2002 (4) TMI 953 - AT - Income Tax

Summary

Issues Involved:
1. Taxation of income of M/s Nitin Mukesh Films (P) Ltd. in the hands of the assessee.
2. Addition of estimated marriage expenses.
3. Disallowance of salary paid to the assessee's wife.
4. Addition of society charges reimbursed by the company.

Issue-Wise Detailed Analysis:

1. Taxation of Income of M/s Nitin Mukesh Films (P) Ltd. in the Hands of the Assessee:
The primary issue was whether the income of M/s Nitin Mukesh Films (P) Ltd. should be taxed in the hands of the assessee. The Revenue argued that the company was formed to divert the income of the assessee and avoid tax liability. The AO added Rs. 2,30,240 earned by the company to the assessee's income, citing judgments from Jugilal Kamalapat vs. CIT and McDowell & Co. Ltd. vs. CIT. However, the CIT(A) found no material evidence to prove that the agreement with the company was not bona fide and held that the assessee had the right to arrange his affairs to promote his profession without infringing any law. The Tribunal agreed with the CIT(A), noting that the company and the assessee are separate entities, and the arrangement was made for commercial reasons, not tax evasion. The Tribunal concluded that the cited Supreme Court judgments were not applicable as the transactions were genuine and commercially justified.

2. Addition of Estimated Marriage Expenses:
The AO added Rs. 1,50,000 to the assessee's income, estimating additional marriage expenses for the assessee's sister, arguing that the declared expenses were too low considering the assessee's status and tradition. The CIT(A) deleted this addition, stating it was based on presumption. The Tribunal upheld the CIT(A)'s decision, emphasizing that the addition was made purely on presumption without any material evidence. The Tribunal referred to the Delhi High Court's judgment in Yadu Hari Dalmia vs. CIT, which held that estimates without details are not sustainable.

3. Disallowance of Salary Paid to the Assessee's Wife:
The AO disallowed Rs. 36,000 paid as salary to the assessee's wife, Mrs. Nisha N. Mathur, arguing she was merely a housewife and did not manage the assessee's affairs. The CIT(A) found that Mrs. Mathur, a graduate, acted as the assessee's secretary and rendered services, making the salary fair and reasonable. The Tribunal supported the CIT(A), noting that the salary paid in previous years was accepted by the Revenue and emphasized that the expenditure should be considered from the assessee's perspective, citing the Gujarat High Court's judgment in Voltamp Transformers (P) Ltd. vs. CIT.

4. Addition of Society Charges Reimbursed by the Company:
The AO added Rs. 2,425, representing 50% of society charges to be reimbursed by the company. The CIT(A) observed that the addition was made on mistaken facts and deleted it. The Tribunal upheld the CIT(A)'s decision, finding no reason to interfere.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all grounds. The income of M/s Nitin Mukesh Films (P) Ltd. was not to be taxed in the hands of the assessee, the estimated marriage expenses addition was deleted, the salary paid to the assessee's wife was justified, and the addition of society charges was found to be based on mistaken facts.