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Dy. CIT, Cent. Cir. -13, Mumbai Versus M/s. Golden Wings Pvt. Ltd. And Vice-Versa

2017 (12) TMI 533 - ITAT MUMBAI

Addition on account of under invoicing - addition on the basis of email correspondence between the Director Mr. Pradeep Thampi and the customer - Held that:- When the rates charged are competitive with the charges billed to other customers, there cannot be any inference that the books of accounts of the assessee need to be rejected. The rates quoted in the email can by no stretch of imagination be treated as the final bill, the receipt against which has been clandestinely received by the assesse .....

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eated as conclusive evidence that the assessee company has made under billing and received a sum of ₹ 42,89,213/- which has not been disclosed in the books of accounts. This fact is more accentuated when it is noted that the rates charged are competitive and no case has been made out that it is lower than any rate charged to other customers. Hence in the background of aforesaid discussion, we are of the considered opinion that this addition has been made dehors any cogent material and, hen .....

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ew of the businessman and not of the Revenue. Hence, torch bearer of the corporate governance mantle donned by the assessing officer is uncalled for and the disallowance is not sustainable on the facts and circumstances of this case. Another reasoning given by the assessing officer is that it is a repayment of capital contribution of ₹ 1 crore, on the basis of the statement of the said director. The ld. Commissioner of Income Tax (Appeals) has correctly held that this cannot be sustained a .....

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nt and/or not commensurate with the services provided. Accordingly, we set aside the order's of the authorities below and delete the disallowance. - Revenue appeal dismissed. - I.T.A. No. 5972/Mum/2014 And I.T.A. No. 6228/Mum/2014 - Dated:- 7-12-2017 - SHRI SHAMIM YAHYA, AM AND SHRI C. N. PRASAD, JM For The Revenue : Shri T. A. Khan For The Assessee : Shri Prakash G. Jhunjhunwala ORDER Per Shamim Yahya, A. M.: These are cross appeals by the Revenue and assessee arising out of the orders of t .....

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t of share capital contributed by him including interest and tax payable not allowable u/s. 37 of the I. T. Act, being capital expenditure? 3. The grounds raised in assessee s appeal read as under: 1. The Commissioner of Income Tax (Appeals) has erred in confirming the addition on account of under invoicing of ₹ 42,89,213/- on the basis of email correspondence between the Director Mr. Pradeep Thampi and the customer. 2 The ld. Commissioner of Income Tax (Appeals) has erred in confirming th .....

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e company has leased an aircraft challenger 300 from Peel Aviation Limited, Ireland. In the assessment order, the Assessing Officer has noted that survey action u/s. 133A was carried out. During the course of survey, incrementing documents were impounded. A statement of Shri Pradip Thampi, Managing Director of the company was recorded. The Assessing Officer noted that in the statement, Shri Pradip Thampi accepted that Shri Lalit Modi is the defecto owner of the company. The Assessing Officer fur .....

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see company, it was found that the assessee company has only recorded sale of ₹ 2,65,40,937/- for 87.30 flying hours for South Africa Tour. From this, the Assessing Officer inferred that the assessee has under invoiced the usage of the aircraft for South Africa Tour by ₹ 42,89,213/-. The assessee was given a show cause letter dated 19.3.2013. In the show cause, the assessee was asked to comment upon the discrepancy of ₹ 42,89,213/- which has arisen because of figure of ₹ .....

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timate, on the above discrepancy during the recording of his statement u/s. 131 of the I T Act, 1961 on 02.01.2013. The assessee was further asked to show cause as to why difference of ₹ 42,89,213/- should not be treated as unexplained and added to the hire charges. 5. In response to the above show cause, the assessee replied vide letter dated 22/03/2013. The assessee's reply is reproduced as under: The assessee has made lease agreement with Peel Aviation Ltd for a period of 7 years to .....

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ion is from 23.03.09 to 25.05.09 the assessee does not have any inquiry for the charter plane & if the same had not been utilized for Peel Aviation Ltd. then the assessee might had incurred huge losses since irrespective of utilization of single flying hours In a month still they are liable to pay a fixed lease rent amount. A/so, the flying hour rate charged to Peel Aviation Ltd. on basis of prevailing / market rate. The managing director of the assessee company had decided to let them at &# .....

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essee had saved incentive figure on an average of 7-10% approx plus interest portion of 2.5% i.e., 15% on ₹ 2,65,40,937/- the borrowing cost from the market. In the given circumstances, the billing made to Peel Aviation Ltd. is reasonable & there is no unexplained income to the tune of ₹ 42,89,213/-. Regarding, Mr. Pradeep Thampi statement that it was quotation based on estimate basis at the time of survey u/s, 133A. At that time, normally the person is not in position to answer .....

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ntion of the aircraft from lying idle in the competitive market apart from interest cost on lease rental payment to peel aviation. The Assessing Officer held that the statements recorded u/s. 131 of the Act is evidentiary value. That the assessee has retracted from his original position of where quotation from an estimated basis to one where billing done to Peel Aviation of ₹ 2,65,40,937/- has been justified. The Assessing Officer further held that when the assessee has been confronted wit .....

