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2015 (5) TMI 503 - ITAT DELHI

2015 (5) TMI 503 - ITAT DELHI - TMI - Excessive salary paid to Directors - Disallowance under section 40A(2)(b) - CIT(A) deleted addition - Held that:- CIT(A) has made a finding of fact and has rightly held that the tax avoidance was never intended by assessee company and, therefore, we are in agreement with his finding. - Decided against revenue.

Penalty/ fine imposed by ICICI Bank - CIT(A) deleted addition - Held that:- The nature of expenses is not in the nature of penalty but are .....

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into existence any assets and enduring benefit for the business. Similarly, reliance was placed on Delhi Tribunal in the case of ITO vs. Spice Communications ltd. [2009 (10) TMI 648 - ITAT DELHI] in which it was held that by incurring expenditure on advertisement and sales promotion, assessee does not acquire any fixed capital assets.- Decided against revenue.

Rent paid by director of the company in her individual capacity - Held that:- As per section 291 of the Act, 1956 provides fo .....

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5 - Smt. Diva Singh And Shri T.S. Kapoor JJ. For the Appellant : Shri T. Vasanthan, Sr. DR For the Respondent : Shri Ankit Agarwal, CA ORDER Per T.S. Kapoor, AM: This is an appeal filed by Revenue against the order of Ld. CIT(A) dated 24.01.2013. The grounds of appeal taken by Revenue are reproduced as under: "1. Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in deleting the addition of ₹ 50,00,000/- made on account of excessive salary paid .....

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the addition of ₹ 2,70,000/- made on account of rent paid by Mrs. Shobna Bhatia in her individual capacity. 2. Ld. D.R. at the outset submitted that there were 4 grounds of appeal. The first ground of appeal relates to excessive salary paid by assessee to its director and therefore, the A.O. has rightly made the addition u/s 40A(2)(b) of the Act. In support of his arguments, the Ld. A.R. submitted that the assessee was not able to demonstrate as to how the salary paid to directors was not .....

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mposed by ICICI Bank and, therefore, the A.O. had rightly made the addition. 2.2 Arguing upon 3rd ground of appeal, Ld. D.R. submitted that huge expenditure amounting to ₹ 62,10,336/- was incurred on account of advertisement and publicity and the copies of bills raised by the suppliers show that the expenses incurred by assessee were with regard to display charges for hoarding sites in Delhi, Kolkata, Mumbai and Bangalore etc. and since the hoardings put up at these places remained for sev .....

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the agreement with the land lord in her individual capacity. There was no authorization made by Assessee Company in favour of Smt. Shobhna Bhatia, director and moreover, the rented apartment was to be used for residential purposes and not for business purposes and, therefore, the A.O. has rightly made the disallowance. 3. Ld. A.R. on the other hand filed a synopsis whereby he submitted brief arguments in support of deletion made by Ld. CIT(A). Regarding the 1st addition made by A.O. on account o .....

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s much lower than salary earned by them in USA. He submitted that these promoter directors got the contacts after making elaborate communication with the customers and therefore, their salary was not excessive as compared to their services provided to the company. He submitted that A.O. cannot dictate as to what the business needs of the company should be and he has to judge business priorities from the point of view of a prudent businessman. For this proposition, he relied upon the case laws as .....

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bmitted that the assessee company being a private limited company cap as provided by Section 309 is not applicable as sub-section (9) to Section 309 clearly states that capping on remuneration does not apply to private limited companies. Moreover, he submitted that there was no tax avoidance as the assessee was taxed at an effective rate of 30.90% whereas the Directors were taxed at a higher rate of tax i.e. @ 33.99%. In this respect, he invited our attention to paper book pages 49-51 where comp .....

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portal which allows purchase of tickets of IPL and other events and for this purpose, the payments were made through ICICI bank and sometimes due to technical faults, the purchase of tickets made by clients through this portal lead to debit in account for more than once and accordingly excess amount charged due to above technical fault, was to be refunded to the customers and ICICI bank which had to provide additional administrative services and bear the cost due to the said portal failure of t .....

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ssessee required publicity only for a very short period for a particular event. It was submitted that specific invoice of suppliers to whom such payments were made, clearly show that such hoardings were made for a limited period of 5-7 days only, therefore, he submitted hat Ld. CIT(A) has rightly appreciated the facts and has rightly deleted the addition. 3.3 As regards the 4th ground of appeal, Ld. A.R. submitted that there was no doubt that the accommodation was residential accommodation but i .....

