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TMI Blog2010 (12) TMI 914X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. has allocated the expenses to its sister concern/related parties have been filed. There is no consistency in the allocation of expenses by the said M/s. Kukreja Services Pvt. Ltd. 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 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. - ITA No. 1069/Mum/2010 - - - Dated:- 22-12-2010 - N.V. Vasudevan, T.R. Sood, JJ. Jaidev for the Appellant R.S. Srivastav for the Respondent ORDER N.V. Vasudevan: This is an appeal by the assessee against the order dated 16/12/2009 of CIT(A) 40, Mumbai relating to assessment year 2006-07. The only ground of appeal of the assessee reads as follows: "The learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of Rs.29,67,341/- under section 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion was excessive and had to be disallowed. The assessee submitted that the payments in question was made to the sister concerns were justified and were reasonable. The assessee further pointed out that in the case of other group companies who were occupying the very same premises and who had paid similar charges to KSPL in Assessment Year 2000-01 in the case of M/s. Tolaram and Co. and for Assessment Year 1998-99 and 1999-00 in the case of Vazirani Land Developers Pvt. Ltd. were considered by the Tribunal and the same were held as reasonable and justified. The assessee also pointed out that the payments were made after deducing tax at source. The assessee, therefore, submitted that entire expenses should be allowed. The Assessing Officer however, rejected the claim of the assessee for the following reasons: "4.3 I have considered the aforesaid submissions of the assessee firm, but am not satisfied with the same. In this context, the glimpse of the expenses incurred in the A.Y. 2005-06 and 2006-07 will give a clear picture of the unduly high cost of expenses charged to the P and L A/c. during the current year. Related expenses as per P and L A/c. for the A.Y 2005-06 vis- - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice premises with all facilities provided by M/s. Kukreja Services Pvt. Ltd. the assessee other than stating that Balance Sheet and Profit and Loss Account of M/s. Kukreja Services Pvt. Ltd. for the year ended 31/3/2006 have been filed, has not provided any material by way of bills raised, correspondence, etc. to enable me to verify whether any services were rendered by Kukreja Services Pvt. Ltd. to warrant the payments. In fact only the Profit and Loss account and Balance Sheet of M/s.Kukreja Services Pvt. Ltd. has been filed but no details of what services were rendered and how M/s. Kukreja Services Pvt. Ltd. has allocated the expenses to its sister concern/related parties have been filed. There is no consistency in the allocation of expenses by the said M/s. Kukreja Services Pvt. Ltd. As pointed out in the earlier part of this order, only payment of Rs.40,000/- on account of Business Service Charges and Rs.10,000/- on account of Lighting and AC Charges have been made in the Assessment Year 2005-06 as per the Profit and Loss a/c. of that year. This total payment of Rs.50,000/- (40,000 + 10,000) was made despite work in progress of the value of Rs.65,98,168/- was carried out in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s. Kukreja Constn. Co. 752416 Motor car expenses reimbursement Total 1273476 Perusal of the Tax Audit Report in Form 3CD for the A.Y. 2005-06 do not indicate any arms length payments made in respect of the aforesaid heads of expense. The assessee has not tendered any submissions/justification for making the stated payments to M/s. Omprakash and Company and M/s. Kukreja Construction Company. It is not known what are the services or facilities provided to the assessee by the concerned parties. No details of what services were rendered, no any correspondence or debit notes for services rendered were produced to make a meaningful enquiry on the issue. The assessee has not proved that there was a legitimate business need for the assessee to avail any services/facilities and what benefit has been derived by the assessee on account of reimbursement of the aforesaid three heads of expense. In fact it appears that the aforesaid payments have been made only to reduce the taxable profit during the year. In the A.Y. 2005-06 no such payments were debited to the assessee's account since the return income was a loss. In view of the same the af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure of expenses under this head with the current year figures. 7. We have considered the submission and we find that the contention of the learned counsel for the Assessee in this regard is correct. The chart drawn by the AO in this regard is as follows: 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 The correct chart should have been: Payments made to persons related in AY 06-07: Head of Expenses (Rs.) Salary 486,230 Conveyance 34,830 Motor car expenses 7,52,416 Total 12,73,476 Thus only Rs.12,73,476/- is payment made to persons specified in Sec.40-A(2)(b) of the Act and to this extent the AO should have considered the disallowance. 8. In coming to the conclusion that the aforesaid payment has to be disallowed in full the AO has given the following reasons. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices were rendered, any correspondence or debit notes for services rendered being produced to make a meaningful enquiry on the issue, that the assessee has not proved that there was a legitimate business need for the assessee to avail any services/facilities and what benefit has been derived by the assessee on account of reimbursement of the aforesaid three heads of expense. In the given circumstances, the AO could not have made disallowance of the entire expenditure and the disallowance has to be restricted to only to the extent the expenditure is excessive or unreasonable. The details of salary reimbursement and reimbursement of traveling expenses have been furnished by the Assessee and they are available at page-55 of the paper book. M/S.Omrakash and Co. have a raised a debit note containing details of the persons to whom salary and conveyance expenses were paid. The AO has not made any enquiry and has made the addition without any basis. Addition to this extent therefore deserves to be deleted. As far as reimbursement of motor car expenses are concerned, there are no details available and there has been admittedly failure on the part of the Assessee to furnish the necessary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue. (iii) The project "Tulip" got completed in the year under consideration and business activities relating to sale of flats started immediately with full force and hence, the expenses were bound to be much more. The volume of the business can be judged from the fact that he assessee had shown the profit of Rs.2.32 crores from this project in the year under consideration. (iv) The premises of M/s. KSPL was situated in the prime location of Chembur being nearer to the railway station, bus stand, Diamond Garden and Ambedkar Garden. Had the assessee taken such business premises from any person other than he assessee's sister concern M/s. KSPL, it would have cost much more to the assessee and other expenses for services would have also been heavier. (v) No material has been brought on record by the department to show that the debit notes raised by M/s. KSPL were inflated or unreasonable. 13. We have considered his submission. The reasons given by the AO for making the disallowance was that there was a phenomenal increase in the expenses under this head compared to A.Y 2005-06 which was only Rs.50,000/- as against Rs.18,00,000 in the present A.Y., when all the facto ..... X X X X Extracts X X X X X X X X Extracts X X X X
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