2011 (5) TMI 408 - AT - Income Tax

Tribunal upholds CIT(A) decisions on disallowances, including staff welfare expenses and brokerage charges.

The Tribunal upheld the CIT(A)'s decisions on all contested issues, including the deletion of disallowances related to syndication charges/guarantee fee, ... Disallowance 40A(2)(b) - Excessive or unreasonable expenditure - It is also noticed that the ld. CIT(Appeals) has taken into consideration the fact that the A.O. has not doubted the fees paid to third parties for providing identical range of services especially when such fee was between 0.5% to 1% - Held that: 0.5% of guarantee fee paid to M/s Weizmann Ltd. by the assessee is not excessive or unreasonable but is well within the range as paid by the assessee to third parties and much lower than the percentage fixed by National Housing Board, which itself is an undertaking promoted by Reserve Bank of India Regarding brokerage expense - The fact that the National Housing Board has permitted 2% brokerage on the deposit mobilisation clearly shows that paying brokerage on the mobilisation of public deposits by a banking company is an accepted norm - Once the payment has been accepted as brokerage for mobilisation of deposits, the same cannot be disallowed in part Regarding deduction under Section 36(1)(viii) - In the process of securitization, the future receivables for a period of ten years are discounted with banks and the banks pay the Net Present Value of future receivables to the assessee as part of securitization arrangement - This amount would obviously be the income of the assessee from the long term housing loan disbursed by the assessee. In the circumstances, we are of the view that the securitization income is an income from business of long term housing finance - Appeal is dismissed Issues Involved:1. Deletion of disallowance of syndication charges/guarantee fee under Section 40A(2)(b).2. Restriction of disallowance on staff welfare expenses.3. Deletion of disallowance of brokerage expenses.4. Deletion of disallowance of deduction under Section 36(1)(viii).Issue-wise Detailed Analysis:1. Deletion of Disallowance of Syndication Charges/Guarantee Fee under Section 40A(2)(b):The Revenue contended that the CIT(A) erred in deleting the disallowance of Rs. 1,00,03,428/- made under Section 40A(2)(b) for syndication charges/guarantee fee paid to M/s Weizmann Ltd. The Assessing Officer (A.O.) argued that the payment to M/s Weizmann Ltd., a promoter and major stakeholder of the assessee company, was unjustified as the company could have directly approached banks for loans. The A.O. disallowed the entire fee, claiming it was excessive. However, the CIT(A) found that the National Housing Board permitted a 0.75% guarantee fee for housing finance companies, and public sector banks charged 1.5% for similar services. The CIT(A) observed that the A.O. did not demonstrate how the payment was excessive. The Tribunal upheld the CIT(A)'s decision, noting that the 0.5% fee paid was within the acceptable range and not excessive.2. Restriction of Disallowance on Staff Welfare Expenses:The A.O. disallowed Rs. 1,50,000/- out of staff welfare expenses and Rs. 2,00,000/- out of expenses for reimbursement of leave travel allowance and medical expenses on an ad hoc basis. The CIT(A) reduced these disallowances by Rs. 1,00,000/- each. The Revenue argued that the CIT(A) should not have deleted the disallowances. The Tribunal found that no fresh evidence was considered by the CIT(A) and the disallowances were made on an ad hoc basis without the A.O. calling for vouchers. Given the assessee's significant turnover, the Tribunal upheld the CIT(A)'s decision to confirm part of the disallowances.3. Deletion of Disallowance of Brokerage Expenses:The A.O. disallowed 50% of the brokerage expenses amounting to Rs. 3,63,868/- paid for deposit mobilization, arguing that it was not clear if the recipients actually mobilized deposits. The CIT(A) deleted the disallowance, noting that the National Housing Board permitted a 2% brokerage on deposit mobilization. The Tribunal agreed with the CIT(A), stating that brokerage payments were an accepted norm and the A.O. did not find the payments to be bogus. Therefore, partial disallowance was unwarranted.4. Deletion of Disallowance of Deduction under Section 36(1)(viii):The A.O. restricted the deduction under Section 36(1)(viii) by excluding securitization income, arguing it was not derived from long-term housing finance. The CIT(A) allowed the deduction, stating that the securitization income was from long-term housing loans discounted to present value. The Tribunal upheld the CIT(A)'s decision, explaining that securitization income represented future interest income from housing loans and was eligible for deduction under Section 36(1)(viii).General Grounds:Ground Nos. 1 and 6 were general and required no adjudication.Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all contested issues. The order was pronounced on 5.5.2011.