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TMI Blog2017 (12) TMI 533X X X X Extracts X X X X X X X X Extracts X X X X ..... ng and received a sum of ₹ 42,89,213/- which has not been disclosed in the books of accounts. This fact is more accentuated when it is noted that the rates charged are competitive and no case has been made out that it is lower than any rate charged to other customers. Hence in the background of aforesaid discussion, we are of the considered opinion that this addition has been made dehors any cogent material and, hence, the same is not at all sustainable. Accordingly, we reverse the order of the authorities below on this issue and delete the addition in this regard. Disallowance of incentive payment - test of commercial expediency - expenditure wholly and exclusively laid out for the purpose of the business - Held that:- For determining whether the expenditure was wholly and exclusively laid out for the purpose of the business the reasonableness of the expenditure has to be judged from the point of view of the businessman and not of the Revenue. Hence, torch bearer of the corporate governance mantle donned by the assessing officer is uncalled for and the disallowance is not sustainable on the facts and circumstances of this case. Another reasoning given by the assessing off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lakhs for A.Y. 2010-11 and further CIT Appeal have deleted only disallowed of expenses of ₹ 51,00,000/- instead of total deletion of ₹ 1,50,00,000/- (Rs.75,00,000/- each for A.Y. 2009-10 2010-11). Apropos issue relating to under invoicing of ₹ 42,89,213/- 4. The assessee in this case is in the business of hiring charter plains and air taxi. The assessee company has leased an aircraft challenger 300 from Peel Aviation Limited, Ireland. In the assessment order, the Assessing Officer has noted that survey action u/s. 133A was carried out. During the course of survey, incrementing documents were impounded. A statement of Shri Pradip Thampi, Managing Director of the company was recorded. The Assessing Officer noted that in the statement, Shri Pradip Thampi accepted that Shri Lalit Modi is the defecto owner of the company. The Assessing Officer further referred that in the impounded material, page 11 of annexure A-3 refers to email conversation between Shri Pradip Thampi and Shri Lalit Modi. In the email, Shri Lalit Modi is replying to Shri Pradip Thampi about the expenses and receipts in the books of the assessee company. In the same page, it is seen that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e irrespective of utilization of single flying hours In a month still they are liable to pay a fixed lease rent amount. A/so, the flying hour rate charged to Peel Aviation Ltd. on basis of prevailing / market rate. The managing director of the assessee company had decided to let them at ₹ 2,75,000/- per hour with the intention that whatever the sale proceeds will be received from them for that tour will be indirectly repaid towards their lease amount. Thus, the necessary to get the inflow to the tune of ₹ 2,65,40,937/- will be automatically reduced from the assessee working capital. In the competitive market, if this party had been introduced by someone else then, the assessee had to pay them incentive in the range of 7-10% approx. which they have saved. Thus, the assessee had saved incentive figure on an average of 7-10% approx plus interest portion of 2.5% i.e., 15% on ₹ 2,65,40,937/- the borrowing cost from the market. In the given circumstances, the billing made to Peel Aviation Ltd. is reasonable there is no unexplained income to the tune of ₹ 42,89,213/-. Regarding, Mr. Pradeep Thampi statement that it was quotation based on e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 49,79,5857- and Pee Ltd. amounting to ₹ 2,15,61,352/-. Shri Lalit Modi is the defacto owner of the appellant company and in all likelihood of Peel Aviation Ltd. also. The action of Assessing Officer adding the under invoicing is confirmed. 8. Against the above order, the assessee is in appeal before us. 9. We have heard both the counsel and perused the records. We find that in this case assessee is a corporate entity. There is no finding that there is any change in the shareholding pattern or the control of directors in the company. Hence, the observation of the authorities below that the company belongs to Mr. Lalit Modi, is not based upon any cogent material. In the course of survey an email was found wherein there was a conversation between a director of the company Shri Pravin Thampi and Mr. Lalit Modi regarding the rates to be billed. The actual rates booked in the account were lower by ₹ 42,89,213/- than what was mentioned in the email conversation. Shri Pradip Thampi was not in a position to give explanation for the email content at the time of survey and sought time to explain the same. The assessee's explanation later is that the email was onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11. The assessee company was asked by the Assessing Officer to justify the reasonableness of the payment. The assessee company gave following response: Mr. Pradeep Thampi entered the world of Aviation in 1990 working under I AT A recognized travel agency. In 1990, he got himself acquainted with the first Air Taxi Operator. He joined as a General Manger for another Air Taxi operator based in Mumbai. After gaining knowledge, in 1994 formed an independent company ~ M/s. Executive Airways Pvt. Ltd. Worked full time as a director, chartering various types of aircrafts and helicopters from other operators all over India for his clientele and soon monopolized the charter business. He facilitated induction of various aircrafts for many corporate houses and managing their aircrafts. After successfully running the charter business for 14 years, he expanded the business and started a Non Schedule Charter Company - M/s. Golden Wings Pvt. Ltd. He inducted a jet aircraft on lease which was flown over globally for various customers till 2010 12. However, the Assessing Officer was not satisfied. He held that the assessee has failed to substantiate that the services rendered by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,00,000/- given to Mrs. Pradeep Thampi in A.Y. 2009-10 is also treated as reimbursement of share capital the amount of ₹ 75,00,000/- belonging to 2009-10 is disallowed from the computation of the A.Y. 2010-11. The reimbursement of share capital is not an allowable expense u/s. 37 of the I. T. Act, 1961 and it treated as capital expenditure. So, it cannot be allowed as a deduction from the Profit Loss account of the assessee company. 14. Against the above order, the assessee appealed before the ld. Commissioner of Income Tax (Appeals). 15. Upon the assessee s appeal, the ld. Commissioner of Income Tax (Appeals) referred to the submissions of the assessee. The ld. Commissioner of Income Tax (Appeals) did not give any findings of his own. He referred to the Assessing Officer s holding that the nature of payment is not really a genuine payment for business of the assessee company. He did not accept the Assessing Officer s reasoning that it is the repayment of share capital, as he noted that share capital of ₹ 1 crore remained in the name of Shri Pradeep Thampi in the books. However, without specifying any cogent basis, he sustained disallowance of ₹ 99 lacs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the disallowance is not sustainable on the facts and circumstances of this case. Another reasoning given by the assessing officer is that it is a repayment of capital contribution of ₹ 1 crore, on the basis of the statement of the said director. The ld. Commissioner of Income Tax (Appeals) has correctly held that this cannot be sustained as a capital contribution of Shri Pradip Thampi remains at ₹ 1 crore, at the end of the relevant assessment year. Hence, the view that the payment is reimbursement of capital is wholly unsustainable. Hence, in our considered opinion, there is no justification whatsoever in making the disallowance. Accordingly, in the background of the above discussion and precedent, in our considered opinion, there is no cogent basis for making the disallowance on the ground that it is a capital reimbursement and/or not commensurate with the services provided. Accordingly, we set aside the order's of the authorities below and delete the disallowance. 18. In the result, the appeal by the Revenue stands dismissed and the assessee s appeal stands allowed. Order pronounced in the open court on 07.12.2017 - - TaxTMI - TMITax - Income Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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