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TMI Blog2021 (1) TMI 780X X X X Extracts X X X X X X X X Extracts X X X X ..... ed/ experienced to hold the position - AO has not pointed out that the expenditure was not incurred for the purpose of business. In such a situation the disallowance made by the AO has been rightly deleted by the CIT (A). AO cannot decide on the reasonableness and commercial expediency of a particular expenditure incurred by the assessee as has been laid down by the Hon ble Apex Court in case of S.A. Builders [ 2006 (12) TMI 82 - SUPREME COURT] . CIT (A), while deleting disallowance in Assessment Year 2011-12, has noted that the payment of salary has not been disputed, it is not disputed that the salary paid has been taxed in the hands of Mrs. Sonali Nanda and there was no evidence to suggest that the payment of salary was without any service rendered. The Ld. CIT (A) also observed that the argument that the salary paid was on account of Mrs. Sonali Nanda being daughter of Mr. Suresh Nanda holds no matter in view of the overwhelming evidence produced and that the Revenue cannot proceed on consideration not based on any evidence. - Decided against revenue. Disallowance u/s 14A - Assessee has made suo moto disallowance - HELD THAT:- As per the Hon ble Delhi High Court in Maxo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the running of hotel business. Then simply because it is being used by Managing Director it cannot be held to be for private use so as to warrant disallowance of depreciation. At the most if any equipment has been placed for exclusive use of Managing Director the same should be added as perquisite in the hands of the said Director but cannot be disallowed in the hands of the assessee company when this asset already forms part of the block of the assets and depreciation has been allowed earlier. TDS u/s 195 - Disallowance being payment made to M/s Apex Enterprises - contention of the AO that no tax had been deducted at source while making the payment and that the assessee could not justify the payment - CIT- A deleted the addition - HELD THAT:- It is undisputed that no tax was required to be deducted at source on the impugned payment in view of Articles, 14, 7 and 22.1 of the DTAA between India and UAE. CIT (A), while deleting the addition, observed that the agreements were found during the course of search and seizure and that, undisputedly, there was evidence to indicate that efforts were made by M/s Apex Enterprises towards the fulfilment of the terms of the agreement. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction against the said appeal of the Department. ITA No.4302/Del/2016 is the Department s appeal against order dated 18.05.2016 passed by the Ld. CIT (A)-23, New Delhi for Assessment Year 2013-14. All these Appeals and Cross Objections were heard together and they are being disposed of by this common order for the sake of convenience. 2.0 The brief facts of the case are that the assessee is a private limited company running Hotels under the name style of The Claridges . A search and seizure operation u/s 132 of the Income Tax Act, 1961 (hereinafter called the Act ) was carried out at the residential and business premises of Mr. Suresh Nanda, his family members and business associates etc. on 24.02.2012. M/s Claridges Hotel was also covered u/s 132 of the Income Tax Act, 1961. 2.1.0 The assessment for Assessment Year 2011-12 was made u/s 153A of the Act vide order dated 29.03.2014 determining the total income at ₹ 12,51,74,139/-, wherein the following additions/disallowances were made: S. No. Disallowance Amount (Rs.) a) Payment made to Mrs. Sonali Punj ₹ 75,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icting it to the extent of exempt income earned of ₹ 37,42,327/- u/s 14A read with rule 8D of Income tax Rules, 1962 ignoring the appellant's contention that no disallowance is called for exceeding ₹ 19,88,395/- sou motto disallowed by appellant in its return of income 4. That the Ld. CIT (A) has erred in sustaining the disallowance depreciation of ₹ 1,48,791/- claimed on gym equipments alleged to have been installed at the premises of Managing Director. 5. That the on the facts and circumstance of the case, the Ld CIT(A) has erred in adjudicating the ground of addition of an ad hoc amount of ₹ 20,00,000/- in respect of alleged expenses on running and maintenance of cars. 2.2.0 In Assessment Year 2012-13, the assessment was completed u/s 143(3) of the Act vide order dated 29.03.2014 determining the total income at ₹ 7,99,80,731/- as against the returned of income of ₹ 4,59,51,500/ after making the following additions and disallowances: S. No. Disallowance Amount (Rs.) a) Payment made to Ms. Sonali Nanda ₹ 90,00,000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d CIT(A) has erred in not considering the that the additions were made u/s 153A despite the fact that there was no incriminating document found during the course of search. 3. That the Id. CIT (A) has erred in sustaining the disallowance depreciation of ₹ 1,26,637/- claimed on gym equipments alleged to have been installed at the premises of Managing Director. 2.3.0 In Assessment Year 2013-14, the assessment was completed u/s 143(3) of the Act vide order dated 25.02.2016 determining the total income at ₹ 4,83,95,727/- as against the return of income of ₹ 3,23,66,849/- after making the following additions/disallowances. S. No. Disallowance Amount (Rs.) a) Payment made to Ms. Sonali Nanda ₹ 67,00,000/- b) Additional disallowance u/s 14A r.w. Rule 8D ₹ 92,78,887/- 2.3.1 The assessee s appeal against order of the Ld. CIT (A) was allowed in toto . Against the said order of the Ld. CIT (A), now the Department has approached this Tribunal and has raised the following grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal against deletion of disallowance of depreciation on car amounting to ₹ 10,65,998/- and also ground No.5 of assessee s Cross Objections challenging the ad hoc addition of ₹ 20 lacs on account of car running expenses, the Ld. Sr. DR submitted that the Assessing Officer had disallowed the depreciation on cars since these cars were found at the residences of Mr. Suresh Nanda and Mr. Sanjeev Nanda during the course of search and it could not be demonstrated that these cars had any link to the business of the assessee company. The Ld. SR. DR also submitted that it was for this reason that an ad hoc addition of ₹ 20 lacs had also been made by the Assessing Officer on account of repairs and maintenance/running of these cars. The Ld. Sr. DR submitted that the Ld. CIT (A) had incorrectly deleted these disallowances. 