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Income Tax Appellate Tribunal, DELHI BENCH “H”: NEW DELHI
Before: SHRI B.R.R. KUMAR & SHRI ANUBHAV SHARMA
O R D E R PER ANUBHAV SHARMA, J. M.:
1. 1. The present appeal has been preferred by the Assessee against the order dated 11.08.2020 of Ld Commissioner of Income Tax (Appeals)-33, New Delhi (hereinafter referred as Ld. First Appellate Authority or in short Ld. ‘FAA’) in appeal Nos. 405/13-14/97/15-16 before it against the order dated 17.02.2014 passed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’) by the AO, ld. Addl. CIT, Range-17, New Delhi (hereinafter referred as the Ld. AO).
2. Facts in brief are that the Assessee filed return of income declaring income of Rs. 13,75,31,700/- on 28.09.2011 for Assessment Year 2011- 12 and the case was taken up for compulsory scrutiny. The Assessee had claimed expenses of Rs. 1,04,07,297/-. The Assessee had shown a payment of salary of Rs. 2,07,200/- to Smt. Pallavi Luthra, daughter of Page | 1 the directors and the ld AO had considered 35% of the same as excessive and disallowed for Assessment Year 2010-11. The ld CIT(A) had also sustained the same following findings rendered by the ld CIT(A) for Assessment Year 2010-11. Further, the ld AO observed that the Assessee had credited its profit and loss account of Rs. 3,37,31,174/- which included Rs. 1,14,29,858/- as miscellaneous income out of which Rs. 92,91,768/- was claimed as income on account of compensation received for delay in purchase. The case of the Assessee was that when contracting parties failed to complete the construction and interior works causing delay in possession of premises, a sum of Rs. 20,000/- per day is received as penalty from the contractor by way of deduction from amount payable to the contractor on completion of contract and the same is shown as capital receipt. The ld AO however, observed that the penalty amount received is over and above the payment made to the contractor as per the agreement and the compensation paid. It was observed by the ld AO that income on account of compensation/ penalty has arisen to the Assessee out of the ordinary course of its business and is thus a revenue receipt.
The ld CIT(A) had also sustained the same while following appellate proceedings determination for the Assessment Year 2012-13 and 13-14.
Now the Assessee is in appeal raising following grounds of appeal:- “1. The CIT(A) erred in law and on facts in confirming the disallowance of Rs. 72,520/- being 35% of the remuneration paid to Ms. Pallavi Luthra, daughter of the director of the assessee, u/s 40A(2)(b) of the Act merely on surmises ignoring the facts and evidences placed on record regarding her qualification and responsibilities undertaken by her in the business of the assessee. Thus the disallowance so made should be deleted.
2. The CIT(A) erred in law and on facts in confirming the addition of Rs. 92,91,768/- being the amount received as compensation due to delay in execution of the contracts of acquisition of fixed assets by holding the same as taxable as revenue receipt ignoring the facts, submissions and evidences placed on record. Thus the addition so made should be deleted.”
Heard and perused the record.
The issue as raised show that the ld CIT(A) has merely followed the findings in the Assessee’s own case for other assessment years. 7. In regard to ground No. 1 it can be observed that for Assessment Year 2010-11 in vide order dated 10.02.2021 the issue of disallowances of 35% of the remuneration to M/s. Pallavi Luthra has been decided in favour of the Assessee with following findings:- “6. When we examine para 4.1 of the impugned order passed by the Id. CIT (A) which is the submissions made by the assessee highlighting qualifications and work assigned to her, it is surprising to note that the Revenue has accepted working of Ms. Pallavi Luthura as a Director and allowed 65% of the amount paid to her but it is beyond comprehension as to how they had reached the conclusion that out of the 100% of the work assigned to Ms. Pallavi Luthura by the assessee company, 35% of the same was found ingenuine. The entire disallowance is on the basis of conjectures and surmises. 7. AO also brought on record the fact that Ms. Pallavi Luthura was Director having 50% of the shareholding in another company called Cloud Cuckoo Farm during the year under assessment but assessee stated that Cloud Cuckoo Farm’s profit is nil and brought on record its balance sheet in additional evidence. Again, it is surprising to disallow 35% of the remuneration, particularly when genuineness of the job profile has not been questioned, merely on the ground that Ms. Pallavi Luthura was a Director in Cloud Cuckoo Farm. It is also a matter of fact on record that Ms. Pallavi Luthura was a whole time director in the assessee company and was paid remuneration for the work assigned to her during the year under assessment. So, wc are of the considered view that merely on the basis of conjectures and surmises, provisions contained u/s 40A(2)(b) cannot be allowed to be invoked particularly when genuineness of the services rendered are not in dispute. So, we are of the considered view that AO as well as Id. CIT (A) have erred in disallowing the remuneration to the tune of 35% paid to Ms. Pallavi Luthura by the assessee company, hence ordered to be deleted. Consequently, the appeal filed by the assessee is allowed.”