TMI Blog2023 (10) TMI 711X X X X Extracts X X X X X X X X Extracts X X X X ..... enefit derived or even what would be the fair payment outgo for services rendered. Such an opinion cannot be arrived at without adducing necessary evidence. That being so, AO was duty bound to provide an opportunity to the appellant/assessee to place on record the requisite evidence to justify its claim. But all that the Assessing Officer did was to ask the appellant/assessee to justify the salaries paid, and without seeking relevant evidence, simply rejected claim. To our mind, therefore, the best way forward would be to grant an opportunity to the appellant/assessee to adduce appropriate evidence documentary or otherwise before the AO in order to establish its claim regarding educational qualification, experience, the work profile and in particular the duties discharged by the concerned persons to justify claim of the appellant/assessee qua payment of salary to the persons concerned. The orders impugned in the present appeals are set aside and matters are remanded to the Assessing Officer with liberty to the appellant/assessee to adduce evidence on the lines indicated above - HON'BLE MR. JUSTICE RAJIV SHAKDHER AND HON'BLE MR. JUSTICE GIRISH KATHPALIA F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - Namita Mehra 6,94,914 6,94,914 Pawan Mehra - 1,54,521 Sakshi Mehra 2,57,779/- 5,39,449 Vinay Mehra 11,71,865 5,40,237 Total 96,11,405/- 56,96,244/- 4. The finding of fact returned by the AO is that the said advances were given to incur medical expenses and expenses towards children s education. These expenses are obviously not related to the business of the appellant/assessee. 4.1 The counsel for the appellant/assessee has sought to justify these advances by referring to the agreement dated 01.02.2003 between the appellant/assessee and Mr Charanjit Lal Mehra and specifically, to clause four (4) of the said agreement. 4.2 The AO, however, noted that no written agreements were submitted by the assessee company. Given this position, the AO disallowed Rs. 10,47,593/- paid by way of interest by concluding that the conditions provided in Section 37, read with S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onnaught Place, New Delhi 11 0001 property, etc. The Company earned handsomely by utilizing the Mehrasons'' trademark. Shri C. L. Mehra permitted the Company to utilize the trademark. Without any fee, royalty, share in profits, etc. The understanding was that if Shri C. L. Mehra, or his HUF, or co-parcenors of the HUF, required funds (within reasonable limits) to meet requirements such as medical expenses, education of children, etc, the Company would extend them a loan, interest free. The trademark Mehrasons was the security held by the Company for- the said advances. CIT(A)'s FINDINGS The assessee's contention is found to be hollow and without any merit. The assessee failed to prove that Shri C.L. Mehra owns the trademark of Mehrasons . There is a case going on between C.L. Mehra and his cousins of Yaspal group in the High Court of Delhi regarding the ownership of this trademark. At the District Court level Mr. CL. Mehra lost the case and he only filed an appeal in the High Court as plaintiff. Everyday in the newspaper, jewellery ads come in the name of Mehra Sons and it is issued by Y ash Pal Group but not by the assessee. All these fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decreased from Rs. 5,39,449/- as on 31.3.2010, i.e. a decrease of Rs 2,88,650/-. Smt. Sakshi Mehra was given an advance against salary; and the said amount was being paid back gradually, thus the decrease. This is also treated as advance for salary purpose and assessee's contention is accepted. 7. Vinay Mehra: Rs 11,71,865.30. The amount has increased from Rs 5,40,237.30 as on 31.3.2010, i.e. an increase of Rs. 6,31,628/-. Shri Vinay Mehra has a B. Com (Hons) degree from Sri Ram College of Commerce, Delhi University and Shri Vinay Mehra consulted with the Company from time to time on matter pertaining to commerce, trade, finance, etc. and the Company did not pay him for his services. The assessee failed to prove with evidence whether any services at all were rendered by Mr. Vinay Mehara. Hence these advances are treated diversion of business funds and interest disallowance is upheld on this ground. In all the above cases, AO is directed to calculate the disallowance of interest only for the period concerned, which relates to diversion of business funds. [Emphasis is ours] 7. The Tribunal, while sustaining the order of the CIT(A), made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr C.L. Mehra, Mr Chand Mehra and Mr Vinay Mehra. Insofar as Mr Chand Mehra and Mr Vinay Mehra are concerned, it was noted that the appellant/assessee did not furnish evidence to show that they had rendered service to the appellant/assessee. Insofar as Mr C.L. Mehra was concerned, the appellant/assessee failed to demonstrate that he was the owner of the trademark Mehrasons . In this regard, it is noted that litigation was pending with respect to ownership. 9. Qua these findings of fact, there is no material placed on record which would have us reach a different conclusion. 10. In our view, although both the Assessing Officer(AO) and the CIT(A) have referred to an understanding whereby the trademark Mehrasons was provided as security for advances inter alia, to Mr C.L. Mehra, the central point which arose for consideration was whether the loans and advances were extended for business purposes. Admittedly, the amounts were provided for medical purposes and children s education. None of these purposes can be said to be related to the business of the appellant/assessee. In our opinion, this was sufficient to sustain the disallowance of interest. 11. Thus, for the afo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs any expenditure in respect of which payment has been or is to be made to any person referred 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 therefrom, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction: [Provided that for an assessment year commencing on or before the 1st day of April, 2016 no disallowance, on account of any expenditure being excessive or unreasonable having regard to the fair market value, shall be made in respect of a specified domestic transaction referred to in section 92BA, if such transaction is at arm's length price as defined in clause (ii) of section 92F.] (b) The persons referred to in clause (a) are the following, namely: (i) where the assessee is an individual any relative of the assessee; (ii) where the assessee is a company, any director of the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ni Mehra, Smt Namita Mehra and Smt Sakshi Mehra are persons covered under Section 40A(2)(b) of the Act. As reflected from record, the appellant/assessee was not granted fair opportunity to lead evidence in order to prove its justification for payment of salaries to the said persons. 6.1 For the Assessment Year 2011-12, the Assessing Officer held that the appellant/assessee had debited salary of Rs. 29,42,930/- including Rs. 24,00,000/- paid to the said persons covered under Section 40A(2)(b) of the Act despite there being a decline in the business during the relevant Financial Year and that there was no justification presented by the appellant/assessee in that regard, so an amount of Rs. 20,40,000/- was liable to be disallowed being the difference between the salary paid to the persons concerned during the Financial Year 2010-11 and 2009-10. 6.2 The CIT(A) considered the salary component item wise and allowed the salary paid to Smt. Roshini Mehra and Smt. Aradhna Mehra at the rate of Rs. 15,000/- per month on the basis of their academic qualification and nature of responsibility discharged by them during the relevant year, but as regards the salary paid to Shri Charanjeet Lal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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