DCIT, CHENNAI V. M/s. AIG Home Finance India Ltd., CHENNAI

ITA 2167/CHNY/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5148 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 03-05-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 23-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K E B RENGARAJAN JUNIOR
• Assessee Lawyers: G S D BABU
• Keywords: Additional evidence; Fair market value

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH B CHENNAI (BEFORE DR. O.K. NARAYANAN, VICE PRESIDENT AND SHRI GEORGE MATHAN, JUDICIAL MEMBER) .. I.T.A. NO. 2167/MDS/2010 ASSESSMENT YEAR : 2005-06 THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(1), CHENNAI 600 034. (APPELLANT) V. M/S AIG HOME FINANCE INDIA LTD., (FORMERLY M/S WEIZMANN HOMES LTD.) 2 ND FLOOR, CITI TOWERS, 117, SIR THYAGARAYA ROAD, T. NAGAR, CHENNAI 600 017. PAN : AAACW1328G (RESPONDENT) APPELLANT BY : SHRI K.E.B. RENGARAJAN, JUNIOR STANDING COUNSEL RESPONDENT BY : SHRI G.S.D. BABU O R D E R PER GEORGE MATHAN, JUDICIAL MEMBER : I.T.A. NO. 2167/MDS/2010 IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-III, CHENNAI IN APPEAL NO.4/2010-11/A.III DATED 30.9.201 0 FOR THE ASSESSMENT YEAR 2005-06. I.T.A. NO. 2167/MDS/10 2 2. SHRI K.E.B. RENGARAJAN, JUNIOR STANDING COUNSEL REPRESENTED ON BEHALF OF THE REVENUE AND SHRI G.S.D. BABU, C.A. REPRESENTED ON BEHALF OF THE ASSESSEE. 3. IN THIS APPEAL, THE REVENUE HAS RAISED THE FOLLO WING GROUNDS:- 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS CONTRARY TO THE LAW AND FACTS OF THE CA SE. 2. THE LEARNED CIT(A) HAS ERRED IN DELETING THE DIS ALLOWANCE OF ` 1,00,03,428/- MADE U/S.40A(2)(B) BEING SYNDICATION CHARGES/ GUARANTEE FEE PAID TO M/S WEIZMANN LTD. 2.1 THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED TH E FACT THAT WEIZMANN LTD., IS THE PROMOTER OF THE ASSESSEE COM PANY AND IS A MAJOR STAKE HOLDER AND IT IS NOT CLEAR AS TO WHY TH E ASSESSEE COMPANY APPROACHED THROUGH THE ASSOCIATE CONCERNS FO R RAISING LOANS WHEN IT SHOULD HAVE DIRECTLY APPROACHED THE BA NKS FOR ANY LOANS OR FINANCIAL NEEDS. MOREOVER, THE ASSESSEE C OMPANY ITSELF IS AN ESTABLISHED COMPANY AND HAS BEEN ENGAGED IN THE B ANKING BUSINESS FOR OVER LAST 10 YEARS. THEREFORE, THE SUM PAID TO THE SISTER CONCERN MERELY FOR PROVIDING CORPORATE GUARAN TEE ETC., IS NOT JUSTIFIED. 2.2 IT IS SUBMITTED THAT SECTION 40A(2)(B) CLEARLY D ISALLOWS 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 A ND ASIAN FINANCE & INVT. CORP. A UNIT OF ASIAN DEV. BANKS AR E FINANCE COMPANIES, THE OTHER MAJOR STAKE HOLDER M/S WEIZMAN N LTD., IS ENGAGED ONLY IN THE MANUFACTURING AND EXPORT OF TEXT ILES AND IS NOTHING TO DO WITH THE BUSINESS OF BANKING. I.T.A. NO. 2167/MDS/10 3 2.4 THE LEARNED CIT(A) OUGHT TO HAVE SEEN THAT AS P ER THE CIRCULAR NO.6P(LXXVI-66) OF 1968 WHICH THE ASSESSEE HAS QUOTED FOR ITS BENEFIT CLEARLY STATES THAT SEC.40A(2)(B) WE RE INTRODUCED TO KEEP A CHECK ON EXCESSIVE AND UNREASONABLE PAYMEN TS TO RELATED CONCERNS. 