M/S. VLCC HEALTH CARE (P) LTD.,NEW DELHI vs. ADDL. CIT, NEW DELHI

PDF · subscribers
ITA 1960/DEL/2017Status: DisposedITAT Delhi10 February 2021AY 2010-114 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the disallowance was made on the basis of conjectures and surmises, as the genuineness of Ms. Luthra's qualifications and responsibilities were not disputed. The Tribunal found no basis for disallowing 35% of the remuneration.

What were the facts?

The assessee company challenged the disallowance of 35% of the remuneration paid to Ms. Pallavi Luthra, daughter of a director. The disallowance was made under Section 40A(2)(b) of the Income Tax Act, with the authorities citing surmises and conjectures.

What were the issues?

Whether the disallowance of remuneration paid to a relative of a director is justified when the genuineness of services rendered is not disputed and the disallowance is based on surmises.

Which sections of the Income-tax Act were involved?

Section 40A(2)(b)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH ‘G’ : NEW DELHI

Before: SHRI R.K. PANDA & SHRI KULDIP SINGH

For Appellant: Shri V.K. Bindal, CA, Ms. Sweety Kothari, CA, Ms. Rinky Sharma, CA
For Respondent: Shri Prakash Dubey, Senior DR
Hearing: 03.02.2021

PER KULDIP SINGH, JUDICIAL MEMBER : Appellant, M/s. VLCC Health Care (P) Ltd. (hereinafter referred to as ‘the assessee’) by filing the present appeal sought to set aside the impugned order dated 25.01.2017 passed by the Commissioner of Income-tax (Appeals)-9, New Delhi qua the assessment year 2010-11 on the ground that :-

1.

The CIT (A) erred in law and on facts in confirming the disallowance of an amount ofRs.6,73,933/- 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.

Briefly stated the facts necessary for adjudication of the controversy at hand are : The assessee has challenged the confirmation of disallowance of an amount of Rs.6,73,933/- being 35% of the remuneration paid to Ms. Pallavi Luthura, one of the director of the assessee, under section 40A(2)(b) of the Income-tax Act, 1961 (for short ‘the Act’) on the ground that Assessing Officer (AO) has ignored the facts and evidences brought on record by the assessee qua qualification and responsibility undertaken by Ms. Pallavi Luthura in the business of the assessee.

3.

Assessee carried the matter before the ld. CIT (A) by way of filing the appeal who has confirmed the addition made by the AO by partly allowing the appeal. Feeling aggrieved by the order passed by the ld. CIT (A), the assessee has come up before the Tribunal by way of filing the present appeal.

4.

We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.

5.

Undisputedly, AO/CIT(A) while disallowing the amount of Rs.6,73,933/- being 35% of the remuneration paid to Ms. Pallavi Luthura have not disputed qualifications and duties/responsibilities assigned to Ms. Pallavi Luthura by the assessee company. It is also not in dispute that no comparable case vis-à-vis assessee has been taken to examine the functional profile of Ms. Pallavi Luthura while disallowing 35% of the remuneration paid to her.

6.

When we examine para 4.1 of the impugned order passed by the ld. 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, we 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 ld. 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. Order pronounced in open court on this 10th day of February, 2021.

More judgments on Section 40A(2)(b)

All 1,172 judgments and leading authorities on Section 40A(2)(b) →

Recent GST High Court judgments

Search GST case law →