TMI Blog2017 (9) TMI 1020X X X X Extracts X X X X X X X X Extracts X X X X ..... dition u/s 68 is not sustainable - Decided in favour of assessee. Addition u/s 40A(2)(b) - AO disallowed the interest payment in excess of 12% - assessee failed to prove the nexus of Directors remuneration as well as the interest expenses - Held that:- The Hon’ble Allahabad High Court in Abbas Wazir (P) Ltd. Vs. CIT [2003 (9) TMI 50 - ALLAHABAD High Court ] held that while invoking the provision of section 40A(2) of the Act the reasonableness of the expenditure for the purpose of business has to be seen from the point of view of businessmen and not that of Revenue, the approach has to be seen that the reasonableness must be looked into from the businessmen’s point of view. We have seen that the assessee paid interest @ 15% to 18% to related parties. In our considered opinion the interest paid by the assessee is not unreasonable. The assessing officer has not given any specific reason as to why the interest paid by assessee is unreasonable. Considering the peculiarity of the facts of the case the disallowance is deleted. - ITA No. 7196/Mum/2014 - - - Dated:- 11-7-2017 - SHRI P . K . BANSAL, VICE - PRESIDENT AND SHRI PAWAN SINGH, JUDICIAL MEMBER For The Assessee : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wance confirmed may be deleted . 3 . 2 The learned CIT ( A ) erred in confirming the order of the Assessing Officer on the issue of disallowance of Rs . 4,08,034 /- u / s . 40A ( 2 )( b ) , without appreciating that the there was an increased in the interest rate is only 15 % to 18 % and it was as per the resolution passed by the Assessee Company . The Company had also had sufficient found / reserve for payment of Interest, therefore, disallowance made was not justified . Hence, the disallowance confirmed may be deleted . 2. Brief facts of the case are that assessee is a company engaged in the business of manufacturing of textile fabric from various types of yarns, filed its return of income for relevant assessment year on 28 September 2011 declaring total income of ₹ 33,06,183/-. The assessment was completed on 31 January 2014 under section 143(3) of the Act. The assessing officer while passing assessment order besides the other addition and disallowance, added ₹ 10 Lacks as unexplained cash credit under section 68 and disallowed ₹ 12,15,000/- on account of Directors remuneration and ₹ 4,08,034/- on accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als) remanded the written submission and the cashbook for verification to the assessing officer. The assessing officer in its report dated 28th of August 2014 submitted that no such cashbook was enclosed along with the submission and the cashbook produced for examination is incorrect, the cashbook was never filed or produced for verification. On the report of assessing officer the learned Commissioner (Appeals) again required comment of assessee. The assessee vide his reply dated 18 September 2014 reiterated its earlier contention that all those documents were furnished. However, the learned Commissioner (Appeals) considering the Remand report of assessing officer upheld the addition. It was further argued that the assessee has explained the source of deposit and the books of account of assessee were not rejected. The assessing officer simply made the addition on the basis of AIR information without any other evidences. The cash deposits were made by assessee out of the case withdrawal from time to time. The complete books of account and other documents were produced before the assessing officer during the assessment proceeding. In the remand proceedings the assessee filed all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h book (page 76 to 82 of PB) and again before the ld. CIT(A) vide submission dated 21st July 2014 (page 72 to 75 of PB). From the orders of authorities below, we noticed that the addition was made by AO solely on the basis of AIR Information and without any corroborative evidence. The Revenue/AO has not made any independent enquiry. Instead of examining the evidence furnished before the assessing officer, the assessing officer merely relied upon the AIR Information which is not sustainable in the eyes of law. The co-ordinate bench of Mumbai Tribunal in Kroner Investment Ltd. Vs. DCIT (ITA No. 5125/Mum/2013 dated 10.04.2015 held that when Revenue has not made any enquiry to find out whether the AIR information was correct or not. The additions made solely on such information are not sustainable in the eyes of law. Considering the fact that the assessee has produced before us the day to day cash book of the assessee showing the deposit of ₹ 5,00,000/- on 15.11.2010 and again ₹ 5,00,000/- on 12.01.2011 with Tamilnad Bank Ltd., the addition u/s 68 is not sustainable. We order accordingly. In the result, the Ground No.2 of appeal is allowed. 8. Ground No.3 relates to addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmit the details of expansion along with documentary evidence in the form of copy of Resolution of Board for increasing the remuneration of Directors. We may note that the question whether the payment of remuneration is excess or unreasonable in a given case has to be examined keeping in mind, the services rendered by the Directors who are drawing remuneration. While examining the remuneration, the legitimate need of the business of the assessee or the services rendered to the assessee is also to be kept in mind. After applying the above referred facts, if it is found that expenditure is excessive or unreasonable, excess or unreasonable proportion of the expenditure is to be disallowed. We have to kept in mind the provisions of sub-section 2(b) of section 40A of the Act, the burden is upon the assessee to establish that salary paid to its Directors is not excessive or unreasonable. In the present case, the assessee has categorically contended that the business of assessee was substantially expanded due to the contribution of services rendered by the Directors. The Net Profit of the assessee has also been increased. Moreover, the Directors have to visit the Establishment of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
