2017 (12) TMI 533 - AT - Income Tax

Tribunal overturns Assessing Officer's additions, emphasizes evidence and business perspective

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

Dy. CIT, Cent. Cir. -13, Mumbai Versus M/s. Golden Wings Pvt. Ltd. And Vice-Versa - Tmi Issues Involved:1. Under-invoicing of Rs. 42,89,213.2. Disallowance of incentive payment to the Managing Director.Issue-wise Detailed Analysis:1. Under-invoicing of Rs. 42,89,213:The assessee, engaged in the business of hiring charter planes and air taxis, was scrutinized following a survey action under section 133A. During the survey, documents were impounded, and a statement from the Managing Director (MD) was recorded. The Assessing Officer (AO) noted discrepancies between the invoiced amount for the South Africa Tour and the amount reflected in an email conversation. The AO inferred under-invoicing by Rs. 42,89,213 and added this to the assessee's income, rejecting the books of accounts under section 145(3).Upon appeal, the Commissioner of Income Tax (Appeals) upheld the AO's addition, noting that the MD's statement indicated the company was de facto owned by another individual and that the invoiced amount was less than the actual value of services rendered.The Tribunal, however, found no cogent evidence of under-invoicing. It noted that the email conversation was merely a quotation and not conclusive evidence of actual billing. The Tribunal emphasized that no higher rates were charged to other customers and there was no evidence of any clandestine receipt of the differential amount. Therefore, the addition of Rs. 42,89,213 was deleted, reversing the lower authorities' orders.2. Disallowance of Incentive Payment to the Managing Director:The AO disallowed the incentive payments of Rs. 75,00,000 each for AY 2009-10 and 2010-11 to the MD, citing two main reasons: the payments were not justified by the services rendered, and they were considered reimbursement of share capital contributed by the MD. The AO noted a dip in the company's gross hire charges and questioned the justification for the high incentive payments, especially since no other employee received such an incentive.The Commissioner of Income Tax (Appeals) partially upheld the AO's disallowance, reducing it to Rs. 99 lakhs without providing a clear basis for this decision.Upon further appeal, the Tribunal found the AO's reasoning unsustainable. It noted that the MD had provided extensive services, and the AO's judgment on managerial remuneration was not justified. The Tribunal referenced the Supreme Court's decision in Walchand and Co. (P.) Ltd., emphasizing that the reasonableness of expenditure should be judged from the businessman's perspective, not the Revenue's. The claim that the payments were reimbursements of share capital was also dismissed, as the capital contribution remained unchanged in the books.Therefore, the Tribunal deleted the disallowance of the incentive payments, setting aside the orders of the lower authorities.Conclusion:The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal, providing a detailed rationale for reversing the additions and disallowances made by the lower authorities. The judgment emphasized the importance of cogent evidence and the appropriate perspective in judging business expenditures.