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TMI Blog2021 (11) TMI 101X X X X Extracts X X X X X X X X Extracts X X X X ..... g the expenses on account of rent. 5. Brief facts pertaining to this ground of appeal as noted by the AO are that the assessee has claimed expenditure of Rs. 1,05,60,000/- in respect of rent paid for premises at Mumbai. According to the AO, the assessee had taken on rent a building from four (4) persons out of whom three (3) were the partners of the assessee firm itself. The AO noted that the electricity bills of the premises were raised by BEST which shows that the bills were raised in the name of M/s. Marathon Reality Ltd. (developer of the property/flats) though the AO agreed that the assessee had submitted the copy of the sale/purchase deed to prove the genuineness of the ownership of the premises in question which was owned by three (3) partners and the fourth person being Mrs. Meenakshi Bihani (wife of a partner). According to AO, it could not be ascertained as to whether the assessee had taken on rent the premises of these three partners and Mrs. Meenaskhi Bhihani for business purpose. According to the AO, commission u/s 131 of the Act were issued to verify the fact/claim of the assessee that the properties taken on rent were used for business purpose. However, according to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has taken the said properties on rent and rent agreement was also been submitted during the course of hearing. (Copy of Rent Agreement enclosed as MARK - L), iv. The assessee has paid rent to the owner's of the property (Copy enclosed as MARK - M) i.e. quantum of rent paid. v. The assessee has business establishment in Mumbai and having turnover of Rs. 458.91 Crores from Mumbai office itself. (j) to (k) ...... 3. I have carefully examined the submissions placed by the appellant-assessee, as against the findings recorded by the Ld. A.O. I have also carefully examined the various evidences brought on record by the appellant to establish the veracity of its claims of having paid rent. There seems to be no dispute about the fact that the premises in question was owned by Shree Narayan Bihani, Shri Rohit Bihani, Shri Raghav Bihani [who are all partners in the appellant-firm] and Smt. Meenakshi Bihani, wife of Shree Narayan Bihani, and that the premises were located at Lower Parel, Mumbai. By furnishing a copy of the Sale deed [purchase deed in the hands of the 4 persons], the appellant has been able to establish that the said premises/ property was purchased from the Deve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conclusions on the basis of certain commission issued in the case of the receivers of rent, and the statement given. It is quite apparent that such statement or any adverse findings therein were not made available to the appellant to defend itself, before the Ld. A.O reached any adverse conclusions. In my considered view therefore, I find that there was a complete denial of the principles of natural justice as contemplated in the judgment of Hon'ble Supreme Court in the cases of Kishinchand Chellaram v. CIT (1980) 125 ITR 713 (SC) and Andaman Timber Industries vs. Commissioner of Central Excise, Kolkata-II reported in [2015] 62 taxmann.com 3 (SC), in such matters. Overall, after carefully considering all the material facts and evidences, I am unable to sustain any portion of the disallowance made by the Ld. A.O on account of rent paid, and therefore the same is deleted. The ground of appeal stands allowed." 6. Aggrieved by the aforesaid decision of the Ld. CIT(A), the revenue is in appeal before us. 7. We have heard rival submissions and gone through the facts and circumstances of the case. We note that the assessee had claimed rental expenditure on a premises at Mumbai whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n though the owners of the property are relatives, the assessee has been able to bring on record relevant material to support its claim of having taken the premises in question on rent. Next we need to see whether the assessee was able to show that the rental premises was used wholly and exclusively for the purpose of the business. In this regard it was brought to our notice that all its commercial activities like back office work etc. was carried out at that premises, from which only the assessee has turnover of Rs. 458 crore. We note that the payment of rent was made by the assessee firm to the owners (partners) through cheque after deduction of TDS and the owners (partners) have duly shown the rental income in their respective Income tax returns and that tax has been paid on it. To substantiate the incurring of rental expenditure the assessee had filed the rental agreement, sale deed of the related parties, electricity bills, payment by cheque and details of TDS deducted on the rental payments. It is noted that these evidence could not be controverted/rebutted by the AO/Ld DR and the AO has disallowed the expenditure on the basis of surmises and conjectures. So we are of the opi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8&holding the rate of 8% as reasonable, and any rate above that to be "excessive". The Ld. A.O has opined that the assessee-firm has failed to explain as to why any rate above 8% of interest paid was not allowable. In scrutiny, it was explained by the assessee, that the assessee that taken loans at different