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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI AMARJIT SINGH, AM &
स्थायीलेखासं./जीआइआरसं./ PAN No. AAFCS5587C (अपीलाथी/Appellant) (प्रत्यथी / Respondent) : अपीलाथीकीओरसे/ Appellant : Shri Kapil Jain, Ld. AR by प्रत्यथीकीओरसे/Respondent : Shri C. T. Mathews, Ld. DR by सुनवाईकीतारीख/ : 23.03.2022 Date of Hearing घोषणाकीतारीख / : 30.03.2022 Date of Pronouncement आदेश / O R D E R
Per Kavitha Rajagopal, Judicial Member:
This appeal filed by the assessee is against the order of Ld. CIT(A) passed u/s 143(3) dated 14.12.2016 for the AY 2014-15. The appeal has been filed challenging the ground that the Ld. CIT(A) has erred in confirming the addition made by the AO to the tune of Rs. 3,75,000/- as professional fees paid to Mrs.
Sunweta Steels Ltd Mamta Daga and Rs. 5,25,000/- as salary paid to Mrs. Sheetal Daga.
The brief facts of the appeal are that the assessee company engaged in the business of cutting of steel plates as per the requirement of clients on job work basis, filed its return of income on 28.11.2014 for AY 2014-15 declaring a loss of Rs. 16,04,699/- out of the turnover of Rs. 1,57,13,800/-. During the assessment proceedings, the AO passed an order u/s 143(3) making additions to the tune of Rs. 15,00,000/- and assessed loss at Rs. 1,04,699/-. This appeal pertains to the disallowance of professional fee expenditure to the tune of Rs. 6,75,000/- paid to Mrs. Mamta Daga and a disallowance of salary expenses of Rs. 8,25000/- paid to Mrs. Sheetal Daga, claims to be one of the director of assessee company. Aggrieved by this order, the assessee filed an appeal before the Ld. CIT(A) who then partly allowed the appeal by allowing Rs. 3,00,000/- out of Rs. 6,75,000/- as professional fees and Rs. 3,00,000/- out of Rs. 8,25,000/- as salary expenses, Hence the assessee is on appeal before us for the balance disallowances under each head.
Ground No. 1
From the record placed before us, it is evident that the assessee is a private company managed by the member of two families namely Daga and Bansal with six directors, three from each family. The assessee has stated that all these directors posses the required expertise in the business and from the return
Sunweta Steels Ltd of income of these directors, it is evident that they have other business income apart from the assessee company.
The alleged professional fees claimed by the assessee company is Rs. 24,23,000/- for the relevant year which according to the assessee is lesser when compared to the last year which was Rs. 30,71,000/-. Out of the total professional fees claimed Rs. 6.75 lakhs was said to be paid to Mrs. Mamta Daga, one of the director handling various departments including accounts whom the assessee states to be well experienced with specialized knowledge in various fields. The assessee states that Mrs. Mamta Daga considerably reduced the loss for the relevant year despite a recessionary economic slowdown in the Steel industries, due to her persistent effort. The assessee company contends that the AO has failed to appreciate the fact that Mrs. Mamta Daga is a deserved person for the said professional fees and further the AO has failed to consider the fact that she was paid even in the earlier years after deleting TDS which is declared in her income. The AO has reasoned the disallowance of the professional fees on the ground that Mrs. Mamta Daga is a close relative of director and in the earlier years, only remuneration was paid to her. Her qualification and experience was not supported by any documents and mere tax deduction at source is not sufficient to prove that it was paid to reduce tax liability.
