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Income Tax Appellate Tribunal, “H” BENCH, MUMBAI
Before: SHRI SANJAY GARG & SHRI MANOJ KUMAR AGGARWAL
आदेश / O R D E R
Per Sanjay Garg (Judicial Member)
These are the cross appeals one by the assesse and the other by the revenue arising out the order dated 12/02/2015 of Ld. Commissioner of Income- tax (Appeals)-36 [hereinafter referred to as CIT(A)].
First we take up the revenue appeals. Ground No.1: “On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance made on account of commission of Rs. 6,53,683/- paid to Pradeep G Sinha HUF considering the assessee’s submissions. The commission paid to the HUF is not allowable as the assesse failed to justify the payments”.
Ground no.1 taken by the revenue in its appeal is regarding the action of the CIT(A) in deleting the disallowance made by the AO on account of Commission payment of Rs.6,53,683/- by the Assessee to his own HUF. 3. The assesse is engaged in the business of maintaining of Textile machinery and acting as agent for Japanese, German and American textile machinery manufacturers. During the assessment proceedings, the &2593/Mum/2015 Pradeep G Sinha Assessment Year 2010-11 Assessing Officer (in short AO) observed that the proprietary concern of the assesse has paid commission, to Pradeep Sinha (HUF). The commission was paid out of commission amount received from TMT machinery Japan. The AO asked the assesse about the justification of the commission so paid by the proprietorship concern of the assesse to the HUF, of which the assesse himself was the Karta. The assesse explained that the HUF has been assisting in rendering of services to TMT machinery Japan. Two sons of the assesse being members of the HUF also had helped in the business of the assesse. Considering the various services availed by the assesse from its HUF, the assesse paid a nominal commission of 1.70 per cent of the total commission received from TMT machinery Japan. The AO, however, did not agree with the above submissions of the assesse and disallowed the commission payment so paid by the assesse to the HUF. Being aggrieved by the above order of the AO, assessee carried over the matter to the CIT(A). The Ld. CIT(A) considering the submissions of the assesse observed that it was not only during the current year, rather the assesse has been making payments of commission to HUF in earlier years as well . That the HUF comprised of the assesse, his wife Ms.Sanjitha Sinha and two sons. The two sons of the assessee hold degrees in Business Administration and Engineering respectively. The HUF during the year under consideration had also earned commission income from other parties also. Therefore the &2593/Mum/2015 Pradeep G Sinha Assessment Year 2010-11 rendering of services by the HUF not only to the assesse but to the third parties was not in doubt. Even the HUF was the owner of premises admeasuring about 2500 sq.f which was used by the assesee’s proprietorship concern for business purposes . The assesse during the year had received rent/compensation for use of the premises and facilities belonging to HUF from foreign companies but the said amount has been duly offered to tax in the hands of the assesse. No rental income has been further remitted by the assess to the HUF. The Ld. CIT(A) considering the overall facts and circumstances of the case, deleted the disallowance made by the AO in respect of the commission paid by the assessee to the HUF.
We have considered the rival submissions of the parities have also gone through the record. We find that the assesse has declared total income of Rs.4,68,44,690/- whereas, the commission amount paid to the HUF is only Rs. 6,53,683/-. It has not been denied by the AO that the HUF, apart from offering services to the proprietorship concern of the assesse, is offering similar type of services to third parties also. The HUF has also offered for taxation its business income. The two sons of the assesse who suitably qualified, being the members of the HUF, have been rendering the services to the assesse as well as to the third parties on behalf of HUF. No separate expenditure for salary has been booked by the assessee with regard to the services done by his two sons. Even, no expenditure/rent has been booked by the assesse in respect of the &2593/Mum/2015 Pradeep G Sinha Assessment Year 2010-11 premises used by the assessee’s proprietorship concern whereas, the assesse has shown rental income in his return in respect of said premises received from third parties. Therefore we are not inclined to accept the contention of the revenue that it is a colorable device of the assessee to reduce the expenditure. We therefore do not find any infirmity in the order of the Ld. CIT(A) on this issue and the same is upheld.
5. Ground NO.2: “On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance made on account of salary of Rs. 16,90,000/- paid to Ms. Sanjitha Sinha since the assesse failed to justify the basis for payment of such a huge salary to his wife. The asessee has also not provided any supporting documentary evidences like appointment”.
