M/s. Bhansali Tractors Private Limited, Ahmednagar V. Dy Comm of Income-tax, Ahmednagar

ITA 993/PUN/2011

• Counselvise Citation: 99324514 RSA 2011
• Duration Of Justice: 3 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 10-10-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 04-08-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P S NAIK
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO.993/PN/2011 (ASSESSMENT YEAR : 2007-08) BHANSALI TRACTORS PVT. LTD., DHANTARA GURUDWARA ROAD, KOPERGAON, DIST.- AHMEDNAGAR. PAN : AAACB9392D . APPELLANT VS. DY. COMMISSIONER OF INCOME TAX, AHMEDNAGAR CIRCLE, AHMEDNAGAR. . RESPONDENT ASSESSEE BY : MR. NIKHIL PATHAK DEPARTMENT BY : MR. P. S. NAIK DATE OF HEARING : 14-10-2014 DATE OF PRONOUNCEMENT : 28-11-2014 ORDER PER G. S. PANNU, AM THE CAPTIONED APPEAL BY THE ASSESSEE IS DIRECTED AG AINST AN ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-I, PUNE DA TED 27.01.2011 WHICH, IN TURN, HAS ARISEN FROM AN ORDER DATED 21.12.2009 PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT) PERTAINING TO THE ASSESSMENT YEAR 2007-08. 2. IN THIS APPEAL, ASSESSEE HAS RAISED THE FOLLOWIN G GROUNDS OF APPEAL :- 1. THAT THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF DISCOUNT AL LOWED TO THE CUSTOMERS OF RS.25,56,135/- BY THE DEPUTY COMMISSIONER OF INCOME TAX, AHMEDNAGAR CIRCLE, AHMEDNAGAR. THAT THE DISCOUNT ALLOWED TO C USTOMERS ARE SUPPORTED BY VOUCHERS ETC. AND HENCE THE SAME BE ALLOWED IN F ULL. 2. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE MADE U/S 40A(2 )(B) AT RS.9,06,670/- BY THE DEPUTY COMMISSIONER OF INCOME TAX, AHMEDNAGAR C IRCLE, AHMEDNAGAR. THAT THE PAYMENTS MADE TO THE RELATIVES WERE REASON ABLE AND HENCE THE SAME BE ALLOWED IN FULL. 3. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF EXPENDITURE MADE UNDER THE HEAD INCENTIVES AND COMMISSION AMOUNTING TO RS.13,99,440 /- BY DEPUTY ITA NO.993/PN/2011 COMMISSIONER OF INCOME TAX, AHMEDNAGAR CIRCLE. THE INCENTIVE AND COMMISSION PAYMENTS ARE IN THE COURSE OF BUSINESS A ND FOR BUSINESS AND HENCE THE SAME BE ALLOWED IN FULL. 3. IN BRIEF, THE RELEVANT FACTS ARE THAT THE APPELL ANT IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 AND IS, INTER- ALIA, ENGAGED IN THE BUSINESS OF A DEALER OF SWARAJ TRACTORS AND TRAILORS. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, IT FILED A RETURN OF INCOME DECLARING TOTAL INCOME OF RS.51,17,262/- WHICH WAS SUBJECT TO A SCRUTINY ASSESSMENT U/S 143(3) OF THE ACT ON 21.12.2009 WHEREBY THE TOTAL I NCOME WAS ASSESSED AT RS.99,79,507/- BY MAKING CERTAIN DISALLOWANCES WHIC H ARE A SUBJECT-MATTER OF APPEAL BEFORE US. OSTENSIBLY, THE ADDITIONS/DISALL OWANCES MADE BY THE ASSESSING OFFICER WERE CARRIED IN APPEAL BEFORE THE CIT(A), WHO HAS SINCE SUSTAINED THE ACTION OF THE ASSESSING OFFICER, AGAI NST WHICH ASSESSEE IS IN FURTHER APPEAL BEFORE US. 4. IN SO FAR AS THE FIRST ISSUE IS CONCERNED THE SA ME RELATES TO AN ADDITION OF RS.25,56,135/- MADE BY THE ASSESSING OFFICER WIT H RESPECT TO THE DISCOUNT ALLOWED TO THE CUSTOMERS. 