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2016 (9) TMI 762 - ITAT DELHI

2016 (9) TMI 762 - ITAT DELHI - TMI - Addition u/s 40A - disallowance being the 50% of salary paid to Director - Held that:- Assessing Officer (A.O.) in this case has not brought out any comparables before disallowing 50% of remuneration paid to Smt.Kiran Qureshi on adhoc basic u/s 40A(2)(b) of the Income Tax Act, 1961 (the Act). The assessee justified the payment by demonstrating that, Smt.Kiran Qureshi is having more than two decades of experience in the job and she is well education and widel .....

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ssee. - ITA No. 2634/Del/2015 - Dated:- 10-8-2016 - SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER For The Appellant : Sh. M.P.Rastogi, Adv. For The Respondent : None (Adjournment Application rejected). ORDER This is an appeal filed by the Assessee directed against the order of the Ld.CIT(A)-15, New Delhi dated 27.3.2015 pertaining to the Assessment Year (A.Y.) 2011-12 on the following sole ground. That the disallowance of ₹ 15,00,000/- being the 50% of salary paid to Mrs. Kiran Qureshi, Direct .....

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r the circumstances, as the Bench cannot be allowed to collapse, I reject some of these applications filed by the Revenue for adjournments and dispose of the case ex parte qua the Revenue on merits. 3. Heard Shri M.P.Rastogi, Ld.Counsel for the assessee. 4. I find that the Assessing Officer (A.O.) in this case has not brought out any comparables before disallowing 50% of remuneration paid to Smt.Kiran Qureshi on adhoc basic u/s 40A(2)(b) of the Income Tax Act, 1961 (the Act). The assessee justif .....

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maximum marginal rates and hence there is no diversion of taxable income. 5. In this case there is no evasion of tax. The Co-Ordinate Bench of the Delhi Tribunal in the case of Amserve Consultants Ltd. in ITA 6059/Del/13 and ITA 6090/Del/2013 in the case of Amsure Insurance Agency Ltd. for the A.Y. 2009-10 vide its order dt. 29th June, 2016 has dealt with the same issue and held at paras 12.3 to 12.9 as follows. 12.3. On these facts we should examine the correctness of disallowance made u/s 40A .....

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erred to in clause (b) of this sub-section, and the [Assessing] Officer is of opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him there from, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction. 12.4. T .....

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e to a relative or associate concern falling within the specified categories, it will be necessary for the Incometax Officer to scrutinize the reasonableness of the expenditure with reference to the criteria mentioned in the section. The Income-tax Officer is expected to exercise his judgment in a reasonable and fair manner. It should be borne in mind that the provision is meant to check evasion of tax through excessive or unreasonable payments to relatives and associate concerns and should not .....

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ss-border transactions or whether the Transfer Pricing Regulations be extended to domestic transactions. In domestic transactions, the under-invoicing of sales and over-invoicing of expenses ordinarily will be revenue neutral in nature, except in two circumstances having tax arbitrage such as where one of the related entities is (i) loss making or (ii) liable to pay tax at a lower rate and the profits are shifted to such entity; Complications arise in cases where the fair market value is require .....

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including the methods provided under Transfer Pricing Regulations. The law can also be amended to make it compulsory for the taxpayer to maintain Books of Accounts and other documents on the lines prescribed in Rule 10D and obtain an audit report from his CA that proper documents are maintained; Though the Court normally does not make recommendations or suggestions, in order to reduce litigation occurring in complicated matters, the question of extending Transfer Pricing regulations to domestic .....

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We have heard the learned advocates appearing for both sides. W7e have also perused the order passed by the Tribunal dated 21st Oct., 1999 which is impugned by the Revenue in the present appeals. We find that the following facts were established before the Tribunal and the same have been accepted by the Revenue even before us. (i) That the assessee apart from paying handling charges @9 1/2 per cent to its sister concern, have paid handling charges at the same rate to other agents viz., M/s A.K.T .....

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the claim after due scrutiny. For asst. yr. 1990-91 also the claim of the assessee @9 1/2 per cent has been allowed though the same has not been dealt with by the AO specifically in the order. (iv) For asst.yrs. 1993-94 and 1994-95 the assessment has been made by the AO under section 143(3) and handling charges paid to the sister concern @ 9.5 per cent have been considered to be reasonable and allowed. (iv) The sister concern of the assessee M/s Middle East International is also assessed to tax .....

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in coming to the conclusion that the CIT(A) was wrong in disallowing half per cent commission paid to the sister concern of the assessee during the asst. yrs. 1991-92 and 1992-93. The ld.advocate appearing for the appellant was also not in a position to point out how the assessee evaded payment of tax by alleged payment of higher commission to its sister concern since the sister concern was also paying tax at higher rate and copies of the assessment orders of the sister concern were taken on re .....

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ne in mind that the provision is meant to check evasion of tax through excessive or unreasonable payments to relatives and associate concerns and should not be applied in a manner which will cause hardship in bona fide cases. Thereafter it was held as follows. 7. The question whether the expenditure is excessive or unreasonable in a given case has to be examined keeping in mind the services (with which we are concerned in the present case) for which payment is made. In the process the legitimate .....

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ot excessive or unreasonable as in this case Mr.SushilPandit was holding substantial portion of share namely 65 percent in the assessee company. When we apply the aforesaid principle in the facts of this case, we find that the assessee has been able to discharge the burden that the price paid by it to Mr. SushilPandit is not excessive or unreasonable. 12. It will also be useful to refer to the judgment of Allahabad High Court in Abbas Wazir (P.) Ltd. v. CIT [2004] 265 ITR 77/[2003] 133 Taxman 70 .....

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v. Edward Keventer (P.) Ltd. [1972] 86 ITR 370 , the Calcutta High Court considering identical provision in 1922 Act, it was held that the section places two limitations in the matter of exercise of the power. The section enjoins the Assessing Officer in forming any opinion as to the reasonableness or otherwise of the expenditure incurred must take into consideration (i) the legitimate business needs of the company and (ii) the benefit derived by or accruing to the company. The legitimate busine .....

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efit" to a company in relation to its business, it must be remembered, has a very wide connotation and may not necessarily be capable of being accurately measured in terms of pound, shillings and pence in all cases. Both these aspects have to be considered judiciously, dispassionately without any bias of any kind from the view-point of a reasonable and honest person in business. The aforesaid judgment of Calcutta High Court was affirmed by the Apex Court in CIT v. Edward Keventer (P.) Ltd. .....

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