1.  CIT vs M/s Premier Poly Sacks(P) Ltd. –Mad. HC: On genuineness of Commission Expense Section 37 & Diversion of Interest bearing funds for Commercial Expediency Section 36(1)(iii): Held:

  

Whether on the facts and  in the circumstances of the case, the Appellate Tribunal was right in  law in holding and justifying the commission paid to  the Directors of the company and set aside the order of the Commissioner of Income-tax (Appeals) in confirming the order of the assessing officer? Held: The said  sales commission payment were made to these three  Directors at 5% of the total value of orders received by the assessee.  Besides the commission,  on securing order from the said company, the said company  insisted on bank guarantee or personal guarantee for the performance and value of goods delivered for conversion.  The said Directors also furnished guarantees  for the  purpose of meeting the demand made by   M/s Shree Balaji Poly Packs and also it is pertinent to note that the assessee also passed a resolution dated 04.03.1996,  wherein the assessee company  should pay commission for  a personal guarantee given by them.  It is also pertinent to note that  the amount received by the above Directors have been shown in the respective  returns and the same were assessed for  tax.  The bona fide nature of the transaction as well as the reasonableness  of the transactions have not been questioned by the assessing officer.  The assessing officer has  also not  invoked Section 40A(2)(a) of the Income Tax Act, 1961.  After considering these facts, the Tribunal held that it is  business expenditure and  the assessee  was justified in paying commission to its Directors against the value of the order secured from M/s Shree Balaji Poly Packs  and the personal guarantees offered by the Directors for the performance and value of goods delivered for conversion….  The finding given by the Tribunal is based on valid material and evidence and therefore the first question is answered in favour of the assessee and as against the revenue.

  

Whether on the facts and in the circumstances of the case, the Appellate Tribunal was justified in granting deduction a sum of Rs.13,47,894/- being the interest payable in respect of investments made in M/s Virgo Polymers India Limited as mentioned in the Tribunal's order?

  

Held: The Tribunal had given a factual finding that the assessee used to get orders from M/s Virgo  Polymers India Limited  and also the existence of the assessee company depended on the orders received from the said  M/s Virgo  Polymers India Limited.  It is also to be noted that the assessee/respondent depended  on the  orders received  from M/s Virgo  Polymers India Limited  and  to the extent of 80 to 90 per cent of the orders are from the said company.  Therefore, the Tribunal has come to the conclusion that the investment was made for the purpose of commercial interest  of the assessee.  It is also pertinent to note that one of the objects of the Memorandum of Association  is that  the assessee company   can make investment in  shares  in companies.  … In this case, the assessee has an object for investment  and has also got orders from the said  M/s Virgo Polymers India Limited  to the extent of 80 to 90 percent and hence,   there is a commercial expediency. Further there is no proof that the borrowed amount has actually  been diverted to investment.  Therefore, after taking into consideration the object of the assessee as well as the investment was made due to commercial expediency and also there is no nexus between the borrowed amount, the Tribunal is correct in  holding that  the investment in shares was made keeping in view the commercial interest of the assessee.

(Click here for judgment)

  

2.   CIT vs M/s Franco Tossi Ingegneria SPA- Mad. HC: Section 44BBB:

I. Whether in the facts and circumstances of the case, the Tribunal was right in holding  that  Section 44BBB cannot be applied to the assessee?

  

II. Whether in the facts and circumstances of the case, the Tribunal was right in holding that the loss for the entire contract can be taken into account in the current assessment year, but the assessment cannot be done under Section 44BBB on the ground that the bills for payment were all raised prior to 01.04.1990?

  

III.  Whether in the facts and circumstances of the case, the provisions of Section 44BBB can be applied to an assessee whose contract was entered into prior to the introduction of the section, but where the completion of the contract was only in the current year, and the assessee is declaring  his income only on a completed contract basis?

  

Held: In this  case, the finding given by the authorities is that nothing was paid or payable during the accounting year.  The finding is that the assessee has received a sum of Rs.4,90,45,132/- much prior to the assessment year 1994-1995.   To invoke the said provision there should be amount paid or payable during the accounting year.  Therefore, the   assessing officer is wrong in taking the consolidated amount of Rs.4,90,45,132/-, which was  paid by the NLC to the assessee over the period of assessment years 1987-1988 to 1991-1992.  The said consolidated amount cannot be the basis for levying 10% on the amount under Section 44 BBB of the Act.  Unless and until the conditions stipulated in the deeming provision are satisfied, the revenue cannot invoke Section 44 BBB of the Act.  The finding given by both the authorities  is that nothing  was paid or payable during the accounting year.  Therefore, the finding given by the authorities are  based on valid materials  and it is a question of fact.   It is not a perverse order.   In these circumstance, we confirm the order passed by the Tribunal and the assessing officer is not justified in levying 10% on the consolidated  amount, which is received much earlier to the assessment year 1994-1995 and we do not find any error or illegality in the order of the Appellate Tribunal   warranting interference.  We  answer the questions in favour of the assessee and against the revenue.

(Click here for judgment)

  

   

What's New 

a.  All ASEAN members to implement trade pact with India by August  (Click for detail)

b.  Once book results are not rejected, AO has no alternative except to accept the book results  (Click for detail)

c.  States, Centre yet to agree on GST structure  (Click for detail)

d.  Amendment in rule 18C ( Income-tax)  (Click for detail)

e.  ITAX-37-38-10-IT (5th Amend) Rules, 2010  (Click for detail)

  

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"Voice of CA"

CA. Sanjay Kumar Agarwal, Founder - Voice of CA

Member  Central Council - ICAI  (Former Chairman - NIRC)

Mob : 9811080342, agarwal.s.ca@gmail.com

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CA. Mukesh K Bansal, Co-Moderator-FEMA, mkak@rediffmail.com