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TMI Blog2019 (4) TMI 1572X X X X Extracts X X X X X X X X Extracts X X X X ..... ived by him from the assessee company. The payment of fees to Mr Anand Nair cannot be considered as non-genuine, when all evidences conclusively proved that said payment is genuine and it was incurred wholly and exclusively for business purpose. The assessee has rightly capitalized the same under the head Plant and Machinery. Hence, the AO is directed to allow depreciation claimed on architect fees paid to Shri. Anand Nair and capitalized in books under fixed assets. Disallowance of rent paid to Mr Anand Nair - Leave and License agreement for a period of three years - flats were to be used for accommodating the guests and employees of the assessee company who come from outstation - HELD THAT:- Guest house could be a better and cheaper option than the hotel in terms of comfort, privacy and familiar surroundings. With regard to sale in subsequent years at a low price, it is noted that the same is a transaction between a brother to his sister; therefore, not a correct benchmark to determine the rent is excessive. Further, Shri Anand Nair is not a related party. The payments were made to Shri Anand Nair by account payee cheque. TDS was duly deducted u/s 194I of the Act. Applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT (A) has analysed each and every party alleged to be bogus and her analysis was so minute that she has even identified a payment of ₹ 92,81,009/- in respect of one party whereby such payment was debited in P L account and directed to be disallowed over and above the addition made by AO. The Ld. DR could not pint out any other infirmity in the order of CIT(A), but, simply argued that no express finding was given in respect of transaction with Tricohem, therefore, matter may be set aside to CIT(A). We are of the considered opinion that the ld. CIT (A) has adequately dealt with this issue and we do not find any infirmity whatsoever in the order of CIT(A). Disallowance u/s 14A r.w.r. 8D - CIT(A) deleted the disallowance on the ground that no dividend was earned - HELD THAT:- There is no doubt that investment in subsidiaries ought to be included for 14A disallowance. However, other factors have also to be looked into like net worth, investment amount, receipt of dividend etc. We note that as against net worth of the assessee as on 31.03.2011 of ₹ 401.92 crores, investment stood at ₹ 25.85 crores. Thus, the assessee has adequate own funds. Hence, following the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case had vide order dated 30.09.2015 held the same to be allowable; TDS @ 10% have been deducted; Service tax was paid; There is no evidence that services were not provided. 4.The Ld. CIT(A) erred in upholding the disallowance of rental charges amounting to ₹ 26,96,640/- on the alleged ground that the expenses were not for purpose of business. The Id CIT(A) failed to appreciate that such sums were incurred for genuine business expediencies. 5. The Ld. CIT(A) erred in upholding the disallowance of housekeeping charges amounting to ₹ 26,96,640/- on the alleged ground that the expenses were not for purpose of business. The Id CIT(A) failed to appreciate that such sums were incurred for genuine business expediencies. 3. Ground No 1 is not pressed and hence the same is dismissed. 4. Ground No 2 is also not pressed, hence, dismissed. 5. Ground No 3 challenges the disallowance of depreciation on astrology fees of ₹ 1,04,67,317/-. During the year, the assessee has made payment of architectural and management consultancy fees to Mr. Anand Nair of ₹ 9,96,50,798/-. Such payments were capitalized in the books of the assessee under Fixed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant the payment related to. Further, an MOU was entered into by Mr Nair and Mr Amit Dahanukar and his wife Mrs. Shivani Dahanukar is in connection with Astrological Fees. The MOU proved that Mr Nair was providing the Dahanukar family with Astrological guidance. Further, it is not clear why Mr Nair would have a sudden change of heart and pay service tax on the same. In these circumstances, the CIT(A) upheld the disallowance of depreciation on astrological fees paid to Shri Anand Nair of ₹ 1,04,67,317/-. 5.6 The ld. Senior Counsel of the assessee Mr. K. Shivaram submitted that Shri Anand Nair is a qualified architect and drew the attention of Bench towards the diploma certificate part of Paper Book. The ld Senior Counsel also pointed out the various emails sent by the Assessee and Contractor Triochem entrusted to carry out the factory work asking for guidance of Mr Nair. The ld AR produced the maps drawn by Shri Anand Nair. He explained that Mr Anand Nair s role was to build the 100 klpd grain refinery. This was a one-time project and once the refinery was built, it was the flagship refinery of the assessee company producing grain based alcohol. The ld. AR further submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the same cannot be considered non-genuine. The issue has already reached finality. Thus, the issue is a covered issue already decided in favor of the assessee. 