2015 (10) TMI 408 - AT - Income Tax

Disallowance under the provisions of Section 40A(2) (b) - payment made to Mr. M. H. Pandey on account of legal and Professional charges - Held that - As Mr. M. H. Pandey himself is the director of the assessee company, thus Section 40A(2)(b) of the Act is correctly applied by the Assessing Officer as well as the CIT(A). In this case the assessee company has not given any details in respect of nature of service in the Bills as well as in the TDS certificates shown before the authorities - Decided against assessee. Disallowance of rent paid by the appellant - Held that - The assessee company has shown the lease agreement but assessee could not establish that on what basis the rent for the residential premises was calculated and determined to Mr. Ranjana Desai. The premises which were taken by the assessee company was not of commercial nature and this fact was noted by the AO and after taking into consideration all these facts has correctly disallowed this deduction. Besides that Mrs. Ranjana Pandey is wife of Mr. M. H. Pandey, the director of the assessee company thus the Assessing Officer has correctly applied Section 40A(2)(b) which is confirmed by the CIT(A).- Decided against assessee. Disallowance of Photo Films and Software expenses - revenue v/s capital expenditure - Held that - The evidence submitted before the AO was insufficient in respect of administrative expenses. The AR has pointed out certain documents which has to be looked upon. Therefore in this respect the matter is remanded back to the Assessing Officer. Matter remanded back to the Assessing Officer.- Decided in favour of assessee for statistical purposes. Income from other sources instead of business income - AR submitted that a lump sum amount was prepaid earlier and thus the said expenses has to be treated as expenses in this year - Held that - In the present case it appears that neither the AO nor the Ld. CIT(A) examined this fact that the expenses were paid in earlier year but pertained to this year. The assessee also did not furnish the relevant material to establish that it was the reimbursement of the expenses. We therefore in the absence of the clear facts on record, deem it appropriate to remand this issue back to the file of the AO to be adjudicated afresh, in accordance with law after providing due and reasonable opportunity of being heard to the assessee. Matter remanded back to the Assessing Officer.- Decided in favour of assessee for statistical purposes.

Summary

Issues:
1. Disallowance of payment to a director for legal and professional charges
2. Disallowance of excessive rent paid to a director's wife
3. Disallowance of expenses on photo films and software
4. Disallowance of subscription expenses
5. Treatment of income as "Income from Other Sources" instead of business income
6. Charging of interest under sections 234B and 234C of the Income Tax Act, 1961

Issue 1: Disallowance of Payment to a Director for Legal and Professional Charges
The Assessing Officer disallowed a payment made to a director for legal and professional charges under Section 40A(2)(b) of the Income Tax Act, 1961. The CIT(A) upheld this disallowance due to lack of details on the nature of services rendered by the director and the unreasonableness of the expenditure. The tribunal agreed that Section 40A(2)(b) was correctly applied as the director was also a shareholder and no details were provided regarding the services. The appeal on this ground was dismissed.

Issue 2: Disallowance of Excessive Rent Paid to a Director's Wife
The Assessing Officer disallowed excessive rent paid to a director's wife under Section 40A(2)(b) as no justification for the increased rent was provided. The CIT(A) upheld this disallowance due to lack of evidence on the fair market value of the premises and the absence of a lease agreement. The tribunal confirmed the application of Section 40A(2)(b) and dismissed the appeal on this ground.

Issue 3: Disallowance of Expenses on Photo Films and Software
The Assessing Officer disallowed expenses on photo films and software due to lack of supporting evidence and justification. The CIT(A) upheld this disallowance as capital expenditure, not revenue expenditure. The tribunal remanded this issue back to the Assessing Officer for further examination as the evidence submitted was insufficient.

Issue 4: Disallowance of Subscription Expenses
As the appellant did not raise this issue, it was dismissed.

Issue 5: Treatment of Income as "Income from Other Sources"
The Assessing Officer treated the income as "Income from Other Sources" due to lack of details on the nature of the income and expenses reimbursed. The CIT(A) upheld this treatment as the primary business was driver training, not film production. The tribunal remanded this issue back to the Assessing Officer for further examination.

Issue 6: Charging of Interest under Sections 234B and 234C
As the appellant did not raise this issue, it was dismissed.

In conclusion, the tribunal dismissed the appeal on grounds 1, 2, 4, and 6, remanded issues 3 and 5 back to the Assessing Officer for further review, and provided detailed analysis on each issue based on the facts and legal provisions presented during the case.