2012 (11) TMI 321 - AT - Income Tax

Guarantee commission - CIT(A) deleted the addition - Held that - As the directors have been paid guarantee commission to compensate them from the risk assumed by them in standing as guarantor for the bank loan taken by the assessee-company. It was also the case of the assessee that the bank has necessitated on such personal guarantee and accordingly personal guarantee was needed, thus CIT(A) s order of deleting addition is confirmed - in favour of assessee. Foreign travel expenditure - CIT(A) deleted the addition - Held that - Finding on fact has been given by CIT(A) that the assessee has furnished the purpose of the foreign visits of the Directors and the tour report has been submitted on their return which was found to be for the purpose of the business of the assessee - Since in assessee s own case on last two occasions the Respected Coordinate Benches have taken a consistent view in assessee s favour, therefore in the light of the ratio laid down therein for this year the view taken by CIT(A) is to be affirmed - in favour of assessee. Disallowance of warranty obligation - Held that - Since the Tribunal is taking a consistent view that the warrant obligation happened to be a business liability and made on scientific basis as per the recurrence of the after sales obligation the amount was debited to P&L Account, therefore in the like manner for the year under consideration, we hereby consider it proper to affirm the factual as also legal finding of CIT(A) - in favour of assessee. Claim of bad debts - Disallowance of interest on inter-corporate deposits - CIT(A) allowed the claim - Held that - The assessee has yet to place on record that the borrowers have gone under liquidation, that even after the best efforts of the assessee the impugned amount could not be recovered from them and that the Civil Suites filed have not resulted into any gain, then only the assessee can be allowed such claim - restore this issue back to the stage of the AO, so that the assessee can place on record the fate of the Court proceedings to establish the genuineness of the failure on the part of the borrowers - in favour of Revenue for statistical purposes.

Summary

Issues:
1. Disallowance of guarantee commission
2. Disallowance of expenditure on foreign travel
3. Disallowance of expenditure on after sales operation and maintenance
4. Disallowance of warranty obligation
5. Disallowance of interest on inter-corporate deposits

Issue 1: Disallowance of Guarantee Commission
The Revenue appealed against the deletion of an addition of Rs.4,00,000 made on account of disallowance of guarantee commission. The Tribunal referred to a previous decision in the assessee's favor regarding a similar issue, where it was held that guarantee commission was paid to directors to compensate them for the risk of standing as guarantors for bank loans. The Tribunal affirmed the CIT(A)'s decision based on the previous order and dismissed the Revenue's ground.

Issue 2: Disallowance of Expenditure on Foreign Travel
The Revenue contested the deletion of an addition of Rs.1,87,187 made for disallowance of expenditure on foreign travel. The Tribunal noted that in previous cases, the expenditure on foreign travel had been found to be for business purposes. Following consistent views in the assessee's favor, the Tribunal upheld the CIT(A)'s decision based on factual findings and dismissed the Revenue's ground.

Issue 3 & 5: Disallowance of After Sales Operation and Maintenance, and Warranty Obligation
The Tribunal consolidated these grounds as they shared a common issue. The Tribunal modified the amount in dispute for after sales operation and maintenance and warranty obligation. Referring to previous orders, the Tribunal held that the warranty obligation was a business liability made on a scientific basis, allowing it as a deduction. The Tribunal affirmed the factual and legal findings of the CIT(A) and dismissed these grounds of the Revenue.

Issue 4: Disallowance of Interest on Inter-Corporate Deposits
The Revenue challenged the deletion of an addition of Rs.24,52,215 made for disallowance of interest on inter-corporate deposits. The Tribunal considered the uncertainty of recovery and referred to accounting standards. It was noted that the principal amount's recovery was doubtful, leading to the deletion of the addition by the CIT(A). The Tribunal reviewed the facts and circumstances, emphasizing the need for the assessee to establish the genuineness of the failure to recover the amount. The issue was restored to the AO for further examination. The Tribunal partly allowed the Revenue's appeal on this ground for statistical purposes.

In conclusion, the Tribunal addressed each issue raised by the Revenue, considering previous decisions, factual findings, and legal principles to determine the outcome of the appeal.