5.8. With regard to, nature of payment as Astrology Fees , it was submitted that this nomenclature was used to save service tax. However, subsequently, Shri Anand Nair has paid service tax on the fees received under the category Management Consultancy Services through a Voluntary Amnesty Scheme. The Sr. Counsel drew our attention towards relevant pages of paper book whereby evidences in respect of service tax payments are placed. The ld AR submitted that the MOU dated 16.01.2012 which was so heavily relied upon by the ld. CIT(A) does not concern the assessee company as it is between Mr Anand Nair and Amit Dahanukar and pertains to subsequent period, hence not at all related to the assessment year subject matter of appeal. Thus, Assessee has discharged its onus to prove that payments made to Mr Anand P Nair were for business purposes and were genuine payments. Despite, filing of confirmation by Mr Anand Nair who is a third party and not a related party, the Ld. AO has chosen not to further examine him. The ld. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gone through the orders of the lower authorities. The dispute in this case is the deductibility of payment to Mr Anand Nair. It is observed that Mr Nair was President of the assessee company in 2006. The assessee has submitted copy of profile of Mr Nair from Bloomberg Website. Mr Nair s name, photograph and profile are appearing in the Annual Report of the assessee of Financial Year 2005-06, 2006-07, 2007-08 and 2008-09 during which period Mr Nair continued to advise the assessee company. This means that there was a past history / relationship of the assessee company with Mr Nair. Subsequently, Mr Nair left the organization and started practicing on his own. The assessee company once again utilized the services of Mr Nair as an architect and Project Consultant in the current year. Although there was no formal agreement, the assessee has enclosed the debit notes which are proof that Mr Nair rendered the services. It is also on record that all the payments were made by account payee cheques and applicable TDS@10% has been deducted. The issue of payment of Astrological Fees was considered by the Hon ble Settlement Commission. The appellant had approached the Hon ble Settlement Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Amount (Rs) Depreciation claimed (Rs) Project name Project Start Date Project End date Total 23.11.2009 5,79,79,977/- 1,01,46,496/- 50 Klpd April 2008 November 2009 ₹ 62.51 CroreS 15.03.2011 11,00,00,000/- 1,92,50,000/- 100 Klpd May 2010 November 2011 ₹ 170 Crores From the return of income of Mr Anand Nair, it is observed that apart from rendering services to M/s Tilaknagar Industries Ltd, Mr Nair has also rendered services to other companies. This shows that Mr Nair was a professional architect who undertook various architectural works for different clients. Mr Anand Nair s confirmation is at page 120 of the Paper Book where he confirmed to have rendering services in various technical, commercial and operational aspects of Shrirampur Mega Projects for the subject period. The maps / drawings of Mr Anand Nair have the seal of Anand Nair Associates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee company was not a party to the MOU. Further, Shri Anand Nair has paid service tax on the fees received from the assessee under the head management consultancy fees . Thus, if it was really Astrology Fees, what was the need for Mr Nair to pay service tax on the same, that too under an Amnesty Scheme; i.e. without any enforcement such as search and survey. Shri Anand Nair is an unrelated party, therefore, the payment cannot be disallowed u/s 40A(2)(b) of the Act. The ld. AO has not examined Mr Anand Nair at all either by issue of summon under Section 131 or by issue of notice under Section 133(6) of the Act. The AO could not bring any evidence to prove that payment to Mr. Anand Nair is not genuine or without any corresponding services provided. The A.O. has not brought on record any evidence to show that cash was received back by the Assessee. Even otherwise, the ld Assessing Officer is not allowed to step in to the shoes of businessman. It is settled position of law that the AO cannot disallow expenses u/s 37 of the Act merely since he is of the view that they are unreasonable. The Hon ble Calcutta High court in case of CIT v. Edward Keventer (P.) Ltd. [1972] 86 ITR 370.(Cal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owance of the fees in the hands of the assesseet would lead to double disallowance. The Hon ble Supreme Court in Laxmipat Singhania vs. CIT [72 ITR 291, 294] observed that it is the fundamental rule of the law of taxation that, unless otherwise expressly provided, income cannot be taxed twice. The same income cannot be taxed twice; once in the hands of one person and again in the hands of another person; or for that matter, in the hands of the same person in two different assessment years. In other words, same income cannot be doubly taxed. The view was further held in Joti Prasad Agarwal vs. ITO [37 ITR 107,111][All] that the charge is to be levied on an income only once; the same income cannot be charged repeatedly in the hands of different persons or in the hands of the same person has been impliedly approved by the Supreme Court in ITO vs. Bahcu Lal Kapoor [60 ITR 74, 80], wherein it was observed that the Act does not envisage taxation of the same income twice over. In CIT vs. Murlidhar Jhawar [60 ITR 95], the Supreme Court held that ..the ITO cannot however seek to assess the one income twice. The principles that emerge from these judicial pronouncements is that once the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontended