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2021 (11) TMI 101 - AT - Income TaxDisallowing the expenses on account of rent - Disallowing of claim as most of the owners of the premises were partners of the assessee firm and one of them was the partner s wife - HELD THAT - Even though the owners of the property are relatives, the assessee has been able to bring on record relevant material to support its claim of having taken the premises in question on rent. Whether the assessee was able to show that the rental premises was used wholly and exclusively for the purpose of the business? - As brought to our notice that all its commercial activities like back office work etc. was carried out at that premises, from which only the assessee has turnover of ₹ 458 crore. We note that the payment of rent was made by the assessee firm to the owners (partners) through cheque after deduction of TDS and the owners (partners) have duly shown the rental income in their respective Income tax returns and that tax has been paid on it. To substantiate the incurring of rental expenditure the assessee had filed the rental agreement, sale deed of the related parties, electricity bills, payment by cheque and details of TDS deducted on the rental payments. It is noted that these evidence could not be controverted/rebutted by the AO/Ld DR and the AO has disallowed the expenditure on the basis of surmises and conjectures. So we are of the opinion that disallowance made by the AO has been rightly reversed by the Ld. CIT(A). Therefore, we do not find any reason to interfere with the order of the Ld. CIT(A) and we confirm the same. Therefore, this ground of appeal of revenue stands dismissed. Addition of excess interest claimed on unsecured loan - assessee had borrowed sums from two (2) types of parties viz., related parties as defined u/s. 40A(2)(b) and non-related parties - HELD THAT - CIT(A) has found that since there was an urgent business requirement, the assessee had taken the unsecured loan due to business exigency at higher rate @ 15% which was also repaid in the same year. The Ld. CIT(A) has noted that the assessee had disclosed the loans, nature of the loans, interest rates paid etc. which were reflected in the tax audit report which included the details of the unsecured loan from related parties. The Ld. CIT(A) was of the opinion that the assessee has made out a case that due to business exigency, loans were taken at a higher rate of 15% at short notice which warranted payment of higher rate of interest. The Ld. CIT(A) thereafter relied on the decision of the Hon ble Supreme Court in the case of S. A. Builders 2006 (12) TMI 82 - SUPREME COURT to allow the assessee s interest expenditure. The aforesaid facts narrated above could not be rebutted/contradicted by the Ld. DR before us. Therefore, based on the factual finding of the Ld. CIT(A) on this issue as discussed supra, we do not find any reason to overturn the decision of the Ld. CIT(A) accepting the interest expenditure. Addition of commission paid to selling agents - as per AO there was no written agreement between the assessee and such brokers and payment made by cheque/TDS deducted cannot be the deciding factor regarding genuineness of claim of the commission paid by the assessee - CIT-A deleted the addition - HELD THAT - CIT(A) noted that the remand report included brief note on the business activity of the commission agents, copies of return of income tax, copy of the TAR, copies of the P L Account and the details of commission received for work rendered by the commission agents for the assessee. The Ld. CIT(A) also noted that the assessee had a turnover of ₹ 458.91 cr. from Mumbai office itself which according the Ld. CIT(A) was around 72% of the total turnover and that the commission expenses worked out to be very less and constituted only a fraction of such disclosed turnover, which according to the Ld. CIT(A) was reasonable, especially in the situation when the salary payments incurred by the assessee are not excessive. So, he found justification for paying the commission to agents to achieve higher turnovers AO/Ld DR did not bring on record any material to show that the transaction of payment of commission to agents were not genuine or the commission paid was excessive or unreasonable, therefore, no disallowance could have been made by the AO at the first place itself. For that proposition, we rely on the decision of the jurisdictional High Court in the case of CIT Vs. Alfa Hydronics Pvt. Ltd. 2014 (11) TMI 1156 - CALCUTTA HIGH COURT - Therefore, the Ld. CIT(A) rightly deleted the addition which does not require our interference so, we confirm the same. Therefore, this ground of appeal of revenue stands dismissed. Addition of expenses on account of sales promotion - CIT-A deleted the addition - HELD THAT - CIT(A) took note of the fact that the gifts presented in the form of redeemable gift voucher of various denomination such as gold/silver gifts etc. was meant for promoting the business of the assessee thus attracting generation of more revenue and, therefore, is an allowable expenditure. We note that the entire scheme (promotion scheme) was governed by the scheme put in place by M/s. Tata Steels, and that purchases of the gifts were also from Tata related outlets like M/s Titan and M/s Tanishq. And the distribution was also carried out by an authorized gift distributor company for M/s. Tata Steels. The scheme was controlled by M/s. Tata Steels and was to ensure that the end users would benefit if they are eligible. The Ld. CIT(A) has found that there was no doubt about the genuineness of the expenditure and the expenditure was for promotion of business of the assessee and therefore an allowable expense. This finding of facts could not be controverted or rebutted by AO/Ld DR, so in such a case, we find no infirmity in the order of the Ld. CIT(A) Appeals of the revenue are dismissed.