3. THE LEARNED CIT(A) HAS ERRED IN RESTRICTING THE DISALLOWANCE ON STAFF WELFARE EXPENSES TO ` 1,50,000/- AS AGAINST THE DISALLOWANCE OF ` 6,47,029 MADE BY THE ASSESSING OFFICER. 3.1 HAVING REGARD TO RULE 46A, AN OPPORTUNITY OUGHT TO HAVE BEEN GIVEN TO THE ASSESSING OFFICER TO SUBMIT REPOR T ON THE EVIDENCES NOT PRODUCED DURING THE COURSE OF ASSESSM ENT PROCEEDINGS. 4. THE LEARNED CIT(A) HAS ERRED IN DELETING DISALLO WANCE OF ` 1,81,934/- BEING 50 OF THE BROKERAGE EXPENSES PAID. 4.1 IT IS SUBMITTED THAT THE LEARNED CIT(A) HAS REL IED ON THE ASSESSEES ARGUMENT THAT THE BROKERAGE OF 2% OF THE DEPOSITS MOBILISED, IS PERMISSIBLE AS PER THE DIRECTIVE ISSU ED BY THE NATIONAL HOUSING BANK AND AS PER THE NATIONAL HOUSI NG BANK ACT, 1987. THE ABOVE SAID ACT STATES THAT 2% OF THE BRO KERAGE IS ONLY PERMISSIBLE. AS PER ASSESSING OFFICERS CONTENTION IT WAS NOT POSSIBLE TO ASCERTAIN FROM THE DETAILS FURNISHED BY THE ASSESSEE WHETHER THE RECIPIENTS ACTUALLY MOBILISED ANY DEPOSIT S FOR THE DEPOSITS FOR THE APPELLANT OR NOT. 4.2 IN THIS ISSUE, ALSO HAVING REGARD TO RULE 46A, AN OPPORTUNITY OUGHT TO HAVE BEEN GIVEN TO THE ASSESSING OFFICER T O SUBMIT REPORT ON THE EVIDENCES NOT PRODUCED DURING THE COURSE OF ASSESSMENT PROCEEDINGS. 4.3 IT IS FURTHER SUBMITTED THAT THE BROKERAGE IS O NLY FOR THE DEPOSITS MOBILISED. IN THIS CASE, SINCE THE NEXUS BETWEEN THE I.T.A. NO. 2167/MDS/10 4 DEPOSITS MOBILISED FOR THE BROKERAGE PAID CANNOT BE ASCERTAINED, THE ASSESSING OFFICERS CONTENTION WOULD BE CORRECT . 5. THE LEARNED CIT(A) HAS ERRED IN DELETING THE DIS ALLOWANCE OF ` 1,21,60,250/- BEING CLAIM OF DEDUCTION OF U/S. 36( 1)(VIII). 5.1 THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED TH AT AS PER THE PROVISIONS OF SECTION 36(1)(VIII) ANY SPECIAL R ESERVE CREATED AND MAINTAINED BY A SPECIFIED ENTITY, AN AMOUNT NOT E XCEEDING 20% OF THE PROFITS DERIVED FROM ELIGIBLE BUSINESS COMPU TED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION { BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE} CARRIED TO SUCH RES ERVE ACCOUNT. 