that the guest house was cheaper than a hotel. The contention of the assessee could not find favor from CIT(A). The ld. CIT(A) upheld the disallowance of rent as she observed that the guest list was not for financial year 2009-10. The CIT(A) further held that this is another generous payments to Shri Anand Nair. 12.3. The ld. Senior Counsel argued that, Shri Anand Nair is not a related party. The payments were made to Shri Anand Nair by account payee cheque. TDS was duly deducted u/s 194I of the Act. The rent was offered to tax in the hands of Shri Anand Nair. [ computation of total income of Shri Anand Nair for AY 2010-11 (page 147) wherein gross rent of ₹ 24,00,000/- was disclosed and after deducting 30% standard deduction, net rent of ₹ 16,80,000/- was offered to tax.] The sample guest list demonstrates that the guest house was constantly used by employees and their families for personal / official purpose or for holding interviews. The payment is reasonable from the point of view of the Assessee Company as it would have to incur huge expenses if it were to accommodate outstation guests and employees in Hotels. Also assessee is able to block premises for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of housekeeping charges paid to J S Trading of ₹ 26,96,640/-. The house keeping charges was paid with respect to two flats at Vakola, Mumbai [total area 1,212 sq feet] pursuant to a Housekeeping agreement entered into on 1/4/2008 for a period of three years. Pursuant to the agreement, upfront payment of ₹ 72 lakhs was paid. The AO disallowed amount on the ground that it was a sham transaction. The housekeeping charges of ₹ 2 lakhs per month was too high an amount. No ordinary person would pay upfront fees of ₹ 72 lakhs. Subsequently, the flats were sold for ₹ 38 lakhs each in 2011-12 to one Mrs Anita Mohan, sister of Mr Anand Nair. 14.2 The assessee filed appeal before Hon ble CIT(A). Before the CIT(A) it was submitted that JS Trading was doing house-keeping work for many years. The payment was by account payee cheque and TDS was deducted. The services include cleaning, maintenance of sanitary works, removal of garbage, polishing, pest control etc. The ld. CIT(A) upheld the disallowance of housekeeping charges as she was of the opinion that the agreement did not reflect such specialized services meriting payment of such high amount. The agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Schedule 1 on page 170 of the Paper Book which includes cleaning, maintenance of sanitary works, removal of garbage, polishing, pest control etc. Whether the expenditure is justified/reasonable or not has to be seen from the businessman point of view and AO cannot step in the shoes of Assessee as held by the Hon ble Supreme Court in Hero Cycles (P) Ltd. vs. CIT (2015) 379 ITR 347 (SC). Therefore, we are of the view that the lower authorities were erred in treating housekeeping charges as non genuine payments. But, considering the size of flat, we are of the view that housekeeping payment of ₹ 1,00,000/- per month for two flats appears to unreasonable and excessive. Further, the AO did not brought on record any comparable cases of similar nature or find out market rate prevailing at that time. Moreover, this issue is linked with disallowance of rent payment to flats. Since, we have already set aside disallowance of rent issue to the file of AO, we feel that this issue also needs to be reexamined by the AO in light of our aforementioned observations and hence, we set aside this issue to the file of AO and direct him to consider afresh after affording an opportunity of hearing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed by the assessee. In view of the above, we are of the view that the payment of fees to Mr Anand Nair was genuine. The assessee has rightly capitalized the same under the head Plant and Machinery. Hence, Ground No 3 of the Assessee s appeal is allowed. The assessee is entitled to relief of depreciation claimed of ₹ 1,92,50,000/-. 21. Ground No. 3 is general, not pressed, hence, dismissed. 22. In the result, assessee appeal is partly allowed. ITA 6321/Mum/2016-AY.2011-12 23. This appeal was filed by the Department against the order passed by the Ld. Commissioner of Income Tax (Appeals) 47, Mumbai {hereinafter called as CIT(A)} dated 08.08.2016, for the assessment year 2011-12 whereby the Ld. CIT(A) has Partly Allowed the appeals filed by the assessees arising out of the order passed u/s 143(3) r.w.s. 147 of the Income Tax Act, 1961. 24. In this case, Department has raised the following grounds of appeal:- (/). On the facts and circumstances of the case and in /aw, the Ld.CIT(A) erred in granting relief on the disallowance of depreciation made by assessing officer in respect of the capital expenditure made by the assessee company in the form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the extent of ₹ 26,25,14,887/- and received back cash to the extent of ₹ 24.24 crores. Accordingly, the AO had made addition on account of cash back received of ₹ 22.43 Crores in Asst Year 2010-11 of ₹ 1.81 crores in Asst Year 2011-12. The AO further held that depreciation on such inflated capitalization of ₹ 26,25,14,887/- can-not be allowed. Holding so, the ld. AO computed the average rate of depreciation claimed to be 9.65%. Accordingly, he disallowed depreciation of ₹ 2,53,32,686/- (i.e. 9.65% of ₹ 26,25,14,887/-) in respect