TMI Blog2018 (2) TMI 1277X X X X Extracts X X X X X X X X Extracts X X X X ..... sales to the sister concern. In any case, the directors are assessed at highest rates of tax and applying the ratio laid down in CIT Vs. Indo Saudi Services (Travel) Pvt. Ltd. (2008 (8) TMI 208 - BOMBAY HIGH COURT), we hold that no disallowance is to be made out of remuneration paid to directors under section 40A(2)(b) of the Act.- Decided in favour of assessee Disallowance of professional charges - as per assessee K.K. Cans & Allied Products Pvt. Ltd. was the main entity of the group and e-mail was in its name for ease of reference - Held that:- Assessing Officer cannot sit in the judgment with the decision of assessee to pay professional charges to various persons against which necessary evidence has been filed both before the Assessing Officer and CIT(A), even before us. Merely because the said communication is sent to K.K. Cans & Allied Products Pvt. Ld., who was the main entity of the group does not justify the disallowance in the hands of assessee. Disallowance of depreciation on building improvement - Held that:- Land and building belongs to the directors which has been given on rent free basis to the assessee company but the repairs undertaken by the assessee are hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue Diversion of profits - addition u/s 40A - items which were sold by assessee to its sister concern were in turn, sold to third party and hence the assessee had diverted profits to its sister concern - Held that:- The provisions of section 40A(2)(a) of the Act are attracted where the assessee incurs expenditure in respect of which payment has been made to a person referred to in clause (b). The assessee in the present case has not incurred any expenditure nor claimed the same but has shown sale of its products to its sister concern. Hence the order of Assessing Officer in invoking provisions of section 40A(2)(a) of the Act is misplaced; even though the assessee had sale transactions with its sister concern - Decided against revenue - ITA No. 177/PUN/2014, ITA No. 211/PUN/2014 - - - Dated:- 9-2-2018 - Ms. Sushma Chowla, JM And Shri Anil Chaturvedi, AM Assessee by : Shri Nikhil Pathak Revenue by : Shri Mukesh Jha ORDER Per Sushma Chowla, JM The cross appeals filed by the assessee and Revenue are against order of CIT(A)-2, Nashik, dated 25.11.2013 relating to assessment year 2009-10 against order passed under section 143(3)(ii) of Income Tax Act 1961 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5] The learned CIT(A) erred in confirming the disallowance of remuneration paid to the directors of ₹ 22,88,741/-. 5.1] The learned CIT(A) failed to appreciate that the appellant company have paid commission to the directors @ 7% on sales and the commission paid in this year was reasonable and hence, there was no reason to make any disallowance. 5.2] The learned CIT(A) erred in holding that the commission paid to the directors on sales to group company was not allowable without appreciating that the total amount paid during the year to the directors was reasonable considering the various services rendered by the directors and accordingly, no disallowance was warranted. 6] The learned CIT(A) erred in confirming the disallowance of interest of ₹ 32,533/- on the ground that the interest paid @ 18% on the loans taken from the directors was excessive. 6.1] The learned CIT(A) erred in holding that the interest paid @ 18% to the directors was excessive without appreciating that rate of interest was reasonable and hence, no disallowance was warranted. 7] The learned CIT(A) erred in confirming disallowance of ₹ 46,000/- u/s 40A(3) without a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not pressed. 6. The issue raised in ground of appeal No.4 is against the claim of depreciation in respect of vehicles which were registered in the name of directors of the assessee company. The claim of assessee was that the vehicles were acquired from the funds of assessee and were also used for assessee s business and thus, the assessee being beneficial owner of said vehicles was entitled to claim of depreciation on the said vehicles, was denied to the assessee. The learned Authorized Representative for the assessee at the outset pointed out that the issue raised vide ground of appeal No.4 is squarely covered in favour of assessee by the ratio laid down by the Pune Bench of Tribunal in Manraj Motors Pvt. Ltd. Vs. DCIT in ITA No.2002/PN/2013, relating to assessment year 2010-11, order dated 30.04.2015. He further pointed out that the CIT(A) had denied the claim on the basis of decision of Mumbai Bench of Tribunal in Edwise Consultants Pvt. Ltd. Vs. Addl.CIT, order dated 19.04.2013. However, in the succeeding year in the case of Edwise Consultants Pvt. Ltd. Vs. DCIT (2017) 83 axmann.com 27 (Mumbai-Trib), the issue has been decided in favour of assessee. 