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TMI Blog2014 (11) TMI 645X X X X Extracts X X X X X X X X Extracts X X X X ..... se - there was no prohibition for the assessee to enter into any partnership business, therefore, disallowance on account of notional interest was arbitrary and the CIT(A) rightly deleted the same – Decided against revenue. Disallowance out of Rebate & Discount account – Facts not properly appreciated or not – Held that:- CIT(A) rightly noted that the assessee had allowed discount as per the credit note - the trading discount /rebate was being allowed by the assessee in the earlier years to various purchasers and this consistent practice being followed - it had not been shown that the discount was non-genuine, excessive or unreasonable - the discount was to the customers of the assessee for the commercial expediency to increase the sales - the similar type of trading discount was allowed in the earlier years and there is no deviation in the facts of the years under consideration vis-à-vis facts involved in the earlier years - the commission and trade discount was given by the assessee to the customers for the commercial expediency to increase the sales and nothing is brought on record to substantiate that the payment was non-genuine, excessive or unreasonable – the order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant craves to add, amend, alter, delete or modify the above grounds of appeal before or at the time of hearing. 3. Ground No.5 is general in nature, so do not require any comments on our part. Vide Ground No.1, the grievance of the Department relates to the deletion of addition of ₹ 9,95,400/- made by the Assessing Officer on account of interest. 4. Facts relating to this issue, in brief, are that the assessee was engaged in the business of manufacturing of asbestos cement sheets and cement pressure pipes. The assessee entered into a partnership with M/s. Saraf Projects Pvt. Ltd. to run a restaurant in the name of M/s. Lizard Lounge and introduced a capital of ₹ 82,95,000/-. The Assessing Officer was of the view that memorandum and article of association of the assessee did not authorize the assessee to become a partner in a firm, so this capital could have been used by the assessee in a routine business and if the assessee had not been introduced the said capital of ₹ 82,95,000/- into the partnership for running M/s. Lizard Lounge then the interest liability of the assessee would have been lower by ₹ 9,95,400/- i.e. @ 12% on ₹ 82,95,000/-. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be allowed in respect of expenditure incurred by assessee in relation to income which does not form part of the total income under this Act. And your honour will find that the assessee has not claimed any interest payment on the amount invested in the partnership firm rather loss/income of this partnership was offered for taxation under section 10(2A) of IT Act. Non charging of interest on loan given by the assessee cannot itself be a sufficient ground for disallowance of interest paid by an assessee on loan taken by it in the absence of any nexus between borrowed capital and interest free advances or in the absence of any finding that borrowed funds or part thereof was diverted towards interest free advances. Meenakshi Synthetics P Ltd. v/s CIT - 84 ITD 563 ITO v/s Naresh Fabrics - 75 TTJ (Jod) 386 CIT v/s Bharti Tele Venture Ltd., - 51 DTR 98 The assessee has interest free funds as well as interest bearing fund on its disposal, then presumption would be that investment were made from interest free funds at disposal of assessee. Therefore even investment for non business purpose is out of interest free funds then there cannot be disallowance of interest. Viste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent made in Indian subsidiaries and further, there was no direct nexus between interest bearing borrowed fund and such investment, no disallowance of interest expenditure could be made u/s 14A. In view of above all we request your honour to kindly delete the addition on account of disallowance of interest to the tune of ₹ 9,95,400/-. Further assessee submitted as under: 1. That the assessee entered in partnership business as per partnership deed dated 22nd day of Feb, 2007. The copy of partnership deed is enclosed. 2. That the assessee invested a sum of ₹ 129.53 lacs in this partnership as mentioned on page 18 in Schedule-6 of the enclosed balance sheet of 31st March. 2007. 3. That during the year i.e. year of investment in partnership as per copy of balance sheet attached, the own fund of the assessee company was for a sum of ₹ 4341.65 lacs please refer page 14 shareholders fund. Thus it is clear that the investment was much lesser than the own fund i.e. investment was made from its own fund on which no interest was paid by the assessee. 6. The learned CIT(A), after considering the submissions of the assessee, observed that the total amount i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Furthermore, there was no prohibition for the assessee to enter into any partnership business, therefore, disallowance made by the Assessing Officer on account of notional interest was arbitrary and the Ld. CIT(A) rightly deleted the same. 9. Next issue vide Ground No.2 relates to the deletion of addition of ₹ 1,50,000/- made by the Assessing Officer on account of disallowance out of rebate and discount. 