3.3 With respect to Ground No.2 of Department s appeal for Assessment Year 2012-13, the Ld. Sr. DR submitted that this ground was identical to Ground No.2 of Departmental Appeal in Assessment Year 2011- 12 i.e., it pertained to the payment of salary to Ms. Sonali Nanda and the arguments were identical. 3.4 With respect to Ground No.3 of the Depar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard. 4.0 Per contra, the Ld. Authorized Representative (AR) submitted that as far as the issue of payment of salary to Mrs. Sonali Nanda was concerned, she was appointed as Senior Director in Corporate Communication w.e.f. 01.06.2010. She has additional responsibility of marketing and promotion of food and beverage outlets with special focus on bakery promotion. It was submitted that Mrs. Sonali Nanda was instrumental in adding number of receipts which had become highly successful. It was submitted that apart from this she was also involved in public relations, advertisement, etc. She has excellent communication skills, good contacts and has pleasing personality which was helpful in discharge of her duties. It was submitted that apart from this, she has worked in a Hotel in Dubai and U.K and she also had an experience of running a restaurant by the name of Climax Tavern on the Greens for almost five years. It was submitted that, therefore, it was incorrect on the part of the Assessing Officer to allege that she had no work experience and that she had been appointed only by virtue of being the daughter of Mr. Suresh Nanda. It was submitted that details and documents relatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 14A if no fresh investment had been made during the year under consideration and where there was availability of sufficient interest free funds with the assessee company. 4.1.1 With respect to the identical ground raised by the Department in Assessment Year 2012-13 wherein the Ld. CIT (A) had deleted the entire disallowance of ₹ 1,62,44,330/-, the Ld. Authorized Representative submitted that, undisputedly, the assessee had not earned any exempt income during the year under consideration. It was also submitted that even though no exempt income had been earned during the year the assessee had made a suo moto disallowance of ₹ 6,70,000/-. It was submitted that appeal of the assessee on identical issue was allowed by the ITAT in assessee s own case for Assessment Years 2009-10 and 2010-11 wherein the ITAT had held that no disallowance can be made u/s 14A where the assesee had not earned any exempt income during the year. Reliance was placed on the judgment of the Hon ble Delhi High Court in the case of Cheminvest Ltd. vs. ACIT reported in 378 ITR 33 (Del). 4.1.2 In Assessment Year 2013-14 likewise, the Ld. Authorized Representative submitted that during the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, the assessee company had sought to utilize the expertise and experience of Mr. Sanjeev Nanda by entering into an agreement with a company managed by him i.e., M/s. Apex Enterprises FZE, UAE. This company was appointed to explore opportunities for acquisition of hotels and procure management contracts to be executed under the Claridges brand name. It was submitted that it is not in dispute that Mr. Sanjeev Nanda had confirmed the receipt of fee and that the fee had been paid in terms of General Sales Agent Agreement dated 01.06.2011 entered into with M/s Apex Enterprises and another agreement dated 01.07.2011. The Ld. Authorized Representative also submitted that these two agreements were also found during the course of search and, thus, this evidence was sacrosanct. It was further submitted that the Assessing Officer has not brought any evidence on record to prove that no service had been rendered. It was further submitted that no tax was required to be deducted at source on this payment in terms of Articles- 14, 7 and 22.1 of the Double Taxation Avoidance Agreement between India and UAE. The Ld. Authorized Representative also relied on the findings of the Ld. CIT (A) on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial expediency of a particular expenditure incurred by the assessee as has been laid down by the Hon ble Apex Court in case of S.A. Builders reported in 288 ITR 01 (SC). The Hon ble Court held as under: Once it is established that there was a nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself) the Revenue cannot justifiably claim to put itself in the armchair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize his profits. 