7. The learned Depart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s were registered in the name of the Directors of the assessee company does not establish the case of the revenue for not allowing depreciation on such assets. The concept of financial ownership has been laid down by the Hon‟ble Supreme Court in Mysore Minerals Ltd. vs. CIT, (1999) 239 775 (SC) and hence followed in series of decisions admittedly where the funds of the assessee company have been utilized for the purchase of vehicles, even though the vehicles are not registered in the name of the assessee company, does not establish the case of the Revenue especially where the domain/control of the said assets was with the company itself and the vehicles were being utilized for the purpose of carrying on business of the assessee company. We hold that the assessee is entitled to the claim of depreciation on such vehicles which were owned by it and was being used for its business though it was registered in the name of the Directors. In this regard, we find support from the ratio laid down by the Pune Bench of the Tribunal in ACIT vs. Talera Motors Pvt. Ltd. in ITA No.1208/PN/2009 relating to assessment year 2006-07 order dated 11.05.2011, wherein reliance was placed on the ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the name of the Directors of the assessee company. The ground of appeal No.1 raised by the assessee is thus, allowed. 10. Accordingly, we hold that the assessee is entitled to claim of depreciation on cars which are registered in the name of directors, where the funds for purchase of the said vehicles has been paid by the assessee company and the same have been shown as asset of the assessee company and also the vehicles were used by the assessee company. In view thereof, we allow the claim of depreciation in the hands of assessee. 11. Before parting, we may also refer to the observations of the CIT(A) vide paras 4.13 to 4.14 at pages 32 to 50 of the appellate order, wherein the CIT(A) has though referred to the decision of the Pune Bench of Tribunal in ITO vs. Shree Panchganga Agro Impex Pvt. Ltd. in ITA No.956/PN/2009 relating to assessment year 2005-06, order dated 31.05.2011, wherein the claim of depreciation on vehicles registered in the name of directors of the company was allowed. Reference was also made to the decision in the case of Rohan Builders and Developers Pvt. Ltd. vs. ACIT in ITA No.942/PN/2006 relating to assessment year 2004-05, order dated 29.08.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndo Saudi Services (Travel) Pvt. Ltd. (2009) 310 ITR 306 (Bom) for the proposition that where the tax rates paid by the assessee company and directors were higher and there was no loss to the Revenue, then the provisions of section 40A(2)(b) of the Act could not be invoked. 14. The CIT(A) upheld the order of Assessing Officer partially, against which the assessee is in appeal. The CIT(A) allowed partial relief to the assessee, against which Revenue is not in appeal. 15. The learned Authorized Representative for the assessee pointed out that remuneration paid to the directors at ₹ 1.36 crores is to be allowed in entirety. He referred to the order of CIT(A) and pointed out that the CIT(A) accepts the remuneration to be reasonable but disallowed the remuneration on sales to sister concern of ₹ 3.26 crores. He was of the view that no commission is to be paid on such sales to sister concern. The learned Authorized Representative for the assessee further pointed out that the Revenue is not in appeal against the directions of CIT(A), though several grounds of appeal have been raised by the Revenue in its appeal. 16. We have heard the rival contentions and perused the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on each of the grounds of appeal and we proceed to decide the same. 18. The first issue raised vide ground of appeal No.1 is against deletion of addition made on account of disallowance of professional charges of ₹ 10,81,490/-. 19. Brief facts relating to the issue are that the assessee had paid professional charges of ₹ 14,25,325/- to various persons. The Assessing Officer disallowed the said expenditure observing that the supports filed by the assessee i.e. e-mail communication in the name of K.K. Cans Allied Products Pvt. Ltd., were not relating to the assessee. The Assessing Officer disallowed sum of ₹ 13,56,325/-. The CIT(A) held that the disallowance to the extent of ₹ 10,81,490/- was not justified and the same was deleted; however, he held that an expenditure of ₹ 2,74,835/- was capital in nature and the same was disallowed. 20. The learned Departmental Representative for the Revenue referring to the observations of Assessing Officer at pages 6 to 9 pointed out that the work undertaken did not relate to the assessee and hence, the expenditure was not allowable. 21. The case of assessee on the other hand, was that the expenses amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to its directors and hence depreciation on the same was also not allowable. 