2017 (5) TMI 352 - AT - Income Tax

Claim of deduction on account of commission/brokerage paid against hiring of showroom - revenue v/s capital expenditure - Held that - Where the assessee had paid commission/brokerage for taking on lease premises from where the assessee is running its showroom and the concerned party had charged commission/brokerage to the assessee for finalizing the deal, then the same is to be allowed as an expenditure in the hands of assessee as revenue expenses. The Ground of appeal No.1 is thus allowed in favour of assessee. Disallowance u/s 269SS and 269T - as per AO where the payments have been made in cash then the same are to be added back to the total income of the assessee under section 269SS and 269T r.w.s. 40A(3) - Held that - We find no merit in the approach adopted by the CIT(A) upholding the addition in the hands of assessee that the provisions of section 269SS and 269T of the Act are to be applied in making the aforesaid disallowance. As per the provisions of section 271D and 271E of the Act, for any default under section 269SS and 269T of the Act, penalty is leviable. However, such penalty is to be imposed by the Joint Commissioner of Income Tax. The assessment order in the present case was completed by the Assistant Commissioner of Income Tax and hence beyond his jurisdiction. In any case, disallowance is made under section 269SS and 269T of the Act which is invalid. Accordingly, the Ground of appeal No.2 raised by the assessee is thus allowed. Disallowance of interest expenses - advances to several related persons interest free - Held that - The first plea of the assessee that the Bank charges and loan processing charges cannot be considered for making the said disallowance and also interest on term loan, which was raised during the year under consideration and was specifically used by the assessee for its business, cannot be disallowed is acceptable and hold that no disallowance is to be made out of the bank charges, loan processing charges and interest on term loan. The total advances made by the assessee are to the tune of about ₹ 3 crores as against the share capital and the reserves and surplus, i.e. opening balance as on 01-04-2009 the assessee has made investment in fixed deposits and other investments totaling to ₹ 4.38 crores. Accordingly, we find no merit in the plea of the assessee in this regard. However, the AO is directed to restrict the disallowance to ₹ 10,69,222/- and ₹ 68,000/-. The ground of appeal raised by the assessee is thus partly allowed.

Summary

Issues Involved:
1. Claim of deduction on commission/brokerage paid for showroom.
2. Disallowance under sections 269SS and 269T for interest-free loans.
3. Disallowance of finance charges and loan processing charges.

Issue 1: Deduction on Commission/Brokerage:
The Assessee appealed against the treatment of expenditure of ?2,81,000 as capital in nature by the Assessing Officer. The commission was paid for leasing a showroom, and the agent who secured the deal was paid the commission. The Tribunal held that such expenditure should be allowed as revenue expenses since it was related to the showroom's operation. The appeal on this ground was allowed.

Issue 2: Disallowance under Sections 269SS and 269T:
The Assessee challenged the disallowance of ?12,60,378 under sections 269SS and 269T for interest-free loans paid to the director. The Tribunal found that the penalty for such defaults should be imposed by the Joint Commissioner of Income Tax, not the Assistant Commissioner who completed the assessment. Therefore, the disallowance under sections 269SS and 269T was deemed invalid, and the appeal on this ground was allowed.

Issue 3: Disallowance of Finance Charges and Loan Processing Charges:
The Assessee contested the disallowance of ?16,65,055 for finance charges and loan processing charges. The Tribunal noted that while interest-free advances were made, certain charges like bank charges and loan processing charges should not be disallowed. It was held that interest on term loans used for business purposes should not be disallowed. The Tribunal directed the Assessing Officer to restrict the disallowance to specific amounts, allowing the appeal on this ground partly.

In conclusion, the Tribunal allowed the Assessee's appeal on all three issues raised, regarding the deduction on commission/brokerage, disallowance under sections 269SS and 269T, and disallowance of finance charges and loan processing charges. The Tribunal provided detailed reasoning for each issue, emphasizing the applicability of relevant legal provisions and the nature of the expenses incurred by the Assessee.