5.2 IT IS SUBMITTED THAT SPECIFIED ENTITY MEANS, A BANKING COMPANY OR A FINANCE COMPANY OR ANY OTHER FINANCE CORP ORATION SPECIFIED IN SEC.4A OF THE COMPANIES ACT AND WHOSE BUSINESS IS PROVIDING LONG-TEM FINANCE FOR CONSTRUCTION AND PUR CHASE 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 P ER 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 PROVIDIN G LONG TERM FINANCE FOR INDUSTRIAL OR AGRICULTURAL DEVELOPMENT OR DEVELOPMENT OF INFRASTRUCTURE FACILITY OR CONSTRUCTION OR PURCHA SE OF HOUSE IN INDIA FOR RESIDENTIAL PURPOSE. ACCORDINGLY, THE DE DUCTION UNDER THIS CHAPTER IS AVAILABLE ONLY IN RESPECT OF INCOME DERIVED FROM LONG-TERM FINANCE OF CONSTRUCTION OR HOUSE TO BE US ED FOR RESIDENTIAL PURPOSES MEANING THEREBY ANY INCOME OTHE R THAN THE INCOME FROM HOUSING LOAN ETC. IS NOT ELIGIBLE FOR D EDUCTION UNDER THESE SECTION. APART FROM HOUSING LOAN, THE COMPAN Y 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). I.T.A. NO. 2167/MDS/10 5 5.4 THE LEARNED CIT(A) OUGHT TO HAVE SEEN THAT AS F AR AS THE SECURITIZATION OF INCOME IS CONCERNED IT IS NOTHING BUT THE DISCOUNTED VALUE OF INTEREST INCOME ON THE ASSETS S ECURITIZE FOR 10 YEARS PERIOD, RECEIVED UPFRONT. THE ASSESSING OFFIC ERS CONTENTION OF THE SECURITIZATION INCOME CANNOT BE HELD AS DERI VED FROM LONG- TERM HOUSING FINANCE FOR THE SIMPLE REASON THAT THI S ACTIVITY IS IN THE NATURE OF PLEDGING THE SECURITY IN RESPECT OF HO USING LOAN ALREADY GRANTED TO THE OTHER BANKS AND RELEASING FUR THER LOAN WHICH MIGHT HAVE BEEN USED FOR PURPOSES BY THE ASSES SEE, AND DENIED DEDUCTION U/S. 36(1)(VIII), WHICH, OUGHT TO HAVE BEEN CONSIDERED BY THE LD. CIT(A). 6. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED A T THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) BE SET ASIDE A ND THAT OF THE ASSESSING OFFICER BE RESTORED. 4. IN REGARD TO GROUND NOS. 2 TO 2.4, IT WAS SUBMIT TED BY THE LD. JUNIOR STANDING COUNSEL THAT THE ASSESSEE HAD MADE PAYMENTS OF SYNDICATION CHARGES/GUARANTEE FEE TO M/S WEIZMANN L TD. IT WAS A SUBMISSION THAT THE A.O. HAD INVOKED THE PROVISIONS OF SECTION 40A(2)(B) OF INCOME-TAX ACT, 1961 (HEREINAFTER CALL ED THE ACT) AND HELD THAT 0.5% OF THE GUARANTEE FEE PAID TO M/S WEI ZMANN LTD. WAS NOT ALLOWABLE. IT WAS A SUBMISSION THAT THE SYNDIC ATION CHARGES/GUARANTEE FEE PAID TO M/S WEIZMANN LTD. WAS TO THE TUNE OF ` 1,00,03,428/-. IT WAS A SUBMISSION THAT M/S WEIZM ANN LTD. WAS PROMOTER OF ASSESSEE-COMPANY AND IT SHOULD HAVE PRO VIDED SERVICES I.T.A. NO. 2167/MDS/10 6 AT FREE OF COST TO THE ASSESSEE. IT WAS ALSO SUBMI SSION THAT THE A.O. HAD OBSERVED THAT LEADING BANKS AND FINANCIAL INSTI TUTIONS WERE ALSO SHARE HOLDERS OF ASSESSEE-COMPANY, IT COULD HAVE RA ISED LOANS DIRECTLY FROM BANKS. IT WAS SUBMISSION THAT THE AS SESSEE HAD ALSO PAID AN AMOUNT OF ` 29,82,737/- TO THIRD PARTIES FOR RENDERING SIMILAR SERVICES AS RENDERED BY M/S WEIZMANN LTD. AND THE S AID COMMISSION WAS AT THE RATE OF 0.5% TO 1%. IT WAS THE SUBMISSI ON THAT ACCORDING TO NATIONAL HOUSING BOARD, THE