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2014 (9) TMI 202 - AT - Income TaxForeign tour expenses - Expenses for business purpose or not Held that - The AO disallowed the expenses on the basis that the assessee could not furnish the supporting evidences in respect of the expenditure incurred - The finding of the AO was confirmed by the CIT(A) on the basis that neither during the assessment proceedings nor during the appellate proceedings the assessee could file any evidence and point out that the people traveled to China actually for the purpose of business - the assessee has placed on record a ledger account of foreign travelling expenses - no details of the foreign parties has been placed on record suggesting that the assessee had gone for business purpose the assessee failed to demonstrate that trips undertaken by the Directors of the assessee company was for the purpose of business - the order of the CIT(A) is upheld Decided against assessee. Payment of brokerage/commission Failure to show services rendered to whom Held that - CIT(A) has given a finding that the appellant could not demonstrate as to how the family members or family concerns were competent to bring the business for the assessee which the assessee itself could not have done CIT(A) was of the view that the assessee could not establish the nature of services rendered by the persons to whom the brokerage was paid assessee relied upon Aluminium Corporation of India vs. CIT 1972 (8) TMI 2 - SUPREME Court The contention of the assessee that all the details regarding nature of services rendered by the persons to whom the commission was paid were filed but not considered by the authorities below the contentions of the assessee required verification at the end of the AO thus, the matter is to be remitted back to the AO for fresh adjudication Decided in favour of assessee. Interest subsidy received Nature of receipt revenue or not Held that - The interest subsidy has been granted by Government of Gujarat, Industries & Mines Department, Resolution No.APN/102004/1161(2)/1, Sachivalaya, Gandhinagar, dated 10th June- 2004 - the interest subsidy is granted under the scheme of Government of India, following the decision in CIT vs. Ponni Sugars and Chemicals Ltd. 2008 (9) TMI 14 - SUPREME COURT - The AO is directed to treat the interest subsidy received by the assessee as capital receipt and make necessary charges in the computation of income of the assessee Decided in favour of assessee. Addition on account of fall in GP Held that - CIT(A) rightly appreciated that the assessee has explained the fall in G.P. rate by giving full details - assessee has stated that the disproportionate increase in the manufacturing expenses and personal expenses appears to be so because the AO has compared the turnover in terms of rupees and not in terms of quantity - There was some increase in the salary of employees also - This has accounted for marginal increase in the personal expenses as compared to last year if the same is compared with production in quantity - assessee has pointed out that the AO has brought no material on record to show that the books of account are not reliable or that they are incomplete and correct profit cannot be deducted from that - The AO has brought no material on record to show that the sales were unaccounted for or undervalued or the purchases or other expenses were either bogus or inflated the order of the CIT(A) is upheld Decided against Revenue. Interest disallowed u/s 40A(2)(b) Held that - CIT(A) rightly was of the view that the unsecured loans are available at various rates depending upon time to time - AO has compared the rate of unsecured loan of 15% with the rate of loan given by the Bank and not with rate of unsecured loans available in the market - For a disallowance u/s 40A(2)(b) the AO is required to compare the market rate - Even the benefit accruing to the assessee shall have to be evaluated - This may not be confined to the period of accounting year only and again it would not be essential that benefit must be in the revenue field - when the Banks are giving loan at 12.5% from 22.01.2007 and OD interest is 14% then the unsecured loan at 15% is not excessive the order of the CIT(A) is upheld Decided against Revenue.
Issues Involved:
1. Disallowance of foreign tour expenses. 2. Disallowance of commission/brokerage expenses. 3. Taxability of interest subsidy. 4. Deletion of addition on account of fall in Gross Profit (G.P.). 5. Deletion of disallowance of interest under section 40A(2)(b). Detailed Analysis: 1. Disallowance of Foreign Tour Expenses: The assessee contended that the foreign tour expenses of Rs. 3,62,112/- were for business purposes as the directors traveled abroad for business reasons. However, the Assessing Officer (AO) disallowed these expenses due to the lack of supporting evidence showing that the trips were for business purposes. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this disallowance, noting that the assessee failed to provide evidence during both the assessment and appellate proceedings. The Tribunal found no infirmity in the orders of the authorities below as the assessee could not demonstrate that the trips were for business purposes. Consequently, the ground was rejected. 2. Disallowance of Commission/Brokerage Expenses: The assessee challenged the disallowance of Rs. 10,08,707/- for commission/brokerage payments, arguing that the names, addresses, and PAN of the recipients were provided, along with evidence of job work procured through these agents. The AO and CIT(A) disallowed the claim, stating the assessee failed to demonstrate the nature of services rendered. The Tribunal noted that the CIT(A) did not consider relevant case laws cited by the assessee. Therefore, the Tribunal remanded the matter back to the AO for verification and fresh decision, allowing the ground for statistical purposes. 3. Taxability of Interest Subsidy: The assessee argued that the interest subsidy received from the State Government was of capital nature and should not be taxable, citing the Supreme Court's decision in CIT vs. Ponni Sugars and Chemicals Ltd. The CIT(A) disagreed, treating the subsidy as revenue in nature since it reduced the interest burden, which is allowable as revenue expenditure under section 36(1)(iii). The Tribunal, referencing the Supreme Court judgment, directed the AO to treat the interest subsidy as a capital receipt and adjust the computation of income accordingly. This ground was disposed of in favor of the assessee. 4. Deletion of Addition on Account of Fall in G.P.: The Revenue appealed against the deletion of the addition of Rs. 26,08,862/- on account of a fall in G.P. The AO had rejected the book results due to a significant increase in manufacturing and personnel expenses. The CIT(A) found that the assessee provided satisfactory explanations for the fall in G.P., including increased production and costs. The Tribunal upheld the CIT(A)'s decision, noting that the Revenue did not provide contrary evidence. Therefore, this ground of the Revenue's appeal was rejected. 5. Deletion of Disallowance of Interest under Section 40A(2)(b): The Revenue contested the deletion of the disallowance of Rs. 2,80,572/- for interest paid to specified persons, arguing that the assessee did not substantiate the claim of exhausting bank limits. The CIT(A) found that the AO had compared the interest rate with bank loans rather than unsecured loans in the market. The Tribunal agreed with the CIT(A) that the interest rate of 15% was not excessive given the circumstances and upheld the deletion of the disallowance. This ground of the Revenue's appeal was also rejected. Conclusion: - The appeal of the assessee was partly allowed for statistical purposes. - The appeal of the Revenue was dismissed.
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