TaxTMI 
TaxTMI 
2011 (5) TMI 408
X X X X Extracts X X X X
X X X X Extracts X X X X
....to have appreciated the fact that 'Weizmann Ltd.', is the promoter of the assessee company and is a major stake holder and it is not clear as to why the assessee company approached through the associate concerns for raising loans when it should have directly approached the Banks for any loans or financial needs. Moreover, the assessee company itself is an established company and has been engaged in the banking business for over last 10 years. Therefore, the sum paid to the sister concern merely for providing corporate guarantee etc., is not justified. 2.2 It is submitted that Section 40A(2)(b) clearly disallows excessive expenditure or unreasonable having regard to the fair market value of the goods, services or facilities. 2.3 It is further submitted that while some of the major stake holders of the assessee company viz., Federal Bank and Asian Finance and Invt. Corp. a unit of Asian Dev. Banks are finance companies, the other major stake holder M/s Weizmann Ltd., is engaged only in the manufacturing and export of textiles and is nothing to do with the business of banking. 2.4 The learned CIT(A) ought to have seen that as per the Circular No.6P(LXXVI-....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d in Sec.4A of the Companies Act and whose business is providing long-tem finance for construction and purchase of houses in India for residential purposes as per Sec. 36(1)(viii)(bii) of the Income-tax Act and business of providing long-term finance for development of infrastructure facility in India as per 36(1)(viii)(bii) of the Act. 5.3 It is further submitted that "Eligible Business" means "in respect of specified entity the business of providing long term finance for industrial or agricultural development or development of infrastructure facility or construction or purchase of house in India for residential purpose". Accordingly, the deduction under this chapter is available only in respect of income derived from long-term finance of construction or house to be used for residential purposes meaning thereby any income other than the Income from housing loan etc. is not eligible for deduction under these section. Apart from housing loan, the Company also extends loan for two wheelers, consumable durables and also earns interest on deposits made with other Banks which incomes are not eligible for deduction u/s. 36(1)(viii). 5.4 The learned CIT(A) ought to hav....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... though the provisions of Section 40A(2)(b) of the Act had been invoked, the whole of the guarantee fee had been disallowed and no comparison had been made by the A.O. It was the submission that as per provisions of Section 40A(2)(b) of the Act, a reasonable amount was liable to be allowed. It was further submission that other banks were paying guarantee fee of 1.5% for guaranteeing loans taken by small and medium enterprises. It was further submission that no disallowance was called for in the case of the assessee. He vehemently supported the order of the ld. CIT(Appeals). 6. We have considered the rival submissions. A perusal of provisions of Section 40A(2)(b) of the Act shows that this provision is applicable where an A.O. is of the opinion that the payment is excessive or unreasonable when such payments had been made to related parties. Here, the A.O. has not shown how the payment made by the assessee to M/s Weizmann Ltd. was unreasonable or excessive. In fact, a perusal of the order of the ld. CIT(Appeals) clearly shows that he has taken into consideration that the National Housing Board, which is the accredition authority for finance companies doing the business of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e had been considered by the ld. CIT(Appeals). In fact, the ld. CIT(Appeals) had deleted a part of the addition as the same had been made on ad hoc basis. It is further noticed that the turnover of the assessee for the assessment year under consideration itself was more than Rs. 34 Crores. The staff welfare expenses incurred by the assessee was only about Rs. 19.26 lakhs and on leave travel allowance and medical expenses, the expenditure was Rs. 4.5 lakhs. The Revenue has also not rebutted the findings of the ld. CIT(Appeals) that the A.O. had not called for any vouchers and the disallowance has been made only on ad hoc basis. In the circumstances, we are of the view that the action of the ld. CIT(Appeals) in confirming Rs. 50,000/- out of the staff welfare expenses and Rs. 1,00,000/- out of the other expenses, is on right footing and does not call for any interference. Thus ground Nos.3 and 3.1 stand dismissed. 10. In regard to grounds No.4 to 4.3, it was submitted by the ld. Junior Standing Counsel that the assessee had made a payment of brokerage at 2% of the deposits mobilised. It was submitted that the brokerage expenditure was to an extent of Rs. 3,63,868/- and the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....curity in respect of housing loan already granted to other banks and releasing further loans which might have been used for any purpose. 14. In reply, the learned A.R. submitted that for the purpose of deduction under Section 36(1)(viii) of the Act, the main criteria were that:- (i) deduction is available only for financial corporations/public companies engaged in providing long term finance for certain purpose; (ii) a special reserve is to be created and maintained; (iii) the deduction is restricted to 40% of the profits derived from the business of long term finance computed under the head 'profits and gains of business or profession' and carried to such special reserve. It was a submission of the learned A.R. that when the assesseecompany complied with all the conditions, the securitization income was rightly held by the ld. CIT(Appeals) to be included in computing the income from housing finance. He vehemently supported the order of the ld. CIT(Appeals). 15. We have considered the rival submissions. As per Explanation (a) to Section 36(1)(viii) of the Act, the assessee is a housing finance company. The assessee has als....