In ground no. 2, the revenue has agitated the action of the CIT(A) in deleting disallowance made an account of salary payment of Rs. 16,90,000/- paid to Ms. Sanjitha Sinha, wife of the assesse. The AO disallowed the salary paid to Ms, Sanjitha sinha observing that she was also an employee/director of M/S Tsudatech India Pvt.Ltd. Further that no letter of appointment, mustroll of employees, professional tax details etc. were furnished. In appeal before the CIT(A), the assessee submitted that Ms. Sanjitha sinha had been working as GM of the assesse proprietorship concern for a number of years and she had been performing necessary functions which were duly evidenced by record of emails etc. with the bank managers as also with the representatives of the concerned parties with whom the assesses has done business dealings. That Ms. Sanjitha Sinha was a &2593/Mum/2015 Pradeep G Sinha Assessment Year 2010-11 graduate from Patna college and also holding degree in mass communication from IMC New Delhi. It was further submitted that she being in charge of overall management of business was authorized to sign salary cheques, make corresponding with foreign parties, sign invoices, correspond with the tax consultants etc. The Ld. CIT(A) considering the above submission, observed that Ms. Sanjitha Sinha has been drawing salary from the assesse’s proprietorship concern for past many years and it was evident that she was in charge for regular administrative matters of the assessee’s proprietorship concern even in the earlier assessment years including AY 2007-08 & 09-10, for which years, the assessment in the case of the assessee was done under scrutiny assessment proceedings u/s 143(3) of the I.T.Act but no such disallowance on account of salary paid to Ms. Sanjitha Sinha has ever been made. Therefore considering the overall facts and circumstances of the case, the Ld. CIT(A) deleted the disallowance so made by the AO on this issue; the revenue thus has come in appeal before us.
The Ld. AR of the assesse has brought our attention to the copy of the income tax return/ computation of income of Ms. Sanjitha Sinha. It is seen from the statement of income that Ms. Sanjitha Sinha has shown salary income from M/s Tsudatech India Private Limited of Rs. 7,20,000/- and from assessee’s proprietorship concern at Rs. 16,90,000/-. Apart from that she has also shown income from other sources at Rs. 1,32,496/- . It &2593/Mum/2015 Pradeep G Sinha Assessment Year 2010-11 comes out that she is already taxed at the maximum slab of income tax, therefore there seems no attempt on the part of the payee and recipient to divert income from the former to the later avoid taxes .The Ld. CIT(A) has already discussed in detail about the services and day to day administration done by Ms. Sanjitha Sinha in relation to the business activities of assessee’s proprietorship concern, therefore we do not find any infirmity in the order of CIT(A) on this issue. Ground No.3 to 9: Ground No.3 : “On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the disallowance made on account of staff welfare expenses of Rs. 4,18,536/- at 15% instead of the 57% disallowed by AO. The AO has correctly made the disallowance on the basis that there were no bills to support these expenses and the assesse had produced only some self made vouchers to corroborate the expenses”. Ground No.4: “On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the disallowance made on account of sales promotion expenses of Rs. 6,22,532/- at 15% instead of the 65.66% disallowed by AO. The AO has correctly made the disallowance on the basis that there were no bills to support these expenses and the assesse had produced only some self-made vouchers to corroborate the expenses”. Ground No.5: “On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the disallowance made on account of diesel and petrol expenses of Rs. 14,59719/- at 15% instead of the 65.66% disallowed by AO. The AO has correctly made the disallowance on the basis that these expenses were substantiated by self-made vouchers only and also the same explanation has been offered for car hire charges and car maintenance expenses”. Ground No.6: “On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the disallowance made on account of car hire expenses of Rs. 1,01,977/- at 15% instead of the 50% disallowed by AO. The AO has correctly made the disallowance on the basis that there were no bills to support these expenses and the assesse had produced only some self-made vouchers to corroborate the expenses”. Ground No.7: “On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the disallowance made on account of car maintenance expenses of Rs. 1,64486/- at 15% instead of the 40% disallowed by AO. The AO has correctly &2593/Mum/2015 Pradeep G Sinha Assessment Year 2010-11
made the disallowance on the basis that there were no bills to support these expenses and the assesse had produced only some self-made vouchers to corroborate the expenses”. Ground No.8: “On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the disallowance made on account of office expenses of Rs. 77,758/- at 15% instead of the 50% disallowed by AO. The AO has correctly made the disallowance on the basis that there were no bills to support these expenses and the assesse had produced only some self-made vouchers to corroborate the expenses”. Ground No.9: “On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the disallowance made on account of travel expenses of Rs. 38,18,728/- at 15% instead of the 50% disallowed by AO. The AO has correctly made the disallowance on the basis that these expenses were substantiated by self-made vouchers only and also the assesse was not able to produce the other necessary evidences like the tickets, the purpose of visit, business exigency of the visits”.
