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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: S/SHRI R.C.SHARMA & AMARJIT SINGH
Assessee by: Shri. Prakash Jotwani Department by: Shri. B.S.Bist सुनवाई क� तार�ख / Date of Hearing: 08/10.2015 घोषणा क� तार�ख /Date of Pronouncement: 04.11.2015 आदेश / O R D E R PER AMARJIT SINGH, JM:
The appeal in 2009-10 is filed by the assessee against the order dated 06.02.2014 of the learned Commissioner of Income Tax (Appeals)-23, Mumbai [hereinafter referred to as the learned “CIT(A)”] passed in appeal No.CIT(A)-23/ACIT 12(3)/IT- 391/2011-12. The assessee has raised the following grounds of appeal:-
“1) (a) On the facts and circumstances of the case and in law the learned CIT (Appeal) erred in confirming the disallowance of expenses amounting to Rs.l, 16,20,233/- on account of Expenses on Employees (85% of Rs. 1,36,70,862/-) and appreciating the fact that the above expenses were incurred for the purpose of business of managing a mall where lot of cost has to be incurred for maintenance, security and management staff of the building. This very cost accounts to a substantial portion of the employee cost.
(b) The learned CIT (Appeal) has failed to appreciate the fact that the company's employees have rendered services to the other concerns in the past and in the present year; no services have been rendered to the sister concerns and which was confirmed by the sister concerns, thus establishing the genuineness of the claim. (c) The learned CIT (Appeal) has failed to appreciate the fact that the expenses incurred on employees for earlier years were also submitted to the AO and there is no major increase in the expenses which are incurred on regular basis & further, in earlier assessment years the same are allowed by the AO while completing the assessment u/s 143(3). 2) a) On the facts and circumstances of the case and in law the learned CIT (Appeal) erred in confirming the disallowance being 50% of depreciation claimed on motor cars of Rs. 7,99,788/- (i.e. 50% of Rs.15,99,576/-) and vehicle expenses amounting to Rs. 1,51,693/- (i.e. 50% of Rs. 3,03,386/-) on 11 cars out of total of 12 cars. (b) The learned CIT (Appeals) has erred in not considering that there are many partners and the cars are used for business purpose and not for personal purpose and so the same should be allowed in full. Cars are used only for the primary activity of the assessee.”
The appeal filed by the assessee is barred by limitation of 9 days. In this context, the assessee has filed an affidavit dated 28.04.2014 mentioning that the assessee has erroneously mentioned the date of receipt of CIT(A) order as 06.02.2014 instead of 19.03.2014. The assessee has filed the appeal in the Tribunal on 16.04.2014 i.e. within the period of limitation. In view of the above, we find that the delay in filing the appeal in the Tribunal was for bona-fide reasons, therefore, we condone the delay and proceed to decide the appeal on merits.
The facts of the case are that the assessee has debited expenses under the various heads amounting to Rs. 1,36,70,862/-. The details of the expenses under the various heads has been elaborated in Para 5.1 of the assessment order, which includes expense in the nature of salary, house rent allowances, bonus, gratuity, staff welfare etc. The Assessing Officer observed that the assessee had disclosed only income from rent, car parking and small interest incomes and was of the opinion that it was highly improbable that the assessee had to incur expenses of its employees to the tune of Rs. 1,36,70,862/- just for earning income from rent and car parking. The Assessing Officer issued the notice to Assessment Year: 2009-10 the assessee to explain the expenditure and the assessee vide letter dated 14.12.2011 explained that in the assessment years 2006-07 to 2008-09 there was reimbursement of expenses incurred by assessee on its employees form Anik Development Corporation and Ajmera Housing Corporation. The Assessee has also stated that some of its employees were offering services to other companies of the group from whom reimbursement had been taken in those years. There was no reimbursement in the year under consideration, but there was a huge business expenditure on the employees. The assessee also submitted documents from the companies terminating the contract for arrangement of reimbursement of the salary expenses. The Assessing Officer examined these two documents and noted as follows:-
(i) They are both dated same – 01.01.2008. (ii) They are both signed by the same person. (iii) They are both talking of a discussion held in the same date i.e. 28.12.2007 and come into effect on the same date (iv) One belongs to Ajmera Realty Infra India Ltd. and the other belong to Ajmera Housing Corporation. Special attention must be paid to the spelling of the word “Realty” in the first letter. No letter head of a company will have a spelling mistake in the very basic spellings. (v) Both the concerns have the office at the same address. (vi) The address of Ajmera Housing Corporation as mentioned in the return of the assessee is different from that mentioned in the letter. Ajmera Housing Corporation is a partner in the assessee firm.
