9911796707
TMI Blog2015 (4) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... ed where salary for similar work having similar qualifications was paid at lower rate. It is also not brought on record that how and in what manner salary paid to the directors was excessive or not comparable with the market rates. In the instant case, the Assessing Officer estimated the salary on the basis of the salary paid for the assessment year 2006-07 and increased the salary for the year under consideration to 50 per cent. of the preceding year. However, he had not considered this vital fact that new facilities were provided by the assessee-company in the year under consideration and the directors were required to devote more time in comparison to the earlier years. In our opinion, the estimate made by the Assessing Officer was without any basis. Similarly, the learned Commissioner of Income-tax (Appeals) without appreciating the facts of the case in right perspective considered the salary of 10 lakhs and 8 lakhs to Dr.Sunil Chugh and Dr. Kalpana Chugh respectively as reasonable but he had not assigned any basis for the same. In the instant case, it is noticed that Dr. Sheel Acharya who was visiting the assessee-company only for four hours had been paid a sum of 8.81 lakhs a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the case deem it proper to set aside this issue back to the file of the Assessing Officer to be adjudicated afresh in accordance with law after providing due and reasonable opportunity of being heard to the assessee. - Decided in favour of assessee for statistical purposes. X X X X Extracts X X X X X X X X Extracts X X X X ..... increase in the salary expenses. In response to that assessee vide letter dated November 24, 2009 submitted as under : "You had pointed out that during the year under review the salary has gone up from ₹ 29,72,146 to ₹ 73,97,357. In this regard we would like to submit that during the year salary includes ₹ 18,00,000 paid to Dr. Kalpana Chugh. Last year her salary was debited to the director's remuneration. During the year 2005-06, the assessee-company has started heart care unit, dialysis room, new operation theatre, heart lung machine, laser camera for MRI machine and also intensive care unit. New staff was recruited for the same in the year 2005-06. During the year 2005-06, salary for one-two months was incurred but in 2006-07 expenses for the whole year was incurred. There was increase in various functions in different field therefore company has recruited new staff. Therefore, there is increase in salary expenses. Further in the year 2005-06 investigation fees paid to doctors was debited to investigation charges but during the year 2006-07 the most of the doctors were on monthly salary basis and is debited to salary expense. Further you will app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounts, banking, purchase of equipment, medicines, etc. and is experienced in this line for last 24 years and has devoted whole time in managing and administrating the business of the assessee-company. Dr. Kalpana Chugh is MBBS and M.D. She completed M.D. in the year 1985 started a private clinic of her own. In the year 1994, she joined Kalpana Nursing Home P. Ltd. Dr. Kalpana Chugh was appointed as the director of the company with effect from 1994. Dr.Chugh is gynaecologist and looks after the housekeeping, general administration of the hospital. M/s. Kalpana Nursing Home is a multi-speciality Hospital. The Gynae Department is being looked after by Dr. Kalpana Chugh only. There is no other doctor to assist her. There are no full-time doctors in the hospital and most of the doctors are on call basis or case to case basis. Dr. Sunil Chugh was working with Government Hospital before joining Kalpana Nursing Home P. Ltd. The normal working hours in the Government hospital is from 9 am to 2 pm. They are also allowed to do private practice whereas Dr. Sunil Chugh and Dr. Kalpana Chugh are devoting 24 hours for the hospital. From inception of the hospital, they were underpaid as the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quot; 4.3. The Assessing Officer however, did not find merit in the submissions of the assessee by observing as under : "1. The services of Dr. Sunil Chugh and Dr. Kalpana Chugh (wife of the director) to the assessee-company are covered under section 40A(2)(b) of the Income-tax Act, 1961. Thus considering the relation with the assessee-company, these are subject to scrutiny. Section 40A(2)(b) reads as under : '40A. Expenses or payments not deductible in certain circum stances.