ITAT upholds CIT(A) decision, dismissing Revenue's appeal on commission payment. Deduction u/s 80IB allowed for interest income.

The ITAT upheld the CIT(A)'s decision, dismissing the Revenue's appeal. The disallowance of Rs. 46,46,867/- on commission payment to M/s Sadem India Ltd. was deleted, as the services provided were found genuine and necessary for business operations. Additionally, the deduction u/s 80IB on interest income from Bank FDRs amounting to Rs. 2,75,187/- was allowed, as it was deemed directly connected to the industrial undertaking. The order was pronounced on 18/07/2014.

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Issues Involved:
1. Deletion of disallowance of Rs. 46,46,867/- made on account of payment of commission to M/s Sadem India Ltd.
2. Allowance of deduction u/s 80IB on interest on Bank FDRs amounting to Rs. 2,75,187/-.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance of Rs. 46,46,867/- on Commission Payment:

The Revenue appealed against the CIT(A)'s order, which deleted the disallowance of Rs. 46,46,867/- made by the Assessing Officer (A.O.) concerning the commission paid to M/s Sadem India Ltd. The A.O. questioned the legitimacy of the commission payment, arguing that M/s Sadem India Ltd. did not provide any tangible services to justify the commission. The A.O. based this on the assessment of M/s Sadem India Ltd., which indicated no significant expenses or services provided.

The CIT(A) observed that M/s Sadem India Ltd. had political and public relations, which were beneficial for procuring tenders. The commission payments were made through account payee cheques, and TDS was deducted and deposited with the government. The CIT(A) relied on the ITAT's decision in DCIT Vs. Vhanketeshwar Wires Pvt. Ltd., where similar commission payments were allowed.

The ITAT, upon revisiting the case as directed by the High Court, noted that the assessee provided sufficient evidence of services rendered by M/s Sadem India Ltd., including tender information, liaisoning with electricity boards, and assisting in recovering payments. The ITAT found no infirmity in the CIT(A)'s order and confirmed the deletion of the disallowance, citing the genuineness of the commission payments and the services rendered.

2. Allowance of Deduction u/s 80IB on Interest on Bank FDRs:

The A.O. disallowed the deduction u/s 80IB on interest income from Bank FDRs amounting to Rs. 2,75,187/-, arguing that this income was not derived from industrial activity. The CIT(A) reversed this disallowance, stating that the FDRs were made for bank guarantees required by the Electricity Board, which were essential for the assessee's business operations. Therefore, the interest income was directly connected to the industrial undertaking.

The ITAT upheld the CIT(A)'s decision, agreeing that the FDRs were made for business purposes and the interest income was intrinsically linked to the industrial undertaking. The ITAT also considered the netting of interest income, which further supported the assessee's claim for deduction u/s 80IB.

Conclusion:

The ITAT dismissed the Revenue's appeal, confirming the CIT(A)'s decisions on both issues. The commission payment to M/s Sadem India Ltd. was deemed genuine and necessary for business operations, and the interest on Bank FDRs was considered directly connected to the industrial undertaking, qualifying for deduction u/s 80IB. The order was pronounced in the open court on 18/07/2014.

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