We have heard the Ld. Authorized Representatives for both the parties in context of their respective contentions qua the issue pertaining to disallowances. On perusal of the materials on record placed before us, it is evident that the assessee company’s
Sunweta Steels Ltd turnover has fallen down from 1.73 crore to 1.57 crore due to recession in the steel industries and despite that the assessee company has reduced the loss significantly from Rs. 57.51 lakh to Rs. 14.06 lakhs. This, according to the assessee company was achieved by reducing various expenses and amongst them are the professional fee expenses which was decreased from Rs. 30.71 lakh to Rs. 24.23 lakh. This includes the deduction of professional fees to Mrs. Mamta Daga from Rs. 9 lakhs to Rs. 6.75 lakhs. The assessee company justifies the payment of professional fees as a continuous one which are carried forward from earlier years and are essential for running the business. The AO’s contention that Mrs. Mamta Daga is a close relative of the director does not preclude her from receiving professional fee rendered for her services to the assessee company. The AO has wrongly come to the conclusion that Mrs. Mamta Daga is a close relative of the director. It is apparent from the facts that she is one of the director of the company. The AO has also not proved that the earlier years of payment to her was remuneration as opposed to professional fees. The Ld. CIT(A) on the other hand has acknowledged her service to the assessee company, but has allowed the professional fees only to the extent of Rs. 3,00,000/- owing to the losses incurred by the assessee company. It is pertinent to point out that the professional fees depends upon the services rendered by individual to the company and it is purely at the discretion of the company to pay the said fees irrespective of the profit /loss that it sustains. Having considered that past years transactions revealed that even higher amount of professional fees was paid to the same person, we do not find any adversity in Sunweta Steels Ltd granting the relief to the assessee to the extent of allowing payment of Rs. 3,75,000/- as profession fees paid to Mrs. Mamta Daga. This ground of appeal stands allowed.
Ground No. 2. As the facts are already elaborated while deciding the 1st 6. ground of appeal
, it would suffice if we adjudicate the issue of disallowance of salary expenditure of Rs. 8,25,000/- which was partly allowed by the Ld. CIT(A) to the tune of Rs. 3,00,000/-. The assessee is in appeal before us with regard to the balance disallowance of Rs. 5,25,000/- as salary paid to Mrs. Sheetal Daga who is again said to be a whole time working director amongst two others namely Sandeep Daga and Rishi Bansal. The total remuneration paid to the three directors aggregating to Rs. 22.50 lakhs and out of which Rs. 8.25 lakhs was for Mrs. Sheetal Daga. The AO contended that the total salary paid to employees was only Rs. 9.97 lakhs and wages paid to worker was Rs. 18.90 lakhs. The AO further contended that Mrs. Sheetal Daga is a close relative of the director and that Mr. Rishi Bansal who according to the AO was engaged in day to day activities was paid salary of Rs. 6 lakhs when compared to Mrs. Sheetal Daga who was not engaged in day to day business. The AO also stated that the remuneration paid to her was disallowed for AY 2012-
13. The assessee reiterated that the company did not have much workforce and the directors were assigned with multi tasks such as administrative, marketing, production planning, financial and other functions. The assessee also stated that the AO has wrongly interpreted Mrs. Sheetal Daga to be a relative of the director
Sunweta Steels Ltd instead of the fact that she herself was one of the director. The assessee claims that she possesses the required expertise in the running of business and her income is reflected in her return of income.
We have heard the rival submissions and perused the materials on record. It is evident from the fact that the AO has allowed similar salary expenses for Mr. Rishi Bansal and Mr. Sandeep Daga which are Rs. 6 lakhs and Rs. 8.25 lakhs respectively. Further, we do not find any justification in comparison of salary of Mr. Rishi Bansal with that of Mrs. Sheetal Daga. The remuneration of directors depends entirely on the nature of the work and the requirement of such person in running the business. The AO has failed to consider the fact that Mr. Sandeep Daga, one of the director was also paid remuneration to the tune of Rs. 8.25 lakhs. It is also to be noted that the Ld. CIT(A) has partly allowed the salary expenditure of Mrs. Sheetal Daga. Therefore, from the above observation, we are of the considered opinion to allow the salary expenses of Rs. 5,25,000/- paid to Mrs. Sheetal Daga. This ground of appeal stands allowed.
In the result, the appeal of the assessee is allowed.
Orders pronounced in the open court on 30.03.2022.