2016 (6) TMI 1327 - AT - Income Tax

Disallowing commission payment - expenditure was incurred wholly and exclusively for the purpose of business - Held that - It is not in dispute that similar payment has been made in earlier year as well. Assessee was also deducting TDS on the payment made to M/s. Delite International. Thus, M/s. Delite International was giving not only services of Commission Agent but composite services to the assessee. Revenue Officers had tried to invoke the provisions of Section 40A(2)(b) of the Act. Comparative cases have to be brought on record to justify the disallowance in question, but in this case, having discussed the provisions of Section 40A(2)(b) of the Act, full amount has been disallowed. Hon ble Bombay High Court in case of CIT vs. Indo Saudi Services (Travel) P. Ltd. 2008 (8) TMI 208 - BOMBAY HIGH COURT had held that in case of tax neutrality, disallowance in question are not justified because both payee and recipient are paying tax on highest slab. Assessing Officer has not brought on record to establish colourable device in such payment. There is nothing on record that payment is against public policy. There is also nothing on record that such payment have routed back to assessee in any manner. Lastly, assessee has paid the amount in question after deducting TDS and recipient has paid taxes on same. Taking all facts and circumstances of the case into consideration, we are of the view that payment in question @5.25% looking to the services rendered by said party is justified and same is allowed. Payment of transport charges made by assessee company - assessee did not discharge the onus to substantiate the claim with supporting evidences - Held that - Revenue authorities have not disputed the fact that possession of transport vehicles was M/s. Delite International and transportation by assessee. They have not brought anything on record that goods have been transported by other than vehicles of the M/s. Delite International. It is a tax neutrality as held by Hon ble Bombay High Court in case of CIT vs. Indo Saudi Services (Travel) P. Ltd. 2008 (8) TMI 208 - BOMBAY HIGH COURT as both the parties are paying tax on highest rate. No colourable device has been suggested by AO with regards to these transports payments. similar type payments have been made in assessment order for earlier year has not been disturbed in any manner. We are of the view that assessee is supposed to maintain its affair in its own way and Revenue authorities had brought nothing on record to suggest that such payments were not for business purpose. So, taking all facts and circumstances of the case into consideration, Assessing Officer is directed to allow these expenses in question. Disallowance paid for foreign tour - stand of assessee has been that assessee has incurred expenses as mentioned on foreign travel wholly for the business purposes only - Held that - t is business decision of assessee which should not be disturbed by Revenue authorities without bringing out anything otherwise on the record. Revenue authorities failed to bring any material on record to establish that it was a pleasure trip as same were undertaken by the said persons individually. Assessee is not supposed to disclose all strategic decision to the Revenue authorities including final conclusion of purchasing certain machinery and running the business in more efficient technical and administrative manner. As stated above, Revenue authorities have not brought anything on record to suggest that it is a devise to avoid the tax. AO is directed to allow the travel expenses in question. Disallowance of interest expenses - allowable busniss expenses - Held that - Interest paid to M/s. Technical Works Industrial Link Ltd. was a reimbursement the interest incurred by M/s. Technical Works Industrial Link Ltd. on overdraft facility in bank, which was availed against fixed deposits of M/s. Technical Works Industrial Link Ltd. for the purposes of business of assessee. As stated above, CIT(A) found nothing on record to show that this payment was partly or wholly for purposes other than the business purpose. The submissions of assessee were sent to AO. AO has not brought any fact to the knowledge of CIT(A) to suggest that interest payment made to M/s. Delite International of ₹ 46,07,791/- or to M/s. Technical Works Industrial Link Ltd. of ₹ 21,04,071/- was partly or wholly attributable to purposes other than business of assessee. In these facts and circumstances, CIT(A) was justified to held that these expenses have been incurred for business purposes of assessee and this reasoned finding of CIT(A) needs not interference from our side. - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of commission payment to M/s Delite International.
2. Disallowance of transportation charges.
3. Disallowance of foreign tour expenses.
4. Non-adjudication of grounds related to depreciation, commission to an employee, and accommodation expenses.
5. Deletion of disallowance of interest paid to M/s Delite International and M/s Technical Works Industries Link Ltd.
6. Deletion of disallowance of interest-free advances given to company staff.

Detailed Analysis:

1. Disallowance of Commission Payment to M/s Delite International:
The assessee paid a commission of ?1,41,21,044 to M/s Delite International, a proprietary concern of Mr. Ashok Pandey, who is also a Director in the assessee's company. The Assessing Officer (AO) disallowed this payment due to lack of justification and supporting evidence. The Commissioner of Income-Tax (Appeals) [CIT(A)] upheld the disallowance, citing insufficient proof of services rendered by M/s Delite International. However, the Tribunal found that the assessee had a valid Commission Agreement specifying the services to be provided, and the payment was made after deducting TDS. The Tribunal concluded that the payment was justified and allowed the commission expenses.

2. Disallowance of Transportation Charges:
The AO disallowed transportation charges of ?74,13,811 paid to M/s Delite International due to lack of detailed evidence. The CIT(A) upheld the disallowance, noting the absence of detailed trip information and supporting documents. The Tribunal, however, found that similar payments were made in earlier years without disallowance, and TDS was deducted on the payments. The Tribunal allowed the transportation charges, emphasizing that the payments were made as per an agreement and were necessary for the business.

3. Disallowance of Foreign Tour Expenses:
The AO disallowed foreign tour expenses of ?14,83,542, citing lack of evidence that the expenses were incurred for business purposes. The CIT(A) upheld the disallowance. The Tribunal, however, accepted the assessee's explanation that the foreign travel was for business development and technical study. The Tribunal allowed the foreign tour expenses, noting that the Revenue authorities did not provide evidence to suggest the trips were for personal pleasure.

4. Non-adjudication of Grounds Related to Depreciation, Commission to an Employee, and Accommodation Expenses:
The CIT(A) dismissed these grounds, stating they were not pressed. The Tribunal restored these issues to the AO for adjudication on merits, based on an affidavit from the assessee stating that these grounds were not withdrawn.

5. Deletion of Disallowance of Interest Paid to M/s Delite International and M/s Technical Works Industries Link Ltd.:
The AO disallowed interest expenses of ?68,09,927, stating there were no outstanding loans and lack of supporting evidence. The CIT(A) allowed the claim, noting that the interest was paid for bill discounting and reimbursement of bank overdraft interest for business purposes. The Tribunal upheld the CIT(A)'s decision, finding no evidence that the interest payments were for non-business purposes.

6. Deletion of Disallowance of Interest-Free Advances Given to Company Staff:
The AO disallowed interest-free advances given to company staff, citing non-compliance with Section 36(1)(iii) of the IT Act. The Tribunal did not specifically address this issue in the provided text, suggesting that the CIT(A)'s decision to allow the claim was upheld.

Conclusion:
The Tribunal allowed the assessee's appeal in part, specifically regarding commission payments, transportation charges, and foreign tour expenses. It restored the issues related to depreciation, commission to an employee, and accommodation expenses to the AO for reconsideration. The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to allow interest expenses.