2018 (5) TMI 1743 - AT - Income Tax

Disallowance of nomination fees - allowable business expenditure - Held that - When the clients of the assessee have insisted the garment suppliers to purchase the hanger from the assessee, it is quite natural that they would expect some benefit out of the transaction. Further the clients of the assessee are in a position to control certain business policies of the garment suppliers because they buy bulk garments from them. Therefore when they charge a nomination fee from the assessee on turnover basis, it is genuine business expenditure incurred by the assessee and cannot be brushed aside by stating that such expenditure is unnecessary. In the case of the assessee, all the entities are aliens to each other but for their business connections. Further it is not for the Ld.Revenue Authorities to decide as to what expenditure is to be incurred by the assessee and what not. In these situations, we fully agree with the submission of the Ld.AR that the decision rendered by the Hon ble Supreme Court in the case of SA Builders supra is relevant to the case of the assessee. For the above stated reasons we are of the view that the disallowance made by the Ld.AO towards nomination fee which was further confirmed by the Ld.CIT(A) is not justifiable - Decided in favour of assessee.

Summary

Issues involved:
- Disallowance of nomination fees debited to the P&L account for the assessment years 2011-12 & 2012-13.
- Upholding levy of interest U/s.234B, 234C & 234D for the assessment years 2011-12 & 2012-13.

Analysis:

Disallowance of Nomination Fee:
The appellant, a private limited company engaged in manufacturing, debited nomination fees to its P&L account for the assessment years 2011-12 & 2012-13. The Assessing Officer (AO) disallowed the fees, citing lack of nexus between the expenditure and business, absence of prior agreements, and imprudence. The Commissioner of Income Tax (Appeals) upheld this decision, emphasizing minimal business growth due to the expenditure. However, the appellant argued the fees were essential for securing business and were wholly for business purposes, citing a Supreme Court case. The Tribunal agreed, highlighting the business benefits, influence of clients, and genuine nature of the expenditure. It ruled in favor of the appellant, directing the AO to delete the disallowance.

Levy of Interest:
The Tribunal considered the levy of interest under sections 234B, 234C & 234D of the Act as consequential and decided against the appellant. The appeals were partly allowed, with the order pronounced on May 18, 2018, in Chennai.

This judgment addressed the disallowance of nomination fees and the levy of interest, providing a detailed analysis of the facts, arguments, and legal principles involved in each issue.