TaxTMI 
TaxTMI 
2021 (1) TMI 780
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....ainst the said appeal of the Department. ITA No.4302/Del/2016 is the Department's appeal against order dated 18.05.2016 passed by the Ld. CIT (A)-23, New Delhi for Assessment Year 2013-14. All these Appeals and Cross Objections were heard together and they are being disposed of by this common order for the sake of convenience. 2.0 The brief facts of the case are that the assessee is a private limited company running Hotels under the name & style of "The Claridges". A search and seizure operation u/s 132 of the Income Tax Act, 1961 (hereinafter called 'the Act') was carried out at the residential and business premises of Mr. Suresh Nanda, his family members and business associates etc. on 24.02.2012. M/s Claridges Hotel was also covered u/s 132 of the Income Tax Act, 1961. 2.1.0 The assessment for Assessment Year 2011-12 was made u/s 153A of the Act vide order dated 29.03.2014 determining the total income at Rs. 12,51,74,139/-, wherein the following additions/disallowances were made: S. No. Disallowance Amount (Rs.) a) Payment made to Mrs. Sonali Punj Rs. 75,00,000/- b) Additional disallowance u/s 14A r.w Rule 8D Rs. 2,90,10,000/- c) Depreciation on cars Rs. 30,65,998/....
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....ed to have been installed at the premises of Managing Director. 5. That the on the facts and circumstance of the case, the Ld CIT(A) has erred in adjudicating the ground of addition of an ad hoc amount of Rs. 20,00,000/- in respect of alleged expenses on running and maintenance of cars. 2.2.0 In Assessment Year 2012-13, the assessment was completed u/s 143(3) of the Act vide order dated 29.03.2014 determining the total income at Rs. 7,99,80,731/- as against the returned of income of Rs. 4,59,51,500/ after making the following additions and disallowances: S. No. Disallowance Amount (Rs.) a) Payment made to Ms. Sonali Nanda Rs. 90,00,000/- b) Payment made to M/s Apex Enterprises Rs. 35,65,792/- c) Additional disallowance u/s 14A r.w Rule 8D Rs. 1,62,44,330/- d) Depreciation on cars and ad hoc Addition of Rs. 20 lakh on account of running & maintenance expenses Rs. 45,42 ,637/- e) Unexplained cash Rs. 5,50,000/- 2.2.1 The assessee's appeal before the Ld. CIT (A) was partly allowed in as much as the Ld. CIT (A) deleted all the additions except disallowance of depreciation on gym equipment amounting to Rs. 1,26,472/-. Against the order of the Ld. CIT (A), the Depar....
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....order of the Ld. CIT (A) was allowed in toto. Against the said order of the Ld. CIT (A), now the Department has approached this Tribunal and has raised the following grounds of appeal: ITA No.4302/Del/2016 1. The order of the Ld. CIT (A) is not correct in law and on facts. 2. On the facts and circumstances of the case the Ld. CIT(A) has erred in law in deleting the addition of Rs. 67,50,000/- on account of payment made to Sonali Punj. 3. On the facts and circumstances of the case the Ld. CIT(A) has erred in law in deleting the addition of Rs. 92,78,878/- on account of disallowance made u/s 14A r.w.r.8D. The appellant craves leave to add, amend any/all the grounds of appeal before or during the course of hearing of the appeal." 3.0 The Ld. Sr. DR took the Department's appeal for Assessment Year 2011-12 as the lead case and submitted that the ground No.2 of Department's appeal challenged the deletion of disallowance of salary paid to M/s Sonali Nanda. It was submitted that the Assessing Officer had made the disallowance on the ground that she had been appointed only by virtue of being the daughter of Mr. Suresh Nanda. It was also submitted that she was not selected through....