COMPANIES WHICH WERE DOING BUSINESS OF HOUSING FINANCE WERE LIABLE TO PAY GUAR ANTEE COMMISSION OF 0.5% FOR THE LOANS GUARANTEED BY THE NATIONAL HO USING BOARD. IT WAS SUBMISSION THAT THE A.O. HAD DISALLOWED THE WHO LE OF THE GUARANTEE FEE PAID BY THE ASSESSEE TO M/S WEIZMANN LTD. HE VEHEMENTLY SUPPORTED THE ORDER OF THE A.O. 5. IN REPLY, THE LEARNED A.R. SUBMITTED THAT EVEN T HOUGH 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 TH AT AS PER PROVISIONS OF SECTION 40A(2)(B) OF THE ACT, A REASO NABLE AMOUNT WAS I.T.A. NO. 2167/MDS/10 7 LIABLE TO BE ALLOWED. IT WAS FURTHER SUBMISSION TH AT 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 ASSE SSEE. HE VEHEMENTLY SUPPORTED THE ORDER OF THE LD. CIT(APPEA LS). 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PER USAL OF PROVISIONS OF SECTION 40A(2)(B) OF THE ACT SHOWS TH AT THIS PROVISION IS APPLICABLE WHERE AN A.O. IS OF THE OPINION THAT THE PAYMENT IS EXCESSIVE OR UNREASONABLE WHEN SUCH PAYMENTS HAD BE EN MADE TO RELATED PARTIES. HERE, THE A.O. HAS NOT SHOWN HOW THE PAYMENT MADE BY THE ASSESSEE TO M/S WEIZMANN LTD. WAS UNREA SONABLE 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 F OR FINANCE COMPANIES DOING THE BUSINESS OF LONG TERM HOUSING F INANCE, HAS PERMITTED 0.75% OF GUARANTEE FEE FOR PROVIDING LOAN S AVAILED BY HOUSING FINANCE COMPANIES. PUBLIC SECTOR BANKS ARE ALSO CHARGING 1.5% FOR PROVIDING GUARANTEE COVER. IT IS ALSO NOT ICED THAT THE LD. CIT(APPEALS) HAS TAKEN INTO CONSIDERATION THE FACT THAT THE A.O. HAS I.T.A. NO. 2167/MDS/10 8 NOT DOUBTED THE FEES PAID TO THIRD PARTIES FOR PROV IDING IDENTICAL RANGE OF SERVICES ESPECIALLY WHEN SUCH FEE WAS BETWEEN 0. 5% TO 1%. IN THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT 0.5% OF GUARANTEE FEE PAID TO M/S WEIZMANN LTD. BY THE ASSESSEE IS NOT EX CESSIVE OR UNREASONABLE BUT IS WELL WITHIN THE RANGE AS PAID B Y THE ASSESSEE TO THIRD PARTIES AND MUCH LOWER THAN THE PERCENTAGE FI XED BY NATIONAL HOUSING BOARD, WHICH ITSELF IS AN UNDERTAKING PROMO TED BY RESERVE BANK OF INDIA. THEREFORE, WE ARE OF THE VIEW THAT T HE FINDINGS OF THE LD. CIT(APPEALS) ON THIS ISSUE IN DELETING THE DISALLOW ANCE IS ON RIGHT FOOTING. HENCE, THE SAME IS UPHELD. THUS GROUND N OS.2 TO 2.4 ARE DISMISSED. 7. IN REGARD TO GROUND NOS.3 AND 3.1, IT WAS SUBMIT TED BY THE LD. JUNIOR STANDING COUNSEL THAT THE A.O. HAD, IN THE C OURSE OF ASSESSMENT PROCEEDINGS, DISALLOWED ` 1,50,000/- OUT OF THE STAFF WELFARE EXPENSES CLAIMED BY THE ASSESSEE. IT WAS A SUBMISSION THAT THE LD. CIT(APPEALS) HAD DELETED THE DISALLOWANCE O UT OF THE SAME, TO AN EXTENT OF ` 1,00,000/-. IT WAS A FURTHER SUBMISSION THAT THE A.O. HAD ALSO MADE A FURTHER