TaxTMI 
TaxTMI 
2016 (11) TMI 735
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....erred in confirming the disallowance u/s. 14A by using formula set out in Rule 8D of the Income Tax Rules but failing to take into consideration that the AO cannot ipso facto apply Rule 8D but can do so only where he records satisfaction on an objective basis that the Appellant is unable to establish the correctness of its claim. c. The learned CIT(A) fai led to establ ish any nexus between the expenditure incurred and the exempt income earned and failed to take into consideration the Supreme Court decision in the case of Rajasthan Warehousing reported in 242 ITR 450 and in the case of CIT Vs. Hero Cycles (Punjab and Haryana High Court) which held that no expense can be disallowed if the nexus cannot be established for incurring expenditure for earning tax free income and section 14A cannot be merely applied on presumption. 3. Disallowance of Professional Fee of Rs. 4,00,000/- The learned CIT(A) erred in confirming the disallowance of the Professional fees paid to an Interior Designing Consultant, on the ground that it was not incurred for the running of the business, although the genuineness of the transaction can be evidenced by the bills/ vouchers and TDS Certificates, whi....
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....es. The Assessing Officer suspected the genuineness of these expenditure by holding that there was element of personal use, thus, he made disallowance at the rate of 10% of such expenditure. On appeal, before the ld. Commissioner of Income Tax (Appeals), the disallowance was restricted to 5% of the claimed expenses incurred under various heads, thus, part relief was granted to the assessee against which, the aggrieved assessee is in appeal before this Tribunal. 2.2. If the observation made in the assessment order leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, I find that ad-hoc disallowance was made by the Assessing Officer by suspecting that there is a element of personal use. However, the ld. Assessing Officer has not pinpointed that which expenses are of personal in nature. The assessee also produced the copy of the statement of account. The Assessing Officer was of the view that the genuineness of the expenses was also not proved. Before the ld. Commissioner of Income Tax (Appeals) and also before this Tribunal, the assess....
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.... called for when the Assessing Officer is not satisfied with the claim of the assessee having incurred no expenditure or some amount expenditure in relation to exempt income. Therefore, following the decision of jurisdictional High Court in Godrej & Boyce, 328 ITR 81 (Bom), wherein, it was held that the disallowance has to be on reasonable basis, therefore, to put an end to the litigation, I direct the ld. Assessing Officer to reduce the disallowance to Rs. 1 lakh in place of Rs. 3,41,763/- sustained by the ld. Commissioner of Income Tax (Appeals). Thus, this ground is partly allowed." 7. Respectfully following the order of the Tribunal for the earlier year, the disallowance in this year also reduced to Rs. 1 lakh and the remaining disallowance is directed to be deleted. 8. Ground 3: In this ground, the assessee has challenged the action of Ld. CIT(A) in confirming the disallowance of professional fee paid to an interior designing consultant of Rs. 4 lakhs on the ground that it was not incurred for the running of the business. During the course of hearing it was submitted by the Ld. Counsel that the payment was made for availing consultancy to do refurbishing of the office bu....
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....rk done by the related company has been produced. The Assessing Officer also noted that the three persons, who are Directors of the said company, are also member of the AOP of the assessee company. Accordingly, the Assessing Officer observed that without rendering any services, commission fees paid, was not justified. Accordingly, he disallowed. 4. It was submitted before the CIT(A) that the assessee AOP consists of twelve (12) Lintas Employees Welfare Trust, which is running a training centre at Khandala. There are 750 members of this trust. Since the assessee AOP was unable to run the institution alone, they hired the assistance of M/s North Point Training and Research Pvt. Ltd., which was incorporated for the purpose of management of the training and research activities of the assessee AOP. It was further submitted that the Directors of the said company are prominent management personnel having experience in the field of finance and accounts and for their assistance the said commission equivalent fee of 3% of the gross turnover was paid. It was also submitted that the said company has offered the commission as income and it paid on that. Therefore, the commission amount paid ....
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....s paid for subsequent year i.e. assessment year 2006-07 at Rs. 14,49,940/-. The same was also offered for taxation. The return was filed. Copy of the same is also placed on record. It is further seen that the assessee AOP filed its return declaring huge losses. The assessments were completed under Section 143(3). Copies of the same are placed on record for assessment year 2005-06, that declared loss of Rs. 2,16,96,919/- was accepted by the AO. Similarly for 2006-07, declared loss of Rs. 1,79,54,391/- was accepted. Copy of the assessment order is placed on record. In similar manner, the assessee paid commission fee to the Conductor for same services. However, in this year, the AO disallowed on the ground that the assessee could not file any proof of rendering services and CIT(A) also confirmed the action of the AO. The Assessee has explained that the same services were rendered by the Conductor, however, the same was not accepted. I noted that a certificate from the Conductor M/s North Point Training and Research Pvt. Ltd. is placed on record, by which it has been stated that they have been appointed for the following services :- "1. To obtain clients and business for Northpoint ....