Both have the same email id : itreturns@ajmera.com. (vii)
In view of the above said observations, the Assessing Officer arrived at a conclusion that the documents are false and fabricated and the employees of the assessee had been working for the other group concerns and the assessee had been debiting the expenses incurred on them to its own profit and loss account. It is observed that the expenses that are allowable are only those which are directly attributable to the business of the assessee and can be allowed and disallowed the claim of assessee on the following grounds:-
3 Assessment Year: 2009
10. (i) "The assessee is showing only rental income and income from car parking. It is not logical that the assessee should be incurring such a huge expense just for earning these two types of incomes . (ii) The assessee is also not showing any work-in-progress. Since the assessee is a builder and developer and had the assessee been showing such expense on its employees, it could have been a logical business expense. But since there is no project as can be seen from the balance sheet, it is improbable that the assessee should be incurring such expenses for earning rental income. (iii) The assessee's last project was completed In the A. Y. 2003-04. Since then there is only rental income and some sales of the stock. (iv) The assessee is incurring expenses on its employees for rendering service to some other concern. The other concern either should have reimbursed the same to the assessee or else the assessee should not have rendered the services of Its employees to the other concerns. (v) The use of services of its employees for the other concerns and then debiting the same to its P&L means that the expenses are actually incurred by someone else, but booked by the assessee.
(vi) Thus these are not valid business expenses of the assessee."
The Assessing Officer also observed from figures of expenses incurred on account of employees reimbursement of expenses etc. for the assessment years 2006-07 to 2009-10. The Assessee had been incurring approximately 15% of the employee expenses for its own business and also incurred balance 85% of the expenses for other business concerns. Therefore, Assessing Officer disallowed the 85% for the business expenses on its employee based upon the submissions of the assessee. The Assessing Officer worked out the disallowance to the tune of Rs. 1,16,20,233/-.
We have heard the representative of the parties and have gone through the materials filed. In the same manner as consider representative the matter before the CIT(A). However, for the sake of convenience, the submissions of assessee are hereby re-produced below:-
“Besides rent of Rs. 1,06,36,068/- during the year under consideration assessee is having income from car parking charges, miscellaneous income and interest as under. Car Parking Fees 65,61,940 Misc. Income 4,19,000 Interest Income 60,123 Total gross income on account of business comes to Rs.70,41,063/- as parking charges and misc. Income. Hence the assessee has earned a business income during Assessment Year: 2009-10 the year under consideration. This income has also been accepted as business income since last many years. Copies of Assessment order for A.Y. 2006-07,2007-08 and 2008-09 is enclosed. Balance Sheet for the Year ended 31.03.2008 is also enclosed. Your appellant has submitted detailed working of payments made to employees on a monthly employee wise basis. All the payments are made through bank. The AO has accepted the fact that expenses are incurred and are genuine expenses. Also assessee has submitted details of expenses is that in the earlier with various group concerns. However during the year under consideration the contracts were terminated. The letters in respect of termination of arrangements of reimbursement are submitted. AO treated these two letters as bogus on the various grounds as mentioned in the assessment order on Page No.
