TMI Blog2021 (11) TMI 101X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 opinion that disallowance made by the AO has been rightly reversed by the Ld. CIT(A). Therefore, we do not find any reason to interfere with the order of the Ld. CIT(A) and we confirm the same. Therefore, this ground of appeal of revenue stands dismissed. Addition of excess interest claimed on unsecured loan - assessee had borrowed sums from two (2) types of parties viz., related parties as defined u/s. 40A(2)(b) and non-related parties - HELD THAT:- 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. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of appeal of revenue stands dismissed. Addition of expenses on account of sales promotion - CIT-A deleted the addition - HELD THAT:- 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 by M/s. Tata Steels, and that purchases of the gifts were also from Tata related outlets like M/s Titan and M/s Tanishq. And the distribution was also carried out by an authorized gift distributor company for M/s. Tata Steels. The scheme was controlled by M/s. Tata Steels and was to ensure that the end users would benefit if they are eligible. The Ld. CIT(A) has found that there was no doubt about the genuineness of the expenditure and the expenditure was for promotion of business of the assessee and therefore an allowable expense. This finding of facts could not be controverted or rebutted by AO/Ld DR, so in such a case, we find no infirmity in the order of the Ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... according to the AO, assessee failed to prove as to whether the assessee was in use of this premises in question and whether the premises were used for business/commercial purpose. Therefore, the AO disallowed the claim of expenditure of ₹ 1,05,60,000/-. Aggrieved the assessee preferred an appeal before the Ld. CIT(A), who was pleased to delete the same by holding as under (relevant portions only):- I have carefully examined the action of the Ld. A.O in adding the impugned amount of Rs.l,05,60,000/- under head 'Expenses on account of Rent Mumbai'. I find that the Ld. A.O has disallowed the entire amount on grounds that all the essential documents were not provided by the appellant assessee to place on record the genuineness of the rent paid. The Ld. A.O, it would appear suspected the payments on account of the fact that three of the four persons were partners of the firm M/s. Rohit Co itself. In the course of the scrutiny assessment, the appellant has submitted copies of the Rental Agreements, Copies of the TDS certificates evidencing deduction of Tax (TDS) for the Rents paid as well as documents relating to the disclosure of such incomes in the hands of the par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property. It is also apparent that the said premises were taken on rent by the firm, and the rental agreements have been filed by the appellant before the Ld. A.O as well as in appeal. The rents were regularly paid by the appellant to the owners, and necessary TDS effected. As regards, the requirement to pay a rather large component as rent, I also find merit in the claim of the appellant that with turnovers ranging upto 458.91 crores as in the present year, there was requirement for large space in the business premise to carry out business smoothly. I find that the Ld. A.O has disallowed the entire rent and has not allowed any portion of the rent; the Ld. A.O has not considered in my opinion the very jurisdictional fact that as to how as the appellant to run its business if the very premises had become questionable. The Ld. A.O has not answered the simple question that there was requirement for large premises given the turnovers returned by the appellant, and definitely a large space was required. I find from the replies given by the appellant that all the questions raised by the Ld. AO about the names on the electricity bills, sale deed etc have been answered by the appellant an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artners of the assessee firm and one of them was the partner s wife (Mrs. Meenakshi Bihani wife of Shri Narayan Bihani). One of the reasons for the AO to doubt the genuineness of the claim was that since the electricity bill showed the name of M/s. Marathon Reality Ltd. (bills raised by BEST) and the other reason was that since the local inspection revealed that some domestic help was only found in that premises. Based on the aforesaid reasons the AO was of the opinion that the premises in question which the assessee claimed to have incurred rental expenditure was not genuine, since no business was carried out in that premises and therefore he did not allow the rental expenditure. On appeal, the Ld. CIT(A) has taken note that in order to prove the ownership of the business premises taken on rent all the three partners as well as the partner s wife Mrs. Meenakshi Bihani had furnished copy of the sale deed/purchase deed. The Ld. CIT(A) has also given a finding of fact that these owners of the building had purchased the premises in question from the developer M/s. Marathon Reality Ltd. (electricity bills raised by the BEST in respect of this premises). Further the Ld. CIT(A) has also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. CIT(A). Therefore, we do not find any reason to interfere with the order of the Ld. CIT(A) and we confirm the same. Therefore, this ground of appeal of revenue stands dismissed. 