10. Facts relating to this issue, in brief, are that the assessee claimed rebate and discount of ₹ 154.04 Lac. The Assessing Officer pointed out that the assessee had allowed trade discount of ₹ 10,200/- on 19/03/2009 to M/s. Mahadev Suppliers while there was no narration of discount on the bill dated 03/01/2009 for sales of ₹ 1,34,400/-. He further observed that the discount was allowed on the same pattern to many tradeRs.The explanation of the assessee was that such trade discount was allowed to increase the sales in competitive market. The Assessing Officer was not satisfied with the reply of the assessee and made a lump sum addition of ₹ 1,50,000/-. 11. Being aggrieved, the assessee carried the matter to the ld. CIT(A) and the submission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er copy of credit note enclosed. The total sale was credited by ₹ 1,34,400/-, 1,37,200/-, 1,41,075/- and ₹ 1,39,425/- on which discount was given and the amount of ₹ 10,200/- and 9, 700/- as stated above was debited in Profit Loss account in the head of rebate and discount. The copies of credit note alongwith enclosures are attached herewith for your ready reference please. Please refer Page No.1 to 8 enclosed. Further assessee has given the common submission regarding disallowance of expenses made in Ground No.2, 3 and 4 as under: Adhoc disallowance under the head of rebate and discount ₹ 1,50,000/- sales promotion expenses ₹ 1,20,000/- and freight and forwarding expenses ₹ 5,00,000/-. In the above reference we submit that during this year the expenses under above head were either almost same or less in comparison of assessment year 2008-09 as detail given below: Sales includes excise Asstt. Yr Sales Rebate/Discount Amount % on sale Sales Promotion Amount % on sales Transportation Amount % on sales 2008-09 179 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose of the business and thus allowable under section 37 (1) of IT Act, 1961. - 91 ITR 544 (SC) - 278 ITR 345 (MP) In the case of Windex India P Ltd v/s DCIT 66 DTR 57 the Hon 'ble Delhi Tribunal has held that since the AO neither rejected the assessee's books of account nor pointed out that expenses claimed by the assessee are not genuine, adhoc disallowance could not be made on general suspicion. The above common submissions have been considered for deciding Ground No.2,3 and 4. 12. The learned CIT(A), after considering the submissions of the assessee, observed that commission of ₹ 10,200/- was in respect of sales made vide bill dated 22/02/2009 to M/s. Mahadev Suppliers of ₹ 1,47,075/- and ₹ 1,39,425/-. As regards to the sales of ₹ 1,34,400/- and ₹ 1,37,200/- made to M/s. Mahadev Suppliers on 03/01/2009, the Ld. CIT(A) noted that the assessee had allowed discount of ₹ 9,700/- as per the credit note. The Ld. CIT(A) pointed out that the trading discount /rebate was being allowed by the assessee in the earlier years to various purchasers and this consistent practice being followed. The Ld. CIT(A) categorically sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was disallowed from sales promotion expenses. The Hon'ble ITAT Jodhpur vide ITA No.226/JU/2009 dated 06/04/2010 on the assessee's own case allowed the expenses in full, (copy of order enclosed for your ready reference please). In view of the above the lump-sum disallowance of ₹ 1,20,000/- deserve to be allowed. 17. The learned CIT(A), after considering the submissions of the assessee, observed that the sales promotion expenses had decreased to ₹ 16.68 Lac as compared to the earlier year's expenses of ₹ 19.18 Lac, in spite of increase in turnover and that the similar expenses had been allowed by the ITAT for the A.Y. 2005-06. He therefore, by following the order of the Tribunal for the A.Y. 2005-06, deleted the disallowance made by the Assessing Officer. Now the Department is in appeal. 18. Learned D.R. although supported the order of the Assessing Officer, but could not controvert the observations made by the Ld. CIT(A). 19. In his rival submissions, learned counsel for the assessee strongly supported the impugned order passed by the Ld. CIT(A). 20. We have considered the submissions of both the parties and carefully gone through the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been given and due TDS has been deducted. In view of above lump sum addition of ₹ 5,00,000/- deserve to be deleted. The assessee further submitted as under: we are enclosing herewith the bill raised by M/s Gill Roadways for ₹ 94,045/- dated 01/10/2008 (there is no expenses debited on 11/08/2008) for which payment was made/credited in his account on 01/11/2008. In the bills and enclosures of GR complete detail in respect of weight, destination, freight amount and description of contains are given. Please refer Page No.9 to 17 enclosed. 24. The learned CIT(A), after considering the submissions of the assessee, observed that as per the purchase order, the sale price is F.O.R. i.e. at destination from the inception of the unit and the similar freight and forwarding had been claimed in the earlier years. He further observed that transportation charges were paid to M/s. Gill Roadways and others and not to M/s. Sidha Transportation as pointed out by the Assessing Officer. Ld. CIT(A) mentioned that in the transport bills complete details of goods, quantity and destination were mentioned. As regards to the freight payment of ₹ 94,045/-, the Ld. CIT(A) pointed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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