5. IN THIS CONTEXT, BRIEF FACTS ARE THAT ASSESSEE C OMPANY HAD ALLOWED DISCOUNT TO ITS CUSTOMERS AMOUNTING TO RS.25,56,135 /-. ON BEING ASKED TO FURNISH THE RELEVANT DETAILS, ASSESSEE FURNISHED TH E DETAIL OF CUSTOMERS TO WHOM SUCH DISCOUNT WAS DISALLOWED. THE ASSESSING O FFICER NOTED THAT SUCH DISCOUNTS WERE NOT ALLOWED ON THE SALE INVOICES RAI SED BUT WERE ALLOWED THROUGH THE MECHANISM OF INTERNAL VOUCHERS. THEREF ORE, HE WAS NOT SATISFIED WITH THE GENUINENESS OF THE CLAIM OF THE ASSESSEE O F HAVING ALLOWED THE DISCOUNT TO THE CUSTOMERS AND ACCORDINGLY HE DISALL OWED THE ENTIRE AMOUNT OF RS.25,56,135/-. 6. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A), WHO HAS ALSO SUSTAINED THE ACTION OF THE ASSESSING OFFICER. THE CIT(A) HAS ALSO HELD ITA NO.993/PN/2011 THAT THERE WAS NO EVIDENCE BROUGHT ON RECORD BY THE ASSESSEE TO JUSTIFY THE GENUINENESS OF THE DISCOUNT ALLOWED TO THE CUSTOMER S. IT IS NOTICED THAT THE ASSESSEE HAD EXPLAINED BEFORE THE LOWER AUTHORITIES THAT THE DISCOUNT ALLOWED THROUGH VOUCHERS IN THOSE CASES WHERE THE CUSTOMERS HAD OBTAINED BANK FINANCE IN ORDER TO PURCHASE TRACTORS FROM ASSESSEE . IT WAS EXPLAINED BY THE ASSESSEE THAT IN CASES WHERE CUSTOMERS WERE OBTAINI NG BANK FINANCE, ASSESSEE USED TO ISSUE SALE BILLS FOR THE ENTIRE SA LE PRICE AND IT RECEIVED THE ENTIRE AMOUNT OF THE SALE BILL FROM THE BANKS. THE REAFTER, THE ASSESSEE COMPANY ALLOWED DISCOUNT TO THE SAID CUSTOMERS WHIC H WAS DONE THROUGH THE INTERNAL VOUCHERS. THE STAND OF THE REVENUE BEFORE US IS THAT SUCH A PRACTICE IS AN ILLEGAL PRACTICE AND THEREFORE THE CLAIM OF D ISCOUNT MADE BY THE ASSESSEE HAS BEEN RIGHTLY DISALLOWED. IT HAS BEEN EXPLAINED THAT IN CASES OF SALE OF TRACTORS TO CUSTOMERS WHO HAVE NOT AVAILED OF THE B ANK FINANCE, THE SALE BILL ITSELF HAS BEEN PREPARED ON THE BASIS OF NET SALE P RICE I.E. AFTER REDUCING THE DISCOUNT ALLOWED. 7. BEFORE US, THE LD. REPRESENTATIVE FOR THE ASSESS EE SUBMITTED THAT THE DISALLOWANCE MADE BY THE LOWER AUTHORITIES IS NOT J USTIFIED AS THE ENTIRE DETAILS WERE FURNISHED. A REFERENCE HAS BEEN INVITED TO PA GES 91 TO 94 OF THE PAPER BOOK, WHEREIN THE LIST OF CUSTOMERS TO WHOM THE DIS COUNT HAVE BEEN ALLOWED, IS PLACED. IT HAS ALSO BEEN POINTED OUT THAT GIVIN G OF DISCOUNTS AND OFFERING OTHER INCENTIVES TO THE CUSTOMERS TO BUY THE TRACTO R IS A NORMAL BUSINESS PRACTICE AND IN THIS CONTEXT, HE HAD REFERRED TO PA GES 89 TO 90 OF THE PAPER BOOK TO POINT OUT CERTAIN ADVERTISEMENT IN NEWSPAPE R SHOWING OFFER OF DISCOUNTS AND OTHER INCENTIVE SCHEMES ON SALE OF TR ACTORS. WITH REGARD TO THE EXPENDITURE OF DISCOUNT OF RS.25,56,135/-, IT HAS B EEN EXPLAINED THAT A SUM OF RS.20,83,000/- HAS BEEN ALLOWED BY WAY OF PAYMENTS BY CHEQUE/DD AND A SUM OF RS.1,04,500/- IS PAID IN CASH AND THE BALANC E OF RS.3,63,635/- IS THROUGH JOURNAL ENTRIES. SUCH DETAILS OF THE MODE OF PAYMENT OF DISCOUNT