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2015 (7) TMI 210 - ITAT DELHI

2015 (7) TMI 210 - ITAT DELHI - TMI - Disallowance of interest liability made under section 36(l)(iii) - interest paid for advances given for land proposed to be used for construction in the factory of the respondent- assessee firm - CIT(A) deleted the disallowance - Held that:- CIT(A) reached the conclusion after properly appreciating the facts governing the issue. The CIT(A) had come to the conclusion that there were enough internal accruals to make the above advances after considering the mat .....

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st revenue.

Interest paid into on unsecured loans borrowed from the relatives of the partners of respondent-assessee firm - disallowance on the ground that interest paid was excessive - CIT(A) deleted the addition - Held that:- AO had not brought any comparable rate of interest which is reasonable. No disallowance can be made based on mere suspicion. Therefore we are of the opinion that there is no basis to hold that payment of interest at 15% is excessive and accordingly we hereby co .....

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e premium paid in respect of only one person can be allowed. He had no dispute at all about allowability of the keyman insurance policy premium. Similarly the provisions of the Income Tax Act does not stipulates that the premium paid in respect of only one partner or director is alone allowable. In absence of such bar we are of the opinion that deduction should be allowed and therefore we uphold the order of the CIT(A) - Decided against revenue.

Disallowance of commission - Held that: .....

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d by the AO. Therefore, the addition made by the AO is deleted - Decided against revenue.

Disallowance of building repair expenses - CIT(A) deleted the addition - Held that:- The finding of CIT(A) is based on the well settled principle of law that the expenditure not resulting in creation of asset should be allowed as a revenue expenditure as held by Supreme Court in the case of Empire Jute Company Ltd. Vs. CIT [1980 (5) TMI 1 - SUPREME Court] . Therefore the order of CIT(A) is in con .....

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ted by bills but nevertheless it cannot b e said that the expenditure was not incurred. In the absence of any evidence on record brought by AO to say that the assessee has not incurred this expenditure, the disallowance of expenditure is not justified - Decided against revenue.

Disallowance of Staff Welfare Expenses - Held that:- From the bills on record we notice that this expenditure relates to refreshment, tea, milk, Prasad provided to workers who were outside the factory and offic .....

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d in confirm the disallowance to the extent of ₹ 50,000/- out of staff welfare expenses.- Decided against revenue. - ITA No: 2913/Del/2011, CO No. 235/Del/2011 - Dated:- 30-6-2015 - SHRI G.C. GUPTA AND SHRI INTURI RAMA RAO, JJ. For the Petitioner :Shri T. Vasanthan, Sr. DR For the Respondent :Shri Rakesh Gupta, Advocate & Shri Ashwani Taneja, Advocate ORDER PER INTURI RAMA RAO, AM This is an appeal filed by the revenue against the order of Commissioner of Income Tax (Appeals) Faridabad .....

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n'ble Court has held that 'where the interest is paid in respect of the amount borrowed for acquisition of asset, unless asset is acquired and put to use, deduction for the interest cannot be claimed. Allowing any such deduction will be contrary to the proviso to section 36(1)(iii) of the Income Tax Act, 1961'. In the instant case, the plot which was allotted to the assessee was not put to use for business purposes by the assessee during the year." 2."On the facts and in th .....

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stries Ltd. reported in 286 ITR 1 (P&H), wherein Hon'ble Court has opined that" the monies received as share capital, as term loans, as working capital loan, as sale proceeds etc., do not have any different colour. Whatever are the receipts in the business, they have colour of business receipts and have no separate identification. Sources have no concern whatsoever." 3.On the facts and in the circumstances of the case, the Ld. ClT{A) has erred on facts and in law in deleting th .....

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ncome Tax Act on the admitted fact that the prevalent interest rate during the relevant period was 12.25% as charged by the bank from the assessee firm." 5."On the facts and in the circumstances of the case, the Ld. ClT{A) has erred on facts and in law in deleting the disallowance of commission of ₹ 4,97,3001- paid to Mr. Karl Neuchal for the period prior to 01.01.2006 when there is clear mention in the agreement that "the contract relationship starts on 01.01.2006 and will .....

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n 26.10.2006 disclosing income of ₹ 56,24,340/- for the asstt. year 2006-07. The return was processed u/s 143(1) on 22nd March, 2007. Subsequently the case was taken up for scrutiny and the assessment was completed u/s 143 (3) vide order dated 19.12.2008 at a total income of ₹ 1,46,65,599/- by the Additional Commissioner of Income Tax, Range 2, Faridabad. While doing so, the AO made the following disallowances :- Disallowance of interest on advances for land and buildings ₹ 14, .....

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March, 2011 partly allowed the appeal. While doing so the Ld. CIT(A) deleted all the additions except in respect of item f where addition to the extent of ₹ 50,000/- was confirmed by the CIT(A). Being aggrieved by this order the revenue had come up with the present appeal. 4.We shall now deal with the above items groundwise. Ground No. 1 relates to deletion of addition of ₹ 14,28,230/- in respect of interest paid for advances given for land proposed to be used for construction in the .....

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is letter dated 15.12.2008 that the payments for above amounts were made out of internal accruals and no borrowed funds were used for the above purposes. Therefore he submitted that no disallowance was called for. The AO placing reliance on the decision of CIT vs. Abhishek Industries Ltd. brushed aside the explanation of the respondent assessee firm and made disallowance of ₹ 14,28,230/- calculated the interest @ 12.25 of the above sum. On appeal before CIT(A) It was submitted before him t .....

