A.C.I.T.,CIRCLE-36, KOLKATA vs. M/S ROHIT & CO., KOLKATA

1 ITA Nos.1425 & 1427/Kol/2019, M/s. Rohit & Co., AYs 2009-10 & 2011-12 आयकर अपील�य अधीकरण, �यायपीठ –“B” कोलकाता, IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH: KOLKATA [Before Shri P. M. Jagtap, Vice President (KZ) & Shri A. T. Varkey, Judicial Member I.T.A. Nos. 1425 & 1427/Kol/2019 Assessment Years: 2009-10 & 2011-12

ACIT, Circle-36, Kolkata Vs. M/s. Rohit & Co. (PAN: AADFR3190D) Appellant Respondent

Date of Hearing (Virtual) 06.10.2021 Date of Pronouncement 28.10.2021 For the Appellant Smt. Ranu Biswas, Addl. CIT For the Respondent Shri S. M. Surana, Advocate

ORDER Per Bench:

Both these appeals are preferred by the revenue which are against the separate orders of the Ld. CIT(A)-10, Kolkata dated 31.01.2019 for AYs 2009-10 and 2011-12.

2 ITA Nos.1425 & 1427/Kol/2019, M/s. Rohit & Co., AYs 2009-10 & 2011-12 premises at Mumbai. According to the AO, the assessee had taken on rent a building from four (4) persons out of whom three (3) were the partners of the assessee firm itself. The AO noted that the electricity bills of the premises were raised by BEST which shows that the bills were raised in the name of M/s. Marathon Reality Ltd. (developer of the property/flats) though the AO agreed that the assessee had submitted the copy of the sale/purchase deed to prove the genuineness of the ownership of the premises in question which was owned by three (3) partners and the fourth person being Mrs. Meenakshi Bihani (wife of a partner). According to AO, it could not be ascertained as to whether the assessee had taken on rent the premises of these three partners and Mrs. Meenaskhi Bhihani for business purpose. According to the AO, commission u/s 131 of the Act were issued to verify the fact/claim of the assessee that the properties taken on rent were used for business purpose. However, according to AO, the commission reported that the premises were found occupied by domestic helps. Therefore, according to the AO, assessee failed to prove as to whether the assessee was in use of this premises in question and whether the premises were used for business/commercial purpose. Therefore, the AO disallowed the claim of expenditure of Rs.1,05,60,000/-. Aggrieved the assessee preferred an appeal before the Ld. CIT(A), who was pleased to delete the same by holding as under (relevant portions only):-

“I have carefully examined the action of the Ld. A.O in adding the impugned amount of Rs.l,05,60,000/- under head 'Expenses on account of Rent Mumbai'. I find that the Ld. A.O has disallowed the entire amount on grounds that all the essential documents were not provided by the appellant assessee to place on record the genuineness of the rent paid. The Ld. A.O, it would appear suspected the payments on account of the fact that three of the four persons were partners of the firm M/s. Rohit & Co itself. In the course of the scrutiny assessment, the appellant has submitted copies of the Rental Agreements, Copies of the TDS certificates evidencing deduction of Tax (TDS) for the Rents paid as well as documents relating to the disclosure of such incomes in the hands of the partners and other person. However; the Ld. AO was not convinced with the documents and wanted answers to queries such as whether the properties/premises were actually used by the assessee, and whether the use was for business purposes to be eligible for deduction as a "business expense". The appellant provided copies of the sale deeds by way of documentation of ownership, and it was also submitted that the entire property was utilized for the business of the appellant, but the Ld. A.O was not convinced about either the ownership or the use of the property, and proceeded to make the impugned addition. 2(a) to (h) …….. (i) The undisputed fact of the case are as under:

