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2015 (2) TMI 54 - ITAT AHMEDABADLoyalty commission - non genuineness of expenditure - whether be treated as capital expenditure and to allow depreciation on it? - Held that:- In this case genuineness of the payment claimed to have been made to “PSL” as loyalty commission is not disputed. It is also undisputed fact that it is an arm’s length transaction. We find that “PSL” has made purchases from the assessee-company to the tune of ₹ 1.60 crores in financial year 2005-06, ₹ 2.92 crores in financial year 2006-07, ₹ 2.70 crores in financial year 2007-08 and ₹ 1.17 crores in financial year 2008-09 (till November, 2008). Considering the high volume of supplies made by the assessee-company to “PSL”, it could not be said that the purpose of the said payment of commission could not be established by the assessee. It is not abnormal to enter into an agreement with intending heavy-weight purchaser party before entering into actual sale transacton with the said party. The purpose of the payment of loyalty commission was clearly for business of the assessee, and it is not for the department to sit over the judgment of the assessee that how the business has to be conducted and the expenditure incurred could not be disallowed, till it shows that the payment itself was not genuine or was made for some purpose other than the business purpose of the assessee. No valid reason for the said disallowance could be made out by the Revenue. In these facts, we are of the view that the amount of loyalty commission paid by the assessee could not be disallowed. CIT(A) has passed a well reasoned speaking order on this issue. The assessee has derived enduring benefits by paying loyalty commission to PSL and has effected sales in crores in the subsequent years to PSL. It is not the case of the assessee that PSL has procured the goods from the assessee-company only for relevant Asstt.Year 2006-07. We find that the assessee is well aware of the fact that by paying loyalty commission, it shall be entitled to enduring benefits for subsequent many years, and PSL will retain as its customer. In these facts of the case, we confirm the order of the CIT(A) in holding that the assessee has paid the amount for enduring benefits for many years, and therefore, it should be treated as capital expenditure and depreciation to be allowed on this amount. Levy of penalty u/s.271(1)(c) - Held that:- The only dispute was whether the expenditure of loyalty commission was capital or revenue in nature. There can always be an honest difference of opinion on this issue between the parties. Merely because certain expenditure was held to be capital in nature and allowed depreciation thereon, it could not be said that the assessee is guilty of concealment of income or filing of inaccurate particulars of income. - Decided in favour of assessee.
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