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TMI Blog2014 (12) TMI 295X X X X Extracts X X X X X X X X Extracts X X X X ..... the practices, so however, the expenditure cannot be disallowed merely for that reason - the expenditure otherwise is verifiable and there is no adverse evidence on record - the disallowance sustained by the CIT(A) is not justified – thus, the order of the CIT(A) is set aside and the AO is directed to delete the addition – Decided in favour of assessee. Disallowance made u/s 40(A)(b) - payments made to the relatives reasonable or not – Held that:- One of the items of expense relates to rent paid to Late Mr. D.M. Bhansali and Smt. Tarabai D. Bhansali of ₹ 1,14,000/- with respect to a property taken on rent - assessee had given specific instance in the vicinity, whereby Kopergaon Peoples Co-op. bank Ltd. has leased out a premises to LIC and Bank of Baroda @ ₹ 5 to ₹ 8 per sq.ft. - there is no reason advanced by the lower authorities to reject the explanation furnished by the assessee - there is no justification to disallow an ad-hoc sum for being excessive within the meaning of section 40A(2)(a) of the Act. In respect of the expenditure of rent paid to Mr. Arvind D. Bhansali and Sanjay D. Bhansali also for the Ahmednagar premises and the workshop at Kopergaon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is quite improper, having regard to the facts and circumstances of the case - there is no particular infirmity or falsity brought out by the AO based on any verification exercise so as to justify the disallowance of the expenditure in its entirety - assessee had furnished agreement and also pointed out that it has deducted tax at source on certain payment made towards commission/incentives - the material furnished by the assessee in support of the expenditure has not been found to be devoid of bonafides – assessee relied upon CIT vs. Modern Terry Towels [2012 (8) TMI 776 - BOMBAY HIGH COURT] wherein it has been held that for allowability of expenditure it is not necessary for the assessee to submit confirmations from the other party, but the allowability has to be decided on the basis of entirety of facts and circumstances of the case – thus, the order of the CIT(A) is set aside – Decided in favour of assessee. - ITA No. 993/PN/2011 - - - Dated:- 28-11-2014 - Shri G. S. Pannu And Shri R. S. Padvekar,JJ. For the Petitioner : Mr. Nikhil Pathak For the Respondent : Mr. P. S. Naik ORDER Per G. S. Pannu, AM The captioned appeal by the assessee is directed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that assessee company had allowed discount to its customers amounting to ₹ 25,56,135/-. On being asked to furnish the relevant details, assessee furnished the detail of customers to whom such discount was disallowed. The Assessing Officer noted that such discounts were not allowed on the sale invoices raised but were allowed through the mechanism of internal vouchers. Therefore, he was not satisfied with the genuineness of the claim of the assessee of having allowed the discount to the customers and accordingly he disallowed the entire amount of ₹ 25,56,135/-. 6. The assessee carried the matter in appeal before the CIT(A), who has also sustained the action of the Assessing Officer. The CIT(A) has also held that there was no evidence brought on record by the assessee to justify the genuineness of the discount allowed to the customers. It is noticed that the assessee had explained before the lower authorities that the discount allowed through vouchers in those cases where the customers had obtained bank finance in order to purchase Tractors from assessee. It was explained by the assessee that in cases where customers were obtaining bank finance, assessee used to issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out that the discount allowed through the vouchers is genuine and is an allowable expense. A reference has also been made to the pages 59 to 85 of the Paper Book wherein the relevant extracts along with relevant bills, discount vouchers, details of payments, etc. has been placed in respect of the customers to whom discounts have been allowed through the mechanism of internal vouchers. 8. Justifying the allowance of discount, assessee pointed out that the impugned amount on discount was relatable to only those cases where bank finance was obtained by the customers. Out of the total of 151 Tractors sold during the year such discount was given only in 49 cases and such a practice was adopted to be competitive in the market. It was pointed out that selling of Tractors is a competitive business where the main customers are from the farming community. The farmers do not have liquid resources and therefore they approach the banks for finance. The assessee used to prepare sale bill of the entire amount of sale price as required by the customers, who used to obtain bank finance. Only after obtaining the entire sale consideration, assessee used to allow discount to the customers by refund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntly, the expenditure otherwise is verifiable and there is no adverse evidence on record. Considering the entire facts and circumstances of the case, in our view, the disallowance sustained by the CIT(A) is not justified. Accordingly, we set-aside the order of the CIT(A) and direct the Assessing Officer to delete the addition of ₹ 25,56,135/-. Thus, on this Ground assessee succeeds. 