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TMI Blog2023 (10) TMI 711X X X X Extracts X X X X X X X X Extracts X X X X ..... nefit derived or even what would be the fair payment outgo for services rendered. Such an opinion cannot be arrived at without adducing necessary evidence. That being so, AO was duty bound to provide an opportunity to the appellant/assessee to place on record the requisite evidence to justify its claim. But all that the Assessing Officer did was to ask the appellant/assessee to justify the salaries paid, and without seeking relevant evidence, simply rejected claim. To our mind, therefore, the best way forward would be to grant an opportunity to the appellant/assessee to adduce appropriate evidence documentary or otherwise before the AO in order to establish its claim regarding educational qualification, experience, the work profile and in particular the duties discharged by the concerned persons to justify claim of the appellant/assessee qua payment of salary to the persons concerned. The orders impugned in the present appeals are set aside and matters are remanded to the Assessing Officer with liberty to the appellant/assessee to adduce evidence on the lines indicated above X X X X Extracts X X X X X X X X Extracts X X X X ..... bviously not related to the business of the appellant/assessee. 4.1 The counsel for the appellant/assessee has sought to justify these advances by referring to the agreement dated 01.02.2003 between the appellant/assessee and Mr Charanjit Lal Mehra and specifically, to clause four (4) of the said agreement. 4.2 The AO, however, noted that no written agreements were submitted by the assessee company. Given this position, the AO disallowed Rs. 10,47,593/- paid by way of interest by concluding that the conditions provided in Section 37, read with Section 40A(2)(b) of the Act were not fulfilled. 4.3 The AO in the assessment order has also noted that the appellant/assessee's loans and advances figure had increased to Rs. 1,03,10,277/- from a figure of Rs. 79,88,155/- as obtaining in the preceding AY. Likewise, the interest-free advances given by the appellant/assessee had enhanced from a figure of Rs. 56,96,244/- in the preceding AY, to Rs. 96,11,405/- in the AY in issue i.e., AY 2011-12. 5. It is required to be noticed that the AO disallowed interest on loan taken by the appellant/assessee, which, in turn, was given out to the aforementioned persons as interest-free loans and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ention is found to be hollow and without any merit. The assessee failed to prove that Shri C.L. Mehra owns the trademark of "Mehrasons". There is a case going on between C.L. Mehra and his cousins of Yaspal group in the High Court of Delhi regarding the ownership of this trademark. At the District Court level Mr. CL. Mehra lost the case and he only filed an appeal in the High Court as plaintiff. Everyday in the newspaper, jewellery ads come in the name of "Mehra Sons" and it is issued by Y ash Pal Group but not by the assessee. All these facts show that Mr. C.L. Mehra is not at all the owner of trademark "Mehra Sons" and the amounts advanced/spent by the assessee to Mr C.L. Mehra cannot be treated as prudent or expedient for business purpose. The interest disallowance made by AO on this ground is upheld. 3. Chand Mehra. The advance increased from Rs 9,95,907.60 as on 31.3.2010 to Rs 18,94,492.60 as on 31.3.2011. An increase of Rs 8,98,585/-. Submission of the assessee Shri Chand Mehra has a BA (Economics) from Claremont McKenna College, Claremont, California, United States of America. Claremont McKenna College is ranked # 6 among the liberal arts college ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot pay him for his services. The assessee failed to prove with evidence whether any services at all were rendered by Mr. Vinay Mehara. Hence these advances are treated diversion of business funds and interest disallowance is upheld on this ground. In all the above cases, AO is directed to calculate the disallowance of interest only for the period concerned, which relates to diversion of business funds. " [Emphasis is ours] 7. The Tribunal, while sustaining the order of the CIT(A), made the following observations: "20. After hearing both the sides, we find the ld. CIT(A) sustained the disallowance made by the Assessing Officer on the ground that the assessee failed to prove that C .L. Mehra owns the trademark "Mehrasons" and C.L. Mehra is not at all the owner of the trademark ''Mehrasons" and the amount advanced to C.L. Mehra cannot be treated as prudent and expedient for the business purposes. Similarly, in the case of Chand Mehra, he observed that the assessee failed to prove with evidence that any service has been rendered at all by Chand Mehra to the assessee. However, in the case of advance given to ''Mehra Sons Jewellers Pvt. Ltd. of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ademark "Mehrasons" was provided as security for advances inter alia, to Mr C.L. Mehra, the central point which arose for consideration was whether the loans and advances were extended for business purposes. Admittedly, the amounts were provided for medical purposes and children's education. None of these purposes can be said to be related to the business of the appellant/assessee. In our opinion, this was sufficient to sustain the disallowance of interest. 11. Thus, for the aforesaid reasons, in our opinion no interference is called for with the view taken by the Tribunal and CIT(A) on this aspect. Mr Salil Aggarwal has failed to show that a substantial question of law arises, in this behalf. 12. Therefore, the only aspect that we intend to examine is that which is framed as the first issue. Accordingly, the following substantial question of law is framed for consideration by this Court: (i) Whether the Tribunal erred in not appreciating that before the Assessing Officer could have taken recourse to the provisions of Section 40A(2)(b) of the Act, he ought to have given an opportunity to the appellant/assessee to produce the relevant evidence? 13. We have heard arguments o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sonable having regard to the fair market value, shall be made in respect of a specified domestic transaction referred to in section 92BA, if such transaction is at arm's length price as defined in clause (ii) of section 92F.] (b) The persons referred to in clause (a) are the following, namely:-- (i) where the assessee is an individual any relative of the assessee; (ii) where the assessee is a company, any director of the company, partner of the firm, firm, association of persons or member of the association or family, or any Hindu un-divided family relative of such director, partner or member; (iii) any individual who has a substantial interest in the business or profession of the assessee, or any relative of such individual; (iv) a company, firm, association of persons or Hindu undivided family having a substantial interest in the business or profession of the assessee or any director, partner or member of such company, firm, association or family, or any relative of such director, partner or member or any other company carrying on business or profession in which the first mentioned company has substantial interest; (v) a company, firm, association of persons or Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns concerned during the Financial Year 2010-11 and 2009-10. 6.2 The CIT(A) considered the salary component item wise and allowed the salary paid to Smt. Roshini Mehra and Smt. Aradhna Mehra at the rate of Rs. 15,000/- per month on the basis of their academic qualification and nature of responsibility discharged by them during the relevant year, but as regards the salary paid to Shri Charanjeet Lal Mehra and Smt. Lata Rani Mehra at the rate of Rs. 25,000/- per month, sustained the additions made by the Assessing Officer on the ground that the turnover of the assessee company during the relevant year had come down heavily from Rs. 3,50,00,000/- to Rs. 46,00,000/- and the appellant/assessee had failed to substantiate with evidence, services if at all rendered by them or their justifiability. As regard the salary paid to Shri Pawan Mehra at the rate of Rs. 25,000/- per month, CIT(A) allowed the same on the ground that Shri Pawan Mehra was found entrusted with jobs involving collection rent, deposit of rent cheques with the banks, following up on service tax, supervising the office personnel, looking after the companies machinery etc. As regard salary paid to Smt. Sakshi Mehra at the r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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