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submitted hat the issue can be remanded back to A.O. for making comparison of fair market value of the services rendered by the Directors as compared to payments of salary made to them so as to make disallowance u/s 40A(2)(b) of the Act. Regarding the issue of rent, Ld. D.R. submitted that copy of license agreement placed at paper book 111 clearly mentions that the property rented is residential accommodation and there is no mention of fact that the accommodation was taken by Assessee Company. .....

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ppellant could secure success by obtaining contracts for ticketing for IPL matches at Mumbai and Delhi etc. It is also observed that the promoter directors were highly qualified and experienced professionals and the professional work done by these two directors cannot be measured by record of day to day affairs of the company. Moreover, we observe that the Directors were charged to tax at a maximum marginal rates and therefore, rates of tax applicable on their personal income was more than the a .....

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ent like IPL matches at Mumbai and Delhi and the Commonwealth Youth Games in Pune. It was pleaded that considering the nature of the company i.e. Entertainment and Media, the professional expertise and qualifications of both the directors played a vital role in the performance of the company. The Ld. AR also argued that the appellant could achieve success by begging important contracts through professional work done by the two directors, which cannot be measured by the record of day-to-day affai .....

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IT (2004) 265 ITR 77 (Allahabad)." 5.1 We find that Ld. CIT(A) has made a finding of fact and has rightly held that the tax avoidance was never intended by assessee company and, therefore, we are in agreement with his finding. In view of above, 1sts ground of appeal of Revenue is dismissed. 5.2 The 2nd ground of appeal relates to alleged penalty charged by ICICI bank. We find that the assessee company had created a new portal regarding payments made by clients through ICICI bank and the ban .....

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in the normal course of the business and hence were allowable business expenses under section 37. The Ld. Counsel informed that for the purpose of E-ticketing for the IPL events, the appellant had designed a portal titled "KAYZOONGA.COM" which allowed online purchase of tickets of IPL and other events. For this purpose, the payments were made through the ICICI Bank. It was informed that being a relative new portal, the same was not free from technical faults and therefore, in the curre .....

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osts due to technical faults in KAYZOONGA. It was informed that later on, the appellant company made improvement in its portal in order to avoid recurrence of such inconvenience to its customers and Bank. The Ld. AR submitted that though the bank may term such charges as "penalty", in fact there was no breach of any law and therefore, such term should not be interpreted to mean that appellant had breached any law and in respect of which the payments made were penal in nature and not al .....

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ing the nomenclature of the impost as given by the statute, to find out whether it is compensatory or penal in nature. The authority has to allow deduction under section 37(1) wherever such examination reveals the concerned impost to be purely compensatory in nature. 5.3 We find from the above findings of Ld. CIT(A) that the nature of expenses is not in the nature of penalty but are expenses in the normal cause of business and we are in agreement with the findings of Ld. CIT(A) and, therefore gr .....

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re, such publicity was for a short period and cannot be said to be of enduring benefit. From the copies of advertisement bills placed at paper book 78-84, we find that the display sites were hired for hoarding for periods for 5-10 days and, therefore, it cannot be said that the expenses were of enduring nature. Ld. CIT(A) has recorded this fact in his order which is apparent from para 5.4 of his order which is reproduced below: 5.4 Regarding the disallowance out of Advertisement expenses of S .....

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ng nature. It was informed that the purpose of such advertisements was to make people aware that tickets are available for sale for a particular match on the companies' portal and thus the validity of the advertisement was only till the time the tickets of the events were being sold and in any case certainly not beyond the date of the event and thus such publicity was for short time. The Ld. Counsel furnished before me a copy of the invoices for M/s Alakh advertisement to whom the payment of .....

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ing benefit for the business. Similarly, reliance was placed on Delhi Tribunal in the case of ITO vs. Spice Communications ltd. (2010) 35 SOT 78, in which it was held that by incurring expenditure on advertisement and sales promotion, assessee does not acquire any fixed capital assets. 5.5 We are in agreement with the findings of Ld. CIT(A) and, therefore, ground No.3 of revenue s appeal is also dismissed. 5.6 As regards ground nO.4 of appeal, we find that assessee had incurred expenses of ͅ .....

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s no mention about the fact that the said premises was taken on rent by Assessee Company and Mrs. Shobhna Bhatia was acting as agent of above said assessee company. Since the above said agreement expired on 31.01.2009, therefore on 1st Feb 2009 vide agreement dated 01.02.2009 which is placed at paper book pages 105 - 110 again agreement was made for a further period of 11 months. This agreement is also for a period of 11 months starting from 01.02.2009 to 31.12.2009 and monthly lease fee fixed i .....

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