TaxTMI 
TaxTMI 
2016 (9) TMI 549
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Indore [hereinafter referred to as the AO]. 2. Grounds No. 1 to 3 relate to addition made u/s 40A(2) at Rs. 16,10,893/- towards payment of salary to assessee's daughter-in-law without considering contractual obligation, legitimate need for the business etc. 3. Facts apropos of these grounds are that the assessee has paid a salary sum of Rs. 20,70,833/- as remuneration to Smt. Seema Bhandari, daughter-in-law of the assessee during the year under consideration as compared to preceding year at Rs. 4,60,000/- for which no plausible explanation was filed. The AO further noted that the assessee has shown loan of Rs. 61,10,508/- from Essen Associates, a proprietory concern of Smt. Seema Bhandari and also Rs. 1,04,579/- from Smt. Seema Bhand....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ons of Section 40A(2) cannot be invoked. The ld. Authorized Representative of the assessee referred to CBDT Circular No.6-P dated 06.07.1968, which says that the ITO is expected to exercise his judgment in a reasonable and fair manner in respect of payments to relatives and associate concerns and should not apply in a manner which will cause hardship in bona fide cases. It was also submitted that the assessee is more than 75 years old. Thus, taking services of Smt. Seema Bhandari was a part of succession planning of the business of the assessee. Smt. Seema Bhandari, in fact, took participation in the entire business activity as Chief Executive Officer. Her work profile was also filed at paper book page nos. 87-88. It was also submitted that....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in a position to point out how the assessee evaded payment of tax by alleged payment of higher commission to its sister concern since the sister concern was also paying tax at higher rate, and copies of the assessment orders of the sister concern were taken on record by the Tribunal, disallowance of alleged excess commission paid to the sister concern was not justified. The ld. Authorized Representative of the assessee also cited CIT vs. Dempo & Co.P.Ltd., (2011) 196 Taxman 193 (Bom), wherein it was held that where the assessee as well as its subsidiary were in the same tax bracket and paid same rate of tax, there was no question of diversion of funds by paying higher rate to subsidiary company and, therefore, no disallowance could be made ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lar dated 06.07.1968 is concerned, it makes clear that the provisions of Section 40A(2) and particularly with regard to the transaction between the relatives and associates is concerned, the same shall be treated as bona fide case unless the Officer finds it that one of them is trying to evade payment of tax. In the light of these decisions, we find that the assessee as well as his daughter in law are being assessed at the maximum marginal rate and, therefore, there appears no ground for tax evasion. However, we are also aware of the fact that increase in the turnover at 30% was same as in the increase of turnover of 30% during the preceding year. Therefore, increase in the remuneration @ 350% appears to be on higher side. Considering the n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ess of trading in machinery & spare parts and implements in the name of his proprietory business concerns M/s. Naveen Tech Solution. It was submitted that while selling the machinery, the customers insist on getting certain accessories for free. Looking to the competitive environment, the assessee had to offer certain accessories for free alongwith the machinery. While setting the product, a detailed "Deal Sheet" was made on that basis, the deal was done. The assessee has filed the details of product billed, the accessories provided was also given; invoice was also prepared for accessories, as the same was liable for VAT. S.No. Name Billed Amount FOC Evidences Jain Borewells & Drillings 18,90,000 82,991 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n during subsequent assessment year 2014-15 at Rs. 9,27,804/-, which were accepted in the assessment made u/s 143(3) after due inquiry. Therefore, it is a settled law that AO cannot go into the commercial expediency of the transaction as it is to be decided by the businessmen and not by the AO. In support of this contention, the ld. Authorized Representative of the assessee also relied on the decision in the case of H.B.Estate Developer's, 192 Taxation 278 (Del). The ld. Authorized Representative of the assessee also drew our attention that the AO/CIT(A) did not doubt the transaction, but they simply brushed aside the transaction holding that the FOC was done for the first time, whereas a prudent business-man it had to be done to increase t....