TaxTMI 
TaxTMI 
TaxTMI 
2015 (4) TMI 53
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....of appeal below : 2. That the Commissioner of Income-tax (Appeals) was not justified both on facts and in law in confirming the disallowance of interest expenses amounting to Rs. 86,397. 3. The Commissioner of Income-tax (Appeals) was not justified both on facts and in law in holding that remuneration/salary paid to Dr. Sunil Chugh and Dr. Kalpana Chugh is excessive and unreason able and confirming the disallowance of Rs. 10,48,500 (wrongly mentioned in the grounds of appeal at Rs. 28,48,500). 4. The Commissioner of Income-tax (Appeals) was not justified in initiating penalty proceedings under section 271(1)(c) of the Income- tax Act, 1961. 5. That the appellant reserve the right to add, alter or in any way amend the grounds of appeal at or before the date of hearing." I. T. A. No. 28/Jodh/2012 (Revenue) "On the facts and in the preset circumstances of the case, the learned Commissioner of Income-tax (Appeals) has erred in : On the facts and in the preset circumstances of the case, the learned Commissioner of Income-tax (Appeals) has erred in reducing the disallowance of excess claim of salary paid to the persons specified under section 40A(2)(b) of the Income-tax Act." 3.1....
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....l appreciate that during the year under review investigating fee income has also gone up from Rs. 47,70,935 to Rs. 1,08,75,261. There is increase of 128 per cent. as compared to immediately preceding year. The entire expenditure was incurred for business needs and to push up turnover in competitive market. Further increment in salary has been made to retain the existing and trained staff." The Assessing Officer after considering the submissions' of the assessee observed that increase in the salary of various staff members was generally 0 per cent. to 20 per cent. while the salary of Dr. Kalpana Chugh was increased to Rs. 18.00 lakhs from Rs. 2.40 lakhs in the immediately preceding year and similarly the remuneration of the director Dr. Sunil Chugh was increased to Rs. 18.00 lakhs from Rs. 2.61 lakhs in immediately preceding year. Therefore, the increase in the salary of the director was more than 600 per cent. while the increase in the salary of other employees was nominal which varied from 0 per cent. to maximum 20 per cent. The Assessing Officer noted the details of the salary of Dr. Sunil Chugh and Dr.Kalpana Chugh in various years as per the following details. Particular....
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....tal. From inception of the hospital, they were underpaid as the assessee-company thought that they will be compensated when the company reaches at optimum level whereby all facilities are available at the hospital. You will observe that the directors were appointed on a very low remuneration of Rs. 10,000 p.m. since 1994. There has been no major increase in the remuneration irrespective of the fact that there was increase in the net profit of company by number of times. The present remuneration is very less as compared to the prevailing pay package in the industry. The remuneration is fixed by considering the nature of business, duties to be performed by employee and special aptitude of the employee's future prospects of extension of business and lots of other related circumstances. During the year 2005-06 the assessee-company has also set up heart care unit, dialysis machine, and intensive care unit & IVP, hysteroscopy, laparoscopy, colpocopy. Therefore, the area of working and functions of both the persons were increased. Further the workload of both Dr. Sunil Chugh and Dr. Kalpana Chugh was increased many folds and need was felt to increase the remuneration of both the pe....
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.... are the following, namely:- ...(ii) Where the assessee is a company, firm, association of persons or Hindu undivided family - any director of the company, partner of the firm or member of the association or family, or any relative of such director, partner or member.'' (2) As regards the payment made by the assessee and claimed as expenditure, the assessee had to show that substantial benefit accrued to the company from the payment; and this could be done only by producing evidence. However, no evidence whatsoever was produced in this connection. The assessee was required to explain that such expenditure was not excessive or unreasonable considering the fair market value of the goods, services or facilities for which the payment was made. There was no contract or other documentary evidence which can establish that the payment was reasonable and at the pre vailing market rate. The authorised representative has failed to estab lish that profile or the responsibilities of Dr.Kalpana Chugh or Dr. Sunil Chugh was increased, so much to justify the sharp increase in the salary/remuneration of both persons. (3) Th....
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....ded on November 24, 2009 under section 131 of the Act which is mentioned in the body of the assessment order, to avoid the repetition, the same are not being reproduced hereunder. The Assessing Officer was of the view that the assessee could not justify the increase in remuneration of Dr. Kalpana Chugh and Dr.Sunil Chugh by observing that the assessee failed to justify the increase in the salary and to produce any evidence in this regard which was primary onus on the assessee. Reliance was placed on the following case laws. 1. Nund and Samont Co. P. Ltd. v. CIT [1970] 78 ITR 268 (SC) ; 2. Swadeshi Cotton Mills Co. Ltd. v. CIT [1967] 63 ITR 57 (SC) ; and 3. Bengal Enamel Works Ltd. v. CIT [1970] 77 ITR 119 (SC). 4.5. The Assessing Officer also observed that the facts of the judicial pronouncements relied upon by the assessee were different from the facts of the assessee's case. He accordingly made the addition of Rs. 28,48,500 by observing as under : * Last year the total turnover of the company was Rs. 433.18 lakhs which has reduced to Rs. 426.63 lakhs during the year. * Last year the gross profit of the company was Rs. 245.83 lakhs which has reduced to Rs. 169.74 lakhs....