TO THE CUSTOMERS HAS BEEN ENUMERATED AT PAGES 91 TO 94 OF THE PAPER BOOK. ITA NO.993/PN/2011 ANOTHER POINT RAISED BY THE ASSESSEE IS THAT THE DI SCOUNT OFFERED BY THE ASSESSEE THROUGH THE VOUCHERS IS NOT MORE THAN THE DISCOUNT WHICH HAS OFFERED BY THE ASSESSEE ON THE SALES WHERE THE SALE BILL ITSELF HAS BEEN PREPARED ON THE BASIS OF THE NET SALE PRICE. ON PA GES 95 TO 96 OF THE PAPER BOOK, ASSESSEE HAS PROVIDED A TABULATION GIVING DET AILS OF THE SELLING PRICE AND THE VARIOUS MODELS OF THE TRACTORS TO DEMONSTRA TE THAT THE FINAL SALE PRICE CHARGED FROM THE CUSTOMERS AFTER GIVING DISCOUNTS T HROUGH THE VOUCHERS WAS MUCH HIGHER THAN THE SALE PRICE CHARGED TO CUSTOMER S WHERE THE SALE BILLS HAS BEEN PREPARED ON NET SELLING PRICE AFTER ALLOWING T HE DISCOUNT. IN THIS MANNER, IT IS SOUGHT TO BE POINTED OUT THAT THE DISCOUNT AL LOWED THROUGH THE VOUCHERS IS GENUINE AND IS AN ALLOWABLE EXPENSE. A REFERENCE H AS ALSO BEEN MADE TO THE PAGES 59 TO 85 OF THE PAPER BOOK WHEREIN THE RELEVA NT EXTRACTS ALONG WITH RELEVANT BILLS, DISCOUNT VOUCHERS, DETAILS OF PAYME NTS, ETC. HAS BEEN PLACED IN RESPECT OF THE CUSTOMERS TO WHOM DISCOUNTS HAVE BEE N ALLOWED THROUGH THE MECHANISM OF INTERNAL VOUCHERS. 8. JUSTIFYING THE ALLOWANCE OF DISCOUNT, ASSESSEE P OINTED OUT THAT THE IMPUGNED AMOUNT ON DISCOUNT WAS RELATABLE TO ONLY T HOSE CASES WHERE BANK FINANCE WAS OBTAINED BY THE CUSTOMERS. OUT OF THE TOTAL OF 151 TRACTORS SOLD DURING THE YEAR SUCH DISCOUNT WAS GIVEN ONLY IN 49 CASES AND SUCH A PRACTICE WAS ADOPTED TO BE COMPETITIVE IN THE MARKET. IT WA S POINTED OUT THAT SELLING OF TRACTORS IS A COMPETITIVE BUSINESS WHERE THE MAIN C USTOMERS ARE FROM THE FARMING COMMUNITY. THE FARMERS DO NOT HAVE LIQUID RESOURCES AND THEREFORE THEY APPROACH THE BANKS FOR FINANCE. THE ASSESSEE USED TO PREPARE SALE BILL OF THE ENTIRE AMOUNT OF SALE PRICE AS REQUIRED BY T HE CUSTOMERS, WHO USED TO OBTAIN BANK FINANCE. ONLY AFTER OBTAINING THE ENTI RE SALE CONSIDERATION, ASSESSEE USED TO ALLOW DISCOUNT TO THE CUSTOMERS BY REFUNDING THE AMOUNT OF DISCOUNT ALLOWED. ITA NO.993/PN/2011 9. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESEN TATIVE HAS REITERATED THAT THE GENUINENESS OF THE DISCOUNT ALLOWED HAS NO T BEEN ESTABLISHED BY THE ASSESSEE INASMUCH AS THE PRACTICE OF ALLOWING DISCO UNT IN SUCH A MANNER IS AN ILLEGAL ACTIVITY. 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. NOTABLY, APPELLANT HAS ALLOWED DISCOUNT TO VARIOUS CUSTOMERS ON THE SA LE OF TRACTORS. THE AMOUNT OF DISCOUNT WHICH HAS BEEN DISALLOWED RELATE S TO THE DISCOUNT ALLOWED TO THE CUSTOMERS WHO HAVE OBTAINED BANK FINANCE IN ORDER TO PURCHASE THE TRACTORS FROM THE ASSESSEE. THE FACTUM OF THE ASSE SSEE HAVING RECEIVED THE ENTIRE SALE PRICE FROM THE BANK CORRESPONDING TO TH E SALE BILLS RAISED IS NOT IN DISPUTE. IT IS ONLY AFTER RECEIVING THE ENTIRE SAL E PRICE THAT ASSESSEE HAS ALLOWED THE DISCOUNT TO THE CUSTOMER WHICH HAS BEEN DOUBTED BY THE INCOME- TAX