3 ITA Nos.1425 & 1427/Kol/2019, M/s. Rohit & Co., AYs 2009-10 & 2011-12 i. The property is being owned 1. Shree Narayan Bihani; 2) Rohit Bihani; 3. Raghav Bihani all the partner's of the firm and 4. Mrs. Meenakshi Bihani, wife of Shree Narayan Bihani. The said property was situated at Lower Parel, Mumbai. ii. The said property was purchased from Marathon Reality Ltd., who developed and sold the same to the owner of the property. (Copy of sale Deed enclosed as MARK - K) iii. The assessee has taken the said properties on rent and rent agreement was also been submitted during the course of hearing. (Copy of Rent Agreement enclosed as MARK - L), iv. The assessee has paid rent to the owner's of the property (Copy enclosed as MARK - M) i.e. quantum of rent paid. v. The assessee has business establishment in Mumbai and having turnover of Rs. 458.91 Crores from Mumbai office itself. (j) to (k) …… 3. I have carefully examined the submissions placed by the appellant-assessee, as against the findings recorded by the Ld. A.O. I have also carefully examined the various evidences brought on record by the appellant to establish the veracity of its claims of having paid rent. There seems to be no dispute about the fact that the premises in question was owned by Shree Narayan Bihani, Shri Rohit Bihani, Shri Raghav Bihani [who are all partners in the appellant-firm] and Smt. Meenakshi Bihani, wife of Shree Narayan Bihani, and that the premises were located at Lower Parel, Mumbai. By furnishing a copy of the Sale deed [purchase deed in the hands of the 4 persons], the appellant has been able to establish that the said premises/ property was purchased from the Developer, M/s Marathon Reality Ltd, who developed and sold the same to the owner(s) of the property. It is also apparent that the said premises were taken on rent by the firm, and the rental agreements have been filed by the appellant before the Ld. A.O as well as in appeal. The rents were regularly paid by the appellant to the owners, and necessary TDS effected. As regards, the requirement to pay a rather large component as rent, I also find merit in the claim of the appellant that with turnovers ranging upto 458.91 crores as in the present year, there was requirement for large space in the business premise to carry out business smoothly. I find that the Ld. A.O has disallowed the entire rent and has not allowed any portion of the rent; the Ld. A.O has not considered in my opinion the very jurisdictional fact that as to how as the appellant to run its business if the very premises had become questionable. The Ld. A.O has not answered the simple question that there was requirement for large premises given the turnovers returned by the appellant, and definitely a large space was required. I find from the replies given by the appellant that all the questions raised by the Ld. AO about the names on the electricity bills, sale deed etc have been answered by the appellant and well explained. I find that in the year in question, the Ld. A.O has disbelieved the material evidence filed before him such as proof of rental agreement, proof of payment by cheques, TDS affected, electricity bills etc. I find that while the Ld. A.O has in this year disbelieved the entire payments in succeeding years, which are also under appeal, the Ld. A.O has questioned the "excessive payments" made to related parties. I find that in A.Y's 2013-14 and 2014-15, the impugned matter has been treated as "excessive payments" to related parties and referred to the TPO, and the Ld. TPO has not made any adverse remarks against the sums being paid as rent. In any case, for this year under appeal, I find that the appellant has been able to counter the remarks of the Ld. A.O with necessary evidence .and explanation. Once factually, it has been established that the rents were actually paid, and TDS effected while making such payments, I find that the Ld. A.O has no clear evidence that the premises were not utilized for the business purposes of the appellant at Mumbai. He has only arrived at adverse conclusions on the basis of certain commission issued in the case of the receivers

4 ITA Nos.1425 & 1427/Kol/2019, M/s. Rohit & Co., AYs 2009-10 & 2011-12 of rent, and the statement given. It is quite apparent that such statement or any adverse findings therein were not made available to the appellant to defend itself, before the Ld. A.O reached any adverse conclusions. In my considered view therefore, I find that there was a complete denial of the principles of natural justice as contemplated in the judgment of Hon'ble Supreme Court in the cases of Kishinchand Chellaram v. CIT (1980) 125 ITR 713 (SC) and Andaman Timber Industries vs. Commissioner of Central Excise, Kolkata-II reported in [2015] 62 taxmann.com 3 (SC), in such matters. Overall, after carefully considering all the material facts and evidences, I am unable to sustain any portion of the disallowance made by the Ld. A.O on account of rent paid, and therefore the same is deleted. The ground of appeal stands allowed.” 6. Aggrieved by the aforesaid decision of the Ld. CIT(A), the revenue is in appeal before us.