5.1.1 Similarly, the Hon ble Delhi High Court in the case of Dalmia Cement reported in 254 ITR 377 (Delhi) has held as under: Under section 37(1) of the Income-tax Act, 1961, the jurisdiction of the Revenue is confined to deciding the reality of the business expenditure, viz., whether the amount claimed as a deduction was factually expended or laid out and whether it was wholly and exclusively for the purpose of the business. It must not, however, suffer from the vice of collusiveness or colourable devi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in as much as the Assessing Officer has simply stated that the Delhi Bench of ITAT in the case of ACIT vs. Cheminvest Ltd. had held that the disallowance u/s 14A can be made even if there is no exempt income generated from that investment. Thereafter, the Assessing Officer has proceeded to compute the disallowance in terms of Rule 8D of the Income Tax Rules. However, the Assessing Officer has not pointed as to how the suo moto disallowance made by the assessee was incorrect. The Hon ble Delhi High Court in the case of Maxopp Investment Ltd. vs. CIT reported in [2012] 347 ITR 272 (Del.) held as under: Scope of sub-sections (2) and (3) of Section 14A Sub-Section (2) of section 14A provides the manner in which the Assessing Officer is to determine the amounting of expenditure incurred in relation to income which does not form part of the total income. However, if one examines the provision carefully, it would be found that the Assessing Officer is required to determine the amount of such expenditure only if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indicate cogent reason for rejecting the claim of the assesee with regard to expenditure or no expenditure, as the case may be, while proceeding to compute disallowance u/s 14A r.w. Rule 8D. However, such satisfaction in precariously absent in the assessment order. In such a situation, the disallowance made by the Assessing Officer cannot be upheld. Similarly, the action of the Ld. CIT (A) in restricting the disallowance to the exempt income also has no basis as there is no recording of satisfaction by the Assessing Officer as aforesaid. Therefore, ground No.3 of the Departmental appeal in Assessment Year 2011-12 stands dismissed whereas Ground No.3 of assesse s Cross Objections in Assessment Year 20110-12 stands allowed. In effect, the suo moto disallowance by the assessee amounting to ₹ 19,88,395/- only remains. 5.2.2 Coming to the Departmental grounds challenging the deletion of disallowance u/s 14A of the Act in Assessment Years 2012-13 and 2013-14, it is seen that, undisputedly, in both these years the assessee has not earned any exempt income. The Ld. CIT (A) has deleted the disallowance by duly noting the same. The issue of disallowance u/s 14A of the Act in abse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs were found to be parked at the residences, the Assessing Officer also proceeded to make an ad hoc disallowance towards car running expenses also. It is seen that similar addition was made in Assessment Years 2009-10 and 2010-11 which was subsequently deleted by the ITAT vide order dated 10.11.2017. The relevant observations of the Tribunal are contained in paragraph-8 of the said order and the same is being reproduced hereunder for ready reference: 8. After hearing both the parties and on the perusal of the relevant finding given in the impugned order, we find that so far as this disallowance of depreciation is concerned there is no dispute that these cars are assets of the assessee company which have been shown as part of the fixed assets in the balance sheet. Most of the cars are appearing as WDV In the schedule of fixed assets and depreciation has been claimed at ₹ 13,03,519/-. Once the cars are owned by the assessee company and is found to part of fixed assets then, ostensibly depreciation has to be allowed. The assessee before the AO as well as before the Ld. CIT (A) has categorically submitted that since renovation work was carried out at hotel premises, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that AO has not made any such disallowance. Accordingly, we direct the deletion of such adhoc disallowance made by the A.O. 5.3.3 Accordingly, since the Ld. CIT (A) has not adjudicated this issue, the Assessing Officer is directed to delete this ad hoc disallowance. 5.4.0 In Assessment Year 2011-12, the only ground remaining pertains to ground No.4 of the assessee s Cross Objection which challenges the sustainance of disallowance of depreciation on Gym Equipment. It is seen that this issue is also covered in favour of the assessee by the order of the Tribunal in assessee s own case for Assessment Year 2009-10 and 2010-11 in paragraph 21 of the order. The relevant observations of the Tribunal are reproduced herein under: 21. After hearing both the parties, we find that it is not in dispute that the equipment has been bought by the company and is appearing at the fixed assets in the balance sheet of the assessee company and said assets has been acquired during the running of hotel business. Then simply because it is being used by Managing Director it cannot be held to be for private use so as to warrant disallowance of depreciation. At the most if any equipment has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) on the issue. We also negate the allegation of the Assessing Officer that the contract was awarded only by virtue of Mr. Sanjeev Nanda being the Son of Mr. Suresh Nanda. Having perused the records and the evidences as well as assessment order, it is apparent that the Assessing Officer chose to ignore these evidences and proceeded to make the disallowance without any cogent reason. Accordingly, finding no reason to interfere with the order of the Ld. CIT (A) on the issue, we dismiss Ground No.3 of the Department s appeal in Assessment Year 2012-13. 5.6.0 The only ground remaining for adjudication is now Ground No.5 in the Department s appeal for Assessment Year 2012-13 which challenges the deletion of addition of ₹ 5,50,000/- on account of unexplained cash found during the course of search. This cash was found during the course of search and as per the Assessing Officer, no explanation was offered by the Assessing Officer in this regard. It was the assessee s submission that this cash pertained to cash received from sale of scrap generated during the renovation work as well as normal operations of the business. It was also submitted that this was duly accounted for in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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