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TMI Blog2024 (12) TMI 109X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee company and its director were both in the same tax bracket, the highest and, therefore, there could be no question of any evasion of tax by paying remuneration to the directors relying on the above Circular. Non-deduction of ESI/EPF on salary of persons - This objection is without merit as the employees drawing higher salaries and exercised the option of non-deduction. Shri Jatin Goyal and Shri Akhil Goyal were not covered in the list of relatives under section 40A(2)(b) of the Act. Hon ble Delhi Court in CIT vs. DLF Hilton Hotels [ 2016 (5) TMI 492 - DELHI HIGH COURT] held that where the assessee had reasonably established that the expenses incurred by it were for running business and in the absence of any finding by the AO that the expenses were non-genuine and the fact that the books of accounts of the assessee had not been rejected, 50% of the expenses could not be disallowed on an arbitrary basis. Accordingly, ground No.1 to 3 are allowed. Disallowance u/s 36 (1)(iii) on proportionate basis - Hon'ble Apex Court in the case of CIT vs Reliance Industries Ltd [ 2019 (1) TMI 757 - SUPREME COURT] wherein it was held that if the interest free funds available to the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 12,00,000/- out of Rs. 48,00,000/- paid to four individuals on the ground that payment has been made to related parties and ignoring the contention of appellant on the ground of parity of tax rate in the case of payees and appellant, there was no loss to the revenue. Learned CIT(A) was not justified in rejecting the ground of no loss to the revenue in payment to related parties as supporting evidence of the ITR filed by the payees were fresh evidences for which no application under rule 46A was made. Learned CIT(A) erred in considering the payment made to Sh Akhil Goyal on account of salary Rs. 12,00,000/- as the payment covered u/s 40A(2)(b) of the Act for making ad-hoc disallowance of 25% covered in Ground No.1 and 2 ignoring the fact that the above payee is not a person covered u/s 40A(2)(b) of the Act. The Learned CIT(A) has erred in confirming the disallowance of interest expenses of Rs. 11,99,499/- u/s 36(1)(iii) of IT Act on proportionate basis on the ground that there was investment in work in progress as per balance sheet as on 31/03/2018 amounting to Rs. 99,95,824/-. During appeal before Ld. CIT(A), it was contended and taken note of by Learned CIT(A) in para 7.4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, he 18 (PB 114-120) was Rs. 9,00,000/- from other employer. i.e. M/s Ram Swarup Dass Foods P. Ltd and due to higher income offered, he switched over to the present employer. 5.3 Similarly, in the case of Ekta Goyal (Rs.8,40,000/-), she was earning in preceding AY 2017-18 (PB 121-126) for Rs. 4,80,000/- and there is increase of 75% from preceding assessment year due to extra responsibility of managing and supervising e-sales. 5.4 In case of Sh. Jatin Goyal (Rs.9.60,000/-), who is not person not covered within the definition of relatives covered u/s 40A(2)(b) of the Act as he is son of Sh Anoop Goyal, the brother of director and he in the AY 2019-20 (PB 127-131) got hike of Rs. 8,40,000/- to Rs. 18,00,000/- when he switched over another employer i.e. M/s R S Triveni Foods P. Ltd. This fact shows that salary paid to him was fair and reasonable. 5.5 Coming to the fourth person Sh Akhil Goyal (Rs. 12,00,000/-), he got four-time hike to Rs. 48,00,000/- in AY 2019-20 (PB 132- 139) from another employer. Further, he is not covered in the list of relatives being identified as relative of shareholder the disallowance made u/s 40A(2)(b) is not justified. 5.6 It is a case of adh-hoc disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the decision of Hon'ble Delhi High Court in identical facts of the case in PCIT vs. R.G. Buildwell Engineers Ltd. (2018) 258 Taxman 371 (Del) approved by Hon ble Apex Court in (2018) 259 Taxman 370 (SC) holding that no disallowances can be made without rejecting the books of account. 5.10 From the audited balance sheet (PB 7-35) available on record, the appellant had interest free resources in form of share capital Rs. 8,94,30,000/- and reserves Rs. 23,11,28,148/- aggregating Rs. 32,05,58,148/- as on 31.03.2017 (PB 14) against which the investment in work in progress amounting to Rs. 99,95,824/- can be attributed to be from the interest free funds in the absence of any nexus above investment with the interest bearing loans established by Learned AO. This is case of utilization of funds available in the common pool and there is no evidence to show that the interest-bearing funds have been utilized for the expenses debited under the capital work in progress, the Learned AO in such circumstances is not justified in drawing presumption that in the work in progress the interest-bearing funds have been used. Such presumption is contrary to decision of Hon'ble Apex Court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the list of relatives under section 40A(2)(b) of the Act. Hon ble Delhi Court in CIT vs. DLF Hilton Hotels (2016) 69 taxmann.com 300 (Del) held that where the assessee had reasonably established that the expenses incurred by it were for running business and in the absence of any finding by the AO that the expenses were non-genuine and the fact that the books of accounts of the assessee had not been rejected, 50% of the expenses could not be disallowed on an arbitrary basis. Accordingly, ground No.1 to 3 are allowed. 10. Learned CIT(A) confirmed disallowance of Rs. 11,99,499/- u/s 36 (1)(iii) of the Act on proportionate basis. Hon'ble Apex Court in the case of CIT vs Reliance Industries Ltd 410 ITR 466 (SC) dt: 02/01/2019 wherein it was held that if the interest free funds available to the assessee are sufficient to meet its investment, it could be presumed that the investments are made from the interest free funds available with the assessee and not from borrowed funds. In view of the above material facts and well settled principle of law, ground No.4 is allowed. Impugned order of CIT(A) is set aside. 11. In the result, the appeal filed by the assessee is allowed. Order p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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