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.... Ms. Sonali Nanda and the arguments were identical. 3.4 With respect to Ground No.3 of the Department's Appeal in Assessment Year 2012-13, the Ld. Sr. DR submitted that the same pertained to disallowance of payment made to M/s Apex Enterprises amounting to Rs. 35,65,792/-. The Sr. DR submitted that the disallowance had been made by the Assessing Officer because no tax had deducted at source on the payment made to M/s Apex Enterprises and because no justification of the payment made also could be given by the assessee. It was also submitted that Mr. Sanjeev Nanda, S/o Mr. Suresh Nanda had a controlling interest in M/s Apex Enterprises and it was for this reason that the payment had been made. 3.5 Coming to Ground No.4 of the Department's appeal pertaining to disallowance of Rs. 1,62,44,330/- u/s 14A of the Act, it was submitted the disallowance had been made in terms of Rule-8D of the Income Tax Rules,1962 r.w.s 14A of the Act and the Ld. CIT (A) was incorrect in deleting the entire disallowance. 3.6 With respect to Ground No.5 of the Department's appeal regarding depreciation on cars amounting to Rs. 45,42,637/-, it was submitted that this ground was identical to ground No.4 in ....
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....sh Nanda. It was submitted that details and documents relating to the qualifications and work experience of Mrs. Sonali Nanda had been submitted before the Assessing Officer and that the same had been simply ignored by the Assessing Officer. It was further submitted that being the daughter of one of the shareholders cannot be a ground for disallowing the salary and that further there was no law requiring that employees have to be selected only through an open offer. The Ld. Authorized Representative submitted that there was a failure on the part of the Assessing Officer to demonstrate that salary payment to Mrs. Sonali Nanda was not for the purpose of business. The Ld. Authorized Representative also submitted that the Assessing Officer cannot decide the reasonableness and the commercial expediency of any expenditure incurred by the assessee. The Ld. Authorized Representative also placed reliance on the order of the Ld. CIT (A) on the issue wherein the Ld. CIT (A) has observed that it was not in dispute that the salary paid had been taxed in the hands of Mrs. Sonali Nanda, there was no evidence to suggest that the payment of salary was made without any service being rendered and tha....
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....entative submitted that during the year under consideration the assessee had not earned any exempt income and, therefore, the disallowance of Rs. 92,78,878/- made by the Assessing Officer had rightly been deleted by the Ld. CIT (A). 4.2.0 Arguing against ground No.4 of Department's appeal pertaining to deletion of disallowance of depreciation on cars amounting to Rs. 10,65,998/- and also relating to ground No.5 of the assessee's Cross Objections regarding ad hoc addition of Rs. 20 lacs on account of car running expenses in Assessment Year 2011-12, the Ld. Authorized Representative submitted that the issue was covered by the order of the ITAT in assessee's own case for Assessment Years 2009-10 and 2010-11 and, therefore, the Ld. CIT (A) was correct in deleting the disallowance. It was further submitted that the Ld. CIT (A) had failed to adjudicate on the ground pertaining to the ad hoc disallowance pertaining to repairs and maintenance/running of cars which was also covered in assessee's favour by the order of the ITAT in assessee's own case for Assessment Years 2009- 10 and 2010-11. 4.2.1 The Ld. Authorized Representative further submitted that in Department's appeal for Assessme....
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.... (A) on the issue. 4.5.0 Arguing against Ground No.5 of the Department's appeal challenging deletion of addition of Rs. 5,50,000/- on account of unexplained cash found during the course of search, the Ld. Authorized Representative submitted that the same pertained to sale of scrap generated during renovation and normal course of operation of the business. It was also submitted that the same had been duly accounted for in the books of accounts in Assessment Year 2012-13. The Ld. Authorized Representative also placed reliance on the findings of the Ld. CIT (A) in this regard. 5.0 We have heard the rival submissions and have perused the material on record. We have also perused the impugned orders as well as the Paper Books filed by the assessee company. We now take up the grounds raised by both the parties one by one. 5.1.0 The issue of payment of salary to Mrs. Sonali Nanda is common in all the three years under consideration and the Department has challenged the deletion of disallowance by the Ld. CIT (A). It is seen that the assessee has filed copies of various documents before the Assessing Officer as well as the Ld. CIT (A) to demonstrate that Mrs. Sonali Nanda was appointed i....
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....reasonableness of the expenditure could be gone into only for the purpose of determining whether, in fact, the amount was spent. Once it is established that there was a nexus between the expenditure and the purpose of the business, the Revenue cannot justifiably claim to put itself in the armchair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize his profits." 5.1.2 It is seen that the assessee has given details regarding services rendered by Mrs. Sonali Nanda but the Assessing Officer has completely disregarded them. We also note that the Ld. CIT (A), while deleting disallowance in Assessment Year 2011-12, has noted that the payment of salary has not been disputed, it is not disputed that the salary paid has been taxed in the hands of Mrs. Sonali Nanda and there was no evidence to suggest that the payment of salary was without any service rendered. The Ld. CIT (A) also observed that the argument that the salary paid was on account of Mrs. Sonali Nanda being daughter of Mr. Suresh Nanda holds no matter in view ....