DISALLOWANCE OF ` 2,00,000/- OUT OF THE EXPENDITURE INCURRED BY THE ASSESSEE ON ACCOUNT OF REIMBURSEMENT I.T.A. NO. 2167/MDS/10 9 OF LEAVE TRAVEL ALLOWANCE, MEDICAL, ETC. PAID TO ST AFF AND THE LD. CIT(APPEALS) HAD DELETED ` 1,00,000/- OUT OF THE SAID DISALLOWANCE. IT WAS SUBMITTED THAT THE LD. CIT(APPEALS) OUGHT NO T TO HAVE DELETED THE DISALLOWANCE MADE BY THE A.O. 8. IN REPLY, THE LEARNED A.R. SUBMITTED THAT THE DI SALLOWANCE WAS ON AN AD HOC BASIS AND IN REGARD TO BILLS AND VOUCH ERS, IT WAS SUBMITTED THAT THE A.O. HAD NOT CALLED FOR ANY BILL S AND VOUCHERS IN THIS CASE. IT WAS FURTHER SUBMITTED THAT EVEN THOU GH THE REVENUE HAS RAISED AN ISSUE OF RULE 46A IN REGARD TO ENTERTAINI NG OF ADDITIONAL EVIDENCE BY THE LD. CIT(APPEALS), NO ADDITIONAL EVI DENCE HAD BEEN PRODUCED. HE VEHEMENTLY SUPPORTED THE ORDER OF THE LD. CIT(APPEALS). 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PER USAL OF THE ORDER OF THE LD. CIT(APPEALS) IN PARA 5.2 AND 5.3 C LEARLY SHOWS THAT NO FRESH EVIDENCE HAD BEEN CONSIDERED BY THE LD. CIT(A PPEALS). IN FACT, THE LD. CIT(APPEALS) HAD DELETED A PART OF THE ADDI TION AS THE SAME HAD BEEN MADE ON AD HOC BASIS. IT IS FURTHER NOTIC ED THAT THE TURNOVER OF THE ASSESSEE FOR THE ASSESSMENT YEAR UNDER CONSI DERATION ITSELF WAS MORE THAN ` 34 CRORES. THE STAFF WELFARE EXPENSES INCURRED BY I.T.A. NO. 2167/MDS/10 10 THE ASSESSEE WAS ONLY ABOUT ` 19.26 LAKHS AND ON LEAVE TRAVEL ALLOWANCE AND MEDICAL EXPENSES, THE EXPENDITURE WAS ` 4.5 LAKHS. THE REVENUE HAS ALSO NOT REBUTTED THE FINDINGS OF T HE LD. CIT(APPEALS) THAT THE A.O. HAD NOT CALLED FOR ANY V OUCHERS AND THE DISALLOWANCE HAS BEEN MADE ONLY ON AD HOC BASIS. I N THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE ACTION O F THE LD. CIT(APPEALS) IN CONFIRMING ` 50,000/- OUT OF THE STAFF WELFARE EXPENSES AND ` 1,00,000/- OUT OF THE OTHER EXPENSES, IS ON RIGHT FOOTING AND DOES NOT CALL FOR ANY INTERFERENCE. TH US GROUND NOS.3 AND 3.1 STAND DISMISSED. 10. IN REGARD TO GROUNDS NO.4 TO 4.3, IT WAS SUBMIT TED 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 ` 3,63,868/- AND THE SAME HAD BEEN PAID TO DIFFERENT PERSONS. HE FURTHER SUB MITTED THAT THE A.O. HAD DISALLOWED 50% OF THE SAID EXPENDITURE AND LD. CIT(APPEALS) HAD DELETED THE SAID DISALLOWANCE. HE VEHEMENTLY SUPPORTED THE ORDER OF THE A.O. I.T.A. NO. 2167/MDS/10 11 11. IN REPLY, THE LEARNED A.R. SUBMITTED THAT AS PE R THE GUIDELINES PROVIDED BY THE NATIONAL HOUSING BOARD, THE ASSESSE E WAS ENTITLED FOR PAY 2% BROKERAGE AND IN FACT, THE A.O. HAD ALSO , IN PRINCIPLE, ALLOWED THE PAYMENT OF THE COMMISSION AND HE DISALL OWED ONLY 50% OF THE SAID BROKERAGE. THE LEARNED A.R. VEHEMENTLY SUPPORTED THE ORDER OF THE LD. CIT(APPEALS). 