PRAJAPATI GAURAV PREMISES P.LTD,MUMBAI vs. ITO 2(1)(1), MUMBAI

1. The learned AO erred in passing an Order .without providing the Appellant a sufficient opportunity of being heard.

Rival contentions have been heard and record perused. Facts in brief are that the assessee is a closely held Private Limited Company carrying on business as Builders / Developers The name of the Company was changed to 'Prajapati Gaurav Premises Private Limited' from 'Amphray Investments and properties Pvt. Ltd. which was taken over by them in financial year ended 31.3.2007. The Company has carried on only one building project by putting up a building on Plot no.3, Sec.2, Kharghar. During the subject year the Company has sold some of the unsold units in the project which was completed in financial year 2007--08. The Company has been regularly following the Completed Project Method of Accounting and has recognized the profits out of sale of finished output in the financial year thus, realizing the residual profits during the current financial year under assessment.

During the course of scrutiny assessment, the AO disallowed remuneration to the wives of the Directors amounting to Rs.7.20 lakhs on M/s. Prajapati Gaurav Premises Pvt. Ltd., the plea that no services were rendered by these ladies and that expenditure was not incurred wholly and exclusively for the purpose of business. It was contended by learned AR that these ladies have rendered following services to the company, therefore, there is no reason for the disallowance of the remuneration paid to them. A.To get daily attendance sheet prepared properly . B. To approve monthly salary sheet including monitoring of holidays and late Attendance. C. HR related activities like arranging outings and picnics, education seminars as well as social welfare programmes for staff. D. To approve and order for office petty purchases like files etc, snacks for staff, Xerox , prints of drawings etc . E. To assign and distribute work to lower staff including peons and junior executives.

I have considered rival contentions and found that CIT(A) has confirmed the disallowance of remuneration after observing as under:- 6. As regards disallowance of remuneration shown in the name of Ms. Sunita Prajapati and Ms. Shraddha Prajapati. it is pertinent to mention that appellant has failed to demonstrate any evidence that both these ladies have actually done anything for appellate company Since the appellant has failed to produce any evidence that Ms. Sunita Prujapati and Ms. Shraddha Prajapati, have actually done anything or have managed affairs of the business of the company, such disallowance made by AO deserves confirmation. It is also important to point cut that in P&L a/c expenditure has been shown as remuneration to the directors where as in reality such expenditure is not of directors dnd assessee has already debited an amount of Rs.8,21,12G/- under the head employee:;; remuneration. Thus there is a visible discrepancy and further appellant has failed to produce any evidence of rendering services of these two ladies found to be wives of directors, Further it is important to note that during the year assessee has loss of M/s. Prajapati Gaurav Premises Pvt. Ltd., Rs.18,66,425/-, hence there is no propriety for enhancement of expenditure in the name of wives of the directors, hence find no reason or evidence or acceptable explanation to delete such expenditure. Therefore, finding of the AO is approved and disallowance of. 55 expenditure of Rs.7,20,000/- is sustained.

It appears that lower authorities have not properly appreciated the work done by these ladies and furthermore it was also contention of learned AR that similar remuneration was allowed by the department itself under scrutiny assessment u/s.143(3). Keeping in view totality of facts and circumstances of the case, we restore the matter back to the file of the AO for deciding afresh after considering assessee’s submission.

Next grievance relates to disallowance of motor car expenses of Rs.79,117/-. We have considered rival contentions and found that expenses so reimbursed were incurred wholly and exclusively for the purpose of business. Furthermore no disallowance on account of personal use can be made in case of corporate entities. Gujarat High Court in case of Shayaji Steel have held that no disallowance in case of Corporate entities is to be made on account of personal use by Director / staff. Respectfully following the decision of the Gujarat High Court, I do not find any merit for the disallowance so made by the AO.

Last grievance of assessee relates to addition on account of unexplained deposit in the bank account.

I have considered rival contentions and carefully gone through the orders of the authorities below and found that some of the amounts were deposited in the bank was out of advance received from the customers which is around Rs.4 lakhs. During the year itself, the assessee has M/s. Prajapati Gaurav Premises Pvt. Ltd., withdrawn cash from the bank and very same cash was again stated to be deposited in the bank account. Accordingly, I direct the assessee to furnish cash flow statement before the AO. AO has to decide the issue afresh after giving due opportunity to the assessee.

In the result, appeal of the assessee is allowed in part as indicated above.