5 ITA Nos.1425 & 1427/Kol/2019, M/s. Rohit & Co., AYs 2009-10 & 2011-12 respective return of income. Moreover, the Ld. CIT(A) has noted that for AYs. 2013-14 and 2014-15 the AO had questioned the excessive payments made to related parties in this regard and, therefore, he referred the matter to TPO pursuant to which the TPO has not made any adverse remark against the sums/rent paid as rent. In the light of the aforesaid discussion, we find that the assessee had discharged its onus to prove that the assessee had taken on rent the premises in question at Mumbai for its business need i.e. all the commercial activities (viz, back office work, marketing, business meet, conferences and accommodation to visiting executives) were being carried out from this rental premises. We note that even though the owners of the property are relatives, the assessee has been able to bring on record relevant material to support its claim of having taken the premises in question on rent. Next we need to see whether the assessee was able to show that the rental premises was used wholly and exclusively for the purpose of the business. In this regard it was brought to our notice that all its commercial activities like back office work etc. was carried out at that premises, from which only the assessee has turnover of Rs 458 crore. We note that the payment of rent was made by the assessee firm to the owners (partners) through cheque after deduction of TDS and the owners (partners) have duly shown the rental income in their respective Income tax returns and that tax has been paid on it. To substantiate the incurring of rental expenditure the assessee had filed the rental agreement, sale deed of the related parties, electricity bills, payment by cheque and details of TDS deducted on the rental payments. It is noted that these evidence could not be controverted/rebutted by the AO/Ld DR and the AO has disallowed the expenditure on the basis of surmises and conjectures. So we are of the opinion that disallowance made by the AO has been rightly reversed by the Ld. CIT(A). Therefore, we do not find any reason to interfere with the order of the Ld. CIT(A) and we confirm the same. Therefore, this ground of appeal of revenue stands dismissed.

6 ITA Nos.1425 & 1427/Kol/2019, M/s. Rohit & Co., AYs 2009-10 & 2011-12 9. Brief facts as noted by the AO are that the assessee has incurred interest expenditure on account of unsecured loan. He noted that the assessee had borrowed sums from two (2) types of parties viz., ‘related parties’ as defined u/s. 40A(2)(b) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) and ‘non-related parties’. From the Tax Audit Report the AO noted that the auditor has reported that the interest paid to the ‘related parties’ are not excessive to attract any adverse view as per the Act. However, the AO bench-marked the interest expenditure at 8% which was paid by the assessee to the related parties and has disallowed amount paid to unrelated parties above 8% as un-reasonable by holding it to be excessive. According to the AO, the assessee failed to give proper explanation with regard to the excess interest paid to the unrelated parties (i.e. more than 8%), therefore, he disallowed the amount of Rs.7,12,705/-. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A), who was pleased to delete the same by holding as under:-

“1. I have carefully examined the action of the Ld.AO in making the impugned disallowance of Rs.7,12,705/-, from the claim of interest payment made by the assessee. I have also carefully examined the submissions and arguments advanced by the appellant / Ld A.R for the appellant, and the various documents submitted in support of its reply. The basic facts of the case are that the appellant has borrowed sums from two types of parties viz., "related parties" as defined u/s 40(a)(2)(b) of the Income Tax Act, 1961 and non- related parties. The related parties have been mentioned in the Tax audit Report, and it has been certified that the interest payments made to them were not excessive to attract the provision of the Act in any adverse fashion. It appears that the Ld. AO has benchmarked this amount of 8 % paid to related parties, and has disallowed any amounts paid to the unrelated parties beyond 8&holding the rate of 8% as reasonable, and any rate above that to be "excessive". The Ld. A.O has opined that the assessee-firm has failed to explain as to why any rate above 8% of interest paid was not allowable. In scrutiny, it was explained by the assessee, that the assessee that taken loans at different rates from banks, financial institutions as well as related and non-related parties, and that the rates of interest paid to related parties vary from 8 % to 10% , and that paid to unrelated parties vary from 12 % to 15%. It was also further explained that in case of secured loans taken from Banks and Financial Institutions, the interest rate paid varied from 12.25% to 13.50%, as per the Prime Lending rate (PLR) of the Banks / Institutions. In summary, it was argued by the appellant that the interest rates paid to related parties was much less than what was paid to non- related parties or to Banks, and therefore the same was to be allowed. In the case of non- related parties, it was argued that the interest rate paid was less than the prevailing market rates, and therefore the said rates being reasonable, they ought to be accepted by the Ld. A.O. However, the Ld. A.O was not amenable to such reasons as offered by the assessee- firm and reckoned that the appellant had not explained the requirement of the loans and the need to pay at higher rate of interest in terms of the business requirements. 2(a) to (h) ……..

