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2016 (9) TMI 549 - ITAT INDORE

2016 (9) TMI 549 - ITAT INDORE - TMI - Addition made u/s 40A(2) - payment of salary to assessee’s daughter-in-law - Held that:- We find that Smt. Seema Bhandari, daughter-in-law of the assessee has been working with the assessee for the financial year 2007-08 onwards. She was paid remuneration at ₹ 4.60 lakhs in the immediately preceding year, but during the year under consideration the increase in remuneration was by 350%, although it is the contention of the ld. Authorized Representative .....

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3 - GUJARAT HIGH COURT) wherein it was held that where the recipient company as well as parent company, both are assessed to income tax at maximum marginal rate and, therefore, it cannot be said that the service charges is paid to the recipient company at unreasonable rate to evade income tax. It was also noted therein that so far as the Circular dated 06.07.1968 is concerned, it makes clear that the provisions of Section 40A(2) and particularly with regard to the transaction between the relativ .....

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Therefore, increase in the remuneration @ 350% appears to be on higher side. Considering the nature of services rendered by Smt. Seema Bhandari and increase in turnover due to her efforts, it would be reasonable to consider a sum of ₹ 1 lac per month as reasonable. Therefore, disallowance of ₹ 20,70,833/- (-) 12,00,000/- = ₹ 8,70,833/- is confirmed and balance is deleted. - Disallowance of the entire amount spent on FOC (Free of Cost ) - Held that:- We find that the FOC we .....

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opting sales promotion increase tactics, the genuineness of which has not been doubted by the lower authorities. Therefore, in all fairness, we are of the considered opinion that disallowance of such expenses is not desirable. Accordingly, the disallowance is deleted. - Appeal decided partly in favour of assessee - I.T.A. No.111/Ind/2016 - Dated:- 3-8-2016 - SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI O.P. MEENA, ACCOUNTANT MEMBER For The Appellant : Shri Ashish Goel and Shri N. D. Patwa, Ad .....

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93/- towards payment of salary to assessee s daughter-in-law without considering contractual obligation, legitimate need for the business etc. 3. Facts apropos of these grounds are that the assessee has paid a salary sum of ₹ 20,70,833/- as remuneration to Smt. Seema Bhandari, daughter-in-law of the assessee during the year under consideration as compared to preceding year at ₹ 4,60,000/- for which no plausible explanation was filed. The AO further noted that the assessee has shown l .....

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#8377; 4,60,000/-)was disallowed. 4. Aggrieved with the order of the AO, the assessee preferred the appeal before the ld. CIT(A). The ld. CIT(A) noted that the assessee has taken loan of ₹ 61.60 lakhs from Essen Associates, a proprietory concern of Smt. Seema Bhandari and also paying interest @ 15 % thereon. The contention of the assessee that during the relevant assessment year, there has been increase in the turnover to 33 %. If the same is considered that due to contribution by Smt. See .....

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objective of Section 40A(2) was to do evasion of tax by booking higher expenses in the name of family, whereas no such tax evasion has been found. Provisions of Section 40A(2) cannot be invoked. The ld. Authorized Representative of the assessee referred to CBDT Circular No.6-P dated 06.07.1968, which says that the ITO is expected to exercise his judgment in a reasonable and fair manner in respect of payments to relatives and associate concerns and should not apply in a manner which will cause h .....

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nancial year 2012-13, she was also paid ₹ 36 lakhs. The said salary was allowed u/s 143(3). Copy of the said order was also filed before us. Although the profit had decreased in the current year due to expenses, however, the turnover increased from ₹ 5.53 crores in assessment year 2010-11, ₹ 7.36 croes in assessment year 2011-12, ₹ 9.81 crores in assessment year 2012-13 (current year ) and ₹ 12.58 crores in assessment year 2013-14. The ld. Authorized Representative .....

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t could not be said that service charges was paid to G at unreasonable rate to evade tax. Whether since revenue could not point out that the assessee evaded payment of tax, invocation of Section 40A(2) was not valid. The ld. Authorized Representative of the assessee further relied on the case of CIT vs. Indo Saudi Services (Travel) (P.) Limited, (2008) 219 CTR 562 (Bom), wherein it was held that where the revenue was not in a position to point out how the assessee evaded payment of tax by allege .....

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same tax bracket and paid same rate of tax, there was no question of diversion of funds by paying higher rate to subsidiary company and, therefore, no disallowance could be made u/s 40A(2) of the Income-tax Act, 1961. 7. The ld. Sr. Departmental Representative supported the orders of the lower authorities. 8. We have considered the facts and materials available on record. We find that Smt. Seema Bhandari, daughter-in-law of the assessee has been working with the assessee for the financial year .....

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e business. We have also noted that she is also paying tax @ 30%. Therefore, there appears no evasion of tax by paying higher amount of remuneration. The case laws in the case of Principal CIT vs. Gujarat Gas Financial Services Limited, (2015) 60 taxmann.com 483, as relied upon by the ld. Authorized Representative of the assessee also supports his case, wherein it was held that where the recipient company as well as parent company, both are assessed to income tax at maximum marginal rate and, th .....

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of these decisions, we find that the assessee as well as his daughter in law are being assessed at the maximum marginal rate and, therefore, there appears no ground for tax evasion. However, we are also aware of the fact that increase in the turnover at 30% was same as in the increase of turnover of 30% during the preceding year. Therefore, increase in the remuneration @ 350% appears to be on higher side. Considering the nature of services rendered by Smt. Seema Bhandari and increase in turnove .....

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rofit at ₹ 10,13,318/-. The assessee has given FOC to many customers at ₹ 16,26,229/-. Therefore, the assessee was asked to furnish the details of FOC of last three years alongwith scheme details for which the items are sold on FOC basis to different parties, for which no plausible justification was forthcoming. The AO also noted that the assessee debited ₹ 16,26,229/- as FOC, which was nil during the preceding year whereas the assessee was working on same modus operandi from l .....

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implements in the name of his proprietory business concerns M/s. Naveen Tech Solution. It was submitted that while selling the machinery, the customers insist on getting certain accessories for free. Looking to the competitive environment, the assessee had to offer certain accessories for free alongwith the machinery. While setting the product, a detailed Deal Sheet was made on that basis, the deal was done. The assessee has filed the details of product billed, the accessories provided was also .....

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rth Developers 17,11,000 95,499 142-149 9. Rajat Stone Crusher 17,00,000 79,044 150-154 10. Tejkaran Girdharilal Chawda 18,34,665 88,513 155-160 11. Solanki Construction 17,00,000 92,705 161-167 12. Khajuraho Builders & Construction 18,65,000 97,022 168-175 13. Bansal Constrcution Works 17,00,000 86,786 176-181 14. Prahlad Kumar Tank 18,44,000 88,937 182-187 15. Surendra Singh Kachhawa 18,11,000 77,845 188-193 TOTAL 2,65,79,515 14,82,344 13. The ld. Authorized Representative of the assessee .....

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were accepted in the assessment made u/s 143(3) after due inquiry. Therefore, it is a settled law that AO cannot go into the commercial expediency of the transaction as it is to be decided by the businessmen and not by the AO. In support of this contention, the ld. Authorized Representative of the assessee also relied on the decision in the case of H.B.Estate Developer s, 192 Taxation 278 (Del). The ld. Authorized Representative of the assessee also drew our attention that the AO/CIT(A) did not .....

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