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TMI Blog2015 (2) TMI 54X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the case and in law, the ld.CIT(A) has erred in treating the loyalty commission paid of Rs. 65,25,000/- as capital expenditure and directing the AO to allow depreciation on that amount since the AO has rightly disallowed the same as inadmissible expenditure." 3. The learned DR submitted that the loyalty commission of Rs. 65.25 lakhs was claimed by the assessee as paid to M/s.PSL Corrosion Control Ltd. ("PSL" for short) vide agreement dated 24.12.2004 for no business purpose, and therefore, was rightly disallowed by the AO. He submitted that the assessee has paid heavy loyalty commission fees before a single sale transaction was entered into by the assessee with "PSL" and it was not clear that why the assessee has clubbed the loyalty c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Hon'ble Supreme Court in CIT Vs. Dhanrajgirji Raja Narasingirji, 91 ITR 544 (SC) and ITAT, Ahmedabad Bench in Hathiwala Silk Mills Vs. ITO, 19 TTJ 284 (Ahd) in support of the case of the assessee. 5. We have considered rival submissions and perused the orders of the AO and the CIT(A) and also relevant clauses of the agreement of the assessee with "PSL" dated 24.12.2004. We find that in this case genuineness of the payment claimed to have been made to "PSL" as loyalty commission is not disputed. It is also undisputed fact that it is an arm's length transaction. Only dispute is regarding the business purpose of the payment of loyalty commission to "PSL". We find that the assessee has made one time loyalty payment to "PSL" for acquiring t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll the customers, but it is entitled to get the deduction for the commission which it has paid to a particular customer, who has made purchases in bulk. In these facts, we are of the view that the amount of loyalty commission paid by the assessee could not be disallowed. However, whether the said payment made by the assessee as loyalty commission to the PSL is capital or revenue expenditure in the hands of the assessee would be adjudicated separately, as the same is an issue in the CO preferred by the assessee. Accordingly, the ground no.1 of the appeal of the Revenue is dismissed. CO No.257/Ahd/2010 (Assessee's CO) 6. The ground no.1 and 2 of the CO are as under: "1. The ld.CIT(A) erred in holding that the loyalty commission of Rs. 65,2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he fact that by paying loyalty commission, it shall be entitled to enduring benefits for subsequent many years, and PSL will retain as its customer. In these facts of the case, we confirm the order of the CIT(A) in holding that the assessee has paid the amount for enduring benefits for many years, and therefore, it should be treated as capital expenditure and depreciation to be allowed on this amount. Accordingly, the ground no.1 and 2 of the CO of the assessee are dismissed. 9. Ground no.3 of the CO is as under: "3. The ld.CIT(A) erred in holding that the bank interest of Rs. 3,68,000/- is capital in nature. The ld.CIT(A) ought to have appreciated that the borrowing was made for general corporate use and there was no specific loans taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 65,25,000/- loyalty payment paid to PSL on the ground that such payment was not made as a part of normal business transaction and interest expenses incurred of Rs. 3,68,000/- on purchase of machinery not put to use were disallowed on the ground that such expenditure forms character of revenue expenditure." 14. The learned DR submitted that the only issue in this appeal of the Revenue is regarding levy of penalty under section 271(1)(c) of the Act on the assessee. He submitted that disallowance of loyalty commission has been confirmed by the learned CIT(A) with direction that the same should be considered as capital expenditure and depreciation to be allowed thereon. He submitted that it was for the assessee to file correct return of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oregoing paras of this order. In this background, the only dispute was whether the expenditure of loyalty commission was capital or revenue in nature. There can always be an honest difference of opinion on this issue between the parties. Merely because certain expenditure was held to be capital in nature and allowed depreciation thereon, it could not be said that the assessee is guilty of concealment of income or filing of inaccurate particulars of income. The ratio of the Hon'ble Supreme Court in CIT Vs. Reliance Petroproducts Pvt. Ltd.(supra) is clearly applicable to the facts of the case of the assessee, and accordingly, the order of the CIT(A) on this issue is confirmed in cancelling the penalty under section 271(1)(c) of the Act, and t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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