rates from banks, financial institutions as well as related and non-related parties, and that the rates of interest paid to related parties vary from 8 % to 10% , and that paid to unrelated parties vary from 12 % to 15%. It was also further explained that in case of secured loans taken from Banks and Financial Institutions, the interest rate paid varied from 12.25% to 13.50%, as per the Prime Lending rate (PLR) of the Banks / Institutions. In summary, it was argued by the appellant that the interest rates paid to related parties was much less than what was paid to nonrelated parties or to Banks, and therefore the same was to be allowed. In the case of nonrelated parties, it was argued that the interest rate paid was less than the prevailing market rates, and therefore the said rates being reasonable, they ought to be accepted by the Ld. A.O. However, the Ld. A.O was not amenab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money and what the sister concern did with the money. It has been expounded that the borrowed amount is not utilized by the assessee in its own business but had been advanced as interest free loan to its sister concern is not relevant, and that what is germane is that, is whether the amount was advanced as a measure of commercial expediency and not from the point of view whether the amount was advanced for earning profits. Once it is established that there was nexus between the expenditure and purpose of the business the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the partners and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. 4. ....... 5. ....... 6. ....... Overall in view of the facts and circumstances, as emanating from the case, I find that the arguments and reasoning of the appellant / Ld A.R find favour with most of the Hon'ble Courts and more specifically with the judgments emanating from the Hon'ble Supreme Court in the case of M/s. Munjal Sales Corporation Vs. CIT reported in (2008) 168 taxman 43(SC) and also S. A. Builders (supra). In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ld. CIT(A) that this loan was for a short period and was repaid within the year itself. The Ld. CIT(A) has found that since there was an urgent business requirement, the assessee had taken the unsecured loan due to business exigency at higher rate @ 15% which was also repaid in the same year. The Ld. CIT(A) has noted that the assessee had disclosed the loans, nature of the loans, interest rates paid etc. which were reflected in the tax audit report which included the details of the unsecured loan from related parties. The Ld. CIT(A) was of the opinion that the assessee has made out a case that due to business exigency, loans were taken at a higher rate of 15% at short notice which warranted payment of higher rate of interest. The Ld. CIT(A) thereafter relied on the decision of the Hon'ble Supreme Court in the case of S. A. Builders (supra) to allow the assessee's interest expenditure. The aforesaid facts narrated above could not be rebutted/contradicted by the Ld. DR before us. Therefore, based on the factual finding of the Ld. CIT(A) on this issue as discussed supra, we do not find any reason to overturn the decision of the Ld. CIT(A) accepting the interest expenditure to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO disallowed the commission expense by taking note that there was no written agreement between the assessee and such brokers. According to him, payment made by cheque/TDS deducted cannot be the deciding factor regarding genuineness of claim of the commission paid by the assessee. Even though the AO accepted that several brokers had confirmed to his notice u/s 133(6) of the Act, the payment of commission paid to them by the assessee after deduction of tax (TDS), the AO was of the opinion that payment made by cheque may be one of the criteria for verifying the genuineness of the claim of such expenditure but it cannot be sole criteria for such claim. According to him, the assessee failed to prove that the commission expenditure was made wholly for the purpose of the business and, therefore, he disallowed Rs. 1,61,35,327/- and added to the income of the assessee. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A), who was pleased to delete the same by holding as under: "1. I have carefully considered the action of the Ld. A.O in making the impugned disallowance of Rs.l,61,35,327/-, being the claim of commission expenses as made by the appellant. Very briefly, the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the Ld. A.O has by issue of commission obtained replies in 14 commission agents, 8 cases on one occasion, and 6 on another subsequent occasion. In certain cases, the reports include brief note on business activity of the commission agents, copes of return of Income Tax, Copy of the TAR, Copies of the P&L account and the details of commission received for work rendered by the commission agent for the appellant-firm. I also note from the replies submitted by the Officers at Mumbai and Thane that in most of the cases, nothing adverse has been reported, except where there was non-cooperation by the agent, or that the agent was not found in the address stated. 