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2021 (1) TMI 780 - AT - Income TaxPayment of salary to Senior Director Mrs. Sonali Nanda - Allowable business expenditure or not? - assessee has filed copies of various documents before the AO as well as the Ld. CIT (A) to demonstrate that Mrs. Sonali Nanda was appointed in terms of appointment letter containing terms and conditions of service and also these documents substantiated that Mrs. Sonali Nanda had vast experience in areas of food and beverage, baking and promotional events - CIT-A deleted the disallowance - HELD THAT:- It is seen that the AO has proceeded to disallow the salary paid on the ground that she was employed only by virtue of her being the daughter of Mr. Suresh Nanda and that she had not been selected thorough her open offer. To our mind this cannot be considered a valid ground for making the impugned disallowance in as much as there is no law against employing the relatives or sons or daughters of a shareholder/owner if they are otherwise duly qualified/ experienced to hold the position - AO has not pointed out that the expenditure was not incurred for the purpose of business. In such a situation the disallowance made by the AO has been rightly deleted by the CIT (A). AO cannot decide on the reasonableness and commercial expediency of a particular expenditure incurred by the assessee as has been laid down by the Hon’ble Apex Court in case of S.A. Builders [2006 (12) TMI 82 - SUPREME COURT]. CIT (A), while deleting disallowance in Assessment Year 2011-12, has noted that the payment of salary has not been disputed, it is not disputed that the salary paid has been taxed in the hands of Mrs. Sonali Nanda and there was no evidence to suggest that the payment of salary was without any service rendered. The Ld. CIT (A) also observed that the argument that the salary paid was on account of Mrs. Sonali Nanda being daughter of Mr. Suresh Nanda holds no matter in view of the overwhelming evidence produced and that the Revenue cannot proceed on consideration not based on any evidence. - Decided against revenue. Disallowance u/s 14A - Assessee has made suo moto disallowance - HELD THAT:- As per the Hon’ble Delhi High Court in Maxopp Investment Ltd.[2011 (11) TMI 267 - DELHI HIGH COURT] it is incumbent on the Assessing Officer to indicate cogent reason for rejecting the claim of the assesee with regard to expenditure or no expenditure, as the case may be, while proceeding to compute disallowance u/s 14A r.w. Rule 8D - such satisfaction in precariously absent in the assessment order. In such a situation, the disallowance made by the Assessing Officer cannot be upheld. Similarly, the action of the Ld. CIT (A) in restricting the disallowance to the exempt income also has no basis as there is no recording of satisfaction by the Assessing Officer as aforesaid. Department challenging the deletion of disallowance u/s 14A in Assessment Year 2012-13 and 2013-14, it is seen that, undisputedly, in both these years the assessee has not earned any exempt income. The Ld. CIT (A) has deleted the disallowance by duly noting the same. The issue of disallowance u/s 14A of the Act in absence of exempt income earned is no longer res integra. In the case of Cheminvest Ltd. vs. ACIT [2015 (9) TMI 238 - DELHI HIGH COURT] has held that where the assessee does not earn any exempt income during the year, no disallowance u/s 14A of the Act can be made. Depreciation of cars - disallowance by AO on the ground that these cars were found to be parked at the residences of Mr. Suresh Nanda and Mr. Sanjeev Nanda who held majority stake directly or indirectly inthe assessee company - HELD THAT:- Similar addition was made in Assessment Yea₹ 2009-10 and 2010-11 [2017 (11) TMI 1067 - ITAT DELHI] which was subsequently deleted by the ITAT as held mere parking of cars at the premises of these persons, cannot ipso facto lead to an inference that the depreciation has to be disallowed which otherwise are the assets of the assessee company. Assessee had also submitted that these cars were used purely and wholly for the purpose of hotel business and in absence of rebuttal of this explanation, depreciation cannot be disallowed and accordingly, we held Ld. CIT (A) has rightly allowed depreciation. Disallowance of depreciation on Gym Equipment - HELD THAT:- As relying on own case [2017 (11) TMI 1067 - ITAT DELHI] it is not in dispute that the equipment has been bought by the company and is appearing at the fixed assets in the balance sheet of the assessee company and said assets has been acquired during the running of hotel business. Then simply because it is being used by Managing Director it cannot be held to be for private use so as to warrant disallowance of depreciation. At the most if any equipment has been placed for exclusive use of Managing Director the same should be added as perquisite in the hands of the said Director but cannot be disallowed in the hands of the assessee company when this asset already forms part of the block of the assets and depreciation has been allowed earlier. TDS u/s 195 - Disallowance being payment made to M/s Apex Enterprises - contention of the AO that no tax had been deducted at source while making the payment and that the assessee could not justify the payment - CIT- A deleted the addition - HELD THAT:- It is undisputed that no tax was required to be deducted at source on the impugned payment in view of Articles, 14, 7 and 22.1 of the DTAA between India and UAE. CIT (A), while deleting the addition, observed that the agreements were found during the course of search and seizure and that, undisputedly, there was evidence to indicate that efforts were made by M/s Apex Enterprises towards the fulfilment of the terms of the agreement. The Ld. CIT (A) also observed that although the efforts did not result into any concrete proposal materialising, failure to procure business does not lead to the conclusion that the transaction was not genuine. We agree with the observations of the Ld. CIT (A) on the issue. We also negate the allegation of the Assessing Officer that the contract was awarded only by virtue of Mr. Sanjeev Nanda being the Son of Mr. Suresh Nanda. Having perused the records and the evidences as well as assessment order, it is apparent that the Assessing Officer chose to ignore these evidences and proceeded to make the disallowance without any cogent reason. Unexplained cash found during the course of search - assessee’s submission that this cash pertained to cash received from sale of scrap generated during the renovation work as well as normal operations of the business - CIT-A deleted the addition - HELD THAT:- CIT (A) while deleting the addition, has noted that although no specific explanation was given at the time of search, the seized cash had been separately reflected in the audited balance sheet and has also been included in the income from sale of scrap offered to tax and, thus, the cash found and seized stood duly accounted for. This finding of fact has not been controverted as being perverse by the Ld. Sr. DR. In such a situation, this being a finding of fact by the Ld. CIT (A), we find no reason to interfere with such finding. - Assessee appeal allowed.
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