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PE RUSAL OF THE ASSESSMENT ORDER CLEARLY SHOWS THAT THE DISALLOWANC E MADE OUT OF THE BROKERAGE EXPENSES WAS ON THE GROUND THAT THE P AYMENT OF BROKERAGE ON MOBILISATION OF PUBLIC DEPOSITS BY A B ANKING COMPANY HAS NEVER BEEN HEARD OF AS ALSO ON THE GROUND THAT IT WAS NOT ASCERTAINABLE WHETHER THE RECIPIENTS ACTUALLY MOBIL ISED ANY DEPOSITS FOR THE ASSESSEE-COMPANY OR NOT. THE FACT THAT THE NATIONAL HOUSING BOARD HAS PERMITTED 2% BROKERAGE ON THE DEPOSIT MOB ILISATION CLEARLY SHOWS THAT PAYING BROKERAGE ON THE MOBILISATION OF PUBLIC DEPOSITS BY A BANKING COMPANY IS AN ACCEPTED NORM. FURTHER, IF THE A.O. DID NOT BELIEVE THE PAYMENT OF BROKERAGE TO EIGHT PERSONS, HE SHOULD HAVE DISALLOWED THE FULL AMOUNT. THERE IS ALSO NO FINDI NG BY THE A.O. THAT THE PAYMENTS WERE NOT GENUINE OR THAT THE PAYMENTS WERE BOGUS. I.T.A. NO. 2167/MDS/10 12 ONCE THE PAYMENT HAS BEEN ACCEPTED AS BROKERAGE FOR MOBILISATION OF DEPOSITS, THE SAME CANNOT BE DISALLOWED IN PART. IN THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE FINDINGS OF THE LD. CIT(APPEALS) ON THIS ISSUE IS ON RIGHT FOOTING AND DOES NOT CALL FOR INTERFERENCE. THUS GROUND NOS.4 AND 4.3 STAND DISM ISSED. 13. IN REGARD TO GROUND NOS.5 TO 5.4, IT WAS SUBMIT TED BY THE LD. JUNIOR STANDING COUNSEL THAT IN THE COURSE OF ASSES SMENT, THE A.O. HAD RESTRICTED THE CLAIM OF DEDUCTION UNDER SECTION 36(1)(VIII) OF THE ACT. IT WAS A SUBMISSION THAT THE A.O. HAD TREATED THE SECURITIZATION INCOME OF THE ASSESSEE AS NOT BEING ELIGIBLE FOR CL AIM OF DEDUCTION UNDER SECTION 36(1)(VIII) OF THE ACT. IT WAS SUBMI TTED THAT THE DEDUCTION UNDER SECTION 36(1)(VIII) OF THE ACT WAS NOT ALLOWABLE TO THE ASSESSEE AS THE SAME WAS NOT DERIVED FROM THE LONG TERM HOUSING FINANCE BUT WAS PRACTICALLY RECEIVED FROM THE BUSIN ESS OF PLEDGING THE SECURITY IN RESPECT OF HOUSING LOAN ALREADY GRANTED TO OTHER BANKS AND RELEASING FURTHER LOANS WHICH MIGHT HAVE BEEN U SED FOR ANY PURPOSE. 14. IN REPLY, THE LEARNED A.R. SUBMITTED THAT FOR T HE PURPOSE OF DEDUCTION UNDER SECTION 36(1)(VIII) OF THE ACT, THE MAIN CRITERIA WERE I.T.A. NO. 2167/MDS/10 13 THAT (I) DEDUCTION IS AVAILABLE ONLY FOR FINANCIA L CORPORATIONS/PUBLIC COMPANIES ENGAGED IN PROVIDING LONG TERM FINANCE FO R CERTAIN PURPOSE; (II) A SPECIAL RESERVE IS TO BE CREATED A ND MAINTAINED; (III) THE DEDUCTION IS RESTRICTED TO 40% OF THE PROFITS D ERIVED FROM THE BUSINESS OF LONG TERM FINANCE COMPUTED UNDER THE HE AD PROFITS AND GAINS OF BUSINESS OR PROFESSION AND CARRIED TO SUC H SPECIAL RESERVE. IT WAS A SUBMISSION OF THE LEARNED A.R. THAT WHEN T HE ASSESSEE- COMPANY COMPLIED WITH ALL THE CONDITIONS, THE SECUR ITIZATION INCOME WAS RIGHTLY HELD BY THE LD. CIT(APPEALS) TO BE INCL UDED IN COMPUTING THE INCOME FROM HOUSING FINANCE. HE VEHEMENTLY SUP PORTED THE ORDER OF THE LD. CIT(APPEALS). 