as indicated hereinabove. 10. In the result, the appeal of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... result disclosed is rejected the AO is bound to estimate the profit, which is very fairly and reasonably estimated by the AO @ 45.64% which was disclosed by the assessee itself in the immediate earlier year. We find that the ld.CIT(A) has decided the issue in para 2.3 of his order as under:- 2.3. I have considered the submission made by the appellant and the observation of the A.O. The appellant has explained the fall in G.P. rate by giving full details. The appellant has stated that the disproportionate increase in the manufacturing expenses and personal expenses appears to be so because the A.O. has compared the turnover in terms of rupees and not in terms of quantity. If the turnover is compared in terms of quantity then as is seen from para 2.2.3 the production has increased 406 times in terms of quantity whereas manufacturing expenses have increased only 344 times. Te personal expenses have increased only 417 times which are comparable with increase in production in quantity terms. The appellant has further stated that the average cost of yarn/jari has increased from ₹ 212.13 per kg. to ₹ 226/- per kg. whereas the job receipt per meter has decreased in the cur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank limits but has not substantiated their such claim by placing any reliable and justifiable evidences and their unsubstantiated version is accepted by CIT(A) and has rejected the findings of the AO that the assessee had paid unreasonable and excessive rate of interest to the specified persons within the meaning of section 40A(2)(b) of the act. We find that the ld.CIT(A) has decided this issue in para 4.3 of his order as under:- 4.3. I have considered the submission made by the appellant and the observation of the A.O. The appellant has argued that it had exhausted its maximum possible term loan and OD limits and, therefore, it had no other way except to raise unsecured loans. It is also tr4ue that the unsecured loans are available at various rates depending upon time to time. The A.O. has compared the rate of unsecured loan of 15% with the rate of loan given by the Bank and not with rate of unsecured loans available in the market. For a disallowance u/s.40A(2)(b) the A.O. is required to compare the market rate. In the case of Binit Corporation (24-TTJ-541), the Hon ble ITAT, Ahmedabad stated that first of all the A.O. has to satisfy himself whether the expenditure itself is ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
