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TMI Blog2012 (8) TMI 230X X X X Extracts X X X X X X X X Extracts X X X X ..... accordingly dismissed. Guarantee commission paid to the Directors of the Company Held that:- What the company loses by way of guarantee commission, it would gain by saving of interest and avoidance of restrictive covenants. The payment of guarantee commission was, therefore, commercially justified - payment, therefore, could not be called in question as being influenced by any extra-commercial considerations and it must be taken that it passed all the test laid down in section 40(c) - whole of the guarantee commission shall be allowed - guarantee commission was not excessive and was an allowable deduction - ground raised by the Revenue is accordingly dismissed. Applicability of Clause (ii) of sub-rule(2) of Rule 8(D) of the I.T. Act - funds of the assessee are from a common pool and there was no exclusively pertaining to capital expenditure on purchase of equipment - assessee received Dividend income which it claimed as exempt - assessee has an outstanding loan - on which it has paid interest Held that:- Matter remanded to the file of the AO for making reasonable disallowance under section 14A r.w. Rule 8D in the light of the decision of the Hon ble Bombay High Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Commissioner of Income Tax (Appeals) and direct the Assessing Officer to delete the addition of ₹ 67,34,793/- made under section 41(1) of the Act. Thus, on this Ground assessee succeeds . 3. Respectfully following the decision of the Tribunal in assessee s own case for the assessment year 2004-05 and in absence of any contrary material brought to our notice by the learned DR the ground raised by the assessee is allowed. ITA No. 756/PN/2010 (By Revenue) : Grounds Appeal Nos. 1 and 2 filed by the Revenue read as under : 1. Whether on the facts and circumstances of the case and in law, the LD CIT(A) was justified in holding that an amount of ₹ 8,20,390/- on account of debit balance written off by the assessee is an allowable expenses especially when his predecessor had hold otherwise i.e., in favour of Revenue on the same issue in the A.Y. 2004-05. 2. Whether on the facts and circumstances of the case and in law, the Ld CIT(A) was justified in deleting addition of ₹ 8,20,390/- done on account of debit balance written off on reconciliation in the case of Bajaj Auto Ltd., without giving an opportunity to the AO on this issue . 2. Facts of the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts have done the needful vide their submissions dated 12-02- 2010. From the Debtor reconciliation issued by M/s. Bajaj Auto Ltd, it is seen that an amount of ₹ 8,20,390.03 has been attributed to OPENING BALANCE DIFFERENCE OF 1999-2000, 2000-2001 WRITTTEN OFF IN 2004-05 . In view of and the evidence submitted and considering the explanation given by the learned AR of the Appellant, the claim of sundry debit balances written off during the year is allowed to the extent of ₹ 8,20,390.03 . 4. Aggrieved with such order of the CIT(A) the Revenue is in appeal before us. 5. The learned DR submitted that in the assessment year 2004-05 the issue was decided in favour of the department by the learned CIT(A). However, the Ld. CIT(A) has deviated from the order of his predecessor and allowed the claim of the assessee, which is not justified. 5.1 The learned counsel for the assessee on the other hand referring to the order of the Tribunal in assessee s own case for the assessment year 2004-05 submitted that the issue has been decided in favour of the assessee by the decision of the Tribunal. Further, in view of the decision of the Hon ble Supreme Court in the case of TRF Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mity in the order of the CIT(A) deleting the addition. The ground raised by the Revenue is accordingly dismissed. 8. Grounds of appeal No. 3 by the Revenue reads as under : 3. Whether on the facts and circumstances of the case and in law, the Ld CIT(A) was justified in holding that the guarantee commission of ₹ 16,57,657/- paid to the Directors of the Company is an allowable expenses especially when the Delhi High Court in the case reported in 234 ITR 447 decided this issue in favour of the Revenue . 9. Facts of the case, in brief, are that the AO noted from the profit and loss account that the assessee has paid guarantee commission of ₹ 16,57,657/- to the Directors. On being questioned by the AO, it was submitted that the Directors have given their personal guarantee for the loans borrowed by the Company from bank for which the Company has decided to pay commission. A copy of the Board resolution was also submitted according to which the basis for calculation of guarantee commission was 0.25% of the loan outstanding as on 31-03-2004. 