4. However he failed to appreciate that assessee is one of the group companies of Ajmera Group of Builders who have a common corporate office at one place. There will be responsible person tackling the different issue and division of work by individual person. Issue raised by AO on Page No. 4 in the assessment order have no relevance on the case of the assessee. It cannot be said that these letter are fake and bogus because more so when both these concerns are assessed to tax and have not claimed these expenses. All the assessee in the group concerns are in the higher bracket of taxes and hence there is no tax avoidance on the part of the assessee. Just the fact that expenses have not been reimbursed during the year cannot be the reason to disallow 85% of expenses. All the employees are old and cannot be removed even if there is no reimbursement of expenses. Assessee is maintain a mall and parking space where in various activity are being carried on. All the employees are having their own duties and responsibilities. They are working with the assessee since past many years and cannot be removed immediately. One cannot remove their existing employees just because there are no immediate projects in hand. Employees of the assessee have not given any services to other group concerns. No where it is proved that they are working for other group concerns. During the assessment proceedings and explanation has been given vide letter dated 29.12.2011 giving the various reasons for no sales has taken place during the year. The same has not been considered by the AO while disallowing the expenses. The expenses incurred on employees for earlier years are also submitted to the AO. The same are normal and there is no major increase in the expenses. The same are incurred on a regular basis. However in earlier assessment years the same are allowed by the AO while completing the assessment u/s. 143(3). In none of the assessment years the same has been disallowed by the AO. Hence the same should be allowed in full.”
6. However on the other hand, the learned DR strongly relied upon the order of the CIT(A) and contented to dismiss the present appeal.
With due regards to the contentions raised by the representative of the parties, it is only required to see that whether the expenditure incurred by the assessee upon the employee to the tune of Rs.1,36,70,862/- is justifiable and is allowable as expenditure or not. The assessee in its assessment years 2006-07 Assessment Year: 2009-10 to 2008-09 was claiming the expenditure on account of the employees who were rendering their services by the group concern. In the relevant assessment years, the business of the assessee is only of the car parking fees and received to the tune of Rs.65,61,940/-. The assessee has claimed a huge expenditure of Rs.1,36,70,862/-. No doubt the assessee produced the documents of termination of contract with the concerned companies and took the plea that the employee could not be remove. Therefore, the assessee had incurred the huge expenditure of salary etc. paid to them. It does not seems justifiable that the assessee was retaining the employee just to collect the car parking fees to the tune of Rs.65,61,940/- by the claim of huge expenditure by its employee to the tune of Rs.1,36,70,862/-. The actual contract termination conditions between the assessee and the group concerns have not been placed on record and apparently in the earlier years the employees were doing their job with the sister concerns companies of the assessee. Moreover, after the termination of the contract with sister concerns it does not seem that the salary etc. is justifiable to claiming the expenditure upon them to the tune of Rs.1,36,70,862/-. It also came to the notice that the assessee fail to connect the expenditure upon its employees with his current business. No doubt AO recorded the reasons about this fact that the assessee was earlier in the profession of builder and developer and during the relevant assessment year no work of any kind is executed by the assessee. Therefore, the explanation to retain the employees by the assessee firm is not justifiable. Moreover, it is simple sense of understanding that the expenditure can be claimed only against the business of the assessee to the extent of 85% was declined by the AO on the ground of earlier claim of the assessee in the year of 2006-07 to 2008-09. In view of the said circumstance we are of the view that there is no ground to interfere with the order of learned CIT(A).
Ground No. 2:- The representative of the assessee has argued that the 8. Ltd. CIT(A) has wrongly confirmed the action of A.O. in disallowing the claim Assessment Year: 2009-10 of depreciation of the cars to the extent of Rs. 7,99,788/- i.e. 50% of Rs.15,99,576/- and vehicle expenses amounting to Rs. 1,51,693/- i.e. 50% of Rs. 3,03,386/- on 11 cars out of total 12 cars. As discussed above, the income of the assessee in the relevant assessment year was only raise rental income. There was no doubt, in the provisions of bill in the relevant assessment years no work of any kind was being executed by him. The assessee claimed the depreciation on 12 cars and some cars were registered in Gujarat. The AO declined the depreciation of 11 cars which were not used for the purposes of business. No doubt the registration of a car in other State of India but it linked with the business is necessity to claim the depreciation. Any how, the Learned CIT(A) has allowed the 50% depreciation to the extent and given relief accordingly. No other documents were produced before us to justify the claim and no new facts came on record to support the contention of the assessee. In the claim of the assessee with record to the disallowance of the depreciation upon the cars by the CIT(A) seems to be justifiable. Therefore, we are of the view that CIT(A) has rightly passed the order in question which does not required any interference with at this stage.
In the result, the appeal of the assessee is hereby dismissed.