AUTHORITIES. THE DOUBT OF THE INCOME-TAX AUTHO RITIES IS BASED ON THE REASON THAT SUCH DISCOUNT HAS NOT BEEN ALLOWED IN THE SALE BILL BUT BY WAY OF A SEPARATE VOUCHER. THE ASSESSEE HAS REFUNDED A PORT ION OF THE SALE PRICE RECEIVED BY IT AND THE SAME HAS BEEN EXPLAINED TO B E DISCOUNT ALLOWED TO THE CUSTOMERS. FACTUALLY SPEAKING, THE AFORESAID MECHA NISM ADOPTED BY THE ASSESSEE TO GIVE DISCOUNT TO THE CUSTOMERS IS NOT I N DISPUTE. THE RELEVANT MATERIAL, NAMELY, COPIES OF BANK LOAN SANCTION LETT ERS, SALE BILLS, COPY OF DISCOUNT VOUCHERS, LEDGER ACCOUNT OF CUSTOMERS, ETC . WERE PRODUCED BY THE ASSESSEE AND THE SAME HAVE BEEN VERIFIED BY THE ASS ESSING OFFICER. THE PLEA SETUP BY THE REVENUE IS THAT IT IS AN ILLEGAL PRACT ICE AND THEREFORE SUCH EXPENDITURE IS NOT TO BE ALLOWED. WHILE ASSERTING SO, THE REVENUE HAS NOT MADE OUT ANY PARTICULARLY ILLEGALITY. NO INFRACTIO N OF LAW HAS BEEN MADE OUT BY THE REVENUE. THE NET EFFECT OF THE ENTIRE EXERCISE IS THAT THE CUSTOMERS HAVE BEEN ALLOWED DISCOUNT ON SALE EFFECTED BY THE ASSES SEE. THE ASSESSEE COMPANY HAS FURTHER EXPLAINED THAT THE BUSINESS OF TRACTORS IS A COMPETITIVE BUSINESS WHERE THE MAIN CUSTOMERS ARE FARMERS WHO D O NOT ENJOY LIQUIDITY AND THEY OFTEN APPROACH BANKS FOR FINANCE. OSTENSIBLY, ASSESSEE WAS GUIDED BY ITA NO.993/PN/2011 THE OBJECTIVE OF ENHANCING ITS PROFITS AND THE AFOR ESAID METHODOLOGY OF EFFECTING SALE WAS ADOPTED. NO DOUBT, IT MAY NOT B E THE BEST OF THE PRACTICES, SO HOWEVER, THE EXPENDITURE CANNOT BE DISALLOWED ME RELY FOR THE SAID REASON. PERTINENTLY, THE EXPENDITURE OTHERWISE IS VERIFIABL E AND THERE IS NO ADVERSE EVIDENCE ON RECORD. CONSIDERING THE ENTIRE FACTS A ND CIRCUMSTANCES OF THE CASE, IN OUR VIEW, THE DISALLOWANCE SUSTAINED BY TH E CIT(A) IS NOT JUSTIFIED. ACCORDINGLY, WE SET-ASIDE THE ORDER OF THE CIT(A) A ND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS.25,56,135/-. THUS, ON THIS GROUND ASSESSEE SUCCEEDS. 11. THE SECOND GROUND RAISED BY THE ASSESSEE IS WIT H REGARD TO A DISALLOWANCE OF RS.9,66,704/- MADE BY THE ASSESSING OFFICER BY INVOKING SECTION 40A(2)(A) OF THE ACT. IN THIS CONTEXT, THE RELEVANT FACTS ARE THAT ASSESSEE WAS FOUND TO HAVE MADE THE CERTAIN PAYMENT S TO PARTIES SPECIFIED IN SECTION 40A(2)(B) OF THE ACT AND AS PER THE ASSESSI NG OFFICER SUCH PAYMENTS WERE UNREASONABLE AND EXCESSIVE IN RELATION TO THE MARKET VALUE OF SUCH SERVICES AND THEREFORE HE MADE A DISALLOWANCE OF RS .9,66,706/- OUT OF SUCH PAYMENTS. THE TOTAL PAYMENT MADE TO THE SISTER CON CERNS WAS RS.89,56,704/- REPRESENTING (I) REIMBURSEMENT OF EXCESS RS.1,31, 665/-; (II) RENT RS.6,18,000/-; (III) INTEREST ON DEPOSITS RS.23,1 4,080/-; AND, (IV) PURCHASE FROM SISTER CONCERN RS.51,92,959/-. THE ASSESSIN G OFFICER HAS MADE THE DISALLOWANCE OF RS.9,66,706/- WHICH REPRESENTED 10% OF THE TOTAL PAYMENTS, WHICH WAS DETERMINED BY HIM TO BE EXCESSIVE. THE C IT(A) HAS ALSO AFFIRMED THE ADDITION ON THE GROUND THAT ASSESSEE HAS NOT BE EN ABLE