7 ITA Nos.1425 & 1427/Kol/2019, M/s. Rohit & Co., AYs 2009-10 & 2011-12 3. Having carefully examined the submissions of the appellant against the action of the Ld. AO, I note that the Ld. A.O has bench marked 8% of interest payable as the norm, and treated all amounts paid above this percentage to be excessive in case of private/unsecured loans. I also observe that this is a case where the appellant by its own admission has paid lesser rate of interest to its "related parties", so as not to contravene any of the provisions of Sec 40A(2)(b) of the Income Tax At, 1961. The rest of the parties from whom unsecured loans were taken have been paid, according to the appellant at rates lesser than the prevailing market rate. There is only one exception where 15% of interest rate was paid, and I find that the explanation offered by the appellant that the said loan from this party, namely M/s. Synthetics Moulders Ltd -, an unrelated party was @ 15% , which is higher than the Bank Rate, as the loan was for a very short period and was repaid also within the year. In my considered view of the matter, this precisely explains the urgent requirement for business as has been argued by the appellant-firm. I find that there has been complete disclosure of the loans and interest rates by the appellant, and the Tax Audit Report also states about the interest rates to the related parties. In my considered view, the appellant has been able to substantiate as to why higher rate of interest was paid on unsecured loans to the unrelated parties, and the Ld. A.O has quite clearly overlooked such explanation. I find no reason for the Ld. A.O to benchmark the allowable interest rate @ 8% interest rate, and disallow the amounts of Interest paid over such rate. The appellant has relied on the decision of the Hon'ble Supreme Court in the case of S. A. Builders Ltd. (supra), wherein the Hon'ble Apex Court has described the purpose of business and commercial expediency by considering, whether one should allow deduction under section 36(1)(iii) of interest paid by assessee on amounts borrowed by it for advancing to a sister concern, and that the Authorities should examine the purpose for which the assessee advanced the money and what the sister concern did with the money. It has been expounded that the borrowed amount is not utilized by the assessee in its own business but had been advanced as interest free loan to its sister concern is not relevant, and that what is germane is that, is whether the amount was advanced as a measure of commercial expediency and not from the point of view whether the amount was advanced for earning profits. Once it is established that there was nexus between the expenditure and purpose of the business the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the partners and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. 4. ……. 5. ……. 6. ……. Overall in view of the facts and circumstances, as emanating from the case, I find that the arguments and reasoning of the appellant / Ld A.R find favour with most of the Hon'ble Courts and more specifically with the judgments emanating from the Hon'ble Supreme Court in the case of M/s. Munjal Sales Corporation Vs. CIT reported in (2008) 168 taxman 43(SC) and also S. A. Builders (supra). In the circumstances, I find that the action of the Ld AO in disallowing a sum of Rs.7,12,705/- on account of disallowance of proportionate interest was not justified, and I find that the same cannot be sustained. The ground is therefore allowed in favour of the appellant-assessee.”

8 ITA Nos.1425 & 1427/Kol/2019, M/s. Rohit & Co., AYs 2009-10 & 2011-12 11. We have heard rival submissions and gone through the facts and circumstances of the case. We note that the assessee has taken loan from two sources i.e one from related parties and other from unrelated parties and since the assessee had paid 8% as interest expenditure to the related parties, the AO benchmarked 8% lending rate as reasonable rate of interest and held that anything beyond that was excessive and which was disallowed by the AO and thus disallowed Rs.7,12,705/-. On appeal, the Ld. CIT(A) noted that the assessee has taken unsecured loans at different rates from related and unrelated parties as well as banks, financial institutions which was varying from 8 to 10% and paid to unrelated parties interest varying from 12 to 15% respectively. The Ld. CIT(A) took note of the fact that in the case of secured loans taken from bank and financial institutions interest rate paid was varying from 12.25 to 13.50% as per Prime Lending Rate (PLR) of the banks/financial institutions. In the case of the unrelated parties it was contended that the interest rate paid was less than the prevailing market rate and, therefore, the said rate is reasonable. After hearing the assessee and having gone through the records the Ld. CIT(A) noted that the AO has benchmarked 8% as interest payable as reasonable and treated all amounts paid above this percentage (8%) to be excessive in case of private/unsecured loans. The Ld. CIT(A) noted that the assessee has paid lesser rate of interest to its related parties, so there was no contravention of the provisions of section 40A(2)(b) of the Act. When it comes to the unrelated parties from whom the assessee had taken unsecured loans, the Ld. CIT(A) noted that assessee had incurred interest expenditure lesser than the prevailing market rate except from one party i.e. M/s. Synthetics Moulders Ltd., which was also unrelated party from whom assessee had taken unsecured loan @ 15% which was higher than the bank rate. However, it was explained by the assessee before the Ld. CIT(A) that this loan was for a short period and was repaid within the year itself. The Ld. CIT(A) has found that since there was an urgent business requirement, the assessee had taken the unsecured loan due to business exigency at higher rate @ 15% which was also repaid in the same year. The Ld. CIT(A) has noted that the assessee had disclosed the loans, nature of the loans, interest rates paid etc. which were reflected in the tax audit report which included

