9911796707
TMI Blog2010 (12) TMI 914X X X X Extracts X X X X X X X X Extracts X X X X ..... e business from the very same premises. One of the group company namely Kukreja Services Pvt. Ltd. (KSPL) was carrying out maintenance of the building, namely maintaining air conditioners, lighting, gardening, security, house keeping, computers etc. This company recovered service charges from all the group companies every year. In the past the assessee as well as the sister concern were using the services of only KSPL. In the present assessment year, there were however, two other sister concerns also who also provided services to the assessee in the form of salary reimbursement, conveyance reimbursement and motor car expenses reimbursement. All these sister concerns were persons who were covered under the provisions of Sec.40-A(2)(b) of the Income Tax Act, 1961(Act). Therefore the payments to such concerns will have to be in accordance with the provisions of Sec.40-A(2)(a) of the Act viz., they should not be unreasonable or excessive compared to the market price at which such services are available and the needs of the Assessee. 3. The assessee paid the following sums to the sister concerns during the previous year. Name of the person Amount - Rs. Nature of Paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2)(b) as under:- Name of the person Amount - Rs. Nature of payment M/s. Kukreja Services Pvt. Ltd. 40000 Business Centre Charges M/s. Kukreja Services Pvt. Ltd. 10000 Administration Charges Total 50000 The above tables makes it clear that the expenses incurred in the A.Y 2005-06 in respect of related parties is only Rs.50,000/- when all the factors for conducing the business in this year also existed without any noteworthy change in the A.Y 2005-06. It is difficult to comprehend that the exorbitant payments to the related persons in the current year as stipulated in the Tax Audit Report at Rs.30,73,476/- could have been incurred. There is a phenomenal rise in the expenses which remains unjustified. The assessee in its submissions have simply stated that the premises at "Laalasis" Plot No.219, 11th Road, Chembur, Mumbai - 400 071, is taken by M/s. Kukreja Services Pvt. Ltd. on rent and maintained by them and that all the group concerns are carrying on their business activities from the said building and in view of that, all the business concerns are making payment to M/s. Kukreja Services Pvt. Ltd. under the above said four heads. It is also stated that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uired to be made. The ITAT's decision relied upon by the assessee have not been accepted by the Department. Even otherwise each assessment is a separate assessment and the facts in the case at hand are not identical to the cases relied upon in lieu of the discussions made above. In view of the same the aforesaid expenses are disallowed and he same will be added back. Addition on this account would be Rs.18,00,000/-(Rs.14,40,000 + 3,60,000). 4.4 Coming to the expenses covered u/s. 40A(2)(b) under the head Salary, Conveyance and Motor Car Expenses, it is seen that the expenses debited to the P and L A/c. of A.Y. 2005-06 and 2006-07 are as under:- Head of Expenses A.Y. 2005-06 (Rs.) A.Y. 2006-07 (Rs.) Excess expenses in current year (Rs.) Salary 745378 1180775 435397 Conveyance 94916 116568 21652 Motor car expenses 1463 761755 760292 Total 841757 2059098 1217341 During the current year out of the expenses charged to the P and L A/c. as tabulated above, it is seen that payments by way of reimbursement have been made to the following related parties/sister concerns which are covered u/s. 40A(2)(b). Name of the person Amount - Rs. Nature of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Motor Car Exps. Reimbursement - Rs.7,52,416/- paid to M/S.Kureja Construction Co. 6. With regard to the Second group, the learned counsel for the Assessee pointed out that the payment made to related parties were Salary Reimbursement - Rs.86,230/- paid to Omprakash and Co., Conveyance Reimbursement - Rs.34,830/- paid to Omprakash and Co. and Motor Car Exps. Reimbursement - Rs.7,52,416/- paid to M/S.Kureja Construction Co. He pointed out that the AO while making disallowance of Rs.12,73,476/- considered the entire payment under the head Salary Reimbursement, Conveyance reimbursement and Motor Car expenses reimbursement of Rs.11,80,775 under the head salary reimbursement, Rs.1,16,568 under the head Conveyance reimbursement and Rs.7,61,755 under the head Motor Car reimbursement. He submitted that the difference between the amount considered for disallowance by the AO and the actual payment made to persons covered under Sec.40-A(2)(a) should be straight away deleted because to that extent those provisions were not applicable at all. In this regard it was also pointed out that the expenditure under this head incurred in the earlier year was not paid to persons specified in S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses was made to the sister concern M/s. Kukreja Services Pvt. Ltd., whereas in fact only part of the payment out of the total expenditure debited to profit and loss account in respect of salary reimbursement, conveyance reimbursement and motor car expenses reimbursement were made to M/s. Omprakash and Co. and M/s. Kukreja Construction Co. It was argued that the impugned disallowance has been sustained by the CIT(A) without any proper application of mind after appreciating correct facts. It was submitted that no reason at all having been given by the CIT(A) for confirming the disallowance u/s. 40A(2)(b) of the Act to the extent of Rs.12,73,476/- the same is required to be deleted. 10. We have considered his submission. We find that the AO has applied the provisions of Sec.40-A(2)(b) in making the impugned disallowance. Therefore it has to be presumed that the AO was satisfied with the fact that the expenditure in question is one having incurred wholly and exclusively for the purpose of business. The failure of the Assessee according to the AO is only in not furnishing the details of what services were rendered, any correspondence or debit notes for services rendered be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while in other firms, there may not be any work or may be less work because of non availability of the projects, etc. In view of the above, it was submitted that the CIT(A)'s observation that no reasonable answer is given by the assessee for steep increase in the expenses is without any basis. 12. Further, it was submitted that the steep increase in expenses paid to M/s. KSPL in the year under consideration is because of the following facts are relevant: (i) The construction in respect of project Tulip commenced in the A.Y 2002-03 which continued upto the A.Y 2006-07. Upto A.Y 2004-05, the assessee had not claimed any expenses which were covered u/s. 40A(2)(b) of the Act and only work in progress was shown in respect of the said project. (ii) During the previous year relevant to A.Y 2005-06, the project was about to be completed and the Assessee had taken the services of M/s. KSPL to complete the formalities for completion of the project and incurred expenses towards Business Centre charges (Rs.40,000) and Administrative Charges/Lighting and A.C. charges (Rs.10,000) which were allowed by the Revenue. (iii) The project "Tulip" got completed in the ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.Y 2005-06, whereas in the A.Y 2006-07 the work carried out and expenses incurred were only Rs.11,54,617/- which includes Professional Fess of Rs.5,00,000/- and BMC Charges of Rs.1,47,432/-. This according to the AO clearly indicated that the payments made u/s. 40A(2)(b) were not only excessive but also unreasonable. Even before the tribunal, the Assessee has not produced any evidence to substantiate the increase in payment of charges in this A.Y. compared to the earlier year. The submissions made before us are very general without any supporting evidence. In these circumstances, we could have resorted to making an estimate of the disallowance to be made. Considering all facts, we feel it would be appropriate to set aside the order of CIT(A) on this issue and remit the issue to the AO for fresh consideration and affording the Assessee an opportunity of letting in evidence to substantiate the submissions made before us. The Assessee will furnish necessary evidence to justify the payment to its sister concern, the nature of services rendered and as to how the same are within the parameters laid down in Sec.40-A(2)(a) of the Act. In our view it is not possible to make any disallowan ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
