2019 (11) TMI 1802 - AT - Income Tax

Tribunal Partially Allows Appeal: Upholds Disallowances on Salary/Interest Under Sections 40A(2)(b) & 37; Deletes Section 14A Disallowance

M/s. Mehra Jewel Palace Pvt. Ltd Versus Income Tax Officer, Ward-16 (3), New Delhi

The Tribunal partially allowed the appellant's appeal. It upheld the disallowances related to salary and interest to specific individuals under sections ... Salary disallowance u/s 40A(2)(b) - higher salary paid to the seven persons specified as relative - HELD THAT:- CIT(A) examined the qualification and experience of the persons and did not find any justification in respect of salary expenses of Sh. C.L. Mehra and Ms. Lata Rani Mehra following the decision of his predecessor. In respect of Ms. Namita Mehra also be sustained the disallowance. The Tribunal [2018 (4) TMI 697 - ITAT DELHI] for assessment year 2011-12 upheld the disallowance qualification of the concerned persons and the nature of job/responsibility of each of the persons and accordingly he has come to a conclusion that the salary paid to Aradhana Mehra, Roshni Mehra and Pawan Mehra are justified where the salary paid to remaining persons are not justified. Decided against assessee. Disallowance of interest u/s 37 r.w.s. 40A(2)(b) - assessee reiterated the arguments which were made before the lower authorities, particularly in relation to the trademark of “Mehrasons” owned by Sh. CL Mehra - HELD THAT:- The Tribunal in assessment year 2011-12 sustained the disallowance [2018 (4) TMI 697 - ITAT DELHI] as it cannot be treated as prudent and expedient for the business purposes. Disallowance u/s 14A - counsel submitted that no dividend income was earned by the assessee during the year under consideration and, thus, following the decision of Cheminvest Ltd [2015 (9) TMI 238 - DELHI HIGH COURT] disallowance might be deleted - HELD THAT:- We find that the Assessing officer had also noted the fact that no dividend income has been earned by the assessee in the year under consideration. Thus, respectfully following the decision of the Hon’ble Delhi High Court in the case of Cheminvest Ltd (supra) the disallowance made u/s 14A of the Act is deleted. Appeal of the assessee is partly allowed. Issues:1. Disallowance of salary under section 40A(2)(b) of the Income Tax Act, 1961.2. Disallowance of interest to specific individuals under section 37 read with section 40A(2)(b) of the Act.3. Disallowance under section 14A of the Act.Issue 1: Disallowance of Salary under Section 40A(2)(b) of the Income Tax Act, 1961:The appellant challenged the disallowance of Rs. 7,20,000 under section 40A(2)(b) of the Act. The Assessing Officer disallowed Rs. 22,80,000 of salary expenses paid to relatives due to an increase in salary without valid justification. The CIT(A) upheld the disallowance for specific individuals. The appellant argued based on industry experience and services rendered. The Tribunal, citing a previous judgment, upheld the disallowance for certain individuals, considering qualifications and job responsibilities. As the issue was identical to a previous year, the Tribunal upheld the CIT(A)'s order, dismissing the appeal on this ground.Issue 2: Disallowance of Interest to Specific Individuals under Section 37 read with Section 40A(2)(b) of the Act:The appellant contested the disallowance of interest to specific individuals under section 37 read with section 40A(2)(b) of the Act. The CIT(A) sustained the disallowance based on ownership of a trademark and services rendered. Citing a previous year's judgment, the Tribunal upheld the disallowance for certain individuals due to lack of proof of ownership and services rendered. As the issue was similar to the previous year, the Tribunal upheld the CIT(A)'s decision, dismissing the appeal on this ground.Issue 3: Disallowance under Section 14A of the Act:The appellant challenged the disallowance of Rs. 26,21,773 under section 14A of the Act. The appellant argued that no dividend income was earned during the year, citing a Delhi High Court decision. The Assessing Officer acknowledged the absence of dividend income. Following the Delhi High Court decision, the Tribunal allowed the appeal on this ground, deleting the disallowance under section 14A of the Act.In conclusion, the Tribunal partially allowed the appellant's appeal, upholding the disallowances related to salary and interest to specific individuals but allowing the appeal on the disallowance under section 14A of the Act.