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TMI Blog2018 (5) TMI 1743X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee. For the above stated reasons we are of the view that the disallowance made by the Ld.AO towards nomination fee which was further confirmed by the Ld.CIT(A) is not justifiable - Decided in favour of assessee. - I.T. A. Nos. 3432 And 3433/CHNY/2016 - - - Dated:- 18-5-2018 - SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER For The Appellant : Shri T. Banusekar, CA For The Respondent : Shri B Sagadevan, JCIT ORDER Per A. Mohan Alankamony, AM:- These appeals by the assessee are directed against the orders passed by the Ld. Commissioner of Income Tax (Appeals)-8, Chennai both dated 21.10.2016 in ITA No.44/2015-16 236/2015-16 passed U/s.143(3) 143(3) r.w.s.92CA(3) of the Act for the assessment years 2011-12 2012-13 respectively. 2. The assessee has raised several identical grounds in its appeals however the cruxes of the issues are that:- (i) The Ld.CIT(A) has erred in confirming the addition made by the Ld.AO towards disallowance of nomination fees of ₹ 3,14,92,370/- ₹ 2,76,99,239/- debited to the P L account for the assessment years 2011-12 2012-13 respectively. (ii) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee as their sole hanger supplier to heir garment vendors located in India. By this arrangement, whenever the garment suppliers in India get orders from these non-resident retailers, they have to necessarily procure hangers from the assessee company as we are the preferred accredited vendor. By virtue of this arrangement, the assessee has secured business, avoided competition and better cash flow scenario. This benefit/treatment is extended to us as we are part of Mainetti Group who is a preferred Global vendor. As a consideration, the assessee has to pay a nomination fees as a percentage on the sale value of hangers to ASDA, C A, Old Navy Arcadia for this referral/accredition as a preferred vendor. During the year under review company has paid ₹ 2,76,99,239/- break up for the same nomination agreement copies is given in Annexure-I This arrangement for nomination fees was insisted upon on the assessee by the retailers since 4-5 years ago, The assessee had made huge investments in tools that can be used exclusively for the manufacture of hangers catering to the said retailers' specifications in the past years, These tools cannot be used to m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment manufacturers in the earlier years without incurring such expenditure. (ii) Capital cost incurred for purchasing specialized tools if any is only attributable to the business of the assessee. (iii) There was no agreement between the assessee and the clients of the assessee towards such business plan at the time of incurring expenditure for purchase of specialized tools. (iv) There was no tripartite agreement between the assessee, garment manufacturers and the assessee s clients such as the owners of the brand Old Navy, Asda George, C A, Arcadia etc., with respect to payment of nomination fees. Thus there is no nexus between the expenditure incurred by the assessee and the business of the assessee. (v) It was not prudent on the part of the assessee to incur such expenditure. For the above mentioned reasons, the Ld.AO disallowed the expenditure incurred by the assessee towards nomination fee for both the assessment years. 4.1 On appeal, the Ld.CIT(A) concurred with the view of the Ld.AO and further strengthened his decision on relying upon the observation made by the Ld.TPO in his report that the reimbursement of nomination fee makes up only a small part of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee to have incurred expenditure towards nomination fee, the assessee was not incurring such expenditure during the past, there is no direct nexus with respect to the expenditure incurred by the assessee and the business of the assessee and the huge investment on specialized tools made by the assessee has no relevance to the business model of the assessee. These findings of the Revenue are not appreciable. The Revenue cannot sit on judgment with respect to the business policies and decisions made by the assessee during the course of the business of the assessee. Any business carried out by any entity has various dimensions and complexities which have to be prudently tackled by the entity in order to survive in that business. Further the general practice in any business is that when an entity obtains certain benefits from another entity, a portion of the benefit is passed on to that entity in some manner or the other in order to nourish healthy business environment. In the case of the assessee, the proximity of the assessee s clients and the garment suppliers who are purchasing the hangers from the assessee are not in dispute and is also genuine. More over the clients of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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