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....h directors of the assessee-company were appointed on a very low remuneration of Rs. 10,000 per month since 1994 and there had been no major increase in the salary though there was increase in the net profit of the company. It was stated that during the year 2005-06, the assessee-company had also set up heart care unit, dialysis machine, intensive care unit, etc. therefore, the area of working and functions of both directors were increased, the workload has also increased manifold. It was pointed out that other hospitals with same infrastructure were paying more remuneration to the doctors. It was also pointed out that the assessee-company was paying a sum of Rs. 8.81 lakhs to Dr. Sheel Acharya who visited the company only for four hours a day. It was also pointed out that remuneration given to other doctors, as submitted before the Assessing Officer was Rs. 6.56 lakhs to Dr. Garima Khinci, Rs. 5.51 lakhs to Dr. S. S. Soni, Rs. 4.59 lakhs to Dr. Prasang Garg, and Rs. 3.96 lakhs to Dr. Sanjeev Goyal who were working only for six hours. It was stated that due to increase in the profit, the turnover and good performance of the company, the directors needed to be awarded. It was furthe....
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.... 38.15 lakhs which increased the profit. Therefore, the argument of the assessee that due to increase in turnover and increase in profit of the company, the directors needed to be rewarded, had been properly countered by the Assessing Officer at page 12 of the assessment order wherein it was mentioned that gross profit ratio of the assessee had been reduced from 63.1 per cent. in the assessment year 2007-08 to 59.4 per cent. in the assessment year 2008-09. He further observed that the Assessing Officer rightly pointed out that after excluding other income received on account of dividend, the insurance claim and profit on sale of fixed assets, there was loss of Rs. 53.18 lakhs in the business of the assessee-company and similarly, there was loss of Rs. 27.49 lakhs in the assessment year 2007-08, hence, it was evident that salary so paid was quite excessive and unreasonable having regard to the fair market value of the services rendered by both directors. The learned Commissioner of Income-tax (Appeals) however was of the view that estimate of salary to Dr. Sunil Chugh and Dr.Kalpana Chugh at Rs. 5.90 lakhs and Rs. 5.40 lakhs respectively in the assessment year 2007-08 by allowing 50....
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....ed doctors were for two hours and 4 hours by paying monthly professional fees which ranges from Rs. 4 lakhs to Rs. 9 lakhs and the same had been allowed. It was also submitted that both lower authorities under misconception of the fact ignored the phraseology of section 40A(2)(b) of the Act and made disallowance to the payment of directors remuneration by comparing the payment of salary in earlier years. However, they failed to consider the concept of having regard to fair market value of the good services/facility and they were guided by the payment of salary and remuneration from the last year without considering that res judicata is not applicable under the Income-tax Act because every year is a separate and independent. It was contended that considering the experience of more than 25 to 30 years of both the doctors to whom salary was provided at Rs. 1.50 lakhs per month for the assessment year 2007-08 and Rs. 2.50 lakhs for the assessment year 2008-09 was most reasonable because if they got employed in other hospitals they were entitled for more salary particularly when their salary so paid also coupled with day-to-day administration of hospital, management of staff, purchase o....
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....rs and time devoted by them deleted the disallowance amounting to Rs. 10,48,500. However, neither the Assessing Officer nor the learned Commissioner of Income-tax (Appeals) had given any reasonable basis for the additions so made/ sustained. In the instant case, it is noticed that during the year relevant to the assessment year 2006-07, i.e., when the salary was increased first time, the assessee-company had set up a heart care unit, dialysis machine and intensive care unit, etc. Therefore, the area of working and functions of both directors had increased. In the present case, it is also noticed that another visiting doctors were getting the salaries varying from Rs. 4 lakhs to Rs. 9 lakhs only for visits of 2 hours to 4 hours while directors were working round the clock. If the salary paid to the directors is compared with the remuneration paid to the visiting doctors for few hours, it cannot be said that it was excessive. Further more, the Assessing Officer although invoked the provision of section 40A(2)(b) of the Act, however, no comparable case was cited where salary for similar work having similar qualifications was paid at lower rate. It is also not brought on record that ho....
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....g to this issue in brief are that the Assessing Officer during the course of assessment proceedings noticed that the assessee had invested a sum of Rs. 145 lakhs in mutual funds which was out of the funds borrowed from the banks. He further observed that the assessee had paid heavy interest for those borrowings and had claimed business expenses of Rs. 81.23 lakhs being interest/ financial expenses. According to the Assessing Officer, there was a direct nexus between the funds borrowed and funds utilised to invest in the mutual funds. He therefore, asked the assessee to explain as to why corresponding interest should not be disallowed as the same was incurred in relation to the income which did not form part of the total income of the assessee-company. In response to that query, the assessee vide reply dated December 15, 2010 submitted as under : "You have asked that why interest expense should not be disallowed in relation to the income which does not form part of the total income under this Act. In this regard, we would like to submit that : The assessee had borrowed funds from GE Ca....
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.... had borrowed the funds to purchase plant and machinery by placing orders before disbursement of loan but the supplier could not deliver the machine on time and the funds lying idle were invested in the mutual funds. 6.5. The learned Commissioner of Income-tax (Appeals) after considering the submissions of the assessee observed that copy of the bank account of the assessee maintained with ICICI Bank Ltd. revealed that Rs. 1 crore was received in the month of October 2007 and immediately it was invested in the mutual funds and later on a sum of Rs. 38,15,903 was transferred from HDFC bank which was basically loan received in the month of November 2007 and was immediately invested in the mutual funds. The learned Commissioner of Income-tax (Appeals) also observed that Rs. 84.73 lakhs was redeemed by the assessee at the end of February 2008. He further observed that if a loan was taken for purchase of equipment then normally the loan amount so taken from bank was to be directly paid to the supplier of the equipment. According to the learned Commissioner of Income-tax (Appeals), the assessee had made investment of the borrowed funds in the mutual funds, therefore, the interest expendi....