2010 (2) TMI 649 - AT - Income Tax

Disallowance - Income escaping assessment - Deduction u/s 80IB - Minimum Alternative Tax u/s 115JB - Onus on the assessee to establish its business purpose in order to claim deduction as business expenditure - The appellant has not been able to give any evidence to suggest that the party to whom commission has been paid, has rendered services The expenditure cannot be allowed only on the basis of the fact that the amount has been paid through cheque or there is an agreement for making any specific payment - Decided against the assessee and the disallowance is confirmed Regarding deduction u/s 80-IB on interest of Bank FDRs amounting to Rs. 2,75,187 - Hon ble Apex Court in the case of Liberty India v. CIT 2009 -TMI - 34471 - SUPREME COURT - Accordingly held that the interest on bank FDRs is not derived from the industrial undertaking and therefore, deduction under section 80-IB was not allowable on interest received on FDRs and the ld. CIT(A) was not justified in allowing deduction under section 80-IB on such interest

Issues Involved:
1. Deletion of disallowance of Rs. 46,46,867 on account of payment of commission.
2. Allowing deduction under section 80-IB on interest from Bank FDRs amounting to Rs. 2,75,187.

Detailed Analysis:

1. Deletion of Disallowance of Rs. 46,46,867 on Account of Payment of Commission:
The revenue challenged the deletion of the disallowance of Rs. 46,46,867 paid as commission to M/s. Sadem India Ltd. The assessee had filed the return of income, which was processed under section 143(1). A notice under section 148 was issued, and the assessee responded that the return already filed should be treated as compliance.

The Assessing Officer (AO) in the assessment order of M/s. Sadem India Ltd. found that the commission was not genuine, as M/s. Sadem India Ltd. failed to prove any involvement justifying the receipt of commission. It was observed that the payment of commission was a means to route income through the assessee to avoid taxability, as M/s. Sadem India Ltd. had heavy brought forward losses and unabsorbed depreciation.

The AO issued a notice under section 148, stating that M/s. Sadem India Ltd. had not done any activity or had any experience to earn the commission income. The assessee was asked to explain why the commission paid should not be disallowed. The assessee argued that the commission was paid for services rendered by M/s. Sadem India Ltd., including procuring tenders/orders and providing assistance in various business activities.

The AO disallowed the commission, observing that no substantial efforts were made to earn the commission, and there was no evidence of expenses relating to phone calls, meetings, or other activities. The AO concluded that the commission payment was not genuine.

The ld. CIT(A) deleted the disallowance, noting that the commission was paid through cheques, and referred to the decision of the ITAT Jaipur Bench in a similar case. The ld. DR argued that M/s. Sadem India Ltd. failed to establish having provided any services and had no prior experience in the claimed services.

The Tribunal examined the case and found that the assessee failed to provide evidence of services rendered by M/s. Sadem India Ltd. The correspondence provided did not prove that the services were rendered, and there was no technical expertise or expenses incurred by M/s. Sadem India Ltd. The Tribunal referred to similar cases where the commission was disallowed due to lack of evidence of services rendered.

The Tribunal concluded that the assessee failed to establish that the expenditure was made for business purposes and reversed the order of the ld. CIT(A), thereby allowing the revenue's appeal on this ground.

2. Allowing Deduction Under Section 80-IB on Interest from Bank FDRs:
The revenue also challenged the allowance of deduction under section 80-IB on interest from Bank FDRs amounting to Rs. 2,75,187. The Tribunal referred to the decision of the Hon'ble Apex Court in the case of Liberty India v. CIT, which held that deduction under section 80-IB is allowable only on items that have a direct nexus with the industrial undertaking.

The interest on Bank FDRs was not derived from the industrial undertaking, and therefore, the deduction under section 80-IB was not allowable. The Tribunal concluded that the ld. CIT(A) was not justified in allowing the deduction and allowed the revenue's appeal on this ground as well.

Conclusion:
The Tribunal allowed the revenue's appeal, reversing the deletion of the disallowance of Rs. 46,46,867 on account of payment of commission and disallowing the deduction under section 80-IB on interest from Bank FDRs amounting to Rs. 2,75,187.

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