24. The plea of assessee before the CIT(A) was that no benefit of enduring nature was obtained nor any new asset came into existence, hence the expenditure is to be allowed as revenue in nature. It was also admitted by the assessee that the said premises was owned by two directors and no written agreement was entered into between the assessee company and its directors in this regard. The CIT(A) held that expenditure is capital in nature. However, he held the assessee to be entitled to claim of depreciation in respect of said expenditure under section 32(1) of the Act. 25. The Revenue is in appeal against the same and the learned Departmental Representative for the Revenue in this regard has placed reliance on the ratio laid down by the Hon ble High Court of Delhi in M.M. Fisheries (P.) Ltd. Vs. CIT (2006) 152 Taxman 247 (Del) for the proposition that where the ownership of asset was with the director of the company in the personal capacity, then the assessee would not be entitled to claim depreciation under section 32 of the Act. 26. The learned Authorized Representative for the assessee however, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ges of ₹ 16,05,570/-. The assessee during the year under consideration had paid sales commission to the parties. The claim of assessee was that its turnover had increased from ₹ 5.33 crores to ₹ 20.03 crores and hence, the commission. However, the Assessing Officer disallowed the commission paid to two out of three parties i.e. M/s. Ceepee Refrigeration and Shalibhadra V Mehta. 29. The CIT(A) however, in view of the fact that two parties carried out the said work deleted the said addition. 30. The Revenue is aggrieved by the order of CIT(A) in allowing the claim of ₹ 16,05,570/-. In the written submissions filed before the CIT(A), the assessee has explained the activities undertaken by the agents which are at pages 24 to 27 of the appellate order. The CIT(A) after considering the same has held as under:- 4.10 The appellant company was a new entrant in the business of Bulk Milk Cooler and its nature of business required the services of agents at pre and post sales stage. The fact that commission is paid and tax is also deducted at source is not disputed. Also, none of the concerned parties is a relative‟ within the meaning of section 40A(2)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Finding of CIT(A) is that not necessarily every services rendered must result into business in the same year since the assessee was dealing in items for which persistent efforts were required. We find merit in the reasoning of CIT(A) in this regard and accordingly, uphold the order of CIT(A) in allowing the claim of service commission totaling ₹ 16,05,570/-. Reliance placed upon by the learned Departmental Representative for the Revenue on the decision of the Hon ble High Court of Delhi in Schneider Electric India Ltd. Vs. CIT (supra) is factually distinguishable. The ground of appeal No.3 raised by the Revenue is thus, dismissed. 32. The next ground of appeal No.4 raised by the Revenue is against deletion of addition made on account of foreign trip expenses of ₹ 1,27,784/-. 33. Brief facts relating to the issue are that the assessee had incurred foreign travel expenditure of ₹ 6,39,009/-. The Assessing Officer allowed ₹ 93,000/- and disallowed balance expenditure related to visit of Hong Kong and Thailand by one of the directors and his family members, which was upheld by the CIT(A), against which the assessee is not in appeal. Another visit was by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition made by the Assessing Officer at ₹ 11,62,631/-. 37. Revenue is in appeal against the same. 38. The learned Departmental Representative for Revenue placed reliance on the order of Assessing Officer. 39. The learned Authorized Representative for the assessee in this regard submitted that where the amounts have been paid on behalf of customers though in cash, but were recovered from the customers and since the assessee had not claimed any expenditure in the Profit and Loss Account on the said account, then there is no merit in the order of Assessing Officer in holding the same to be hit by provisions of section 40A(3) of the Act. 40. We have heard the rival contentions and perused the record. In the facts of the present issue raised before us, the assessee had paid ₹ 34,84,068/- to various transporters on behalf of its customers and also for own business. Out of the said amount, sum of ₹ 29,79,121/- was paid in cash. The assessee against payment of ₹ 33,08,973/- had recovered ₹ 30,17,611/- from its customers through sale invoices, the balance sum of ₹ 2,91,362/- was debited to Profit and Loss Account. The assessee had made two p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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