9 ITA Nos.1425 & 1427/Kol/2019, M/s. Rohit & Co., AYs 2009-10 & 2011-12 the details of the unsecured loan from related parties. The Ld. CIT(A) was of the opinion that the assessee has made out a case that due to business exigency, loans were taken at a higher rate of 15% at short notice which warranted payment of higher rate of interest. The Ld. CIT(A) thereafter relied on the decision of the Hon’ble Supreme Court in the case of S. A. Builders (supra) to allow the assessee’s interest expenditure. The aforesaid facts narrated above could not be rebutted/contradicted by the Ld. DR before us. Therefore, based on the factual finding of the Ld. CIT(A) on this issue as discussed supra, we do not find any reason to overturn the decision of the Ld. CIT(A) accepting the interest expenditure to the tune of Rs. 7,12,705/-. Therefore, we confirm the action of the Ld. CIT(A) and dismiss this ground of appeal of revenue.

10 ITA Nos.1425 & 1427/Kol/2019, M/s. Rohit & Co., AYs 2009-10 & 2011-12 brokerage engaged in Ahmadabad Br is 21 whereas in Mumbai it is 216. Further as asked for providing details of brokerage party wise details of sales effected through broker, we like to state you that client is not maintaining details in requested format, hence we have to manually prepare the details which require another 7 to 10 days to prepare. "

11 ITA Nos.1425 & 1427/Kol/2019, M/s. Rohit & Co., AYs 2009-10 & 2011-12 and the Ld. A.O had been directed to examine the details of party-wise payments as submitted in appeal, and to forward a Remand report in the matter. It has to be stated that the Ld. A.O has caused necessary verification of the claims by the issue of commission u/s.131 to Officers at Mumbai and Thane, and the necessary spot verification about the PAN, existence and services rendered by some of the Commission Agents on a Sample basis had been obtained by the Ld. A.O, and the same were forwarded to this Office. I find that there were 237 commission Agents, and the Ld. A.O has by issue of commission obtained replies in 14 commission agents, 8 cases on one occasion, and 6 on another subsequent occasion. In certain cases, the reports include brief note on business activity of the commission agents, copes of return of Income Tax, Copy of the TAR, Copies of the P&L account and the details of commission received for work rendered by the commission agent for the appellant-firm. I also note from the replies submitted by the Officers at Mumbai and Thane that in most of the cases, nothing adverse has been reported, except where there was non-cooperation by the agent, or that the agent was not found in the address stated. 3. On analysis of the submissions and arguments made by the assessee as against the findings recorded by the Ld. A.O, it appears from that the factual matrix for the present year under appeal that the assessee had a turnover Rs.458.91 Crores from Mumbai office itself which is around 72% of total turnover of Rs.622.24 Crores, and that the commission expenses work out to less than very small and reasonable fraction of such disclosed turnover, and the same appears prima facie to be reasonable, especially in the situation where the salary payments are not excessive. I find that there is a certain justification for paying the commission to achieve higher turnovers. It is also true that the appellant has in the nature of business expediency, appointed commission agents for procuring additional turnovers, and they may not be recognized as "agents" or "middlemen” by the transacting parties, and they may be dealing with the assessee through these agents without realizing that they are agents as such. In any case, I find that the Ld. AO has, on facts not found any of the payments to be false or made to related parties. It has been held in the case of CIT v. Shriram Pistons & Rings Ltd. (2012) 19 taxmann.com 205/206 Taxman 41 (Mag.) (Delhi) "Where assessee paid commission to agents for work performed by them, agents were not bogus, and commission was paid by crossed cheque, same was allowable as deduction.".

