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Facts
M/s Hindustan Information Technology, the assessee, received a marketing fee of Rs. 12,50,000/- but claimed business expenses totaling Rs. 10,70,460/- for employee remuneration, conveyance, and other office expenses. The Assessing Officer and Ld. CIT(A) disallowed these expenses, treating the marketing income under "other sources" and asserting the assessee did not carry out any business activities, nor did it furnish sufficient details for the expenses.
Held
The Tribunal found that the employee's salary expenses were not disputed by the revenue authorities. It held that the disallowance was not justified merely on the ground that the appellant was deemed not to have carried out any business activity, especially when the assessee had demonstrably earned marketing income. Consequently, the Tribunal ruled that no disallowance was called for on account of salary, conveyance, and other office expenses.
Key Issues
Whether the disallowance of employee remuneration, conveyance, and other expenses claimed against marketing income is justified, when the Assessing Officer contends no business activity was carried out and details were insufficient, despite the undisputed earning of income.
Sections Cited
143(3), 37(1), 2(22)(e)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘C’, NEW DELHI
Before: Dr. B. R. R. Kumar, Sh. Anubhav Sharma
ORDER
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeal has been filed by the assessee against the order of ld. CIT(A)-XI, New Delhi dated 03.11.2010.
Following grounds have been raised by the assessee: “(1) The appellant prays that the assessment framed under section 143(3) of the Act be amended since it is not based on facts. (2) Assessing Authority erred in disregarding the basic conditions prescribed for making an assessment under section 143(3) and the relevant order is not based on material available with the A.O; (3) The Ld.CIT(A) has confirmed the additions of Rs. 10,70,460.00 by disregarding the Expenditure on Employees Salary , Conveyance .Depreciation and Other Expenses. (3) The Ld.CIT(A) has also ignored the facts that appellant company has received business Income of Rs. 12,50,000/-from M/s Leading Edge Communication Pvt. Ltd. during the year and that business activity already mentioned in “Memorandum and Article of Association” of the company. Company is headed by Hindustan Information Technology Pvt. Ltd. Mr. Harminder Bhatia. The venture has been set up for using the expertise of Mr. Harminder Bhatia by promoters. Appellant Company & Leading Edge Communication Pvt. Ltd. are separate identity in the eye of law and also doing separate business with separate clients. Therefore, disallowance of expenditures on premise of doing business with the associated company is a wrong treatment by the A.O. (4) The expenditure is incurred on Business Activities only. Ld CIT(A) has also confirmed the disallowances of expenditure which were disallowed by AO on ad-hoc basis. (5) The Appellant company has received "Marketing Fee related to Computer Harware & Accessories of Rs. 12,50,000.00 during the assessment year 2005- 2006 from M/s Leading Edge Communication Pvt. Ltd. Company has incurred the total Expenditures of Rs. 10,70,460.00 under section 37(1) of the Income Tax Act,1961 against the income of Rs. 12,50,000.00 for the Assessment Year 2005-06 - A.O. has disallowed Rs.10,70,460.00 total Expenditures without any basis and ignoring. Details of expenditure as : Company has booked the Expenditures during the Assessment Year 2005-2006 as follows: Employees Remuneration Rs.8,00,841.00 Conveyance Rs.1,83,256.00 Others Expenses Rs.86,363.00 Total: Rs.10,70,460.00 8. The appellant prays that the said addition of Rs.10,70,460.00 be deleted.”
The appeal in this case has been filed on 08.02.20211 in the ITAT. From the record, we find that the ld. CIT(A) confirmed the addition of Rs.10,70,460/- on account of employees remuneration, conveyance and other expenses.
The ld. AR submitted that the company is already been inexistence and the employees remuneration is prerequisite for operation of the company. In the absence of employees salary,
Hindustan Information Technology Pvt. Ltd. the company cannot run its day to day affairs and also the company has earned interest income of Rs.12,50,000/-.
On this issue, the submission of the ld. DR is as under:
“1. Assessing Officer has not given Opportunity for hearing:
This contention of the appellant is factually wrong as can be seen from the assessment order page 1 wherein the Ld. AO has mentioned that – "vide order sheet dated 13.03.2007 during the course of assessment proceedings the appellant was asked to furnish details/documents and reason for claiming of expenses against income under head "other sources" even though the assessee company has not carried out any business activities. The appellant could not furnish any details/documents till first half of October, 2007 hence, show cause notice was issued on 09.10.2007 for 02.11.2007. The assessee again could not furnished reason for claiming of expenses details and evidences in respect of expenses including complete name and address to whom salary paid other then part details."
This fact was also reiterated by Ld. CIT(A) is his order on page number 3 wherein he has noted that- "The records reveals that repeated opportunities were allowed by the AO to the appellant to establish the expenditure and on each and every occasion the appellant failed to do so."
The Ld. AO was well aware of the business activities carried out by the appellant and nowhere in the order Ld. AO has wrongly mentioned the nature of the business of the company.
3. Business Income of Rs. 12,25,000/- received from M/s Leading Edge Communication Pvt. Ltd. i) In the instant case the appellant has shown income received from M/s Leading Edge Communication Pvt. Ltd. under the head Hindustan Information Technology Pvt. Ltd. "other sources". During the assessment proceedings the appellant was asked by the Ld. AO the reasons for claiming of expenses against income under head "other sources" even though the appellant has not carried out any business activities, which the appellant failed to explain inspite of various opportunities being given by the Ld. AO. In fact the no details such as name and addresses to whom salary was being paid was furnished before the Ld. AO. ii) The fact that M/s Leading Edge Communication Pvt. Ltd., is doing business with Government department is not disputed. However, during the assessment proceedings and the appellate proceedings before Ld. CIT(A) the appellant could not provide a satisfactory explanation for the marketing fees received from M/s Leading Edge Communication Pvt. Ltd. and corresponding expenses claimed against no business income.
4. The appellant has quoted Hon'ble ITAT's order for subsequent assessment year A.Y. 2008-09 which is related to deemed dividend under sec. 2(22)(e) and has no relevance in this year.”
We find that the employee’s salary expenses have not been disputed by the revenue authorities and hence the disallowance cannot be made merely on the ground that the appellant has not carried any business activity though the assessee has earned Rs.12,50,000/- on account of marketing. Hence, keeping in view the specific facts of the case, we hold that no disallowance is called for on account of salary, conveyance and other office expenses.
Hindustan Information Technology Pvt. Ltd. 7. In the result, the appeal of the assessee is allowed. Order Pronounced in the Open Court on 21/06/2024.