of capitalization related to M/s Triochem Sucrotech Engineering Projects P Ltd. The ld Assessing Officer also disallowed depreciation of other assets which were alleged to be bogus during the survey amounting to ₹ 6,90,11,884/-. The total disallowance made on account of depreciation on Assets held to be bogus at ₹ 9,43,44,570/- (i.e. 6,90,11,884/- related to other than Triochem plus ₹ 2,53,32,686/- related to Triochem Sucrotech Engineering Projects Pvt Ltd. There is no dispute in respect of disallowance of ₹ 6,90,11,884/- before us as part of such addition is confirmed and part relief ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng off funds for being passed on to M/s. Tilaknagar Industries, pointing out the various clauses of the supplementary agreement which enumerated the additional modifications and enhanced specification of the instrumentation originally proposed. In the course of assessment of M/s. Triochem the AO noted that there was no evidence that it was coerced into agreeing into signing an inflated contract. He also rejected the assertion that the bogus purchases were done at the behest of M/s. Tilaknagar Industries. The statements of Shri. S. K. Jain and Shri. Suresh Parikh were also analyzed by the AO in the assessment order of M/s. Triochem and he concluded that these statements have been only given to accommodate M/s. Triochem as the concerned parties cannot remember critical details and are unable to provide information regarding persons in M/s. Tilaknagar Industries who were allegedly given this money. In this background the amount of bogus expenses has been added back in the hands of M/s. Triochem. Perusal of the submissions made by the appellant, bear out the observations made by the AO of M/s. Triochem as it is seen that the existence of the plant in question is found attested to by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portions of the orders are reproduced below: 5.4 In Ground No. 6, the appellant has challenged the disallowance of depreciation amounting to ₹ 9,43,44,570/-. During the course of assessment proceedings, the AO noted that the increase in gross block of P M during the year included fictitious assets acquired during the year as also the inflated cost of the project executed by M/s Triochem. The AO also observed that the inflation of the cost of the project executed by M/s Triochem was worked out to ₹ 26,25,14,887/- which included purchase of computers of ₹ 3,64,86,410/- on which depreciation @50.45% worked out to ₹ 1,84,07,393/-. Further the AO noted that in the preceding years, the computers/peripherals has been treated as Plant and machinery and hence were liable for depreciation @15%. The AO then worked out disallowance as under: PLANT MACHINERY Particulars Amount (Rs) Total fictitious capital assets purchases during the year 40,43,28,369 Less Computers incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove would show that while deciding Ground No. 7, the ld. CIT(A) has given a categorical finding that payment to M/s Triochem in respect of purchase of P M is genuine and does not call for any interference. This finding was not at all challenged by the department. While dealing with Ground No. 6 of the assessee appeal before CIT(A), specific reference was given under para 5.4 for disallowance of depreciation in respect of transaction with Triochem. The Ld.CIT (A) has analysed each and every party alleged to be bogus and her analysis was so minute that she has even identified a payment of ₹ 92,81,009/- in respect of one party whereby such payment was debited in P L account and directed to be disallowed over and above the addition made by AO. The Ld. DR could not pint out any other infirmity in the order of CIT(A), but, simply argued that no express finding was given in respect of transaction with Tricohem, therefore, matter may be set aside to CIT(A). In view of our findings hereinabove, we are of the considered opinion that the ld. CIT (A) has adequately dealt with this issue and we do not find any infirmity whatsoever in the order of CIT(A). Accordingly, Ground No. 1, sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 54,61,338/- as per Rule 8D. The CIT(A) deleted the disallowance on the ground that no dividend was earned. Having considered arguments of both sides, we are unable to accept the submissions of the Departmental Representative. There is no doubt that investment in subsidiaries ought to be included for 14A disallowance. However, other factors have also to be looked into like net worth, investment amount, receipt of dividend etc. We note that as against net worth of the assessee as on 31.03.2011 of ₹ 401.92 crores, investment stood at ₹ 25.85 crores. Thus, the assessee has adequate own funds. Hence, following the Hon ble Bombay High Court decision of CIT v HDFC Bank (2014) 366 ITR 505 (Bom), no interest could be disallowed. It is also on record that the assessee has neither received any dividend income nor claimed any income to be exempt. Since there is no exempt income earned, there is no question of invoking Section 14A of the Act as held Hon ble Special Bench in the case of ACIT v Vireet Investment (P.) Ltd [2017] 82 taxmann.com 415 (Delhi - Trib.) (SB). Thus, even on this count, no disallowance u/s 14A could be made. In view of the above, we are of the considere ..... X X X X Extracts X X X X X X X X Extracts X X X X
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