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Income Tax Appellate Tribunal, DELHI BENCH: ‘E’, NEW DELHI
Before: SHRI BHAVNESH SAINI & SHRI O.P. KANT
This appeal by the assessee is directed against order dated 30/01/2017 passed by the Ld. Commissioner of Income-tax (Appeals)-33, New Delhi [in short ‘the CIT(A)’] for assessment year 2012-13, raising following grounds:
1. That the assessment made is bad in law and in facts 2. That the Ld. CIT. prejudicially disallowed salary of Rs 7,20,000/- u/s 40A(2)(b) of the Income Tax Act,1961.
That the Ld. CIT was not justified while disallowing interest of C.L.Mehra & Sons HUF, Mr. C.L.Mehra, Chand '"Mehra and Vinay Mehra u/s 37 read with sec 40A(2)(b) 4. That the Ld CIT unfairly applied the provisions of Section 14A of the I.T. Act 1961 and added sum of Rs. 26,21,773/- while the same section was not applicable. He also overruled the Hohab'le Delhi High Court Judgment for which Ld. CIT was bound to comply and obey. 5. That That the assessee reserves the right to add, delete , alter and modify to the above grounds of appeal.
2. Briefly stated facts of the case at that the assessee company is engaged in the business of manufacturing of jewelry, trading of bullion and diamonds. For the year under consideration, the assessee filed return of income on 29/09/2012 declaring ‘Nil’ income under regular provisions of the Income-tax Act, 1961 (in short ‘the Act’) and income of the Rs.51,47,486/- u/s 115JB of the Act. The case was selected for scrutiny and statutory notices were issued and complied with. The scrutiny assessment under section 143(3) of the Act was completed on 23/03/2015, after making certain additions/disallowance to the returned income. The appeal filed by the assessee, before the Ld. CIT(A) has been partly allowed. Aggrieved with the order of the learned CIT(A), the assessee is in appeal before the Tribunal raising the grounds as reproduced above.
3. The ground No. 1 of the appeal, being general in nature, we are not required to adjudicate upon and accordingly, dismissed as infructuous . The ground No. 2 of the appeal relates to disallowance of ₹ 4. 7,20,000/- under section 40A(2)(b) of the Act, which has been upheld by the learned CIT(A).
4.1 The Assessing Officer made disallowance of Rs.22,80,000/- out of the salary expenses paid to the seven persons specified as relative under section 40A(2)(b) of the Act, due to increase in the salary in the year under consideration as compared to the preceding year without any valid justification. The ld. CIT(A), following the finding of his predecessor, upheld disallowance in respect of Sh. C. L. Mehra (Rs. 3,60,000/-), Lata Rani Mehra ( Rs. 3,60,000/-), Namita Mehra (Rs. 3,60,000/-) totalling ₹ 7, 20,000/-and deleted the disallowance in respect of the balance persons. 4.2 Before us, the Ld. counsel of the assessee fairly accepted that in preceding assessment year 2011-12, the Tribunal has upheld the disallowance under section 40A(2)(b) of the Act, however, he submitted that in view of the experience of the persons in the industry and services rendered, the expenses might be allowed in the hands of the assessee. 4.3 The ld. DR, on the other hand, relied on the order of the lower authorities. 4.4 We have heard the rival submission and perused the relevant material on record. The Assessing Officer made disallowance under section 40A(2)(b) of the Act due to lack of any justification for higher salary paid to relatives as compared to assessment year 2010-11. The learned CIT(A) examined the qualification and experience of the persons and did not find any justification in respect of salary expenses of Sh. C.L. Mehra and Ms. Lata Rani Mehra following the decision of his predecessor. In respect of Ms. Namita Mehra also be sustained the disallowance.
The Tribunal in and 5855/Del/2015 for assessment year 2011-12 upheld the disallowance observing as under:
“16. After hearing both the sides, we find no infirmity in the order of the Id. C1T(A) on this issue. He has given justifiable reasons while deleting or sustaining the disallowance u/s 40A(2)(b) made by the Assessing Officer. He has considered the qualification of the concerned persons and the nature of job/responsibility of each of the persons and accordingly he has come to a conclusion that the salary paid to Aradhana Mehra, Roshni Mehra and Pawan Mehra are justified where the salary paid to remaining persons are not justified. We do not find any infirmity in the finding given by the Id. CIT(A) on this issue. Accordingly, the order of the Id. CIT(A) is upheld and the ground raised by the Revenue and the assessee is dismissed.”
4.5 In view of the identical issue in dispute involved in the year under consideration, respectfully following the finding of the Tribunal (supra), the order of the learned CIT(A) is upheld and the ground No. 2 of the appeal of the assessee is dismissed.
The ground No. 3 of the appeal relates to disallowance of interest to M/s. CL Mehra & sons (HUF), Mr C L Mehra, Mr. Chand Mehra and Mr. Vinay Mehra u/s 37 read with section 40A(2)(b) of the Act. 5.1 We have heard rival submission of the parties on the issue in dispute. The Ld. counsel of the assessee reiterated the arguments which were made before the lower authorities, particularly in relation to the trademark of “Mehrasons” owned by Sh. CL Mehra. The learned CIT(A) following the finding of his predecessor in assessment year 2011-12 sustained the disallowance of interest in respect of Sh. CL Mehra, M/s. Mehra and Sons HUF, Mr. Chand Mehra and Mr. Vinay Mehra. The Tribunal in assessment year 2011-12 sustained the disallowance observing as under: “ 20. After hearing both the sides, we find the Id. CIT(A) sustained the disallowance made by the Assessing Officer on the ground that the assessee failed to prove that C.L. Mehra owns the trademark “Mehrasons” and C.L. Mehra is not at all the owner of the trademark “Mehrasons” and the amount advanced to C.L. Mehra cannot be treated as prudent and expedient for the business purposes. Similarly, in the case of Chand Mehra, he observed that the assessee failed to prove with evidence that any service has been rendered at all by Chand Mehra to the assessee. However, in the case of advance given to Mehra Sons Jewelers Pvt. Ltd. of Rs.23,50,000/-, Namita Mehra of Rs.6,94,914/- and Sakshi Mehra of Rs.2,57,779/- these were allowed by him on the ground that these advances are for business purposes. So far as advance of Rs.l 1,71,865/- to Vinay Mehra is concerned, he gave a finding that the assessee tailed to prove with evidence as to whether any service at all has been rendered by Mr. Vinay Mehra and. therefore, he held that these advances are nothing but diversifying of business fund for which he upheld the disallowance of interest.”
5.2 In view of identical issue-in-dispute in the grounds raised before us, Thus, respectfully following the finding of the Tribunal (supra), the order of the learned CIT(A) on the issue in dispute is upheld. The Ground No. 3 of the assessee is dismissed.
6. The ground No. 4 of the appeal relates to disallowance of ₹26, 21,773/- under section 14A of the Act. 6.1 We have heard rival submission of the parties and perused relevant material on record. The Ld. counsel submitted that no dividend income was earned by the assessee during the year under consideration and, thus, following the decision of the Hon’ble Delhi High Court in the case of Cheminvest Ltd., 378 ITR 33, disallowance might be deleted. We find that the Assessing officer had also noted the fact that no dividend income has been earned by the assessee in the year under consideration.
Thus, respectfully following the decision of the Hon’ble Delhi High Court in the case of Cheminvest Ltd (supra) the disallowance made under section 14A of the Act is deleted. The ground No. 4 of the appeal of the assessee is accordingly allowed. 7. In the result, the appeal of the assessee is partly allowed. Order is pronounced in the open court on 14th November, 2019.