TMI Blog2023 (10) TMI 1060X X X X Extracts X X X X X X X X Extracts X X X X ..... g rendered by Ld. CIT(A) is that the funds were advanced out of commercial expediency. The said finding remains uncontroverted before us. Also in the case of S.A. Builders Ltd. [ 2006 (12) TMI 82 - SUPREME COURT] held that once nexus was established between the expenditure and the purpose of the business, which need not necessarily be the business of the assessee itself, revenue could not disallow the claim assuming what was reasonable. Therefore, on the facts and circumstances, we concur with the adjudication of Ld. CIT(A) and dismiss the ground raised by the revenue, in both the years. Disallowance u/s 37(1) - sponsorship expenses - HELD THAT:- We find that the assessee has paid sponsorship fees in terms of an agreement to carry out business promotional activities. As per the terms of the agreement, Sri Balaji Charitable and Educational Trust was to carry out various sponsorship activities in assessee s name as sponsor against yearly payment of Rs. 2.50 Crores. The payment is backed by the agreement and invoices and the revenue has no material to doubt the same. The assessee has also furnished the details of actual expenditure incurred on business promotion activiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was held that the interest on amount lent to sister concerns out of interest bearing funds is allowable only it was done as a measure of commercial expediency (i.e) for the purpose of business. But the assessee in the instant case has demonstrated neither before the assessing officer nor before the Commissioner of Income tax(Appeals) the commercial expediency involved in advancing loans to sister concerns out of interest bearing funds. 2.2 The Ld.CIT(A) erred in holding that the expenditure incurred by the assessee in the form of interest is wholly and exclusively for the purpose of business though the assessee fails to prove that the borrowed capital has been utilized for carrying out his business. 3. The Ld.CIT(A) erred in deleting the addition of Rs. 1,79,93,880/- made towards disallowance of sponsorship expenses u/s. 37(1). 3.1 The Ld.CIT(A) failed to appreciate that the expenses incurred by the trust in running the college such as function and celebration expenses, stationery etc are for the purpose of trust related activities and assessee being a closely related group concern claimed such expenses as promotional expenses through sponsorship agreement on 04/04/201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst the fact that it had borrowings of Rs. 2887.39 Lacs and debited interest expenditure of Rs. 536.17 Lacs. The loans so advanced were not connected to assessee s business and the business expediency of the same could not be established by the assessee. Accordingly, Ld. AO computed proportionate disallowance u/s 36(1)(iii) for Rs. 204.45 Lacs. 3.2 During appellate proceedings, the assessee, inter-alia, submitted that the advances were out of commercial expediency and relied on the case of Hon ble High Court of Madras in CIT Vs. M. Ethurajan (273 ITR 95) and also on the decision of Hon ble Apex Court in the case of S.A. Builders Ltd. (288 ITR 1). Considering these judicial decisions, Ld. CIT(A) deleted interest disallowance for both the years against which the revenue is in further appeal before us. 3.3 Before us, Ld. AR has drawn our attention to the financial statements of the assessee and submitted that own funds far exceeded the advances made by the assessee. Therefore, no such disallowance could have been made by revenue as per ratio laid down by Hon ble Supreme Court in the case of CIT Vs. Reliance Industries Ltd. (102 Taxmann.com 52). The Ld. AR further submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 The Ld. AO, upon perusal of agreement, observed that as per contractual terms, Agni College of Technology (ACT) was to use the logo of the assessee company in all its promotional campaigns in any form of advertisement and the cost of such sponsorship would be Rs. 250 Lacs for every financial year starting from financial year 2012-13 for 5 years. This fee was to be spent by the college for the promotional activities. The assessee also furnished evidences and also filed expenses break-up of promotional expenditure as under: - 1. Functions and celebration expenses 3741994 2. Advertisement expenses 6323047 3. Promotional expenses 290248 4. Record note and other stationery item 10767350 Total 21122639 The Ld. AO observed that the amount was spent by the college on functions / celebration expenses, advertisement expenses, promotional expenses, record note and other stationery items. The Ld. AO further observed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es were related to business promotion of the assessee company and hence, allowable expenditure. Regarding 50% disallowance of other expenditure, Ld. CIT(A) observed that all these expenditures were part of assessee s business activities. The Ld. AO did not corroborate that the expenses was not incurred or not paid. The only reason for disallowance was on the ground that there was no conclusive proof that the expenditure was wholly spent for the purpose of assessee s business However, the assessee paid the amount to the trust college who incurred the same as per the agreement. Therefore, the assessee would be eligible to claim the deduction of the same. Finally, the impugned disallowance was deleted against which the revenue is in further appeal before us. 4.7 After going through assessment order as well as appellate order, we find that the assessee has paid sponsorship fees in terms of an agreement to carry out business promotional activities. As per the terms of the agreement, Sri Balaji Charitable and Educational Trust was to carry out various sponsorship activities in assessee s name as sponsor against yearly payment of Rs. 2.50 Crores. The payment is backed by the agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X
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