2014 (7) TMI 1247 - AT - Income Tax

Disallowance of payment of commission - Held that - The assessee is manufacturing of current and potential transformers & electrical control equipments. The appellant had been assisted by M/s Sadem India Ltd. Bhiwadi to execute the tender of various electricity boards. The genuineness of the payments in form of commission has not been doubted by the Revenue. The TDS has been deducted and paid to the government exchequer. The documents filed by the appellant before the lower authority supported that M/s Sadem India Ltd. has rendered service to the appellant by providing information of tender attending the tender on behalf of the appellant liaisoning with the various electricity boards helping in recovering the payments providing number of tenders providing experience with the government department etc. The appellant had submitted all the details before the Assessing Officer to prove the services rendered by M/s Sadem India Ltd. which has not been controverted by the Revenue. The agents have rendered the services like procurement of orders ascertaining the quality timely payment etc. The recipient has declared the commission in his return of income and has confirmed to have rendered the services to the assessee. In the circumstances and facts of the case we find no infirmity in the order of the ld. CIT(A) who has rightly deleted the addition made by the A.O. and has rightly directed to enhance the allowance of deduction u/s 80IB of the Act. Deduction u/s 80IB on interest on Bank FDRs - Held that - The FDRs were made for providing bank guarantee to the Electricity Board. Apparently the interest on FDRs directly connected with the industrial undertaking. Even the assessee s argument of netting of interest income is accepted. It automatically increased the profit of the assessee undertaking and the deduction U/s 80IB of the Act is also increases. We find that FDRs were made for business purposes and for getting the tender from the Electricity Board and income from interest income is directly connected with the industrial undertaking. Therefore we confirm the order of the learned CIT(A). Accordingly we dismiss the Revenue s appeal on this ground.

Summary

Issues Involved:
1. Deletion of disallowance of Rs. 46,46,867/- made on account of payment of commission to M/s Sadem India Ltd.
2. Allowance of deduction u/s 80IB on interest on Bank FDRs amounting to Rs. 2,75,187/-.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance of Rs. 46,46,867/- on Commission Payment:

The Revenue appealed against the CIT(A)'s order, which deleted the disallowance of Rs. 46,46,867/- made by the Assessing Officer (A.O.) concerning the commission paid to M/s Sadem India Ltd. The A.O. questioned the legitimacy of the commission payment, arguing that M/s Sadem India Ltd. did not provide any tangible services to justify the commission. The A.O. based this on the assessment of M/s Sadem India Ltd., which indicated no significant expenses or services provided.

The CIT(A) observed that M/s Sadem India Ltd. had political and public relations, which were beneficial for procuring tenders. The commission payments were made through account payee cheques, and TDS was deducted and deposited with the government. The CIT(A) relied on the ITAT's decision in DCIT Vs. Vhanketeshwar Wires Pvt. Ltd., where similar commission payments were allowed.

The ITAT, upon revisiting the case as directed by the High Court, noted that the assessee provided sufficient evidence of services rendered by M/s Sadem India Ltd., including tender information, liaisoning with electricity boards, and assisting in recovering payments. The ITAT found no infirmity in the CIT(A)'s order and confirmed the deletion of the disallowance, citing the genuineness of the commission payments and the services rendered.

2. Allowance of Deduction u/s 80IB on Interest on Bank FDRs:

The A.O. disallowed the deduction u/s 80IB on interest income from Bank FDRs amounting to Rs. 2,75,187/-, arguing that this income was not derived from industrial activity. The CIT(A) reversed this disallowance, stating that the FDRs were made for bank guarantees required by the Electricity Board, which were essential for the assessee's business operations. Therefore, the interest income was directly connected to the industrial undertaking.

The ITAT upheld the CIT(A)'s decision, agreeing that the FDRs were made for business purposes and the interest income was intrinsically linked to the industrial undertaking. The ITAT also considered the netting of interest income, which further supported the assessee's claim for deduction u/s 80IB.

Conclusion:

The ITAT dismissed the Revenue's appeal, confirming the CIT(A)'s decisions on both issues. The commission payment to M/s Sadem India Ltd. was deemed genuine and necessary for business operations, and the interest on Bank FDRs was considered directly connected to the industrial undertaking, qualifying for deduction u/s 80IB. The order was pronounced in the open court on 18/07/2014.