2014 (1) TMI 282 - AT - Income Tax

Deletion on account of business development expenses Supporting evidences not filed for proving the veracity of the expenses Expenses u/s 37 of the Act or not Held that - The onus is on the assessee to prove the genuinity of the expenditure incurred by him and also to prove that the expenses are not personal expenses or capital expenses and have been incurred wholly and exclusively for the purpose of the business of the assessee - the expenses has been incurred in respect of the visit being undertaken by Mr. Rajiv Behal to China and payment made through his credit card and has been treated by the assessing officer to be a personal expenses of Mr. Rajiv Behal - Except the ledger account of business development expenditure being submitted, no other evidence was brought by the assessee on record to prove that the expenses were not the personal expenses and has been incurred wholly and exclusively for the purpose of the business Order of the CIT(A) set aside and the matter remitted back to the AO Decided in favour of assessee. Deletion made u/s 40A(2)(b) of the Act Held that - This is an undisputed fact that Shri Rajiv Behal who was paid salary and consultancy charges, was director of the company, till 20.12.2008 and till that he got remuneration at the rate of 2,00,000/- p.m. that is at the rate at which he was paid remuneration during the assessment year 2008-09 later on, the company entered into agreement with Shri Rajiv Behal for rendering the professional services at the rate of 50,00,000/- p.a. and accordingly Shri Rajiv Behal was paid up to 31st March, 2009 - So far as the payment up to 20.12.2008 is concerned since the remuneration was found to be reasonable during the assessment year 2008-09, therefore, if the remuneration was paid at the same rate up to 20.12.2008 the remuneration paid cannot be regarded to be excess than the fair market value -the professional charges paid after 20.12.2008 till 31.03.2009, the provision of Section 40A(2)(b) are not applicable as Shri Rajiv Behal does not fall within the definition of the person referred to clause B of section 40A(2) Decided against Revenue.

Summary

Issues:
1. Deletion of business development expenses
2. Disallowance under section 40A(2)(b) of the Income Tax Act, 1961

Deletion of Business Development Expenses:
The appeal was filed by the Revenue against the order of the CIT(A)-XIII regarding the deletion of an addition of Rs. 1,88,834 made on account of business development expenses. The expenses were incurred through a credit card by an individual who was a director and later a consultant of the appellant company. The assessing officer disallowed the expenses as personal, but the CIT(A) ruled in favor of the assessee, stating that the expenses were reimbursed by the company and incurred for business purposes. The ITAT held that the onus was on the assessee to prove the expenses were genuine and business-related. As no evidence beyond ledger accounts was provided, the ITAT set aside the CIT(A)'s decision and restored the assessing officer's order, allowing the Revenue's appeal on this ground.

Disallowance under Section 40A(2)(b):
The second ground of appeal related to the deletion of Rs. 21,45,162 by the CIT(A) under section 40A(2)(b) of the Income Tax Act. The assessing officer disallowed a portion of the remuneration paid to an individual who was a director and later a consultant of the company, based on a comparison with other directors. The CIT(A) considered the consultancy agreement and the individual's role in the company, concluding that the disallowance was not justified. The ITAT analyzed the provisions of Section 40A(2)(b) and the individual's relationship with the company. It found that the remuneration paid was reasonable and the disallowance was not applicable post the individual's share transfer. The ITAT upheld the CIT(A)'s decision to delete the disallowance, stating that no interference was warranted, thereby partly allowing the Revenue's appeal.

In summary, the ITAT ruled in favor of the Revenue regarding the deletion of business development expenses, setting aside the CIT(A)'s decision. However, the ITAT upheld the CIT(A)'s decision to delete the disallowance under Section 40A(2)(b), finding it justified based on the circumstances and agreements related to the remuneration paid to the individual in question.