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Income Tax Appellate Tribunal, DELHI BENCHES “F” : DELHI
Before: SHRI BHAVNESH SAINI & SHRI ANIL CHATURVEDI
ORDER PER BHAVNESH SAINI, J.M.
This appeal by Assessee has been directed against the Order of the Ld. CIT(A)-IV, Kanpur, Dated 10.02.2016, for the A.Y. 2011-2012.
2 ITA.No.3018/Del./2016 M/s. ATS Maintenance Services Pvt. Ltd., New Delhi. 2. We have heard the Learned Representatives of both the parties through video conferencing and perused the material on record.
The appeal of assessee is time barred by 09 days. Considering the explanation of assessee and nominal delay in filing the appeal beyond the period of limitation, delay in filing of the appeal is condoned.
Briefly the facts of the case are that the assessee company is engaged in the business of providing security and maintenance services to various group housing- projects. The A.O. examined the books of accounts and noted that assessee has entered into an agreement with M/s PACL India Limited, according to which, the assessee shall charge interest @ 18% for the period of delay in payment after the due date. From the perusal of the profit & loss account, it was found that the assessee had not charged any interest on delayed payment from M/s PACL India Limited and even, written off Rs.3,92,479/- as deduction. The A.O. charged interest of Rs.1,30,564/- and made addition, which is deleted by the Ld. CIT(A). The assessee
3 ITA.No.3018/Del./2016 M/s. ATS Maintenance Services Pvt. Ltd., New Delhi. was required to explain the reason for deduction in Bill No.5 Dated 20.05.2010 given to the Pearls Gateway Towers amounting to Rs.3,92,479/-. The assessee explained that it has entered into an agreement with M/s PACL India Limited. In pursuance of this agreement, the assessee was to provide Facility Management and Maintenance Services to the developer M/s PACL India Limited for its project at Pearls Gateway Towers having 11 buildings comprising of several properties. The agreement came into effect from 01.12.2009 and was terminable with 3 months prior notice. The copy of the agreement was filed before A.O. The agreement would show the scope of work/services to be undertaken by the assessee along with responsibilities/ obligations along with payment schedule etc., The assessee also filed copy of the ledger account of the parties. The A.O. noted that from these documents it can be seen that last payment received by the assessee was on 20.12.2010 for Rs.3,72,345/- although the contract was terminated in the month of May, 2010 itself. There were disputes with the developer on various issues relating to the agreement. The 4 ITA.No.3018/Del./2016 M/s. ATS Maintenance Services Pvt. Ltd., New Delhi. said company has offered number of debit notes on the assessee. The A.O. did not find any merit in the contention of assessee and noted that if there was any litigation between the assessee and M/s. PACL India Ltd., the assessee would have file documents to prove that they have any such conflict. However, no such document is filed. The assessee in reply stated that in the course of termination of the agreement between the assessee and M/s. PACL India Ltd., prior notice of 03 months was required to be given and no arbitration have been done. The assessee filed debit note to ATS which is reproduced in the assessment order to show deduction of Rs.3,92,479/- from the running bill which parties have agreed. The A.O. considering the explanation of assessee to be an afterthought and made addition of Rs.3,92,479/-. The Ld. CIT(A) confirmed the addition.
The Learned Counsel for the Assessee reiterated the submissions made before the authorities below. He has referred to page-7 of the PB which is copy of the P & L A/c to show income of assessee at Rs.5.85 crore and profit earned by the assessee of Rs.59,87,649/-. He has referred
5 ITA.No.3018/Del./2016 M/s. ATS Maintenance Services Pvt. Ltd., New Delhi. to copy of the written submissions filed at page-20 of the PB and submitted that all the documents were filed before A.O. and since there was no recovery of the amount from the party on account of interest, there was no question of receiving other amount. Therefore, after settlement and adjust of the security, the balance amount of Rs.3,92,479/- was not paid by the concerned party which was, therefore, written off and it was agreed to between the parties, copy of which is filed at pages-40 and 41 of the PB which is reproduced in the assessment order. He has, therefore, submitted that on account of above facts when assessee did not realize any amount, there is no question of disallowance of the same.
On the other hand, Ld. D.R. relied upon the Orders of the authorities below.
