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2020 (1) TMI 459 - AT - Income TaxDisallowance on account of salaries paid to the relatives - Addition u/s 40A(2)(a) - HELD THAT - . The assessee has explained before the authorities below, the circumstances of which payments have been made to the relatives and also expenditure as to what services they have rendered for the assessee company along with their qualification. In earlier year, similar salary have been allowed deduction by the Revenue Department. There is nothing unreasonable in this regard. In any case, even for applying the provisions of Section 40A(2), it is for the A.O. to make-out a case that the expenditure incurred is excessive or unreasonable having regard to the fair market value of such services. However, no efforts have been made by the A.O. in this regard. Therefore, there were no justifications for the A.O. to disallow the salary payment to the employees who are relatives of the Director. The Hon ble Supreme Court in the case of Upper India Publishing House Pvt. Ltd. 1978 (12) TMI 2 - SC ORDER held that before applying the provisions of Section 40A(2), A.O. should have proved expenditure is excessive or unreasonable - there was no justification to disallow salary. The A.O. did not doubt the salary paid to the employees which is paid through banking channel and the employees have shown the same salary in their return of income, on which, TDS also deducted. - Decided against revenue Disallowance of excess remuneration paid to the Directors - A.O. disallowed substantial portion of the payment on the belief that for the immediately preceding A.Y. 2009-2010 payment of only ₹ 2 lakhs had been made to Shri Kushal Rana on this account and there was abnormal increase in Director s remuneration over the year - as per assessee A.O. disallowed substantial portion of the payment on the belief that for the immediately preceding A.Y. 2009-2010 payment of only ₹ 2 lakhs had been made to Shri Kushal Rana on this account and there was abnormal increase in Director s remuneration over the year - HELD THAT - We do not find any justification to interfere with the Order of the Ld. CIT(A) in deleting the addition. The Ld. D.R. merely relied upon the Order of the A.O. but could not point-out any infirmity in his order in deleting the addition. Since in preceding assessment year same amount have been paid to the Director which have been allowed by the Revenue Department, therefore, Ld. CIT(A) following the Order for earlier year, correctly deleted the addition. Ground No.2 of the appeal of Revenue is accordingly dismissed. Gain on sale of land - nature of land sold - agricultural land or capital asset - Disallowance as claimed as exempt u/s 2(14) - A.O. made this addition rejecting the claim of assessee by treating profit on sale of Pooth Khurd village land to be exempt under section 2(14) being agricultural lands not falling in the definition of Capital Asset - HELD THAT - Since the land in question is dealt by Delhi Land Reforms Act and nothing is brought on record of violation of the aforesaid provisions and the Competent Authority under the Delhi Land Reforms Act, Certified that the lands in question falls beyond 8 KM from the Municipal Limits, therefore, there is nothing wrong in the findings of the Ld CIT(A) in holding that land in question is agricultural land and amount earned on sale of the land to be capital receipt. The decisions relied upon by the Learned D.R. would not support the case of the Revenue. No infirmity in the order of the Learned CIT(A) in allowing the claim of assessee. We, therefore, do not find any merit in the departmental appeal on this ground and the same is dismissed accordingly. Deduction u/s 35D - Allowance of 1/5th of ROC fees of ₹ 6,50,000/- and balance in four years - HELD THAT In assessment year under appeal the assessee company has increased its authorised share capital. The assessee paid ROC fees. The issue is, therefore, covered by the Judgment of the Hon ble Supreme Court in the case of Punjab State Industrial Development Corporation Limited and Brooke Bond India Limited (supra) against the assessee, in which it was held that fees paid to the Registrar of Companies for enhancement of capital is capital expenditure. In this view of the matter, we set aside the Order of the ld. CIT(A) and restore the Order of the AO as no deduction is permissible and Section 35D would not be applicable. Addition u/s 51 on account of treating the forfeiture of advance paid for acquisition of property as capital loss - HELD THAT - Considering nature of business of assessee that assessee is engaged in the business of infrastructure, purchase, manufacturing, trading, import and export of construction material, mining extracts etc., we are of the view that the matter have not been appreciated by the authorities below in accordance with the Law. Since both the parties have suggested that the matter may be remanded to the file of AO, therefore, in the interest of justice, we set aside the Orders of the authorities below and restore this issue to the file of AO with a direction to re-decide this issue in accordance with Law, by giving reasonable, sufficient opportunity of being heard to the assessee. Disallowance of TDS default - HELD THAT - We set aside the Orders of the authorities below and restore this issue to the file of AO with a direction to verify the record and in case no expenses have been claimed by assessee in P L A/c, then, no addition could be made on account of non-deduction of TDS, otherwise, it would amount to double addition. The AO shall give reasonable, sufficient opportunity of being heard to the assessee. Deduction u/s 80G - failure to produce any proof, therefore, it was disallowed under section 37 - HELD THAT - Learned Counsel for the Assessee merely relied upon the Order of the AO and has not produced any approval under section 80G of the I.T. Act of the Temple, whether the said Temple was authorised to collect donation? Further, as per Explanaion-5 to Section 80G of he I.T Act, no deduction shall be allowed under this Section of any donation unless such donation is of a sum of money. Therefore, claim of assessee could not be allowed. This ground of appeal of Assesse is dismissed.