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AS P ER EXPLANATION (A) TO SECTION 36(1)(VIII) OF THE ACT, THE ASSESSEE IS A HOUSING FINANCE COMPANY. THE ASSESSEE HAS ALSO BEEN ACCREDITED UND ER ACCREDITION AUTHORITY BEING THE NATIONAL HOUSING BOARD. AS PER THE PROVISIONS OF EXPLANATION (B) AND (C) TO SECTION 36(1)(VIII) OF T HE ACT, ELIGIBLE BUSINESS MEANS THE BUSINESS OF PROVIDING LONG TERM FINANCE FOR THE CONSTRUCTION OR PURCHASE OF HOUSES IN INDIA FOR RES IDENTIAL PURPOSES. IT IS AN UNDISPUTED THAT THE SECURITIZATION IS OF T HE LONG TERM HOUSING I.T.A. NO. 2167/MDS/10 14 LOAN. IN THE PROCESS OF SECURITIZATION, THE FUTURE RECEIVABLES FOR A PERIOD OF TEN YEARS ARE DISCOUNTED WITH BANKS AND T HE BANKS PAY THE NET PRESENT VALUE OF FUTURE RECEIVABLES TO THE ASSE SSEE AS PART OF SECURITIZATION ARRANGEMENT. WHAT IS TO BE UNDERSTO OD IS THAT THE LONG TERM HOUSING LOAN GRANTED BY THE ASSESSEE TO THE BO RROWERS IS DISCOUNTED WITH THIRD PARTY BANKS. THE RISK CONTIN UES TO REMAIN WITH THE ASSESSEE AS IN THE EVENT OF DEFAULT BY THE BORR OWERS, THE ASSESSEE IS RESPONSIBLE TO MAKE GOOD TO DEFAULT TO BANKS. THE NET PRESENT VALUE AT WHICH THE LONG TERM HOUSING LOANS ARE DISCOUNTED HAD NOTHING BUT THE FUTURE INTEREST INCOME DISCOUNT ED TO THE PRESENT VALUE. THUS, THE SECURITIZATION AMOUNT IS NOTHING BUT THE INTEREST ON THE HOUSING LOAN WHICH IS DISCOUNTED TO THE PRESENT NET VALUE. THIS AMOUNT WOULD OBVIOUSLY BE THE INCOME OF THE ASSESSE E FROM THE LONG TERM HOUSING LOAN DISBURSED BY THE ASSESSEE. IN TH E CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE SECURITIZATION INCOME I S AN INCOME FROM BUSINESS OF LONG TERM HOUSING FINANCE. WE ARE OF T HE VIEW THAT THE SAME IS ELIGIBLE FOR DEDUCTION UNDER SECTION 36(1)( VIII) OF THE ACT. THEREFORE, WE UPHOLD THE FINDING OF THE LD. CIT(APP EALS) IN DELETING THE DISALLOWANCE OF THE CLAIM OF DEDUCTION UNDER SE CTION 36(1)(VIII) OF I.T.A. NO. 2167/MDS/10 15 THE ACT, WHICH IS ON RIGHT FOOTING AND DOES NOT CAL L FOR ANY INTERFERENCE. THUS GROUND NOS.5 TO 5.4 STAND DISMI SSED. 16. GROUND NOS.1 AND 6 ARE GENERAL IN NATURE AND RE QUIRE NO ADJUDICATION. 17. IN THE RESULT, THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON 5 TH MAY, 2011 SD/- SD/- (DR. O.K. NARAYANAN) ( GEORGE MATHAN) VICE PRESIDENT JUDICIAL M EMBER CHENNAI, DATED THE 5 TH MAY, 2011. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A)-III, CHENNAI (4) CIT, CHENNAI-I, CHENNAI (5) D.R. (6) GUARD FILE