So far as grounds no.3 to 9 are concerned, they are in relation to various disallowances as mention in the relevant grounds of appeal. The same were made by the AO only on estimate basis The Ld. CIT(A) considering the disallowance in relation to the each of the item has restricted the disallowance to 15 per cent of the expenditure.
4. We have considered the rival submission and have also gone through the impugned order of the CIT(A). In relation to staff welfare expenses, the Ld. CIT(A) has observed that the same looked to be reasonable even most of the entries which had been identified by the AO on the basis of self- made vouchers relate to expenses incurred on food. He further found that the self-made vouchers contained particulars of the persons claiming the expenses along with name of the restaurant /hotel from which food has been ordered. Considering the overall facts and circumstances, the Ld. &2593/Mum/2015 Pradeep G Sinha Assessment Year 2010-11 CIT(A) restricted the disallowance to 15% as against the disallowance of 57% made by the AO, observing that existence of some percentage of personal expense could not be ruled out. Similarly in respect of sales promotion expenses, the Ld. CIT(A) has given his findings in para 5.5.1 of the order and has observed that the nature of the business of assessee being that of commission agent, the requirement of keeping the principals, clients and their representatives happy cannot be denied. However he restricted the disallowance to 15 % of the expenses claimed under this head as against 65.66 per cent made by the AO. The Ld. CIT(A) in similar manner considered the expenses on account of diesel and petrel and restricted the same to 15% of the total expenditure. He also restricted the expenditure in relation to car hire charges, car maintenance charges, conveyance expenses, office expenses, travel expenses to the extent of 15% considering the nature of the expenses, the nature of business of the assessee and the relevance of the expenditure to the business activity of the assessee. He, however, upheld the disallowance in relation to mobile and telephone expenses and car insurance expense made by the AO to the extent of 10 % considering the same as reasonable. Now the department, before us, has come in appeal agitating the action of Ld. CIT(A) in restricting the above disallowances up to the extent of 15 % as against disallowed by the AO from 40 % to 57% as discussed above. The AO had not denied incurring of the expenses by the assessee &2593/Mum/2015 Pradeep G Sinha Assessment Year 2010-11 in relation to above stated items. The AO has made disallowance only on estimation basis finding certain discrepancies in the bills and vouchers and observing that personal element cannot be ruled out. However Ld. CIT(A) considering the overall facts and circumstances of the case has restricted the expenses up to extent of 15 % which seems to be quite reasonable. We, therefore, do not find any infirmity in the order of the CIT(A) in restricting the said disallowances to 15 % and the same is accordingly upheld. ITA.No. 2302/Mum/2015- Assessee’s Appeal: Now coming to the appeal of the assessee, the assessee in his appeal has agitated the action of the CIT(A) in restricting the disallowance up to the extent of 15 % and also the upholding of the disallowance made by the AO at the rate of 10% in relation to telephone expenses and car insurance expenses. As discussed above, the Ld. CIT(A) has considered the justification of the expenditure in relation to each of the items and considering the overall facts and circumstances of the case has restricted the disallowances up to the extent of 15 % in relation to various items and upheld the disallowance at the rate of 10% as expenses in relation to telephone expenses and car insurance expenses. The Ld. AR though has pleaded that there was certain reimbursement of expenses which the assessee has offered as its income therefore at least same should be reduced from disallowance made by the CIT(A). We are not inclined to &2593/Mum/2015 Pradeep G Sinha Assessment Year 2010-11 accept the above contention of the Ld. AR. The disallowance at the rate of 15% has been done by the CIT(A) after considering the overall facts and circumstances of the case and it will also take care of the reimbursements. The assessee has already been given substantial relief by the Ld. CIT(A) by restricting the disallowance up to the extent of 15% expenses as against made by the AO of an average of 50 %. In view of the above, order of the CIT(A) is upheld.
In the result both the appeals i.e, one by the assessee and the other by the revenue are hereby dismissed. Order pronounced in the open court on 09th August, 2017.