12 ITA Nos.1425 & 1427/Kol/2019, M/s. Rohit & Co., AYs 2009-10 & 2011-12 Ahmedabad, and this kind of commission was regularly disbursed to them and was being allowed in the earlier assessment years. However, the AO sought certain more details in a particular format at the fag-end when the assessment was getting time barred. And even though it was brought to the notice of the AO that the commission payments were made by cheque as well as TDS was deducted still the AO was of the opinion that the assessee failed to prove that the expenditure was made wholly and exclusively for the purpose of the business and disallowed the same. On appeal, the Ld. CIT(A) called for remand report from the AO wherein the AO agreed that there was paucity of time while framing the assessment order to enquire into the nature of the services rendered by the commission agents. The AO in the remand report has acknowledged to have issued commission u/s. 131 of the Act to officers at Mumbai and Thane and who did some spot verification of the details of the some of the commission agents on a sample basis viz about their PAN, existence and services rendered etc. The Ld. CIT(A) noted from the perusal of the remand report that assessee had 237 commission agents and by issue of commission u/s 131 of the Act, had obtained replies from 14 commission agents (8 cases on one occasion and 6 on other occasion). The Ld. CIT(A) noted that the remand report included brief note on the business activity of the commission agents, copies of return of income tax, copy of the TAR, copies of the P&L Account and the details of commission received for work rendered by the commission agents for the assessee. The Ld. CIT(A) also noted that the assessee had a turnover of Rs.458.91 cr. from Mumbai office itself which according the Ld. CIT(A) was around 72% of the total turnover of Rs.622.24 cr. and that the commission expenses worked out to be very less and constituted only a fraction of such disclosed turnover, which according to the Ld. CIT(A) was reasonable, especially in the situation when the salary payments incurred by the assessee are not excessive. So, he found justification for paying the commission to agents to achieve higher turnovers. The Ld. CIT(A) has relied on few case laws to justify his action of allowing the commission expenses which has been reproduced (supra). We note that the AO/Ld DR did not bring on record any material to show that the transaction of payment of commission to agents were not genuine or the commission paid was excessive or

13 ITA Nos.1425 & 1427/Kol/2019, M/s. Rohit & Co., AYs 2009-10 & 2011-12 unreasonable, therefore, no disallowance could have been made by the AO at the first place itself. For that proposition, we rely on the decision of the jurisdictional High Court in the case of CIT Vs. Alfa Hydronics Pvt. Ltd., ITA No. 549/2004 decided on 10.11.2014. Therefore, the Ld. CIT(A) rightly deleted the addition which does not require our interference so, we confirm the same. Therefore, this ground of appeal of revenue stands dismissed.

14 ITA Nos.1425 & 1427/Kol/2019, M/s. Rohit & Co., AYs 2009-10 & 2011-12 Ld. CIT(A) for the very same reasons which we have taken note in the case of the assessee for AY 2009-10. Since there is no change in facts and law, we confirm the action of the Ld. CIT(A) and dismiss this ground of appeal of the revenue.

15 ITA Nos.1425 & 1427/Kol/2019, M/s. Rohit & Co., AYs 2009-10 & 2011-12 “I have carefully examined the submissions made by the appellant in the light of the action of the Ld. A.O. I find that the distribution of the gifts which were questioned by the Ld. A.O are on account of the scheme offered by the Principal M/s Tata Steel, and the cost of such distribution was to be borne by the appellant, who is a major Dealer for the M/s Tata Steel in Gujarat and parts of Maharashtra. I find that the necessary bills relating to purchase of the gifts had been produced before the Ld. A.O, and the same have not been doubted. Therefore the expenditure towards the purchases have undoubtedly been proven in the case at hand. As has been explained by the appellant, the gifts were for the end users, and were passed on to them from the outlets where the final end-use purchases were made. The Ld. A.O has opined that the gifts ought to have been routed through the ledgers of the sale parties, and that this has not been done. However, I find that once information was available as to whom the appellant had passed on the gifts to be given to the end-users, in a situation where Ld. A.O has doubts about the same he could have sought confirmation from the Dealers to whom the gifts were made and obtained the names of the end-users who had received the gifts. This has not been done and I find that the Ld. A.O has not made any enquiries before arriving at adverse conclusions against the appellant. I find that there is no dispute that the gifts were passed on to the end users, only that the same were routed through the Sales Leger account. However, in my considered view of the matter, as long as the genuineness of the gifts was established, it was not absolutely necessary that the accounting entries regarding the value of the gifts (which were basically incentive in nature) were to be narrated in the Party sales Leger, which are basically transaction legers of purchase and Sale. I find that the entire Scheme was governed by the scheme put in place by M/s Tata steels, and that purchases of the gifts were also from Tata related outlets like Titan and Tanishq. The distribution was also carried out by an Authorized Gift Distributor Company for M/s Tata Steels. The arrangement as in place clearly suggests that the Original Principal MI Tata Steels has full control and supervision over the scheme and was to ensure that the end-users would benefit, where eligible. I find that, in a situation where there was doubt about the business expediency of the scheme and distribution in the mind of the Ld. A.O, he could have well verified the same from the Principal who had formulated the scheme M/s Tata. Such requirements have not been fulfilled by the Ld. A.O, who has opined that the Party sales Leger did not have the necessary entries relating to the gifts. After overall examination of the impugned matter, I am agreeable with the submission of the appellant that the Ld. A.O has not been able to point out any specific illegality, irregularities or perversity relating to the transactions, and had generalized the issue. In the emergent situation, and for the aforesaid reasons, I am unable to sustain any portion of the disallowance made by the Ld. AO. The disallowance is therefore directed to be deleted. The ground of appeal stands allowed.”

