TMI Blog2014 (12) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... ate of the borrowings it cannot be concluded that borrowings it cannot be concluded that borrowings were not for the purpose of business - CIT(A) was not justified in sustaining the disallowance and is to be set aside – Decided in favour of assessee. Rate difference/commission paid to peta dealers – Held that:- CIT(A) rightly was of the view that the payment of ₹ 34,78,373/- is relatable to appellants sale of 623.02 crore bidi’s - their exist a direct relationship between commission paid and the corresponding sales - once there existed an evidence that an amount of commission flowed from appellant to peta dealers through agents, a disallowance on the absence of commercial expediency was not required to be made - For establishing genuineness of a commission, what is required to be proved is whether it was actually paid, whether the payment was relatable to a genuine business transaction, whether the party to whom payment was made is identifiable, whether the payment was made using banking channels and necessary entries recorded in the books of a/c and whether requisite TDS if any, was made on the amounts of commission paid, whether the parties to whom commission was paid ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the ld.CIT(A), who after considering the submissions and records placed before him, partly allowed the appeal. While disposing of the appeal, ld.CIT(A) confirmed the addition of ₹ 5,14,632/- made u/s.14A of the Act reduced the disallowance of interest to the extent of ₹ 32,31,486/- against the disallowance of ₹ 3,15,09,824/-. In respect of the rate difference, the ld.CIT(A) deleted the addition of ₹ 34,78,373/-. 3. Apropos to ground No.1 of assessee s appeal, the ld.counsel for the assessee submitted that this issue is covered by the decision of the Coordinate Bench of this Tribunal (ITAT Bench A Ahmedabad) in ITA No.777/Ahd/2011(By Revenue) and CO No.93/Ahd/2011 (by Assessee) for AY 2007-08 dated 19/09/2014, wherein the Tribunal restricted the disallowance to the net interest and not on the basis of gross interest. In the present case, the AO made the disallowance on the basis of gross interest. 3.1. On the contrary, the 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 a similar issue was de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he interest expenses which were far in excess than the interest paid to the relatives and family members of the partners of the firm. The appellant has raised new funds of ₹ 4,87,53,200/- against which AO has disallowed interest of ₹ 315,09,824/-. The AO at best ought to have disallowed interest on new loans. Having said that there is no denying the fact that the appellant cannot claim interest u/s 36(1)(iii) in respect of any borrowed funds unless he is able to establish a clear nexus between such borrowed funds and their immediate deployment / utilisation for the purpose of business. Perusal of the details of bank accounts filed by the appellant however indicate that there were occasions when the appellant was having its own funds and was not in need of any borrowings. Consequently, the appellant cannot be allowed interest on those borrowed funds which were obtained at a time when the appellant was having its own funds. Accordingly an effort was made to identify the factual position of the receipt of funds, interest paid upon it which was not utilised by the appellant for its business with reference to the bank statements of the appellant operated during the year. Dur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the course of business. Therefore, merely as because the assessee had sufficient own funds on the date of the borrowings it cannot be concluded that borrowings it cannot be concluded that borrowings were not for the purpose of business. 18. In the instant case, we find that it is not the case of the Revenue that the borrowed funds were diverted and actually utilized for any non-business purposes of the assessee. Thus, in our considered view, the disallowance of interest of ₹ 10,71,797/- upheld by the CIT(A) is not sustainable. 7.2. The Hon ble Jurisdictional High Court has, in assessee s own case an identical issue, decided by observing as under:- 10. Examining the facts of the present case in the light of the above decision, the Commissioner (Appeals) in his order has observed that there is no dispute that the assessee requires huge funds for the purpose of its business. For making purchases of bidi, the assessee has to make advance payments. The volume of purchases is ₹ 160 crores or more in one year. For this purpose the assessee has to borrow money from different persons. Since it is not certain as to exactly when such payment will be required to be m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material on record suggesting that the facts and circumstances in the year are different. Therefore, following the judgement of Hon ble Jurisdictional High Court in assessee s own case in Tax Appeal Nos.851 to 856 of 2014 vide order dated 01/09/2014 and the decision of Coordinate Bench of this Tribunal in ITA No.2325/Ahd/2012 for AY 2008-09, we are of the considered view that the ld.CIT(A) was not justified in sustaining the disallowance amounting to ₹ 32,31,486/- and hereby directed to delete the same. Thus, this ground of assessee s appeal is allowed. 8. As a result, the appeal of the assessee is allowed for statistical purposes. 9. Now, we take up the Revenue s appeal in ITA No.1398/Ahd/2013 for AY 2009-10. The Revenue has raised the following grounds of appeal:- (1) The Ld.CIT(A) has erred in law and on facts in restricting the disallowance of interest of ₹ 3,15,09,824/- made by AO u/s.36(1)(iii) of the Act to ₹ 32,31,486/- and thereby allowing relief to the extent of ₹ 2,82,78,338/-, without properly appreciating the facts of the case. (2) The Ld.CIT(A) has erred in law and on facts in deleting the addition of ₹ 34,78,372/- made on ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a finding on fact at para-6.2 of his order, which is reproduced hereinbelow:- 6.2 I have carefully considered the facts of the case and submissions made by the appellant. Perusal of the assessment order indicates that the payment of ₹ 34,78,373/- is relatable to appellants sale of 623.02 crore bidi s. Thus, their exist a direct relationship between commission paid and the corresponding sales. The argument of the AO that there is no written contract between the appellant and his agents and or sub agents peta dealers is untenable since law recognizes even informal oral contracts. The argument of the ld AO that it is the responsibility of the agents to pay commission to the sub agents / peta dealers is also not tenable since the appellant has explained that it has paid commission to agents for their performance and to agents separately for being passed on to peta dealers for performance of latter and had also adduced necessary evidence in this regard. Now once there existed an evidence that an amount of commission flowed from appellant to peta dealers through agents, a disallowance on the absence of commercial expediency was not required to be made. For establishing genuinen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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