8. Ground no. 2 of revenue s appeal is against the action of the Ld. CIT(A) in deleting the addition of ₹ 7,12,705/- as excess interest claimed on unsecured loan. 9. Brief facts as noted by the AO are that the assessee has incurred interest expenditure on account of unsecured loan. He noted that the assessee had borrowed sums from two (2) types of parties viz., related parties as defined u/s. 40A(2)(b) of the Income-tax Act, 1961 (hereinafter referred to as the Act ) and non-related parties . From the Tax Audit Report the AO noted that the auditor has reported that the interest paid to the related parties are not excessive to attract any adverse view as per the Act. However, the AO bench-marked the interest expenditure at 8% which was paid by the assessee to the related parties and has disallowed amount paid to unrelated parties above 8% as un-reasonable by holding it to be excessive. According to the AO, the assessee failed to give proper explanation with regard to the excess inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and reckoned that the appellant had not explained the requirement of the loans and the need to pay at higher rate of interest in terms of the business requirements. 2(a) to (h) .. 3. Having carefully examined the submissions of the appellant against the action of the Ld. AO, I note that the Ld. A.O has bench marked 8% of interest payable as the norm, and treated all amounts paid above this percentage to be excessive in case of private/unsecured loans. I also observe that this is a case where the appellant by its own admission has paid lesser rate of interest to its related parties , so as not to contravene any of the provisions of Sec 40A(2)(b) of the Income Tax At, 1961. The rest of the parties from whom unsecured loans were taken have been paid, according to the appellant at rates lesser than the prevailing market rate. There is only one exception where 15% of interest rate was paid, and I find that the explanation offered by the appellant that the said loan from this party, namely M/s. Synthetics Moulders Ltd -, an unrelated party was @ 15% , which is higher than the Bank Rate, as the loan was for a very short period and was repaid also within the year. In my considere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowing a sum of ₹ 7,12,705/- on account of disallowance of proportionate interest was not justified, and I find that the same cannot be sustained. The ground is therefore allowed in favour of the appellant-assessee . 10. Aggrieved by the aforesaid decision of the Ld. CIT(A), the revenue is in appeal before us. 11. We have heard rival submissions and gone through the facts and circumstances of the case. We note that the assessee has taken loan from two sources i.e one from related parties and other from unrelated parties and since the assessee had paid 8% as interest expenditure to the related parties, the AO benchmarked 8% lending rate as reasonable rate of interest and held that anything beyond that was excessive and which was disallowed by the AO and thus disallowed ₹ 7,12,705/-. On appeal, the Ld. CIT(A) noted that the assessee has taken unsecured loans at different rates from related and unrelated parties as well as banks, financial institutions which was varying from 8 to 10% and paid to unrelated parties interest varying from 12 to 15% respectively. The Ld. CIT(A) took note of the fact that in the case of secured loans taken from bank and financial ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firm the action of the Ld. CIT(A) and dismiss this ground of appeal of revenue. 12. Ground no. 3 of the revenue s appeal is against the action of the Ld. CIT(A) in deleting the addition of ₹ 1,61,35,327/- which was made by the AO by disallowing the commission paid to selling agents. Facts noted by the Ld. CIT(A) are that the assessee is in the trade of steel items. It was brought to the notice of the AO that the in iron steel trade, most of the sales were effected through brokers and the AO taking note that the assessee had paid a commission of ₹ 1,61,35,327/- during the relevant assessment year (AY 2009-10) to various parties asked for the details of commission paid party wise. Assessee pursuant to the same gave party wise details before the AO and brought to the AO s notice of the following facts on this issue: a. Most of broker are old one and are working with my client since long. The details of brokerage during the year to all broker has already been provided. b. The brokers procured order on behalf of my client and also responsible to collect payment from buyer for which they have been given commission. The charge of commission varies from party to par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Ld. A.O towards the fag end of the time-barring period of assessment, required the appellant-firm to submit details in a certain new format seeking various details regarding genuineness of commission paid to the Selling Agents. During the course of hearing, the Ld. A.O also issued Notice u/s 133(6) to the various commission agents and also received the certain responses there from. It was pleaded by the appellant that the details as called for by the Ld. A.O in the specified format for over 200 Selling (Commission ) Agents was very difficult within the short time allowed, and that the Ld. A.O could verify the transactions and required details from their bills which was submitted during the course of hearing. It was further submitted by the