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TMI Blog2012 (11) TMI 160X X X X Extracts X X X X X X X X Extracts X X X X ..... al decision - in favour of assessee for statistical purposes. Disallowance of rent on DG set - high lease-rent being paid by the assessee-company to an interested party - Held that:- If an expenditure is not wholly for the purpose of the business, but partly for the purpose of the business, then only that part is allowable. The words “wholly and exclusively”, thus refer to the motive and the object behind the expenditure. The object has to be exclusively as also solely for running of the business - AO has decided the percentage of disallowance on the basis of the expected annual return on such investment no circumstance the disallowance as made by the AO should be enhanced while we are restoring this ground back to the stage of the AO with the direction that the assessee shall place on record the basic requirement of business necessity for taking on hire the impugned DG set - in favour of assessee for statistical purposes. Disallowance of miscellaneous expenses - Held that:- As an amount of Rs.10,352/- could not be explained by the assessee even at the appellate stage, thus upto that extent, the addition was confirmed - against assessee. - I.T.A. No.261/Ahd/2010 - - - Dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nthly statement to the company. Rather, the commission was paid without reference of sales made by Smt. Roopam. It was also noted that the company paid commission to other parties @ Rs.50/- per M.T. Therefore the AO has show-caused that why the commission be not held as bogus and being not paid for business purposes or for any services rendered, therefore liable to be disallowed. 2.2. In compliance, the assessee has furnished submissions having salient feature that the commission was paid in terms of an agreement entered into with Smt. Roopam (Proprietor Nakoda Enterprises) and the assessee. The commission was paid on sales as dell cadre agent. According to assessee, the transaction was on principle and agent basis. It was not denied that the commission was paid @ Rs.100/- per M.T. and that Smt.Roopam was holding 18.25% shares of the assessee-company. However, it was contested that neither Smt.Roopam nor her husband happened to be the Director of the assessee-company. It was contested that the provisions of section 40A(2) were not applicable and the entire expenditure deserves to be allowed. It was also argued that as per the provisions of section 40A(2) an expenditure ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 05 (Guj.). There was a mention of the statements recorded of Shri Vidhyut Kapadia and Shri Hitesh H. Shah, stated to be the Directors. Ld.CIT(A) has accepted the contentions of the assessee and thereafter concluded as follows:- 6.6. The appellant has made its entire sales through Nakoda Enterprise and has paid commission at the rate of 100 per metric tonne, the A.O. without appreciating the facts correctly has alleged that the appellant has paid Rs.50 per M.T. to other commission agents. In fact the appellant has paid commission @ Rs.50 per M.T. to the parties form whom it has made purchases during the relevant period. Therefore under these circumstances I do not find any reason to disallow the commission paid by the appellant to M/s.Nakoda Enterprise. In this regard reliance is placed on the decision of Hon ble ITAT Delhi in the case of ACIT v/s. Associated Strips (P) Ltd. 1 SOT 338 (Del) where in the Hon'ble Tribunal has held that Once it had been held that the commission was paid against services rendered by the respective commission agent then without assigning any reason, disallowance of commission was not justified Rendering of services by commission agent not being in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, followings were cited, reproduced from the submissions:- 1. If expenditure claimed u/s 37(1) is found to be incurred for the purpose of business, revenue cannot go into the reasonableness of expenditure 95 ITR 664 (Pat) Jamshedpur Motor Accessories Stores 344 ITR 161 (Bom) Salitho Ores Ltd 6 SOT 86 (Bang) Mr. Irene D Souza 129 ITR 105 (Guj) Voltamp Transformers Ltd. 239 ITR 174 (Mad) Sudarshan Chits (I) Ltd. 81 Taxman 158 (Ahd) (Mag) Panchmahal Steel Ltd. 1 SOT 338 (Del) Associated Strips Pvt. Ltd. II. When both the persons (assessee and the concerned relative) are taxed at same rate and transactions are revenue neutral, no disallowance can be made by invoking provisions of s.40A(2)- 310 ITR 306(Bom) Indo-Saudi service Pvt. Ltd. 237 CTR 321 (Punj Har) Siya Ram Garg (HUF) 236 CTR 113 (SC) Glaxo Smithkline Tax Appeal No.1478 of 2008 CIT v Advaitya Products Pvt. Ltd. (Gujarat High Court) III. If rate of commission is same as earlier years and there is no disallowance in the earlier years then no disallowance is called for in the current year - CTR 93 (Del) United Exports 310 ITR 306 (Bom) Indo Saudi Services Travel P. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be established and not to be based upon a make belief document. The Hon ble Courts have therefore held that mere existence of agreement do not bind the ITO to allow such deduction of payment of commission. (xi) That the assessee is definitely under obligation to establish the necessity for incurring of expenditure, because an expenditure should not be a gratuitous payment to nearones. (xii) That the allowability of expenditure depends upon the fact that it ought to be wholly and exclusively for the purpose of the business. (xiii) That the rendering of services by the agent and the exact work done for procuring the business is the primary evidence to be placed on record to establish that the expenditure was exclusively for the business. 6.1. These are the few points which are required to be examined by the Revenue Department while investigating the genuineness of the transaction. We want to clarify that the points referred hereinabove are not exhaustive but merely suggestive depending upon case to case, therefore the Department is at liberty to investigate thoroughly as per law to examine the correctness of the claim. We have also noted that the Assessing Officer in the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... noted by us. Rest of the decisions are not worth mentioning being nowhere near to the facts of the case in hand. There are few decisions on the applicability of the provisions of section 40A(2). However, we have noted that the final conclusion of the AO was not based upon this provision rather the impugned disallowance was based upon the provisions of section 37(1) of IT Act. From the side of the assessee, few case laws have also been cited for the legal proposition that in a case where there is no saving of tax, then the transaction should not be disallowed. However, there is an another aspect to deal with this argument that in a situation like this when an impugned advantage has been given to an interested party, then the reason could be not the diversion of income but diversion of funds or in other words, diversion of capital in favour of the said interested person. We have to consider the humane probabilities as opined by the Hon'ble Supreme Court and to see that the advantage drawn by an individual by such siphoning of funds as also income. An individual has certain standard deductions, specially a lady and also avail the benefit of the limit of non-taxable income along wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad worked out that the return on the said investment was more than 3%. According to Assessing Officer, even the return on the said investment was higher because the assessee-lady should have claimed the depreciation on DG set. In such a situation, when a high lease-rent is being paid by the assessee-company to an interested party, then the fairness of the transaction should be properly placed on record by the assessee. The assessee-company was thus required to place on record the business need of the DG set. The onus is on the assessee to establish that the services of DG set were imminently required to run the business. Meaning thereby the assessee has to demonstrate the business necessity for hiring of the DG set. Therefore, it was expected that the assessee should place on record certain evidences, such as, the frequency of electricity failure causing business hardship, thus compelling the assessee-company to hire the generator set. The requirement of the generator set can be proved by placing such type of other evidences by the assessee. In a situation, when the Revenue Department is alleging a colourable device of diversion of funds, then a duty is casted upon the assessee to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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