10. The AO noticed from the balance sheet as on 31-03-2004 that the term loan outstanding was ₹ 33.15 Crores. However, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, the commission has been worked out at 0.25% only as against a rate of 2% of the limit of cash credit in the case of M/s. Triveni Engineering Works which has been relied by the AO in making the disallowance. The learned AR of the Appellants have also distinguished the facts of the Appellant s case from that of Triveni Engineering Works in as much as commission was given selectively to one guarantor only in that case unlike in the Appellant s case. Further upon perusal of the decision of the Hon ble Delhi High Court in that case, I find that the same does not lay down as a matter of rule that guarantee commission is not an allowable deduction. In fact the Hon ble court declined to answer the reference made by the Tribunal on the ground that the same did not raise any question of law but merely challenged findings of fact made by the Tribunal. Accordingly, the said judgment could only have been relied upon by the AO to the extent that allowability of such guarantee commission is question of fact to be decided based on facts and circumstances of each case. On the other hand, the decision of the Hon ble High Court of Allahabad in L.H. Sugar Factories 118 ITR 985 (Allahabad) cited by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would gain by saving of interest and avoidance of restrictive covenants. The payment of guarantee commission was, therefore, commercially justified. In regard to the rate there has been no change in the rate. On the other hand, the volume of the company s business has increased and there is a preponderance of loans in its structure of liabilities. The payment, therefore, could not be called in question as being influenced by any extra-commercial considerations and it must be taken that it passed all the test laid down in section 40(c). We, therefore, direct that the whole of the guarantee commission shall be allowed . It is thus apparent that the directors and shareholders stood personal security having regard to the legitimate business needs of the company. The compensation paid was at the rate of 10 per cent of the interest payable to bankers. It was not excessive. On facts, the tests laid down under cl.(c) of section 40 are satisfied. We are in agreement with the Tribunal that the assessee was entitled to this deduction. The first question is hence liable to be answered in favour of the assessee . 18. The learned AR of the Appellant has further submitted the fact that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in terms of various circulars issued by CBDT. (ii) The learned A.O. erred [and Hon.CIT(A) erred in upholding] in considering that the discount (that is, the difference between the Book liability and the payment made on the basis of Net Present Value Method) given by the Government of Maharashtra in respect of sales tax deferral amounting to ₹ 2,95,01,776/- is chargeable to tax under section 41(1). 2. After hearing both the sides, we find the above Ground by the assessee is identical to Ground of Appeal No. 1 in ITA No. 388/PN/12. We have already decided the issue and the ground raised by the Assessee has been upheld. Following the same ratio, the Ground Appeal No. 1 by the assessee is allowed. 3. In Ground Appeal No. 2, the assessee has challenged the order of the CIT(A) in deleting the disallowance of share issues expenses amounting ₹ 18,94,491/- under section 35D. 4. At the time of hearing, the learned counsel for the assessee fairly conceded that the issue stands decided against the assessee by the decision of Hon ble Supreme Court in the case of Brook Bond India Ltd. reported in 225 ITR 798. In view of the above submission by the learned counsel for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usively utilised for the purpose of business. 5. In appeal, the learned CIT(A) following the decision of Special Bench of the Tribunal in the case of Daga Capital Management Pvt. Ltd., reported in 117 ITD 169 (Special Bench) directed the AO to make disallowance only to the extent provided in Clause 3 of sub rule (2) of Rule 8(D). Aggrieved with such order of the CIT(A), the Revenue is in appeal before us. 6. After hearing both the sides, we find the co-ordinate Benches of the Tribunal are restoring the issue to the file of the AO for making reasonable disallowance under section 14A r.w. Rule 8D in the light of the decision of the Hon ble Bombay High Court in the case of Godrej Boyce Manufacturing Company ltd., Vs. DCIT reported in 328 ITR 81. Respectfully following the decision of the jurisdictional High Court in the case cited Supra, we restore the issue to the file of the AO with direction to decide the issue afresh and in accordance with the after giving due opportunity of being heard to the assessee. We hold and direct accordingly. 7. In the result, the ITA No. 388/PN/2012 filed by the Assessee is Allowed. ITA No. 1269/PN/2010 filed by the Assessee is Partly-allow ..... X X X X Extracts X X X X X X X X Extracts X X X X
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