TaxTMI 
TaxTMI 
2010 (12) TMI 914
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....zirani Land Developers Pvt. Ltd. carried on the business from the very same premises. One of the group company namely Kukreja Services Pvt. Ltd. (KSPL) was carrying out maintenance of the building, namely maintaining air conditioners, lighting, gardening, security, house keeping, computers etc. This company recovered service charges from all the group companies every year. In the past the assessee as well as the sister concern were using the services of only KSPL. In the present assessment year, there were however, two other sister concerns also who also provided services to the assessee in the form of salary reimbursement, conveyance reimbursement and motor car expenses reimbursement. All these sister concerns were persons who were covered under the provisions of Sec.40-A(2)(b) of the Income Tax Act, 1961(Act). Therefore the payments to such concerns will have to be in accordance with the provisions of Sec.40-A(2)(a) of the Act viz., they should not be unreasonable or excessive compared to the market price at which such services are available and the needs of the Assessee. 3. The assessee paid the following sums to the sister concerns during the previous year. ....
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....g the year vis-à-vis the assessment year 2005-06. In the A.Y. 2005-06, as per Form 3 CD, the assessee has made payments to parties covered u/s. 40A(2)(b) as under:- Name of the person Amount - Rs. Nature of payment M/s. Kukreja Services Pvt. Ltd. 40000 Business Centre Charges M/s. Kukreja Services Pvt. Ltd. 10000 Administration Charges Total 50000 The above tables makes it clear that the expenses incurred in the A.Y 2005-06 in respect of related parties is only Rs.50,000/- when all the factors for conducing the business in this year also existed without any noteworthy change in the A.Y 2005-06. It is difficult to comprehend that the exorbitant payments to the related persons in the current year as stipulated in the Tax Audit Report at Rs.30,73,476/- could have been incurred. There is a phenomenal rise in the expenses which remains unjustified. The assessee in its submissions have simply stated that the premises at "Laalasis" Plot No.219, 11th Road, Chembur, Mumbai - 400 071, is taken by M/s. Kukreja Services Pvt. Ltd. on rent and maintained by them and that all the group concerns are carrying on their business activities f....
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....payments made to M/s. Kukreja Services Pvt. Ltd. at Rs.14,40,000/- in respect of Business/center Charges and Rs.3,60,000/- on account of Administrative Charges were not at all required to be made. The ITAT's decision relied upon by the assessee have not been accepted by the Department. Even otherwise each assessment is a separate assessment and the facts in the case at hand are not identical to the cases relied upon in lieu of the discussions made above. In view of the same the aforesaid expenses are disallowed and he same will be added back. Addition on this account would be Rs.18,00,000/-(Rs.14,40,000 + 3,60,000). 4.4 Coming to the expenses covered u/s. 40A(2)(b) under the head Salary, Conveyance and Motor Car Expenses, it is seen that the expenses debited to the P and L A/c. of A.Y. 2005-06 and 2006-07 are as under:- Head of Expenses A.Y. 2005-06 (Rs.) A.Y. 2006-07 (Rs.) Excess expenses in current year (Rs.) Salary 745378 1180775 435397 Conveyance 94916 116568 21652 Motor car expenses 1463 761755 760292 Total 841757 2059098 1217341 During the current year out of the expenses charged to the P and L A/....
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.... two groups. The first group will consist of service charges and maintenance charges paid to KSPL. The Second group will consist of Salary Reimbursement - Rs.86,230/- paid to Omprakash and Co., Conveyance Reimbursement - Rs.34,830/- paid to Omprakash and Co. and Motor Car Exps. Reimbursement - Rs.7,52,416/- paid to M/S.Kureja Construction Co. 6. With regard to the Second group, the learned counsel for the Assessee pointed out that the payment made to related parties were Salary Reimbursement - Rs.86,230/- paid to Omprakash and Co., Conveyance Reimbursement - Rs.34,830/- paid to Omprakash and Co. and Motor Car Exps. Reimbursement - Rs.7,52,416/- paid to M/S.Kureja Construction Co. He pointed out that the AO while making disallowance of Rs.12,73,476/- considered the entire payment under the head Salary Reimbursement, Conveyance reimbursement and Motor Car expenses reimbursement of Rs.11,80,775 under the head salary reimbursement, Rs.1,16,568 under the head Conveyance reimbursement and Rs.7,61,755 under the head Motor Car reimbursement. He submitted that the difference between the amount considered for disallowance by the AO and the actual payment made to persons covered und....
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....he payments made to KSPL and has applied the reasons given for making disallowance of payments made by Assessee to KSPL in sustaining the disallowance under this head. In this regard the learned counsel has pointed out that in the discussion made by the CIT(A) in para 2.4 the CIT(A) has wrongly presumed that the entire payment of expenses was made to the sister concern M/s. Kukreja Services Pvt. Ltd., whereas in fact only part of the payment out of the total expenditure debited to profit and loss account in respect of salary reimbursement, conveyance reimbursement and motor car expenses reimbursement were made to M/s. Omprakash and Co. and M/s. Kukreja Construction Co. It was argued that the impugned disallowance has been sustained by the CIT(A) without any proper application of mind after appreciating correct facts. It was submitted that no reason at all having been given by the CIT(A) for confirming the disallowance u/s. 40A(2)(b) of the Act to the extent of Rs.12,73,476/- the same is required to be deleted. 10. We have considered his submission. We find that the AO has applied the provisions of Sec.40-A(2)(b) in making the impugned disallowance. Therefore it has to be ....
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....ncern during the year. It was further explained that since all the group companies were engaged in the business of construction and development, the stages of work done in each year vary from firm to firm and year to year. In some firms, in one year there was more work because of completion of the project or starting of a new project while in other firms, there may not be any work or may be less work because of non availability of the projects, etc. In view of the above, it was submitted that the CIT(A)'s observation that no reasonable answer is given by the assessee for steep increase in the expenses is without any basis. 12. Further, it was submitted that the steep increase in expenses paid to M/s. KSPL in the year under consideration is because of the following facts are relevant: (i) The construction in respect of project Tulip commenced in the A.Y 2002-03 which continued upto the A.Y 2006-07. Upto A.Y 2004-05, the assessee had not claimed any expenses which were covered u/s. 40A(2)(b) of the Act and only work in progress was shown in respect of the said project. (ii) During the previous year relevant to A.Y 2005-06, the project was about to be com....