Issues Involved:
1. Condonation of delay in filing the appeal. 2. Deletion of addition on account of rent expenses. 3. Deletion of addition on account of excess interest claimed on unsecured loans. 4. Deletion of addition on account of commission paid to selling agents. 5. Deletion of addition on account of sales promotion expenses. Issue-wise Detailed Analysis: 1. Condonation of Delay in Filing the Appeal: The revenue's appeals were time-barred by 59 days. The Tribunal condoned the delay after considering the reasons provided, finding a reasonable cause for the delay, and admitted the appeals for hearing on merits. 2. Deletion of Addition on Account of Rent Expenses: The AO disallowed ?1,05,60,000/- claimed as rent expenses, questioning the genuineness of the claim due to the property being owned by partners and their relatives. The AO noted discrepancies such as electricity bills in the name of the developer and premises occupied by domestic helps. However, the CIT(A) deleted the addition, noting that the assessee provided sufficient evidence, including rental agreements, TDS certificates, and proof of payment. The CIT(A) emphasized the need for large business premises given the high turnover of ?458.91 crores. The Tribunal upheld the CIT(A)'s decision, confirming that the assessee had demonstrated the business use of the premises and the genuineness of the rent expenses. 3. Deletion of Addition on Account of Excess Interest Claimed on Unsecured Loans: The AO benchmarked 8% as a reasonable interest rate and disallowed ?7,12,705/- paid above this rate to unrelated parties. The CIT(A) deleted the addition, noting that the assessee paid varying interest rates to different lenders and provided justifications for higher rates, including urgent business requirements. The CIT(A) relied on the Supreme Court's decision in S.A. Builders Ltd., emphasizing commercial expediency. The Tribunal upheld the CIT(A)'s decision, confirming that the interest expenses were justified and reasonable. 4. Deletion of Addition on Account of Commission Paid to Selling Agents: The AO disallowed ?1,61,35,327/- paid as commission, questioning the genuineness due to the absence of written agreements and insufficient evidence of services rendered. The CIT(A) deleted the addition, noting that the assessee provided substantial evidence, including party-wise details, confirmations, and tax audit reports. The CIT(A) emphasized the business necessity of commission payments given the high turnover. The Tribunal upheld the CIT(A)'s decision, confirming the genuineness and necessity of the commission expenses. 5. Deletion of Addition on Account of Sales Promotion Expenses: The AO disallowed ?1,06,54,614/- claimed as sales promotion expenses, questioning the distribution of gifts without proper ledger entries. The CIT(A) deleted the addition, noting that the expenses were part of a scheme by Tata Steel to incentivize dealers and end-users. The CIT(A) emphasized that the purchases and distributions were genuine and necessary for business promotion. The Tribunal upheld the CIT(A)'s decision, confirming the genuineness and business purpose of the sales promotion expenses. Conclusion: The Tribunal dismissed the revenue's appeals, upholding the CIT(A)'s decisions on all issues, confirming the genuineness and business necessity of the disputed expenses.
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