TaxTMI 
TaxTMI 
2015 (4) TMI 909
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.... other parties amounting to Rs. 1,30,05,978/- without appreciating the fact that the assessee failed to justify the same as incurred wholly and exclusively for the purpose of business, further whether it is within the jurisdiction of the Ld.CIT(A) in directing the Assessing Officer to rectify the correct amount of reimbursement 3. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in allowing the commission expenses paid covered u/s 40A(2)(b) of the I.T.Act in the absence of any justification for the reasonableness of payments made with regards to the nature of quantum of services rendered for which such commission was paid. The appellant prays that the order of the Ld.CIT(A) be set aside and the order of the A.O. be restored." 2. Brief facts of the case are that the assessee-company is a retailer of diamond studded jewellery operating through chain of showrooms and franchises all over the country. During the course of assessment proceedings, the Assessing Officer noted that the assessee is making large amount of payments to its sister-concerns in the form of loan transactions. To verify, whether the interest bearing loan is being diverted ....
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....hat it has not deducted TDS and no satisfactory explanation has been given. 2.2 That apart, he also noted that the assessee has made payment to certain persons specified u/s 40A(2)(b) in the form of commission on sales to the following persons:- • Mr.Vijay Jain Rs.32,70,683 M/s.B.Arunkumar & Co. (Associate concern) Rs. 35,606 Rs.33,06,289 The A.O. noted that the commission paid to Shri Vijay Jain, who is Director and CEO of the company, the assessee could not give proper justification with evidences. Further the assessee had incurred losses in the current year and also in the earlier years which supports the fact that the payment of commission is not justified. Further regarding other person also, no valid explanation or justification was given by the assessee. Accordingly he disallowed the said expenses aggregating to Rs. 33,06,289. 3. Before the CIT(A), regarding the disallowance of interest, the assessee submitted that the A.O. has failed to understand the correct facts of the case that it has not given any interest free loan to any persons including its sisterconcerns. In fact it has borrowed substantial interest fr....
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....relation with the assessee or has any relevance for the purpose of disallowance. 3.4 The learned CIT(A) after considering the facts on record though upheld the contention of the A.O. but held that the A.O. has wrongly disallowed Rs. 1,30,05,978, whereas the correct amount of reimbursement is Rs. 8,94,689. He thus directed the A.O. to verify the correct amount of reimbursement and the disallowance should be restricted to the actual reimbursement. 3.5 Regarding the disallowance of commission paid to Shri Vijay Jain, the assessee clarified that the commission paid to Shri Vijay Jain was part of his remuneration and no extra money has been paid. Regarding commission paid to M/s.B.Arunkumar & Co. of Rs. 35,606, it was submitted that similar disallowance was made in the earlier years which has been deleted by the CIT(A) after detailed discussion and no further appeal has been filed by the department. 3.6 The CIT(A), held that in the earlier years the then CIT(A) has decided the issue in favour of the assessee after noting the fact that the commission to Shri Vijay Jain is part of his remuneration looking to the services rendered and duly approved by the Board Resolution. The commis....
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....findings given in the impugned orders and the material placed on record. So far as the first issue regarding disallowance of proportionate interest on borrowed funds, it is evident from the findings given in the impugned order as well as material placed on record that, the borrowings from the banks has been substantially reduced in this year, whereas interest free borrowings from the sister-concerns have increased. The interest free funds have been borrowed to reduce the bank borrowings only. The fund flow statement, which is part of the audited accounts, also show that the assessee has generated huge cash from operating activity. Besides this, if the assessee has taken interest free loans from sister-concerns for the purpose of business, then the payment of the said amount, even if they are partly from the interest bearing borrowings from the bank, the same cannot be held to be diversion for non-business purposes or not utilized for the purpose of business. Thus, we agree with the conclusion and findings given by the CIT(A) on this score and accordingly ground no.1 raised by the Revenue is dismissed. 6.1 Regarding reimbursement of expenses, it is noted that CIT(A) has decided t....