TMI Blog2019 (3) TMI 1029X X X X Extracts X X X X X X X X Extracts X X X X ..... t sustainable and the CIT(A) is fully justified in deleting the same. - Decided in favour of assessee Disallowance of business promotion expenses - ad-hock disallowane @ 30% - HELD THAT:- The AO however treated the business promotion expenses claimed by the assessee as unverifiable for want of supporting bills and vouchers and made a disallowance of 30% without making any enquiry whatsoever from the parties to whom the said expenses were paid by the assessee. He also did not point out even a single instance to show any unverifiable element involved in the business promotion expenses claimed by the assessee. Keeping in view all these facts and circumstances of the case, we find ourselves in agreement with the Ld. CIT(A) that the adhoc disallowance of 30% made by the AO out of business promotion expenses is not sustainable. - Decided in favour of assessee Disallowance of salary expenses - addition @8% on allegation that the entire salary expenses claimed by it were wholly and exclusively for the purpose of its business - CIT-A delete the addition - HELD THAT:-salary expenses of ₹ 9.13 crores incurred during the year under consideration were justified by the assessee by ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.Y. 2012-13 was determined by the AO at ₹ 1,02,97,057/-. The said assessment was subsequently reopened by the AO and a notice u/s 148 was issued by him to the assessee after recording the reasons. In response to the said notice, a letter was filed by the assessee stating that the return originally filed may be treated as the return filed in response to the notice u/s 148. As noted by the AO during the course of reassessment proceedings, a total sum of ₹ 7.35 crores was borrowed by the assessee during the year under consideration and interest thereon amounting to ₹ 75,59,235/- was paid. He also noted that the said loan amount was utilised by the assessee for paying interest free advances to various parties. He, therefore, required the assessee to explain as to why interest expenditure of ₹ 75,59,235/- should not be disallowed. In reply, it was submitted by the assessee that the entire amount of unsecured loans taken during the year under consideration was utilised for business purposes and interest thereon was allowable as deduction. The Assessing Officer did not find the submission made by the assessee to be acceptable. According to him, the commercial exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter and Padma Bhatter was financed out of their respective Capital A/c balance standing in the books as on 01.04.2011 on which no interest was paid. The advance account ledger copy of the partners of the firm and Capital A/c of the partners was also submitted. The same is again enclosed at page 1-2 of the Paper Book. 6. It was also pointed out on behalf of the assessee that major amount withdrawn by the partner was towards the fag end of the year and interest pertaining thereto as worked out by applying rate of 16% at ₹ 27949/- was already disallowed in the assessment originally completed u/s 143(3). The Ld. CIT(A) found merit on the submissions made on behalf of the assessee and deleted the interest disallowance made by the AO. 7. The learned DR invited our attention to the relevant portion of the assessee s balance sheet placed at page No. 27 of the Paper Book and pointed out that the interest bearing unsecured loans of ₹ 7.35 crores were utilised by the assessee for giving loans and advances to its sister concerns. He contended that the commercial expediency of the loans and advances so given was not established by the assessee and since it was the case of ut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 49/- made by the AO on account of disallowance of business promotion expenses. 11. During the course of reassessment proceedings, the assessee was required by the AO to file the details of business promotion expenses amounting to ₹ 98,86,498/-. In reply, it was submitted by the assessee that the business promotion expenses have been incurred on payments made to various parties who are channel partners and assist in marketing and procurement of insurance business. It was also submitted by the assessee that all these payments have been made to the parties by cheques after deducting tax at source. A copy of ledger account was also filed by the assessee to support and substantiate its claim. The AO was not satisfied with the submissions made by the assessee on this issue and held that the expenses claimed by the assessee on business promotion were not fully verifiable in the absence of proper details furnished by the assessee. He accordingly made a disallowance of ₹ 29,65,949/- being 30% of the total business promotion expenses claimed by the assessee. 