3. On analysis of the submissions and arguments made by the assessee as against the findings recorded by the Ld. A.O, it appears from that the factual matrix for the present year under appeal that the assessee had a turnover Rs. 458.91 Crores from Mumbai office itself which is around 72% of total turnover of Rs. 622.24 Crores, and that the commission expenses work out to less than very small and reasonable fraction of such disclosed turnover, and the same appears prima facie to be reasonable, especially in the situation whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment order to enquire into the nature of the services rendered by the commission agents. The AO in the remand report has acknowledged to have issued commission u/s. 131 of the Act to officers at Mumbai and Thane and who did some spot verification of the details of the some of the commission agents on a sample basis viz about their PAN, existence and services rendered etc. The Ld. CIT(A) noted from the perusal of the remand report that assessee had 237 commission agents and by issue of commission u/s 131 of the Act, had obtained replies from 14 commission agents (8 cases on one occasion and 6 on other occasion). The Ld. CIT(A) noted that the remand report included brief note on the business activity of the commission agents, copies of return of income tax, copy of the TAR, copies of the P&L Account and the details of commission received for work rendered by the commission agents for the assessee. The Ld. CIT(A) also noted that the assessee had a turnover of Rs. 458.91 cr. from Mumbai office itself which according the Ld. CIT(A) was around 72% of the total turnover of Rs. 622.24 cr. and that the commission expenses worked out to be very less and constituted only a fraction of such di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to selling agents. In this year we note that the AO had partly only disallowed it to the tune of Rs. 7,06,973/- which has been deleted by the Ld. CIT(A) on the same reason for AY 2009-10. We note that in this year the assessee had incurred expenditure of Rs. 1.52 cr. as commission expenses and the AO has accepted the claim of assessee except Rs. 7,06,973/- which has been deleted by the Ld. CIT(A) for the very same reasons which we have taken note in the case of the assessee for AY 2009-10. Since there is no change in facts and law, we confirm the action of the Ld. CIT(A) and dismiss this ground of appeal of the revenue. 19. Now the only ground remaining is ground no. 2 which is against the action of the Ld. CIT(A) in deleting the addition of Rs. 1,06,54,614/- which was claimed by the assessee as expenses on account of sales promotion. 20. Brief facts of the case as noted by the AO are that he noted from the financial submitted by the assessee that assessee had incurred and claimed expenditure of Rs. 1,44,17,572/- under the head sales promotion. The AO noted from the breakup of these expenses that it were incurred on the following expenditure (i) payment made to M/s. Titan Indust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was available as to whom the appellant had passed on the gifts to be given to the end-users, in a situation where Ld. A.O has doubts about the same he could have sought confirmation from the Dealers to whom the gifts were made and obtained the names of the end-users who had received the gifts. This has not been done and I find that the Ld. A.O has not made any enquiries before arriving at adverse conclusions against the appellant. I find that there is no dispute that the gifts were passed on to the end users, only that the same were routed through the Sales Leger account. However, in my considered view of the matter, as long as the genuineness of the gifts was established, it was not absolutely necessary that the accounting entries regarding the value of the gifts (which were basically incentive in nature) were to be narrated in the Party sales Leger, which are basically transaction legers of purchase and Sale. I find that the entire Scheme was governed by the scheme put in place by M/s Tata steels, and that purchases of the gifts were also from Tata related outlets like Titan and Tanishq. The distribution was also carried out by an Authorized Gift Distributor Company for M/s Tata ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at State as well as State of Maharastra and in this year the assessee firm had incurred expenses on business promotion account for distribution of gifts, gift vouchers to the end customers of Tata products and dealers of M/s. Tata Steel. The Ld. CIT(A) noted that as per the scheme of M/s. Tata Steel, for its different products, when a dealer achieves the target fixed by them, then it would be entitled for certain benefit/recognition/incentives. Business Promotional Scheme further provides that end consumers benefit by way of lottery, scratch card for immediate reduction in bill etc. as well as it acts as incentive and recognition to sub-dealers and in-turn enable business entities to achieve quantitative or qualitative objective such as boost in sales, building team spirit, managing better network etc. The Ld. CIT(A) took note of the fact that the gifts presented in the form of redeemable gift voucher of various denomination such as gold/silver gifts etc. was meant for promoting the business of the assessee thus attracting generation of more revenue and, therefore, is an allowable expenditure. We note that the entire scheme (promotion scheme) was governed by the scheme put in place ..... X X X X Extracts X X X X X X X X Extracts X X X X
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