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....he total income under the Act. In other words, the requirement of the Assessing Officer embarking upon a determination of the amount of expenditure incurred in relation to exempt income would be triggered only if the Assessing Officer returns a finding that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Therefore, the condition precedent for the Assessing Officer entering upon a determination of the amount of the expenditure incurred in relation to exempt income is that the Assessing Officer must record that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Sub-section (3) is nothing but an offshoot of sub-section (2) of section 14A. Sub-section (3) applies to cases where the assessee claims that no expenditure has been incurred in relation to income which does not form part of the total income under the Act. In other words, sub-section (2) deals with cases where the assessee specifies a positive amount of expenditure in relation to income which does not form part of the total income under the Act and sub-section (3) applies to cases where the assessee asserts that no expend....
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....e Delhi High Court in the case of Cheminvest Ltd. vs. ACIT reported in 378 ITR 33 (Delhi) has held that where the assessee does not earn any exempt income during the year, no disallowance u/s 14A of the Act can be made. We also note that disallowances made in assessee's own case in Assessment Years 2009-10 and 2010-11 had been deleted by the Tribunal vide order dated 10.11.2017 on the ground that the assessee had not earned any exempt income during the year under consideration. The relevant observations of the ITAT are contained in para-5 of the said order and the same are reproduced herein under for a ready reference: "5. After hearing both the parties and no perusal of the impugned orders, one very important fact which is permitting through is that, during the year assessee has not earned any exempt income and this fact has been noted by the AO also in the impugned assessment order as well as by the Ld. CIT (A) in the impugned order. The assessee had relied upon certain decisions before both the authorities contending that, if there is no exempt income, then no disallowance u/s 14A can be made. This fact is borne out from the discussions appearing on para 4.1 of the Ld. CIT (A)....
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....eev Nanda who held majority stake directly or indirectly inthe assessee company. Mere parking of cars at the premises of these persons, cannot ipso facto lead to an inference that the depreciation has to be disallowed which otherwise are the assets of the assessee company. Assessee had also submitted that these cars were used purely and wholly for the purpose of hotel business and in absence of rebuttal of this explanation, depreciation cannot be disallowed and accordingly, we held Ld. CIT (A) has rightly allowed depreciation." 5.3.1 Respectfully following the same, we uphold the order of the Ld. CIT (A) in deleting the said addition. The Department's grounds relating to the same stands dismissed in Assessment Years 2011-12 and 2012-13. 5.3.2 Apart from this, it is also seen that the Assessing Officer had made an ad hoc disallowance on account of running and maintenance expenses on car for the reason that these cars were found to be parked at the residence of Mr. Suresh Nanda and Mr. Sanjeev Nanda. This issue is also settled in the favour of the assessee by order of the Tribunal in Assessment Years 2009-10 and 2010-11 vide order dated 10.11.2017. The relevant observations of the ....
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....d Director but cannot be disallowed in the hands of the assessee company when this asset already forms part of the block of the assets and depreciation has been allowed earlier. Accordingly, we do not find any reason to sustain such disallowance and the same is directed to be deleted. " 5.4.1 Accordingly, assessee's ground No.4 in its Cross Objection for Assessment Year 2010-11 and Ground No.3 in Assessee's Cross Objection for Assessment Year 2012-13 stand allowed. 5.5.0 In Assessment Year 2012-13, the Assessing Officer had also made a disallowance of Rs. 35,65,792/- being payment made to M/s Apex Enterprises. It was the contention of the Assessing Officer that no tax had been deducted at source while making the payment and that the assessee could not justify the payment. It was also the allegation of the Assessing Officer that M/s Apex Enterprises has not brought any business to the assessee company and that the company was awarded contract for the reason that it was managed by Mr. Sanjeev Nanda, who was the son of Mr. Suresh Nanda. In this regard, it is seen that the assessee had duly filed General Sales Agent Agreement dated 01.06.2011 between the assessee company and M/s. Ape....