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TMI Blog1982 (2) TMI 144X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of s. 40(C) of the IT Act, 1961 only; ignoring the fact that a reference made u/s 256(1) of the IT Act, 1961, is pending for adjudication before the Hon ble High Court of Judicature for Rajasthan at Jodhpur on this point." The assessee had claimed deduction for payment of guarantee commission to five persons. The details of the claim made by the assessee and the disallowances made by the ITO are as under: Asst. yr. Claim for guarantee commission Disallowance made by ITO Guarantee commission allowed by the ITO 1971-72 74,708 52,988 21,720 1972-73 1,03,737 82,017 21,720 1973-74 90,709 68,989 21,720 The I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al submissions. We do not find any merit in this ground of appeal. We have pointed out earlier that the matter had earlier came up before the Appellate Tribunal and the Tribunal had recorded a clear finding the provisions of s. 40A were not applicable and had restored the matter to the AAC only with reference to the provisions of s. 40(c). We, therefore, do not find any merit in the ground of appeal raised by the Revenue. The same is, therefore, dismissed. 4. The second ground of appeal which is again common for all the assessment years under appeal is that Commr. (Appeal) erred in holding that the guarantee commissions paid by the assessee could not be said to be excessive or unreasonable and deleting the disallowance of Rs. 52,988 for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he five persons had stood guarantee for providing finances to the assessee firm for which they were to be paid @ 1 % commission of the net sales. We have already noted above the claim on account of guarantee commission @ 1 % of the net sales for the three assessment years and the disallowance made by the ITO. The details showing the finances provided by the five person for the three assessment years are, however, stated as below: Asst. Yr. 1971-72 1972-73 1973-74 1. Amount of guarantees furnished 21,72,000 21,72,000 21,72,000 2. Amount of finance procured 11,56,758 7,26,672 8,80,896 3. Amount of finance provided 37,817 37,81 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs and guarantee commission taken together were considered with the borrowings from the open market excluding brokerage, the payment were less than the rate of borrowing in the open market. In support of the above contention, he furnished the following data : Statement showing the comparative cost of finance including guarantee commission paid, with rate of borrowing from open market. Asst. yrs. Particulars 1971-72 1972-73 1973-74 1. Average rate of interest on borrowing 9.25 % 10.25% 10 % 2. Percentage of guarantee commission paid to total financial arrangement 2.20 % 3.50 % 2.95 % 3. Total cost of finance (1+2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gree with the ld. Counsel of the assessee that turnover has direct link with the finances and, therefore, it would not be unreasonable to link the guarantee commission with the turnover. We also notice that the rate of interest and guarantee commission put together fall below the market rate of interest. By guaranteed loans, the assessee had free inflow of funds and uninterrupted business. Considering all this, in our opinion, the guarantee commission claimed by the assessee could not be said to be unreasonable, consequently, we sustain the order of the CIT (Appeals) deleting the additions made by the ITO for all the three assessment years under appeal. 8. In the result, all the three appeals are dismissed. - - TaxTMI - TMITax - Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X
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