12. The disallowance made by the AO out of business promotion expenses was challenged by the assessee in the appeal f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er deducting tax at source were also filed by the assessee. The AO however treated the business promotion expenses claimed by the assessee as unverifiable for want of supporting bills and vouchers and made a disallowance of 30% without making any enquiry whatsoever from the parties to whom the said expenses were paid by the assessee. He also did not point out even a single instance to show any unverifiable element involved in the business promotion expenses claimed by the assessee. Keeping in view all these facts and circumstances of the case, we find ourselves in agreement with the Ld. CIT(A) that the adhoc disallowance of 30% made by the AO out of business promotion expenses is not sustainable. We accordingly uphold the impugned order of the Ld. CIT(A) giving relief to the assessee on this issue and dismiss Ground No. 1 of the revenue s appeal. 15. In Ground No. 3, the revenue has challenged the action of the Ld. CIT(A) in deleting the addition of 73,09,758/- made by the AO on account of disallowance of salary expenses. 16. During the course of reassessment proceedings, the assessee was required by the AO to substantiate its claim for expenses of ₹ 9,13,71,970/- incur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting. It is further submitted that sale of insurance products is based on the direct relationship with the customer by the employees. Most of the policies are sold solely on the basis of relationship between the employees and the customers. Employees have to interact with customers, need to understand their requirement with respect to investment, financial and tax planning. According to their requirement, the employee has to convince the customer to purchase tire insurance product. More so, the employee has to keep one to one relation with the customer till the form gets signed along with the cheque and ensure that the policy is issued to the customer. The requirement of human resources in this type of business is very high as the entire business depends upon the marketing skills, efficiency and capability of human resource only. Further, the firm employed experienced senior employees well versed with the insurance business whose salary was on the higher range. More so, these senior employees also brought ur their team of insurance agents and they were also recruited by the appellant. Hence, it is quite obvious that the salary component would be high. It is further submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion and since the salary expenses of ₹ 9.13 crores incurred for earning the said income was fair and reasonable, the AO was not justified in making adhoc disallowance of 8% without giving any cogent and convincing reasons. He, therefore, strongly supported the impugned order of the Ld. CIT(A) deleting the disallowance so made by the AO on adhoc basis and urged that the same may be upheld. 20. We have considered the rival submissions and also perused the relevant material available on record. It is observed that the salary expenses of ₹ 9.13 crores incurred during the year under consideration were justified by the assessee by explaining the nature of its business as well as the necessity of incurring the said expenses for the purpose of such business. As rightly contended by the learned counsel for the assessee, the business expediency of the salary expenses thus was duly established by the assessee and even the reasonableness of the quantum of such expenses incurred during the year under consideration for earning insurance commission of 14.27 crores was also established by the assessee. It is observed that even the AO did not dispute the same but still made a disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the addition of ₹ 2,21,74,998/- made by the AO on account of disallowance of salary expenses is similar to one involved in Ground No. 3 of the revenue s appeal for A.Y. 2012-13. Since all the material facts relevant to this issue as involved in A.Y. 2013-14 are similar to that of A.Y. 2012-13, we follow our conclusion drawn on this issue in A.Y. 2012-13 and uphold the impugned order of the Ld. CIT(A) deleting the disallowance made by the AO out of business promotion expenses. Ground No. 3 is accordingly dismissed. 25. Now we take up the appeal of the revenue for A.Y. 2014-15 being ITA No. 1450/Kol/2017 which is directed against the order of the Ld. CIT(A) 9, Kolkata dated 31.03.2017. 26. As regards Ground No. 1 raised by the revenue in this appeal, it is observed that the issue involved therein relating to the deletion by the Ld. CIT(A) of the addition of ₹ 1,17,60,005/- made by the AO on account of disallowance of interest expenses is similar to the one involved in Ground No. 1 of revenue s appeal for A.Y. 2012-13. Since all the material facts relevant to this issue as involved in A.Y. 2014-15 are similar to A.Y. 2012-13, we follow our conclusion drawn in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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