16 ITA Nos.1425 & 1427/Kol/2019, M/s. Rohit & Co., AYs 2009-10 & 2011-12 documents and records; And that such expenses included expenditure for conference and refreshment, branding expenses, distribution of scratch cards, cost of gold and silver coin, gift vouchers etc. We note that the AO had accepted that the payment was incurred by the assessee for purchase of gifts and has partly disallowed the same on the ground that none of the sales party ledger maintained by the assessee reflects any such gifts item given to them. Therefore, he was of the opinion that business promotion expenditure of Rs.1,06,54,614/- is not related to the business and accordingly disallowed part of the expenses. On appeal, the Ld. CIT(A) has noted that the assessee is an authorised distributor of M/s. Tata Steel Ltd. in Gujarat State as well as State of Maharastra and in this year the assessee firm had incurred expenses on business promotion account for distribution of gifts, gift vouchers to the end customers of Tata products and dealers of M/s. Tata Steel. The Ld. CIT(A) noted that as per the scheme of M/s. Tata Steel, for its different products, when a dealer achieves the target fixed by them, then it would be entitled for certain benefit/recognition/incentives. Business Promotional Scheme further provides that end consumers benefit by way of lottery, scratch card for immediate reduction in bill etc. as well as it acts as incentive and recognition to sub-dealers and in-turn enable business entities to achieve quantitative or qualitative objective such as boost in sales, building team spirit, managing better network etc. The Ld. CIT(A) took note of the fact that the gifts presented in the form of redeemable gift voucher of various denomination such as gold/silver gifts etc. was meant for promoting the business of the assessee thus attracting generation of more revenue and, therefore, is an allowable expenditure. We note that the entire scheme (promotion scheme) was governed by the scheme put in place by M/s. Tata Steels, and that purchases of the gifts were also from Tata related outlets like M/s Titan and M/s Tanishq. And the distribution was also carried out by an authorized gift distributor company for M/s. Tata Steels. The scheme was controlled by M/s. Tata Steels and was to ensure that the end users would benefit if they are eligible. The Ld. CIT(A) has found that there was no doubt about the genuineness of the expenditure and the expenditure was for promotion of business of the assessee and therefore an allowable expense. This finding of facts could not be controverted or

17 ITA Nos.1425 & 1427/Kol/2019, M/s. Rohit & Co., AYs 2009-10 & 2011-12 rebutted by AO/Ld DR, so in such a case, we find no infirmity in the order of the Ld. CIT(A) and we confirm the order of the Ld. CIT(A) and dismiss this ground of appeal of the revenue.

Order is pronounced in the open court on 28th October, 2021. Sd/- Sd/- (P. M. Jagtap) (A. T. Varkey) Vice President Judicial Member Dated: 28th October, 2021

JD, Sr. PS

Copy of the order forwarded to: 1. Appellant- ACIT, Circle-36, Kolkata 2. Respondent – M/s Rohit & Co., 22, Strand Road, 1st floor, Kolkata-700 001. 3. CIT(A)-10, Kolkata (sent through e-mail) 4. CIT, Kolkata. 5. DR, Kolkata Benches, Kolkata (sent through e-mail) True Copy By Order

Senior Private Secretary/DDO ITAT, Kolkata Benches, Kolkata