appellant before the Ld. A.O that in iron steel trade most of the sales are effected through broker and as the assessee is distributor of Iron Steel products also adopted these practice, moreover the practice adopted by the assessee is not new and commission agent were also associated with assessee since long. It is the contention of the appellant in appeal that the Ld. A.O did not consider any of the facts placed on record, or the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lary payments are not excessive. I find that there is a certain justification for paying the commission to achieve higher turnovers. It is also true that the appellant has in the nature of business expediency, appointed commission agents for procuring additional turnovers, and they may not be recognized as agents or middlemen by the transacting parties, and they may be dealing with the assessee through these agents without realizing that they are agents as such. In any case, I find that the Ld. AO has, on facts not found any of the payments to be false or made to related parties. It has been held in the case of CIT v. Shriram Pistons Rings Ltd. (2012) 19 taxmann.com 205/206 Taxman 41 (Mag.) (Delhi) Where assessee paid commission to agents for work performed by them, agents were not bogus, and commission was paid by crossed cheque, same was allowable as deduction. . 14. Aggrieved by the aforesaid decision of the Ld. CIT(A), the revenue is in appeal before us. 15. We have heard rival submissions and gone through the facts and circumstances of the case. We note that the assessee is a distributor of iron steel products and had incurred commission expenditure of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f such disclosed turnover, which according to the Ld. CIT(A) was reasonable, especially in the situation when the salary payments incurred by the assessee are not excessive. So, he found justification for paying the commission to agents to achieve higher turnovers. The Ld. CIT(A) has relied on few case laws to justify his action of allowing the commission expenses which has been reproduced (supra). We note that the AO/Ld DR did not bring on record any material to show that the transaction of payment of commission to agents were not genuine or the commission paid was excessive or unreasonable, therefore, no disallowance could have been made by the AO at the first place itself. For that proposition, we rely on the decision of the jurisdictional High Court in the case of CIT Vs. Alfa Hydronics Pvt. Ltd., ITA No. 549/2004 decided on 10.11.2014. Therefore, the Ld. CIT(A) rightly deleted the addition which does not require our interference so, we confirm the same. Therefore, this ground of appeal of revenue stands dismissed. 16. Coming to appeal for AY 2011-12. We note that ground no. 1 is against the action of the Ld. CIT(A) in deleting the addition of ₹ 1,05,60,000/- as made b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing expenditure (i) payment made to M/s. Titan Industries Ltd. ₹ 97,614/- ( purchase of gold/silver ), (ii) payment made to M/s. Tital Industries Ltd., Apeejay House Block- C 8th floor, 15 Park Street, Kol-16 ₹ 39,38,000/- ( Tanishq gift voucher for distribution as part of Dealer Incentive scheme ) and (iii) payment made to M/s. Touch Point CRM Solutions P. Ltd. ₹ 66,19,000/- ( for distribution of gift ). The AO acknowledges that the assessee firm has shown the proof of payment for purchase of gift voucher etc. However, the AO in order to examine the requirement for the gifts for the purpose of the business, the assessee was asked to produce ledger account of persons to whom the gifts were distributed. Pursuant to the same, the assessee submitted that these gifts were given to the sale parties. However, according to the AO, the ledger of none of the sale parties of the assessee reflected any such item being given to them. Therefore, he was of the opinion that the assessee failed to bring any material on record to substantiate that the gifts were actually delivered to the said parties. Therefore, he was of the opinion that the purchase of gifts amounting to ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution was also carried out by an Authorized Gift Distributor Company for M/s Tata Steels. The arrangement as in place clearly suggests that the Original Principal MI Tata Steels has full control and supervision over the scheme and was to ensure that the end-users would benefit, where eligible. I find that, in a situation where there was doubt about the business expediency of the scheme and distribution in the mind of the Ld. A.O, he could have well verified the same from the Principal who had formulated the scheme M/s Tata. Such requirements have not been fulfilled by the Ld. A.O, who has opined that the Party sales Leger did not have the necessary entries relating to the gifts. After overall examination of the impugned matter, I am agreeable with the submission of the appellant that the Ld. A.O has not been able to point out any specific illegality, irregularities or perversity relating to the transactions, and had generalized the issue. In the emergent situation, and for the aforesaid reasons, I am unable to sustain any portion of the disallowance made by the Ld. AO. The disallowance is therefore directed to be deleted. The ground of appeal stands allowed. 21. Aggrieved by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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