- (2)(a) Where the assessee incurs any expenditure in respect of which payment has been or is to be made to any person referred to in clause (b) of this sub-section, and the Assessing Officer is of the opin ion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him therefrom, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction. (b) the persons referred to in clause (a) are the following, namely:- …(ii) Whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proficiency which was acquired by Dr. Kalpana Chugh during the financial year 2005-06 and 2006-07 which can justify the unusual increase in the salary. (7) It is relevant to mention that statements of Dr. Kalpana Chugh was recorded under section 131 on November 24, 2009. In her statement, she has categorically denied that she has acquired any special degree or skill during the financial years 2005-06 and 2006-07, the statements shows that there was no change in the responsibilities of Dr. Kalpana Chugh. There was no addition to the duties and responsibilities of the directors during the accounting periods. On the contrary, the services which she was provided as director of the company during the financial year 2005-06, were also discontinued during the financial year 2006-07. Thus there was reduction in the responsibilities of Dr. Kalpana Chugh rather than increase in the responsibilities as claimed by the authorised representative for the assessee." 4.4. The Assessing Officer also reproduced the portion of the statements of Dr. Kalpana Chugh and Dr. Sunil Chugh recorded on November 24, 2009 under section 131 of the Act which is mentioned in the body of the assessment order, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ec tor's wife Dr. Kalpana Chugh. However, considering the totality of the facts and the submissions of the assessee, the increase in the salary is restricted to 50 per cent. of the salary/ remuneration paid in the preceding year and remaining is disallowed. Detailed working of which is as under : Particulars Financial year 2006-07 Salary 2005-06 Salary after 50% increase Salary Disallowances Rs. Rs. Rs. Rs. Dr. Sunil Chugh 2,61,000 3,91,500 18,00,000 14,08,500 Dr. Kalpana Chugh 2,40,000 3,60,000 18,00,000 14,40,000 Total 28,48,500 Thus, it is held that the unusual increase of remuneration/ salary paid to Dr. Sunil Chugh and Dr. Kalpana Chugh is excessive and unreasonable. Therefore, out of the total payment of ₹ 36,00,000, a sum of ₹ 28,48,500 are hereby disallowed and added to the total income of the assessee. Penalty proceedings under section 271(1)(c) are initiated on this point for concealment of income and furnishing inaccurate particulars of income. Addition ₹ 28,48,500" 4.6. The assessee carried the matter to the learned Commissioner of Income- tax (Appeals) and submitted that both directors of the assessee-company were app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enomenal amount of ₹ 18 lakhs each in the assessment year 2007-08 and in the assessment year 2008-09, there was further increase to ₹ 30 lakhs each in the assessment year 2008-09 and it was quite clear that both directors had not acquired any new professional degree to justify the sharp increase in the salary and their working hours had also not increased which were earlier there in the period relevant to the assessment years 2004-05 to 2006-07. It was also noticed that there was no such special addition to the duties and responsibilities' of the directors so as to justify such sharp increase in the salary. According to the learned Commissioner of Income-tax (Appeals), the payment of premium on keyman insurance policy in the period relevant to the assessment years 2005-06 and 2006-07, thereby increase in the effective cost of the company was having only little merit because of the fact that as far as the assessment year 2004-05 was concerned, there was no such premium whereas salary was only ₹ 2.61 lakhs and ₹ 1.80 lakhs. The learned Commissioner of Income-tax (Appeals) pointed out that in the assessment year 2008-09, the assessee received back the keyma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 10,48,500 was deleted. 4.8. Now both parties are in appeal. 4.9. Learned counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the assessee-company is one of the most reputed nursing home and super speciality diagnosis and treatment centre situated in the heart of city since 1994. It was further stated that Dr. Sunil Chugh is M.D. of 1984 batch and remained in Government service and thereafter he joined the assessee-company. It was further submitted that Dr. Kalpana Chugh is a gynaecologist of 1985 batch and since inception of hospital right from 1994, she is with the assesseecompany. It was further stated that for the year ended March 2007, the assessee made addition to plant and machinery of ₹ 35,08,631 and further addition to the tune of ₹ 2,34,88,252 was made in the year ended March, 2008. Reference was made to pages 4 and 12 of the assessee's paper book. It was further submitted that both directors having sound knowledge, experience and other qualifications were working round the clock from morning 8 am to devote their time day and night to attend emergency call and to meet new patients. It wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upported the order of the Assessing Officer and further submitted that the learned Commissioner of Income-tax (Appeals) was not justified in reducing the addition made by the Assessing Officer. It was also submitted that there was decrease in the profit of the assessee if keyman insurance, dividend and the profit on the asset is reduced from the profit shown by the assessee in the books of account. Therefore, the increase in the salary was not justified. 