9911796707
TMI Blog2016 (7) TMI 1048X X X X Extracts X X X X X X X X Extracts X X X X ..... n order business deal but just in order to feel the international market visits are made to explore business opportunities so as to sell the goods in the overseas market or to make purchase, at reduced rates if the domestic rates are higher. In these circumstances and looking to the fact about the turnover and the income offered in and no major defect found in the books of account, no disallowance was called for on the part of the Assessing Officer towards the foreign travel expenditure - Decided in favour of assessee Addition of remuneration expenses to Smt. Urvashi Desai by invoking 40A(2) - Held that:- Expertise of the professional gets perfected and polished day by day out of his/her experience throughout its professional career and the worth of this experience gets appreciated more and more so much so that he/she cannot be put at par with the fresh professional having same degree but no experience. This experience and expertise makes a professional desirable for being paid higher remuneration/fees and the same situation is there in the case of assessee in which higher amount of remuneration is being paid to a B.E. (Chemical), Mrs. Urvashi Desai having experience more than 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on case was selected for scrutiny assessment through CASS and notice u/s 143(2) of the Act was issued on 14.8.2009 notice u/s 142(1) of the Act was issued on 8.3.2010 and duly served on the assessee. During the course of assessment proceedings ld. Assessing Officer while examining the sundry creditors outstanding as on 31.3.2008 observed that in a few cases no confirmation and necessary details were furnished to prove the genuineness of the outstanding amount and in some cases the closing balances were not fully verifiable with the confirmations received from the parties. Ld. AO observed that travelling expenses were booked for foreign trip without placing necessary supporting, excess remuneration paid to Mrs. Urvashi Desai and unverifiable commission expenses paid to Mr. Girish Desai. Accordingly, assessment was framed at an assessed income of ₹ 68,08,167/- after making following additions :- i) Addition u/s 41(1) for unverifiable Sundry creditors - Rs..7,82,725/- ii) Addition u/s 41(1) for unreconciled Balances of sundry creditors- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 3,92,,330/- is held to be justified in AY 08-09. In respect of Om Logistics (addition of ₹ 4,976), Bhavna Engineers (addition of ₹ 3,41,767/-), Today's Traders (addition of ₹ 30,000/-), Perfect Colourant P Ltd (addition of ₹ 517/-), Shreenath Polyplast P Ltd (addition of Rs*3,22,100/-) and Baroda Industrial Polymers (addition of ₹ 12,859/-), the addition made is of unreconciled amount. In respect of these parties, difference was accepted by appellant's Accountant during assessment proceedings. Appellant's submission before me that it was an accounting error cannot be accepted since appellant failed to reconcile the difference. Although appellant in the ground of appeal had mentioned the figure of addition under sec. 41(1) at ₹ 16,93,702/-, actual addition u/s 41(1) comes to ₹ 14,94,944 only. Accordingly, addition is deleted to the extent of ₹ 3,90,395/- and is confirmed to the extent of ₹ 11,04,549/-. 4. Now assessee is in appeal before the Tribunal. Ground No.1 The assessment order passed by Assessing Officer u/s 143(3) of IT Act partly confirmed by first appellate authority is bad in law and dese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Om Logistics 4,976/- Difference due to reconciliation, Bhavna Engineering Works 3,41,767/- -do- Today s Traders 30,000/- -do- Perfect Colourants 517/- -do- Shreenath Polyplast Pvt. Ltd. 3,,22,100/- -do- Baroda Industrial Polymers 12,859/- -do- Total 11,04,549/- 9. We further observe that provisions of sec.41(1) of the Act reads as under :- 41. [ (1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year,- ( a ) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading lia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exceeds the written down value, so much of the excess as does not exceed the difference between the actual cost and the written down value shall be chargeable to income-tax as income of the business of the previous year in which the moneys payable for the building, machinery, plant or furniture became due. Explanation.- Where the moneys payable in respect of the building, machinery, plant or furniture referred to in this sub-section become due in a previous year in which the business for the purpose of which the building, machinery, plant or furniture was being used is no longer in existence, the provision of this sub-section shall apply as if the business is in existence in that previous year.] 10. We further observe that ld. AR has referred and relied on the judgment of Hon. Jurisdictional High Court in the case of CIT vs. Bhogilal Ramjibhai Atara (supra) in which the Tax Appeal of the Revenue was dismissed by the Hon.ble Court by observing as under:- We are in agreement with the view of the Tribunal. Section 41(1) of the Act as discussed in the above three decisions would apply in a case where there has been remission or cessation of liability during the year under con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... last wherein addition has been confirmed at ₹ 3,22,100/- on going through the ledger account from F.Y. 2006-07 to F.Y.2011-12 we observe that appellant has entered into business transaction regularly throughout this period and the details of which are available at pages 36 -65 of the paper book and from going through the same we are of the considered opinion that there cannot be any addition u/s 41(1) of the Act for such a party with whom regular business transactions have been made and the difference, if any, at the time of framing assessment order was mainly due to lack of proper reconciliation. 