TO JUSTIFY THE REASONABLENESS OF THE PAYMENTS MADE TO THE SISTER C ONCERNS AND ACCORDINGLY ASSESSEE IS APPEAL BEFORE US. 12. FIRSTLY, IT HAS BEEN SUBMITTED BY THE LD. REPRE SENTATIVE THAT AN AD-HOC DISALLOWANCE OF 10% BY INVOKING SECTION 40A(2)(A) O F THE ACT IS QUITE UNJUSTIFIED BECAUSE THE SAID SECTION REQUIRES DISAL LOWANCE OF SUCH PORTION OF ITA NO.993/PN/2011 EXPENDITURE WHICH IS IN EXCESS OF THE MARKET VALUE OF SUCH SERVICES RENDERED BY THE SISTER CONCERN, AND IN THE ASSESSMENT ORDER, ASSESSING OFFICER HAS FAILED TO POINT OUT ANY PARTICULAR PAYMENT WHICH WA S EXCESSIVE OR UNREASONABLE HAVING REGARD TO ITS MARKET VALUE. TH E LD. REPRESENTATIVE SUBMITTED THAT ASSESSEE HAD FURNISHED THE RELEVANT DETAILS WHICH JUSTIFIED THAT THE PAYMENTS MADE WERE REASONABLE IN COMPARISON TO THE MARKET PRICES. 13. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESE NTATIVE APPEARING FOR THE REVENUE HAS REFERRED TO THE ORDERS OF THE AUTHO RITIES BELOW IN SUPPORT OF THE CASE OF THE REVENUE. 14. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. ONE OF THE ITEMS OF EXPENSE IN QUESTION RELATES TO RENT PAID TO LATE MR. D.M. BHANSALI AND SMT. TARABAI D. BHANSALI OF RS.1,14,000/- WITH RESPECT T O A PROPERTY TAKEN ON RENT. IN THIS CONTEXT, IT HAS BEEN EXPLAINED THAT THE PRO PERTY WAS ADMEASURING 4000 SQ.FT. AND THE RENT PAID WAS RS.9500/- PER MONTH FO R THE LAST TEN 10 TO 15 YEARS AND IT IS QUITE REASONABLE AS COMPARED TO PREVAILIN G MARKET RENT. IN THIS CONTEXT, IT HAS ALSO BEEN POINTED OUT BY THE ASSESS EE BEFORE THE LOWER AUTHORITIES THAT IN THE IMMEDIATE NEIGHBORHOOD A SI MILAR PROPERTY WAS LEASED OUT AT THE RATE OF RS.5 TO RS.8 PER SQ.FT. AND THER EFORE THE RENT PAID BY THE ASSESSEE WAS QUITE REASONABLENESS. WE FIND THAT TH E ASSESSEE HAD GIVEN SPECIFIC INSTANCE IN THE VICINITY, WHEREBY KOPERGAO N PEOPLES CO-OP. BANK LTD. HAS LEASED OUT A PREMISES TO LIC AND BANK OF BARODA @ RS.5 TO RS.8 PER SQ.FT.. THERE IS NO REASON ADVANCED BY THE LOWER A UTHORITIES TO REJECT THE EXPLANATION FURNISHED BY THE ASSESSEE. MOREOVER, I N OUR VIEW, THERE IS NO JUSTIFICATION TO DISALLOW AN AD-HOC SUM FOR BEING E XCESSIVE WITHIN THE MEANING OF SECTION 40A(2)(A) OF THE ACT. SIMILARLY, IN RES PECT OF THE EXPENDITURE OF REND PAID TO MR. ARVIND D. BHANSALI AND SANJAY D. BHANSA LI ALSO FOR THE AHMEDNAGAR PREMISES AND THE WORKSHOP AT KOPERGAON R ESPECTIVELY, ASSESSEE HAD POINTED OUT THAT THE RENTALS PAID TO T HE SISTER CONCERN WERE ITA NO.993/PN/2011 REASONABLE. IN THIS CONTEXT, OUR ATTENTION HAS BEE N DRAWN TO THE RELEVANT DETAILS AT PAGE 5 OF THE PAPER BOOK WHICH ARE, INTE R-ALIA, SUBMISSIONS MADE BY THE ASSESSEE TO THE CIT(A). IN BOTH THE CASES, THE MONTHLY RENT PAID IS AROUND RS.1.25 PER SQ.FT. AND RS.0.40 SQ.FT. PER MONTH RES PECTIVELY. THE AFORESAID RENTALS, IN OUR VIEW, ARE QUITE REASONABLE, AND IN ANY CASE, THE ASSESSING OFFICER HAS NOT REFERRED TO ANY COMPARABLE CASE TO ESTABLISH EXCESSIVENESS VIS--VIS THE MARKET RATES. THUS, THE AD-HOC DISAL LOWANCE IS NOT MERITED. THE SAID DISALLOWANCE IS DIRECTED TO THE DELETED. 