11. The second Ground raised by the assessee is with regard to a disallowance of ₹ 9,66,704/- made by the Assessing Officer by invoking section 40A(2)(a) of the Act. In this context, the relevant facts are that assessee was found to have made the certain payments to parties specified in section 40A(2)(b) of the Act and as per the Assessing Officer such payments were unreasonable and excessive in relation to the market value of such services and therefore he made a disallowance of ₹ 9,66,706/- out of such payments. The total payment made to the sister concerns was ₹ 89,56,704/- representing (i) reimbursement of excess ₹ 1,31,665/-; (ii) rent ₹ 6,18,000/-; (iii) interest on deposits ₹ 23,14,080/-; and, (iv) purchase from sister concern ₹ 51,92,959 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A(2)(a) of the Act. Similarly, in respect of the expenditure of rend paid to Mr. Arvind D. Bhansali and Sanjay D. Bhansali also for the Ahmednagar premises and the workshop at Kopergaon respectively, assessee had pointed out that the rentals paid to the sister concern were reasonable. In this context, our attention has been drawn to the relevant details at page 5 of the Paper Book which are, inter-alia, submissions made by the assessee to the CIT(A). In both the cases, the monthly rent paid is around ₹ 1.25 per sq.ft. and ₹ 0.40 sq.ft. per month respectively. The aforesaid rentals, in our view, are quite reasonable, and in any case, the Assessing Officer has not referred to any comparable case to establish excessiveness vis- -vis the market rates. Thus, the ad-hoc disallowance is not merited. The said disallowance is directed to the deleted. 15. Another expenditure subject to disallowance is on account of interest paid to certain depositors who are persons specified in section 40A(2)(b) of the Act. The total interest expense on this count is ₹ 23,14,080/-. In this context, it is noted that interest has been paid @ 12% per annum. The Ld. Representative for the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The payments are not in the form of perquisites or for any other benefit to the Director, but the some actual expenses incurred on carrying out work for the assessee company. Such a disallowance is not envisaged in section 40A(2)(a) of the Act. Accordingly, the same deserves to be deleted. We hold so. In the result, with respect to the Ground of Appeal No.2 assessee succeeds. 19. The last Ground in the present appeal relates to a disallowance of ₹ 13,99,440/- representing incentives and commission. In this context, brief facts are that assessee company is a dealer of Swaraj Tractors as well as a dealer of TVS bikes. It has two branches, namely, a branch at Kopergaon wherein it is selling Tractors and TVS bikes; and, the second branch at Ahmednagar wherein it is selling TVS bikes only. In carrying out such sales, assessee incurred sales commission/incentives of ₹ 13,99,440/- during the year under consideration. The Assessing Officer has disallowed the entire expenditure on the ground that necessary confirmations from the recipients of commission/incentives were not furnished by the assessee. The CIT(A) has also affirmed the said disallowance, against which assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year under consideration, the Assessing Officer has disallowed the entire expenditure for the reason that the relevant confirmations were not obtained from the each of the recipients. In our considered opinion, a sweeping and whole-sale disallowance of the expenditure is quite improper, having regard to the facts and circumstances of the case. It may also be noted that there is no particular infirmity or falsity brought out by the Assessing Officer based on any verification exercise so as to justify the disallowance of the expenditure in its entirety. Some of the parties were examined by the Assessing Officer in the course of assessment proceedings for assessment year 2009-10, and the payments made to them have been accepted. Secondly, for the year under consideration also, assessee had furnished agreement and also pointed out that it has deducted tax at source on certain payment made towards commission/incentives. Considered in totality, it is evident that the material furnished by the assessee in support of the expenditure has not been found to be devoid of bonafides. Therefore, it is a case where the Assessing Officer has disallowed the expenditure merely on surmises and conjec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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