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essee s appeal, the ld. Commissioner of Income Tax (Appeals) referred to the statement recorded u/s. 131 of Shri Pradip Thampi and held as under: 5.3.4 A perusal of the above statements clearly shows that the appellant company is defacto owned and controlled by Shri Lalit Modi. The air craft was used by Shri Lalit Modi and his guests during South Africa tour and the value of the services was ₹ 3,08,30,150/-. This was apparently subsequently booked in the appellant company's books at &# .....

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nder invoicing is confirmed. 8. Against the above order, the assessee is in appeal before us. 9. We have heard both the counsel and perused the records. We find that in this case assessee is a corporate entity. There is no finding that there is any change in the shareholding pattern or the control of directors in the company. Hence, the observation of the authorities below that the company belongs to Mr. Lalit Modi, is not based upon any cogent material. In the course of survey an email was foun .....

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n accepted by the assessing officer. No case has been made out by the Revenue that the assessee company has charged a higher rate to other customers than the rate adopted in this case. When the rates charged are competitive with the charges billed to other customers, there cannot be any inference that the books of accounts of the assessee need to be rejected. The rates quoted in the email can by no stretch of imagination be treated as the final bill, the receipt against which has been clandestin .....

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tretch of imagination be treated as conclusive evidence that the assessee company has made under billing and received a sum of ₹ 42,89,213/- which has not been disclosed in the books of accounts. This fact is more accentuated when it is noted that the rates charged are competitive and no case has been made out that it is lower than any rate charged to other customers. Hence in the background of aforesaid discussion, we are of the considered opinion that this addition has been made dehors a .....

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he same has been paid as an incentive to Shri Pradip Thampi. The statement was recorded u/s. 131 of the 1 T Act, 1961 on 02.01.2013 of Shri Pradeep Thampi, Director of the assessee company. In the statement, he stated that as per the instructions of Mr. Lalit Modi, he was paid an incentive of ₹ 75,00,000/- in financial year 2008-09 & 2009-10 each. 11. The assessee company was asked by the Assessing Officer to justify the reasonableness of the payment. The assessee company gave followin .....

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d soon monopolized the charter business. He facilitated induction of various aircrafts for many corporate houses and managing their aircrafts. After successfully running the charter business for 14 years, he expanded the business and started a Non Schedule Charter Company - M/s. Golden Wings Pvt. Ltd. He inducted a jet aircraft on lease which was flown over globally for various customers till 2010 12. However, the Assessing Officer was not satisfied. He held that the assessee has failed to subst .....

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assessee company has paid an incentive of ₹ 75,00,000/-. The Assessing Officer observed that however to be able to draw an incentive of ₹ 75,00,000/- each year, Shri Pradip Thampi should have contributed exceptionally in the growth of the assessee company. That the annual accounts of the assessee company reflects that there is a dip in the gross hire charges receipt of the assessee company from ₹ 1098 lakhs in AY 2009-10 to 952 lakhs in AY 2010-11. That the assessee company has .....

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he statement of Shri Pradeep Thampi u/s. 131 of the Act that the incentive of ₹ 75 lacs was received by him on instruction of Shri Lalit Modi as reimbursement of share capital of ₹ 1 crore which was invested by him. The Assessing Officer further held that Shri Lalit Modi was managing the company and Shri Pradip Thampi had minimum role in management. Hence, he held that the incentive was not justified. The Assessing Officer further concluded as under: 6. In fact the assessee company i .....

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ated as reimbursement of share capital the amount of ₹ 75,00,000/- belonging to 2009-10 is disallowed from the computation of the A.Y. 2010-11. The reimbursement of share capital is not an allowable expense u/s. 37 of the I. T. Act, 1961 and it treated as capital expenditure. So, it cannot be allowed as a deduction from the Profit & Loss account of the assessee company. 14. Against the above order, the assessee appealed before the ld. Commissioner of Income Tax (Appeals). 15. Upon the .....

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e of Shri Pradeep Thampi in the books. However, without specifying any cogent basis, he sustained disallowance of ₹ 99 lacs and deleted the disallowance of ₹ 51 lacs. 16. Against the above order, the Revenue and assessee are in cross appeal before us. 17. We have heard both the counsel and perused the records. We find that the assessee has claimed payment of ₹ 75 lacs each as incentive paid to Managing Director for A.Ys. 2009-10 and 2010-11. The payment for A.Y. 2009-10 was suo .....

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is a repayment of capital contribution by the said managing director. As regards the holding that payment is not justified with the services rendered by director, the reasoning attributed by the Assessing Officer can only be said to be guesswork not at all sustainable. The assessee in its explanation regarding the services rendered by the said director has elaborately mentioned the same, which has been duly noted by the Assessing Officer himself as reproduced in earlier part of this order. But .....

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