15. ANOTHER EXPENDITURE SUBJECT TO DISALLOWANCE IS ON ACCOUNT OF INTEREST PAID TO CERTAIN DEPOSITORS WHO ARE PERSONS SPECIFIE D IN SECTION 40A(2)(B) OF THE ACT. THE TOTAL INTEREST EXPENSE ON THIS COUNT IS RS.23,14,080/-. IN THIS CONTEXT, IT IS NOTED THAT INTEREST HAS BEEN PAID @ 12% PER ANNUM. THE LD. REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT IN THE PERIOD CORRESPONDING TO THE ASSESSMENT YEAR UNDER CONSIDERATION PRIME LE NDING RATE (PLR) RATES OF THE NATIONALIZED AND CO-OP. BANKS WERE ROUND 14% TO 15% AND THEREFORE THE INTEREST PAID BY THE ASSESSEE @ 12% TO THE RELA TED PARTIES WAS QUITE JUSTIFIED. THERE IS NO NEGATION TO THE AFORESAID A SSERTION MADE BY THE ASSESSEE BEFORE THE LOWER AUTHORITIES. THEREFORE, IN OUR VIEW, THE INTEREST EXPENDITURE INCURRED @ 12% ON DEPOSITS RAISED FROM THE RELATED PARTIES IS REASONABLE AND DOES NOT CALL FOR ANY DISALLOWANCE O F SECTION 40A(2)(A) OF THE ACT. WE HOLD SO. 16. THE OTHER EXPENDITURE SUBJECT TO DISALLOWANCE I S ON ACCOUNT OF PURCHASES FROM SISTER CONCERN OF RS.51,92,959/- WHI CH COMPRISES OF PURCHASES FROM BHANSAI TRAILORS PVT. LTD. RS.42,6 2,972/-; BHANSALI AGRICULTURAL EQUIPMENTS RS.9,00,962/-; AND, DHANT AR MOTORS RS.29,025/-. 17. IN THIS CONTEXT, THE LD. REPRESENTATIVE FOR THE ASSESSEE HAS REFERRED TO PAGE 108 OF THE PAPER BOOK TO DEMONSTRATE THAT THE PRICES CHARGED BY THE ITA NO.993/PN/2011 SISTER CONCERN ARE COMPARABLE TO PRICES CHARGED BY THE SAID CONCERNS TO OTHER CUSTOMERS. IN THIS CONTEXT, IN RESPECT OF PURCHASE S FROM BHANSALI TRAILORS PVT. LTD., THE RELEVANT COPIES OF BILLS ARE ALSO ENCLOSE D IN THE PAPER BOOK AT PAGES 109-118. SIMILAR DETAILS HAVE BEEN GIVEN BY THE AS SESSEE IN THE PAPER BOOK AT PAGE 119 WITH RESPECT TO THE PURCHASES FROM BHAN SALI AGRICULTURAL EQUIPMENTS OF RS.9,00,962/-. THE AFORESAID MATERIA L WAS VERY MUCH BEFORE THE LOWER AUTHORITIES AND WE FIND THAT THERE IS NO REBUTTAL OF THE ASSERTIONS MADE BY THE ASSESSEE. THEREFORE, WE ARE UNABLE TO UPHOLD THE INVOKING SECTION 40A(2)(A) OF THE ACT IN THE PRESENT CASE WI TH RESPECT TO THE EXPENDITURE INCURRED BY THE ASSESSEE ON ACCOUNT OF PURCHASES FR OM SISTER CONCERNS. THE ORDER OF THE CIT(A) IS SET-ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITION. 18. THE LAST ITEM OF EXPENDITURE SUBJECTED TO A DIS ALLOWANCE U/S 40A(2)(A) OF THE ACT IS RELATING TO TRAVELLING EXPENSES OF RS .1,31,665/-. THIS AMOUNT REPRESENTS REIMBURSEMENT OF TRAVELLING EXPENSES INC URRED BY THE MANAGING DIRECTOR OF THE ASSESSEE COMPANY, WHO HAD TRAVELLED TO OTHER PLACES FOR OFFICIAL WORK. IN OUR CONSIDERED OPINION, THE STAT ED EXPENSE CANNOT BE SUBJECT TO A DISALLOWANCE U/S 40A(2)(A) OF THE ACT AS EXPEN SES ARE CLAIMED TO HAVE BEEN INCURRED FOR THE BUSINESS PURPOSE. THE PAYMEN TS ARE NOT IN THE FORM OF PERQUISITES OR FOR ANY OTHER BENEFIT TO THE DIRECTO R, BUT THE SOME ACTUAL EXPENSES INCURRED ON CARRYING OUT WORK FOR THE ASSE SSEE COMPANY. SUCH A DISALLOWANCE IS NOT ENVISAGED IN SECTION 40A(2)(A) OF THE ACT. ACCORDINGLY, THE SAME DESERVES TO BE DELETED. WE HOLD SO. IN THE R ESULT, WITH RESPECT TO THE GROUND OF APPEAL NO.2 ASSESSEE SUCCEEDS. 