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TMI Blog2016 (9) TMI 549X X X X Extracts X X X X X X X X Extracts X X X X ..... nal rate and, therefore, it cannot be said that the service charges is paid to the recipient company at unreasonable rate to evade income tax. It was also noted therein that so far as the Circular dated 06.07.1968 is concerned, it makes clear that the provisions of Section 40A(2) and particularly with regard to the transaction between the relatives and associates is concerned, the same shall be treated as bona fide case unless the Officer finds it that one of them is trying to evade payment of tax. In the light of these decisions, we find that the assessee as well as his daughter in law are being assessed at the maximum marginal rate and, therefore, there appears no ground for tax evasion. However, we are also aware of the fact that increase in the turnover at 30% was same as in the increase of turnover of 30% during the preceding year. Therefore, increase in the remuneration @ 350% appears to be on higher side. Considering the nature of services rendered by Smt. Seema Bhandari and increase in turnover due to her efforts, it would be reasonable to consider a sum of ₹ 1 lac per month as reasonable. Therefore, disallowance of ₹ 20,70,833/- (-) 12,00,000/- = ₹ 8,70,8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cing profit by increasing remuneration and also by taking unsecured loan from the same family members and paying interest thereon. Accordingly, remuneration paid was restricted to ₹ 4,60,000/- and balance excess remuneration of ₹ 16,10,833/- ( ₹ 20,70,833/- (-) ₹ 4,60,000/-)was disallowed. 4. Aggrieved with the order of the AO, the assessee preferred the appeal before the ld. CIT(A). The ld. CIT(A) noted that the assessee has taken loan of ₹ 61.60 lakhs from Essen Associates, a proprietory concern of Smt. Seema Bhandari and also paying interest @ 15 % thereon. The contention of the assessee that during the relevant assessment year, there has been increase in the turnover to 33 %. If the same is considered that due to contribution by Smt. Seema Bhandari there was increase in the sale, the sale, the same has been just at 33 % as against the increase of 350 % of remuneration which is not justifiable. Accordingly, the ld. CIT(A) has upheld the findings of the AO. 5. Now the assessee is in appeal before us. 6. Ld. Counsel of the assessee submitted that Smt. Seema Bhandari is also paying tax @ 10% on salary income being maximum marginal rate, thus, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Saudi Services (Travel) (P.) Limited, (2008) 219 CTR 562 (Bom), wherein it was held that where the revenue was not in a position to point out how the assessee evaded payment of tax by alleged payment of higher commission to its sister concern since the sister concern was also paying tax at higher rate, and copies of the assessment orders of the sister concern were taken on record by the Tribunal, disallowance of alleged excess commission paid to the sister concern was not justified. The ld. Authorized Representative of the assessee also cited CIT vs. Dempo Co.P.Ltd., (2011) 196 Taxman 193 (Bom), wherein it was held that where the assessee as well as its subsidiary were in the same tax bracket and paid same rate of tax, there was no question of diversion of funds by paying higher rate to subsidiary company and, therefore, no disallowance could be made u/s 40A(2) of the Income-tax Act, 1961. 7. The ld. Sr. Departmental Representative supported the orders of the lower authorities. 8. We have considered the facts and materials available on record. We find that Smt. Seema Bhandari, daughter-in-law of the assessee has been working with the assessee for the financial year 2007-08 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the net profit of the assessee is decreased by ₹ 67,92,357/- with the increase of gross profit at ₹ 10,13,318/-. The assessee has given FOC to many customers at ₹ 16,26,229/-. Therefore, the assessee was asked to furnish the details of FOC of last three years alongwith scheme details for which the items are sold on FOC basis to different parties, for which no plausible justification was forthcoming. The AO also noted that the assessee debited ₹ 16,26,229/- as FOC, which was nil during the preceding year whereas the assessee was working on same modus operandi from last several years. Therefore, the claim ,of assessee regarding FOC of ₹ 16,26,229/- was disallowed. 11. The ld. CIT(A) has also observed that the assessee has failed to justify the expenditure on account of FOC during the course of assessment as well as appellate proceedings. Therefore, the disallowance made by the AO was found to be justified. 12. Before us, the Ld. Counsel of the assessee submitted that the assessee is engaged in the business of trading in machinery spare parts and implements in the name of his proprietory business concerns M/s. Naveen Tech Solution. It was submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Prahlad Kumar Tank 18,44,000 88,937 182-187 15. Surendra Singh Kachhawa 18,11,000 77,845 188-193 TOTAL 2,65,79,515 14,82,344 13. The ld. Authorized Representative of the assessee further contended that the assessee had effected turnover of ₹ 2.65 crores just by giving accessories free of cost of ₹ 14,82,344/- and the balance amount of discount was given on miscellaneous contract of small values. It was also contended that these transactions were with non-related parties. It was further submitted that this was the part of the adopting the sales promotion tactics and such FOC were also given during subsequent assessment year 2014-15 at ₹ 9,27,804/-, which were accepted in the assessment made u/s 143(3) after due inquiry. Therefore, it is a settled law that AO cannot go into the commercial expediency of the transaction as it is to be decided by the businessmen and not by the AO. In support of this contention, the ld. Author ..... X X X X Extracts X X X X X X X X Extracts X X X X
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