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Rockman Cycle Industries Ltd. (2009) 176 Taxman 21 (P&H) 5.CIT(A) after considering the submissions deleted the addition vide para 6.1 of his order by holding as follows :- The principle that emerges from the above discussion and judicial rulings is that when the sale proceeds and internal accruals etc. are deposited by the assesee in cash credit account or over draft account and the investment in assets is made which are not put to use in business, the disallowance of interest cannot be mad .....

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ear. Therefore, the addition of ₹ 14,28,230/- made by the AO is deleted. The ground No. 3 of the appeal is allowed. 6.We find that the CIT(A) reached the conclusion after properly appreciating the facts governing the issue. The CIT(A) had come to the conclusion that there were enough internal accruals to make the above advances after considering the material on record. The view taken by the CIT(A) that when there is a mixture of borrowed funds and internal accruals, the presumption that th .....

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rdingly this ground of appeal filed by the revenue is dismissed. 8.The next ground of the appeal relates to the interest paid into on unsecured loans borrowed from the relatives of the partners of respondent-assessee firm on the ground that interest paid was excessive. The AO had disallowed the interest paid. Over and above 12.25 %. The CIT(A) after considering the facts of the issue held that the AO had not brought any evidence on record to show that the respondent assessee firm had paid to any .....

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ught any comparable rate of interest which is reasonable. No disallowance can be made based on mere suspicion. Therefore we are of the opinion that there is no basis to hold that payment of interest at 15% is excessive and accordingly we hereby confirm the order of the CIT(A) on this ground of appeal and therefore the ground of appeal filed by the revenue is dismissed. 10.The next ground of appeal relates to disallowance of keyman insurance policy of ₹ 6,53,752/-. The assessee firm paid pr .....

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there is no restriction under the Act that only the premium paid in respect of one person only to be allowed as deduction. He further relied on the decision of Hon ble Coordinate bench in respect of Escorts Heart Institute & Research Centre Ltd. vs. ACIT 128 ITD 108 . The CIT(A) following the above decision held that the understanding of the AO that the assessee can purchase Keyman Insurance Policy in respect of one employee only and not more than 1 is not in conformity with provisions of l .....

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d be allowed and therefore we uphold the order of the CIT(A). This ground of the appeal filed by the revenue is dismissed. 11.The brief facts leading to this addition of ₹ 4,97,300/- is extracted by CIT(A) in para 6.4 of his order which is as under :- 6.4. In ground No.6 of appeal, the appellant has challenged the disallowance of ₹ 4,97,300/- out of commission. During the year, the appellant had entered into an agreement with one Mr. Karl Neuchel to promote its exports sales, for whi .....

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he AO has held that since the contract relationship started only on 01.01.2006 and there was no stipulation for making payment of commission before that date, the commission of ₹ 4, 97 ,300 / - relating to the period from 01.04.2005 to 31.12.2005 was not allowable. The contentions of the appellant are that the entire commission paid Mr: Karl Neuchel was on account or services rendered by him throughout the year for which invoices were raised and all the payments were made through banking c .....

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tted a certificate from Mr. Karl Neuchel regarding the receipt of commission payment form the appellant. Which reveals that for the period from 1.4.2005 to 31.12.2005, he has been paid commission @ 1000 Euro per month. This leads to inference that commission to Mr. Karl Neuchel was paid at the fixed rate. In these facts, it is not in dispute that Mr. Karl Neuchel rendered services for the appellant throughout the year which resulted in procuring sales to the extent of ₹ 18 17,584/- . The g .....

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amount of commission paid, but when he was paid commission at fixed rate, the quantum of sales becomes irrelevant. Therefore, the entire expenditure on commission paid to Mr. Karl Neuchel was genuine and incurred for the purpose of the business of the assesee, which is allowable as per the provision of section 37(1) of the Act. I agree with the contention of the appellant that stipulation in the contract regarding the commencement of the agreement w,e,f 1.1.2006 does not mean that athe appellant .....

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45/- holding them to be capital expenditure. On appeal before CIT(A), the CIT(A) after perusing the nature of expenditure incurred come to the conclusion that the expenditure does not result in a creation of an asset and therefore is allowed as a deduction vide para 6.5 of his order. 6.5. In the ground No.7 the appellant has challenged the disallowance of ₹ 1,58,482/- made by the AO out of building repair expenses. The appellant had claimed total building repair expenses amounting to ͅ .....

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issue with the appellant. The appellant contended that the expenditure was incurred for renovating its old office building and did not result in any asset of enduring nature coming into existence. It has been explained that the expenditure incurred on doors and windows was for repairing the old and worn out doors and windows of the office building. The flooring material expenditure related to replacement and change of flooring of a portion the office building and the entire expenditure was reven .....

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asset into existence and it does not involve any capital expenditure. I therefore, do not agree with the contention of the AO that the expenditure of ₹ 1,58,482/- debited in the repair & maintenance account of building resulted in the acquisition of a capital asset. Hence, the addition of ₹ 1, 42,634/ - is deleted and this ground of appeal is allowed. 14.The finding of CIT(A) is based on the well settled principle of law that the expenditure not resulting in creation of asset sh .....

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) that all the expenses were duly vouched and produced before AO. From the bills on record we notice that this expenditure relates to refreshment, tea, milk, Prasad provided to workers who were outside the factory and office. From these it is very clear that the vouchers are mostly not supported by bills but nevertheless it cannot b e said that the expenditure was not incurred. In the absence of any evidence on record brought by AO to say that the assessee has not incurred this expenditure, the .....

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