4.11. We have considered the submissions of both the parties and carefully gone through the materials available on record. In the instant case, it is noticed that salary to the director Dr. Sunil Chugh was paid at ₹ 2.61 lakhs per annum for the assessment years 2003-04 and 2004-05 and to Dr.Kalpana Chugh at ₹ 1.80 lakhs per annum for the assessment year 2003-04 and ₹ 2.40 lakhs per annum for the assessment year 2004-05 and 2005-06. However, for the assessment years 2006-07 and 2007-08, there was increase in the salary to ₹ 18 lakhs per annum and ₹ 30 lakhs per annum respectively for each which the Assessing Officer considered as sharp and unreasonable increase in the salary and made addition of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a sum of ₹ 8.81 lakhs and if the working of the directors is to be considered for at least 12 hrs a day the remuneration on that basis would have been at ₹ 26.43 lakhs (Rs. 8.81 lakhs x 3) and even if this fact is to be considered that Dr. Sheel Acharya was having a super specialised degree while the directors were having specialised degrees then it cannot be said that the salary of ₹ 18 lakhs per annum for each of the directors was excessive. We, therefore, considering the totality of the facts of the case are of the view that the addition sustained by the learned Commissioner of Income-tax (Appeals) was not justified. Accordingly, the same is deleted. 5.1. For the assessment year 2008-09, the similar ground has been raised by both parties and the issues relating to sustenance / deletion of the disallowance made by the Assessing Officer on account of salary is same and the facts are identical, even the rival contentions were similar. Therefore, our findings given for the assessment year 2007-08 in respect of disallowance remuneration/ salary paid to the directors shall apply mutatis mutandis for the assessment year 2008-09. 6.1. The another issue agitated by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd whatever capital gain or loss incurred was considered in the total income of the subsequent years. As the said capital loss was considered as part of the total income under this Act, the interest shall not be disallowed under section 14A of the Income-tax Act, 1961. The investment was done as the fund were idle and to earn income. Therefore, the interest expense incurred was laid out wholly and exclusively for the purpose of business. The assessee had repaid the loan out of the receipts of the company." 6.3. The Assessing Officer however, did not find merit in the submissions of the assessee and was of the view that interest bearing advances were diverted to earn exempt income. Therefore, proportionate expenses were required to be disallowed. He further observed that the assessee in the details of expenses had accepted that interest expense on the investment of ₹ 145 lakhs were at ₹ 8,43,500 and that it was contended by the assessee that no disallowance could be made on this account as the same was made out of the funds available with the assessee-company. The Assessing Officer was of the view that interest expenses of ₹ 8,43,500 was disallowable. 6.4. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been made by the Assessing Officer by observing that the assessee diverted the borrowed funds. On the contrary, the claim of the assessee is that surplus funds were available which were invested in the mutual funds. The learned Commissioner of Income-tax (Appeals) confirmed the disallowance made by the Assessing Officer observing that dividend income was exempted under section 10 of the Act, therefore, disallowance was to be made under section 14A of the Act. However, it is not brought on record how much surplus was available with the assessee out of which how much borrowed funds were invested in the mutual funds. It is not in dispute that disallowance under section 14A read with rule 8D of the Income-tax Rules, can be made, however, for doing so, the Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed and the Assessing Officer having regard to the accounts of the assessee is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the tot ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
