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TMI Blog2018 (7) TMI 571X X X X Extracts X X X X X X X X Extracts X X X X ..... BI, and it is carrying its business activity from a place other than its registered office. There was no detail filed by the assessee whether this fact was communicated to RBI intimating that it is carrying on its financial activities from a place other than its registered office. But no such detail was available on record. AO should re-examine the entire issue and therefore to verify the genuineness of the transaction, we remit the issue to the file of AO for fresh adjudication - Derided in favour of revenue for statistical purposes. - I.T.A. No.2917/Ahd/2015 - - - Dated:- 3-7-2018 - SHRI WASEEM AHMED, ACCOUNTANT MEMBER And SHRI MAHAVIR PRASAD, JUDICIAL MEMBER For The Appellant : Shri T. Sankar, Sr. D.R. For The Respondent : Shri S. N. Divatia, A.R. ORDER PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned appeal has been filed at the instance of the Revenue against the appellate order of the Commissioner of Income Tax(Appeals)-2, Ahmedabad [CIT(A) in short] vide appeal no.CIT(A)- 2/444/ITO, Wd.2(1)(2)/2014-15 dated 11/08/2015 arising in the assessment order passed under s.143(3) of the Income Tax Act, 1961 (here-in-after referred to as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the infrastructure facility owned/possessed by it from the above two parties. In view of above, the explanation was sought by the AO from the assessee on the observation as discussed above. The assessee in compliance to it submitted that: a) It is using common infrastructure facility for its business located at Monarch house opp. Jaggers park, Nr, Ishwar Bhawan Navrangapura Ahmedabad though it is registered office is located at C.G. Road Ahmedabad. b) The common infrastructure facility availed by the assessee include the electricity, internet, administrative and salary expenses Etc. It is enjoying about 1800 sq. Ft. area in such premises. c) The reference of the client has no relevance/ connection with the expenditure as the same was incurred for availing the facility as discussed above. d) The expenditures above were to be incurred compulsorily irrespective of the business. Moreover, the payments made to the parties above have suffered tax at the maximum marginal rate in their individual hands. Hence there is no loss to the Revenue. However Assessing Officer disregarded the contentions of the assessee by observing as under: i. There is no reference to the cli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te natural that the assessee had to bear part of the expenses. As such the assessee has made the payment for using the common infrastructure facility such as electricity, internet, admin and salary expenses. The assessee was enjoying the 1800 sq.ft. area of the said premises. It is also pertinent to note that the assessee has shared the expenses to the extent of 6% of all the expenses relating to such premises. The assessee was using various types of infrastructure facilities including a lift, telecommunication and internet, electricity and parking facilities etc. Thus, the common infrastructure facility was not limited to salary and wages and miscellaneous expenses. Therefore, the reasonableness of the expenses of ₹ 60,00,000/- born by the assessee cannot be doubted. It is also important to note that MRBPL has paid the taxes on maximum margin rate whereas MPFL has paid the tax under MAT. Therefore, it cannot be concluded that the assessee has incurred the cost of using the common infrastructure facility to avoid the payment of tax. The ld. CIT-A after considering the submission of the assessee restricted the disallowance to the extent of 10% of the total expenses, i.e. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was using the common infrastructure facilities in the form of office space area of 1800 Sq. Ft., Electricity, Internet, Lift, Admin Salary expenses of employees, Telecommunication and Parking facilities etc. It was further argued that the total expenditures on these common infrastructure facilities were to the tune of ₹ 13,24,04,774/-, out of which the appellant company has borne approximately 5% of the total infrastructure cost which was very reasonable. 3.5. From the submission, it is also found that the two recipient companies were having their local offices, wherefrom they were doing the business activities of share broking like Sherkhan or Angel Broking. Even in the MOU dated 01/04/2011, the registered office of the M/s. Monarch Research and Brokerage Pvt. Ltd. has been shown of the common office. Likewise, the another recipient company i.e. Monarch Project and Finmarkets Ltd. was also having its branch office at this common premises, though its registered office was at Mumbai, Thus, it is not the case that the appellant company has made any payments for utilisation of the services outside the Ahmedabad. 3.6. On go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Particular Monarch Project Finmarkets Ltd. Monarch Research Brokerage Pvt. Ltd. Krone Finstock Private Ltd. Total Total Income (As per BSFY 2011-12) 202,764,509.00 70,518,461.00 19,015,429.00 292,298,399.00 Percentage Income Ratio 6% Payment made as per contract 3,600,000.00 2,400,000.00 --- 6,000,000.00 Particular Salary 57,712,474.00 6,626,904.00 0 64,339,378.00 Administrative Expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter dated 05/01/2015 in the assessment proceedings as has been reproduced on Page 7 of the assessment order which reads as under:- In view of the above, proposed disallowance of ₹ 60 lacs may please be dropped or in the alternative reduced substantially. the disallowance of the aforesaid expenditure @ 10% which amounted to ₹ 6 lacs is confirmed and the relief is granted for the balance amount. 3.9. The related grounds of appeal are accordingly partly allowed. Being aggrieved by order of Ld. CIT(A), the assessee is in the second appeal before us. The learned DR before us submitted that the Assessee made the payment to both the companies in pursuance to the memorandum of understanding, which is effective from 1st April 2012. Thus, the assessee cannot claim any expenses under the year under consideration. It is also undisputed fact that the assessee and other two companies are associated concern as the directors in all the companies are common but the disallowance was not made by the AO merely after invoking the provisions of section 40a(2)(b) of the Act. Rather, it was also disallowed under the provision of section 37(1) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive, selling and Distribution Particulars Figures for the period ended 31st March 2012 Figures for the period ended 31 st March 2011 Administration expenses Audit fees a Statutory Auditor 10 000 10 000 b Tax Auditor 5000 5000 Postage, Printing Stationery 971 36 225 Software Development Charges 0 55 150 Common Infrastructure and Referral fees 60 00 000 0 Legal Professional charges 9000 0 60 4 971 1 06 375 2. All the payments to be made to the above-said companies for ₹ 60 lacs was outstanding except the amount of TDS deducted by the assessee. The relevant extract is placed on page 9 of the PB and reproduced below: Note:5 Other Current Liabilities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Figures as at 31st March 2011 a. Salary Payables b. Others -Provisions for Income Tax - TDS Collection remittance -Others 0 21,56,500 8,84,496 550 51,600 19,60,000 2,33,312 2,620 30,41,546 22,47,532 7. M/s Monarch research Pvt Ltd. was assessed to tax at the maximum marginal rate but monarch project and fin-markets ltd. had paid tax under MAT. Therefore the plea of the assessee that both the companies have suffered the tax on maximum marginal rate is wrong. Moreover, it is nowhere mentioned in any law that if any payment made by a person which is taxable in the hand of the recipient will not be disallowed to the payer. It is also important to note that one of the companies is paying tax under MAT for which tax credit can be claimed in future years. It is noted that common infrastructure facility available at Monarch house opp. Jaggers park, Nr, Ishwar Bhawan navrangapura Ahmadabad which is owned by the MRBPL and If assessee had used infrastructure facility only at Ahmadabad then there ..... X X X X Extracts X X X X X X X X Extracts X X X X
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