We have considered the rival submissions and perused the material on record. It is not in dispute that assessee has entered into agreement with M/s. PACL India Ltd., through which certain services were provided by the assessee. The assessee was required to charge interst @
6 ITA.No.3018/Del./2016 M/s. ATS Maintenance Services Pvt. Ltd., New Delhi. 18% . The A.O. made addition on account of same, but, have been deleted by the Ld. CIT(A), which would show that assessee was not able to recover the interest from the said party and on account of termination of the agreement, the impugned amount was left with M/s. PACL India Ltd., and on agreement it was decided between the parties that assessee would raise a debit note and both parties have agreed that only part amount would be paid and balance amount of Rs.3,92,749/- shall not be paid to the assessee. Therefore, explanation of assessee is very specific and supported by the documents on record that assessee was not able to recover the amount from the party, therefore, it was adjusted against the Bill and was rightly written-off from the accounts as deduction. Since the issue of interest has reached finality on deleting the addition by the Ld. CIT(A), therefore, the fact is very clear that assessee was not able to recover the whole amount from the concerned party and on final settlement of the dues, if impugned amount could not be recovered by the assessee, it is certainly a business loss to the assessee, for which, no addition should
7 ITA.No.3018/Del./2016 M/s. ATS Maintenance Services Pvt. Ltd., New Delhi. have been made by the authorities below. In view of the above, we set aside the Orders of the authorities below and delete the entire addition. Ground No. A of the Assessee is allowed.
On Ground No.B, assessee challenged the addition of Rs.2,26,550/- on account of disallowance of remuneration to the Director.
8.1. The A.O. from the Profit & Loss A/c noted that assessee company has paid Rs.6 lakhs as Director’s remuneration to Mrs. Afsha Talwar during F.Y. 2010-2011 while in the preceding F.Y. 2009-2010 only Rs.1,92,500/- have been paid. Other Officers and staff of the Company have got total salary including other benefits to the tune of Rs.1,82,48,561/- during F.Y. 2010-2011 with the increase of 94% being paid in preceding assessment year. The assessee was directed to show why the sum proportionate to the gross turnover may be allowed and balance be disallowed as Mrs. Afsha Talwar has substantial interest in the assessee company and no other Director is getting remuneration from the company. The assessee explained
8 ITA.No.3018/Del./2016 M/s. ATS Maintenance Services Pvt. Ltd., New Delhi. before A.O. that there is an increase of 79% in the gross receipt of the company and assessee has added number of projects and has further taken responsibilities under the contracts for maintenance of Group Housing Projects. The A.O. noted that though there is an increase of 79% in the turnover of the company, but, there is increase in the remuneration of the Director at 212.5% which is not justified. The A.O. also noted that salary and other benefits of the staff have increased to 94%, therefore, increase of 94% in Director’s remuneration was allowed and the impugned amount were disallowed. The Ld. CIT(A) confirmed the addition.
Learned Counsel for the Assessee reiterated the submissions made before the authorities below and submitted that considering the turnover and profit earned by the assessee company, the Director’s salary comes to Rs.50,000/- per month only. Therefore, the increase was wholly justified and as such the same may be allowed.
The Ld. D.R. on the other hand relied upon the Orders of the authorities below.
9 ITA.No.3018/Del./2016 M/s. ATS Maintenance Services Pvt. Ltd., New Delhi.
We have considered the rival submissions. The assessee company has declared income of Rs.59,71,541/- in the return of income. Total turnover of the assessee is 5.85 Cr. as per Profit & Loss A/c. The salary and other benefits paid to the staff is at Rs.1.82 crores in assessment year under appeal. There is no dispute that there is increase in the salary to the staff and there is increase in the turnover as well. Therefore, considering the totality of the facts and circumstances of the case and increase above, if the assessee company paid salary of Rs.50,000/- P.M. to the Director, we are of the view that it would not be unreasonable or exorbitant. Considering the history of the assessee company as noted above, we are of the view that salary paid of Rs.6 lakhs per annum to the Director is wholly reasonable and appropriate and as such, no disallowance is required to be done. The A.O. has not brought any evidence on record, if no salary is paid to the Director. In view of the above, we set aside the Orders of the authorities below and delete the entire addition. Ground No.B of the appeal of the Assessee is allowed.
10 ITA.No.3018/Del./2016 M/s. ATS Maintenance Services Pvt. Ltd., New Delhi. 12. In the result, appeal of the Assessee allowed.
Order pronounced in the open Court.