Issues Involved:
1. Disallowance of salaries paid to relatives of the Director. 2. Disallowance of excess remuneration paid to the Directors. 3. Disallowance of profit on sale of agricultural land. 4. Disallowance of ROC fees as capital expenditure. 5. Forfeiture of advance paid for acquisition of property as capital loss. 6. Disallowance of TDS default. 7. Disallowance under section 37 of the I.T. Act. 8. Disallowance of tour and travel expenses. Issue-wise Detailed Analysis: Issue No.1: Disallowance of Salaries Paid to Relatives of the Director In A.Y. 2010-2011, the Revenue challenged the deletion of disallowance of ?7,80,355/- paid as salaries to relatives of the Director. The A.O. disallowed the amount, claiming the business exigencies were not justified. The assessee argued that the salaries were reasonable and supported by proper documentation. The Ld. CIT(A) found no evidence from the A.O. that the salaries were excessive or unjustified. The Tribunal upheld the Ld. CIT(A)'s decision, noting that the A.O. did not prove the salaries were excessive or unreasonable. Similar findings were made for A.Y. 2011-2012, and the Tribunal dismissed the Revenue's appeal for both years. Issue No.2: Disallowance of Excess Remuneration Paid to the Directors In A.Y. 2010-2011, the Revenue challenged the deletion of disallowance of ?33,10,000/- paid as Director’s remuneration. The A.O. disallowed the amount, citing an abnormal increase compared to the previous year. The assessee argued that the same amount was paid and allowed in the preceding year. The Ld. CIT(A) agreed and deleted the addition. The Tribunal upheld the Ld. CIT(A)'s decision, noting no infirmity in allowing the remuneration. Similar findings were made for A.Y. 2011-2012, and the Tribunal dismissed the Revenue's appeal for both years. Issue No.3: Disallowance of Profit on Sale of Agricultural Land In A.Y. 2010-2011, the Revenue challenged the deletion of disallowance of ?36,66,75,500/- claimed as exempt under section 2(14) of the I.T. Act. The A.O. treated the profit on sale of Pooth Khurd village land as taxable, arguing it fell within municipal limits. The assessee provided evidence, including a certificate from the Tehsildar, confirming the land was agricultural and beyond 8 KM from municipal limits as of 06.01.1994. The Ld. CIT(A) accepted the assessee's claim and deleted the addition. The Tribunal upheld the Ld. CIT(A)'s decision, noting the land was agricultural and beyond the municipal limits. Similar findings were made for A.Y. 2011-2012, and the Tribunal dismissed the Revenue's appeal for both years. Issue No.4: Disallowance of ROC Fees as Capital Expenditure In A.Y. 2010-2011, the Revenue challenged the direction to allow 1/5th of ROC fees of ?6,50,000/- and balance in four years. The A.O. disallowed the amount as capital expenditure. The Ld. CIT(A) allowed 1/5th of the expenses under section 35D. The Tribunal, following the Supreme Court's judgment, held that ROC fees for enhancement of capital is capital expenditure, disallowing the entire amount. The Tribunal set aside the Ld. CIT(A)'s order and restored the A.O.'s decision. Issue No.5: Forfeiture of Advance Paid for Acquisition of Property as Capital Loss In A.Y. 2010-2011, the assessee challenged the addition of ?4 crores made under section 51 for forfeiture of advance paid for property acquisition. The A.O. disallowed the loss, stating the agreement was neither registered nor notarized. The Ld. CIT(A) upheld the A.O.'s decision. The Tribunal remanded the issue back to the A.O. for reconsideration, directing to re-decide the issue in accordance with the law and giving the assessee a reasonable opportunity to be heard. Issue No.6: Disallowance of TDS Default In A.Y. 2011-2012, the assessee challenged the addition of ?2,51,000/- for short deduction of TDS. The Ld. CIT(A) confirmed the addition. The Tribunal remanded the issue back to the A.O. for verification, directing to check if the expenses were claimed in P & L A/c and to avoid double addition. Issue No.7: Disallowance Under Section 37 of the I.T. Act In A.Y. 2011-2012, the assessee challenged the disallowance of ?11,11,000/- under section 37. The A.O. disallowed the amount for lack of proof of donation under section 80G. The Ld. CIT(A) upheld the disallowance. The Tribunal dismissed the assessee's appeal, noting the absence of approval under section 80G and the requirement for donations to be in the sum of money. Issue No.8: Disallowance of Tour and Travel Expenses In A.Y. 2011-2012, the assessee challenged the disallowance of ?41,000/- for tour and travel expenses. The A.O. disallowed the amount as it pertained to the subsequent year. The Ld. CIT(A) upheld the disallowance. The Tribunal dismissed the assessee's appeal, agreeing the expenses did not pertain to the assessment year under appeal. Conclusion: 1. The Departmental Appeal for A.Y. 2010-2011 is partly allowed, and the Departmental Appeal for A.Y. 2011-2012 is dismissed. 2. The Assessee’s appeals for A.Y.s 2010-2011 and 2011-2012 are partly allowed for statistical purposes.
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