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TMI Blog2013 (12) TMI 828X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and circumstances of the case and in law was justified in deleting the addition of Rs. 46,90,790/- made by the AO on account of commission paid to M/s Keyser India Pvt. Ltd. iii) Whether the Ld. CIT(A) under the facts and circumstances of the case and in law was justified in deleting the addition of Rs. 33,50,000/- made by the AO on account of deemed income u/s. 2(22)(e) of the I.T. Act, 1961. iv) The appellant craves leave, to add, alter or amend any ground of appeal raised above at the time of hearing. 3. Apropos disallowance of Rs. 36 lacs on account of rent paid In this case as per the assessment order, the assessee company has paid Rs. 36 lacs for the year under consideration to one M/s Sonia & Co. Pvt. Ltd. for use of its premises at M-66-67, Village Jaunapur, Near Sultanpur, Delhi 11--47 as guest house. It is observed by the AO that the Directors of the assessee company, namely Mr. Kapil Gupta and Ms. Deepali Gupta are holding 24.80% shares in each in the above mentioned M/s Sonia & Co Pvt. Ltd. However, this was not mentioned in the Tax Audit Report in Form 3CD. Further, as per the local enquiry report of the ITI, the said guest house was located in a farm house. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the rent was paid through account payee cheques and has been duly shown by M/s Sonia & Co. Pvt. Ltd. in its accounts and that the above company is regularly assessed to income tax. That identical amount of rent for the above guest house paid in the earlier year has been accepted by the Department. That the report of the Inspector on the basis of a perfunctory visit and anonymous hearsay cannot be the basis for rejecting the appellant's claim. That the caretaker of the guest house was presented before the AO during the assessment proceeding on 20.12.2010, but the AO did not examine him. That the assessee was not given cross examination of the alleged third parties from whom the AO might have made local enquiry. 5. Considering the above, Ld. CIT(A) held that he had found that Assessing Officer has based his finding on the Inspector's report which was quite inadequate since as per the report itself the Inspector was not allowed entry into the premises by the watchman and his impression was based on nearby enquiry of which no details about the persons contacted and there whereabouts etc. are given in the report, as reproduced in the assessment order. Ld. CIT(A) opined that in su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... house. He obtained information from nearby people and concluded that the premises was not being used for the purpose claimed by the assessee. The Assessing Officer has also noted that the premises was owned by the company in which the Directors are substantial interested. Assessing Officer has also drawn inference by holding that no guest house register was produced and the salary, electricity and telephone for the guest house was meager. 10.1 On the other hand it is the claim of the assessee that assessee has entered into an agreement for the said premises, sometimes ago, when the Directors were not interested in the said premises. Hence, it is the claim of the assessee that the rent agreement is at arm's length price. Further, it has been submitted that addition cannot be made on the basis of the Report of ITI who did not enter into the premises. It is also claimed that the information gathered by the ITI was a mere hearsay without any evidentiary value. It has further been submitted that the assessee has not been given a chance to confront the persons from whom the Income Tax Inspector obtained adverse report for the assessee. It has also been claimed by the assessee that care ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Hon'ble Apex Court decision in the case of Kapurchand Shrimal vs. CIT,131 ITR 451 wherein it was that it is the jurisdiction as well as duty of the Appellate Authority to correct the lacuna in the order of the authorities below and issue appropriate direction where needed. 11. Apropos addition of Rs. 46,90,790/- on account of commission paid. In this case as per the assessment order, the assessee has paid commission of Rs. 82,56,692/- and Rs. 20,53,559/- on sale of canisters and HT cords to M/s Kayser Pvt. Ltd. which holds 30.38% shares in the assessee company. The assessee has also paid Rs. 14,16,725/- to the above company on account of other services rendered. The total payments made to M/s Kayser India Pvt. Ltd. during the year under consideration thus works out to Rs. 1,17,26,976/-. On being asked by the AO, it was explained by the assessee that M/s Kayser India Pvt. Ltd. was incorporated on 4.9.1996. This company had technical collaboration with Kayser Automative Group of Company of Germany for manufacture of Canisters of HT cords and supply of the same to various automobile manufactures such as Maruti Suzuki, Hundai and other car manufacturers. Subsequently, the busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the AO cannot be justified. Accordingly, the impugned addition of Rs. 46,90,790/- was deleted. 15. Against the above order the Revenue is in appeal before us. 16. We have heard both the counsel and perused the records. We find that there is a tripartite arrangement between M/s Kayser Automative Systems GmbH, Germany, M/s Kayser India Pvt. Ltd. and the assessee company. This agreement was duly produced before the authorities below. The impugned payment has been made on account of technical or commercial facilities taken over and utilized by the assessee from M/s Kayser India Pvt. Ltd. from the year of such takeover. The said commission has been paid to M/s Kayser India Pvt Ltd. for more than 10 years after the business of the later company was taken over by the assessee. The inference drawn by the Assessing Officer regarding non submissions of details in the Tax Audit Report and the low expenses incurred by M/s Keyser India Pvt. Ltd. are not cogent. It is further noted that commission has been paid not only for technical services, but also because of the fact that the entire business of the company has been made transferred to the assessee. We also note that M/s Keysar In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring the year under consideration. It is observed by the AO that Sh. Kapil Gupta and Smt. Deepali Gupta, Directors of the assessee company hold substantial shares in the above payor company. It was explained by the assessee during the assessment proceeding that the payor company did not have any accumulated profits to be covered under the provisions of section 2(22)(e) of the Act. The assessee also filed calculation of the accumulated profits as per Annexure A to letter dated 15.10.2010 filed with the AO. It was also submitted that the amount received was in the nature of commercial advance made during the course of business transactions. However, the AO has ignored the above contention and has added the above amount as deemed divided u/s 2(22)(e) in the hands of the assessee company. 19. Against the above order the assessee appealed before the Ld. CIT(A) and submitted elaborate submissions and documents. Ld. CIT(A) obtained the remand report also. Ld. CIT(A) also noted the assessee's submission in the alternative that assessee was not a shareholder of the Payor company, M/s Sonia & Co. P Ltd. and hence, in terms of decision of Bhaumik Color Pvt Ltd. 313 ITR (AT) 146 (Mum) (SB) a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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