TMI Blog2015 (4) TMI 909X X X X Extracts X X X X X X X X Extracts X X X X ..... oses or not utilized for the purpose of business. Thus, we agree with the conclusion and findings given by the CIT(A) on this score and accordingly ground no.1 raised by the Revenue is dismissed. Regarding reimbursement of expenses, it is noted that CIT(A) has decided the issue against the assessee, however, has directed the A.O. to disallow only the correct amount of reimbursement for which he has directed the AO to verify the exact amount. We do not find any reason to interfere on such a direction. Accordingly ground no.2 raised by the Revenue stands dismissed. Lastly, regarding disallowance of ₹ 33,06,289 on account of commission paid to Shri Vijay Jain and M/s.B.Arunkumar & Co., who are specified persons u/s 40A(2)(b), it is seen from the records that, Shri Vijay Jain is the Director and CEO of the assessee-company and commission paid to him is a part of his salary package, as he is looking after the entire business of the assessee-company. The said amount of salary package, which includes commission income, was there in assessment years 2004- 2005 and 2005-2006 also, wherein the CIT(A) has deleted the disallowance made by the A.O. on similar grounds. The said order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regards to the nature of quantum of services rendered for which such commission was paid. The appellant prays that the order of the Ld.CIT(A) be set aside and the order of the A.O. be restored. 2. Brief facts of the case are that the assessee-company is a retailer of diamond studded jewellery operating through chain of showrooms and franchises all over the country. During the course of assessment proceedings, the Assessing Officer noted that the assessee is making large amount of payments to its sister-concerns in the form of loan transactions. To verify, whether the interest bearing loan is being diverted to sisterconcerns, the Assessing Officer raised, a specific query, in response to which the assessee submitted that it has paid interest aggregating to ₹ 2,82,39,512 on the borrowings from the banks. The said borrowings were for specific purposes i.e. to meet the requirement of work-in-capital. Photocopy of the sanction letter from the bank was also submitted. Thus, it was submitted that no interest bearing funds have been advanced to the sister-concerns for non-business purposes. The Assessing Officer sought information from the banks (ING Vyasya Bank) by issuance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid to Shri Vijay Jain, who is Director and CEO of the company, the assessee could not give proper justification with evidences. Further the assessee had incurred losses in the current year and also in the earlier years which supports the fact that the payment of commission is not justified. Further regarding other person also, no valid explanation or justification was given by the assessee. Accordingly he disallowed the said expenses aggregating to ₹ 33,06,289. 3. Before the CIT(A), regarding the disallowance of interest, the assessee submitted that the A.O. has failed to understand the correct facts of the case that it has not given any interest free loan to any persons including its sisterconcerns. In fact it has borrowed substantial interest free funds from the sister-concerns. The summarized position of interest bearing funds and interest free funds as at 31st March, 2006 and 31st March, 2007 were given as under:- 2006-07 2005-06 Interest bearing borrowings from bank 214.99 321.50 Interest free borrowings 512.25 425 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment is ₹ 8,94,689. He thus directed the A.O. to verify the correct amount of reimbursement and the disallowance should be restricted to the actual reimbursement. 3.5 Regarding the disallowance of commission paid to Shri Vijay Jain, the assessee clarified that the commission paid to Shri Vijay Jain was part of his remuneration and no extra money has been paid. Regarding commission paid to M/s.B.Arunkumar Co. of ₹ 35,606, it was submitted that similar disallowance was made in the earlier years which has been deleted by the CIT(A) after detailed discussion and no further appeal has been filed by the department. 3.6 The CIT(A), held that in the earlier years the then CIT(A) has decided the issue in favour of the assessee after noting the fact that the commission to Shri Vijay Jain is part of his remuneration looking to the services rendered and duly approved by the Board Resolution. The commission paid is only part of the salary package and therefore, the same cannot be disallowed. Similarly regarding M/s.B.Arunkumar Co., the CIT(A) in the earlier years it was held that commission has been paid at the rate of 0.75% of the sales affected through them which is quite j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings from the banks has been substantially reduced in this year, whereas interest free borrowings from the sister-concerns have increased. The interest free funds have been borrowed to reduce the bank borrowings only. The fund flow statement, which is part of the audited accounts, also show that the assessee has generated huge cash from operating activity. Besides this, if the assessee has taken interest free loans from sister-concerns for the purpose of business, then the payment of the said amount, even if they are partly from the interest bearing borrowings from the bank, the same cannot be held to be diversion for non-business purposes or not utilized for the purpose of business. Thus, we agree with the conclusion and findings given by the CIT(A) on this score and accordingly ground no.1 raised by the Revenue is dismissed. 6.1 Regarding reimbursement of expenses, it is noted that CIT(A) has decided the issue against the assessee, however, has directed the A.O. to disallow only the correct amount of reimbursement for which he has directed the AO to verify the exact amount. We do not find any reason to interfere on such a direction. Accordingly ground no.2 raised by the Revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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