12. We further observe that in the case of remaining parties i.e. Om Logistics at ₹ 4,976/-, Perfect Colourants at ₹ 517/- and Baroda Industrial Polymers aat ₹ 12,859/- are small amounts which are attributable to non-reconciliation of the balances and entries of both the parties and certainly do not call for any addition u/s 41(1) of the Act. 13. We are, therefore, of the view that out of the total sustained addition of ₹ 11,04,549/- a sum of ₹ 7,64,079/- has been offered to tax in Asst. Year 2010-11 and Asst. Year 2011-12 and the remaining amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... form of foreign travel expenditure which was incurred exclusively for exploring the business opportunity of the assessee firm. 17. On the other hand, ld. DR supported the orders of lower authorities. 18. We have heard the rival contentions and perused the material on record. Through this ground assessee has challenged the action of ld. CIT(A) confirming addition of expenses of ₹ 1,98,758/- on account foreign travel. From going through the records and submissions of the ld. AR we observe that there is no dispute from the side of Revenue to this effect that details of the person, supporting evidences towards the expenditure incurred and tenure of foreign travel were placed on record during the course of assessment proceedings itself and no defect in the same has been observed by ld. Assessing Officer. We further observe that this trip was undertaken by a person from amongst the management and was not accompanied with his family members to this trip. We also observe that assessee firm is having huge turnover and has shown total income at ₹ 32,71,727/- in the return of income filed and no major defect has been pointed out in the books and audited financial statement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , remuneration of ₹ 50,000/- p.m. only was fair and reasonable and balance amount was to be disallowed. I am in agreement with my Id. predecessor's decision on this issue and confirm the disallowance of ₹ 12,00,000/- by the AO out of remuneration paid to Smt. Urvashi Desai In AY 2008-09. 22. Now the assessee is in appeal before the Tribunal. 23. Ld. AR submitted that Mrs. Urvashi Desai was engaged with the assessee company in designing/implementation and installation of plastic machinery, dyes, dye-head and the maintenance. She has extensive knowledge of manufacturing various types of plastic products. Mrs. Urvashi Desai is Bachelor of Engineering in Chemical from Shri Dharamsinh Desai Institute of Technology, Nadiad, in 1973 and has worked with GMM Ltd., Vallabh Vidyanagar, from 1973-76, Unit engineer, Baroda, as Senior Engineer from 1976-87, Toptech Industries, Samyala as General Manager from 1987-90 and from 1990 onwards as Director, Urvitech Eng. Pvt. Ltd. and Urviflex Pvt. Ltd. and as present is providing technical information/assistance in design and drawing of machinery and improvements pertaining to contracted plastic products. Ld. AR further submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration to such person covered u/s 40A(2) of the Act as relative then in such a situation ld. Assessing Officer should have focused upon two basic points firstly whether this excess payment has given some benefit of paying less taxes on the income by claiming excessive expenditure and secondly are these expenses excessive or unreasonable in regard to the fair market value of the services or facilities for which payment is made? These two aspects get their origination from the provisions of section 40A(2)(a) of the Act which reads as under :- Section 40A(2) (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 opinion 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. 27. Now going ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns that correct information about the relative was not provided to the auditor of the firm. Ld. Assessing Officer further observed that Mr. Girish Desai is 75 years old person and similar type of payment of commission was made during Asst. Year 2007-08 also and during the course of assessment proceedings in Asst. Year 2007-08 statement on oath was taken from Mr. Girish Desai and at that time he was not able to remember the names of the parties through which commission was effected and nor was he able to throw light on the type of commission earned by him. In view of this observation, commission expenses of ₹ 6,42,738/- was disallowed and added back to the income of assessee. Appeal against this addition before ld. CIT(A) could not bring any relief as ld. CIT(A) followed the decision of his predecessor for Asst. Year 2007-08 and confirmed the disallowance by observing as under :- 5,1 I have considered the matter. Facts of the case and appellant's submissions are identical to AY 2007-08 in AY 2008-09. Following my id. predecessor, CIT(A)-I, Baroda's decision on this issue in appellant's case in AY 2007-08, disallowance of ₹ 6,42,738/- is confirrneci. ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