19. THE LAST GROUND IN THE PRESENT APPEAL RELATES T O A DISALLOWANCE OF RS.13,99,440/- REPRESENTING INCENTIVES AND COMMISSI ON. IN THIS CONTEXT, BRIEF FACTS ARE THAT ASSESSEE COMPANY IS A DEALER OF SWAR AJ TRACTORS AS WELL AS A DEALER OF TVS BIKES. IT HAS TWO BRANCHES, NAMELY, A BRANCH AT KOPERGAON ITA NO.993/PN/2011 WHEREIN IT IS SELLING TRACTORS AND TVS BIKES; AND, THE SECOND BRANCH AT AHMEDNAGAR WHEREIN IT IS SELLING TVS BIKES ONLY. I N CARRYING OUT SUCH SALES, ASSESSEE INCURRED SALES COMMISSION/INCENTIVES OF RS .13,99,440/- DURING THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER HA S DISALLOWED THE ENTIRE EXPENDITURE ON THE GROUND THAT NECESSARY CONFIRMATI ONS FROM THE RECIPIENTS OF COMMISSION/INCENTIVES WERE NOT FURNISHED BY THE ASS ESSEE. THE CIT(A) HAS ALSO AFFIRMED THE SAID DISALLOWANCE, AGAINST WHICH ASSESSEE IS IN APPEAL BEFORE US. 20. BEFORE US, LD. REPRESENTATIVE SUBMITTED THAT TH E ENTIRE EXPENDITURE IS INCURRED IN THE COURSE OF CARRYING ON BUSINESS AND THAT THE ASSESSEE HAS ALSO DEDUCTED THE REQUISITE TAX AT SOURCE IN SOME CASES OF COMMISSION PAID. THE DETAILS OF THE EXPENDITURE HAVE BEEN PLACED AT PAGE 11 OF THE PAPER BOOK. ASSESSEE HAS ALSO SUBMITTED CERTAIN COPIES OF AGREE MENTS FOR PAYMENT OF COMMISSION, WHICH ARE PLACED IN THE PAPER BOOK AT P AGES 132 TO 161. THE LD. REPRESENTATIVE FOR THE ASSESSEE HAS DRAWN OUR A TTENTION TO PAGES 108 TO 196 OF THE PAPER BOOK WHICH IS A TABULATION SHOWING THE DETAILS OF COMMISSION AND INCENTIVES PAID IN THE VARIOUS ASSES SMENT YEARS. IT HAS ALSO BEEN POINTED OUT THAT SIMILAR EXPENDITURE INCURRED BY THE ASSESSEE IN ASSESSMENT YEAR 2009-10 HAS BEEN ALLOWED BY THE ASS ESSING OFFICER IN AN ASSESSMENT MADE U/S 143(3) OF THE ACT DATED 25.10.2 011, A COPY OF WHICH HAS ALSO BEEN PLACED IN THE PAPER BOOK. IN THIS CONTEX T, IT WAS SPECIFICALLY POINTED OUT THAT WHILE ALLOWING THE EXPENDITURE IN ASSESSME NT YEAR 2009-10, THE ASSESSING OFFICER HAD RECORDED STATEMENTS OF FOUR P ERSONS TO WHOM COMMISSION/INCENTIVES WAS PAID BY THE ASSESSEE AND SUCH PERSONS HAVE ALSO BEEN PAID COMMISSION/INCENTIVES IN THE CURRENT ASSE SSMENT YEAR ALSO. THEREFORE, THERE WAS NO JUSTIFICATION FOR THE LOWER AUTHORITIES TO HAVE DISALLOWED THE EXPENDITURE INCURRED DURING THE YEAR UNDER CONSIDERATION. THE RELEVANT MATERIAL HAS BEEN PLACED IN THE PAPER BOOK AT PAGES 170 TO 178. ITA NO.993/PN/2011 21. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESE NTATIVE REITERATED THAT COMPLETE CONFIRMATIONS FROM THE RECIPIENT OF COMMIS SION/INCENTIVES WERE NOT FURNISHED BY THE ASSESSEE AND THEREFORE THE LOWER A UTHORITIES WERE JUSTIFIED IN DISALLOWING THE EXPENDITURE. 22. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. AT THE OUTSET, IT MAY BE NOTED THAT THE FACTUM OF THE ASSESSEE INCURR ING EXPENSES BY WAY OF COMMISSION/INCENTIVES IN THE COURSE OF CARRYING OUT IN BUSINESS OF TRACTOR AND TVS BIKE STANDS ESTABLISHED. THE VERIFICATION EXER CISE CARRIED OUT BY THE ASSESSING OFFICER IN THE COURSE OF ASSESSMENT PROCE EDINGS FOR ASSESSMENT YEAR 2009-10 SUPPORTS THE ASSERTIONS OF THE ASSESSE E THAT PAYMENT OF COMMISSION/INCENTIVES IS IN THE COURSE OF CARRYING ON BUSINESS. SIMILARLY, DETAILS OF EXPENSES FURNISHED BY THE ASSESSEE FOR T HE EARLIER ASSESSMENT YEARS ALSO JUSTIFIES THE SAID POSITION. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSING OFFICER HAS DISALLOWED THE ENTIRE EXPENDI TURE FOR THE REASON THAT THE RELEVANT CONFIRMATIONS WERE NOT OBTAINED FROM THE E ACH OF THE RECIPIENTS. IN OUR CONSIDERED OPINION, A SWEEPING AND WHOLE-SALE D ISALLOWANCE OF THE EXPENDITURE IS QUITE IMPROPER, HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE. IT MAY ALSO BE NOTED THAT THERE IS NO PA RTICULAR INFIRMITY OR FALSITY BROUGHT OUT BY THE ASSESSING OFFICER BASED ON ANY V ERIFICATION EXERCISE SO AS TO JUSTIFY THE DISALLOWANCE OF THE EXPENDITURE IN I TS ENTIRETY. SOME OF THE PARTIES WERE EXAMINED BY THE ASSESSING OFFICER IN T HE COURSE OF ASSESSMENT PROCEEDINGS FOR ASSESSMENT YEAR 2009-10, AND THE PA YMENTS MADE TO THEM HAVE BEEN ACCEPTED. SECONDLY, FOR THE YEAR UNDER C ONSIDERATION ALSO, ASSESSEE HAD FURNISHED AGREEMENT AND ALSO POINTED O UT THAT IT HAS DEDUCTED TAX AT SOURCE ON CERTAIN PAYMENT MADE TOWARDS COMMI SSION/INCENTIVES. CONSIDERED IN TOTALITY, IT IS EVIDENT THAT THE MATE RIAL FURNISHED BY THE ASSESSEE IN SUPPORT OF THE EXPENDITURE HAS NOT BEEN FOUND TO BE DEVOID OF BONAFIDES. THEREFORE, IT IS A CASE WHERE THE ASSESSING OFFICER HAS DISALLOWED THE EXPENDITURE MERELY ON SURMISES AND CONJECTURES AND NOT ON THE BASIS OF ANY ITA NO.993/PN/2011 ADVERSE MATERIAL OR EVIDENCE ON RECORD. IN THIS CO NTEXT, THE LD. REPRESENTATIVE FOR THE ASSESSEE HAD ALSO PLACED REL IANCE ON THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE CIT VS. M ODERN TERRY TOWELS, (2013) 357 ITR 750 (BOM.), WHEREIN IT HAS BEEN HELD THAT FOR ALLOWABILITY OF EXPENDITURE IT IS NOT NECESSARY FOR THE ASSESSEE TO SUBMIT CONFIRMATIONS FROM THE OTHER PARTY, BUT THE ALLOWABILITY HAS TO BE DEC IDED ON THE BASIS OF ENTIRETY OF FACTS AND CIRCUMSTANCES OF THE CASE. IN THE LIGHT OF THE AFORESAID DISCUSSION, WE DEEM IT FIT AND PROPER TO SET-ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED DISALLOWAN CE. THUS, ON THIS ASPECT ALSO ASSESSEE SUCCEEDS. 23. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED AS ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH NOVEMBER, 2014. SD/- SD/- (R.S. PADVEKAR) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED: 28 TH NOVEMBER, 2014. SUJEET COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-I, PUNE; 4) THE CIT-I, PUNE; 5) THE DR B BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T., PUNE