TaxTMI 
TaxTMI 
2021 (1) TMI 780
X X X X Extracts X X X X
X X X X Extracts X X X X
....l/2015 is the assessee's Cross Objection against 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n its return of income 4. That the Ld. CIT (A) has erred in sustaining the disallowance depreciation of Rs. 1,48,791/- claimed on gym equipments alleged 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the return of income of Rs. 3,23,66,849/- after making the following additions/disallowances. S. No. Disallowance Amount (Rs.) a) Payment made to Ms. Sonali Nanda Rs. 67,00,000/- b) Additional disallowance u/s 14A r.w. Rule 8D Rs. 92,78,887/- 2.3.1 The assessee's appeal against 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 submitte....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... cars. The Ld. Sr. DR submitted that the Ld. CIT (A) had incorrectly deleted these disallowances. 3.3 With respect to Ground No.2 of Department's appeal for Assessment Year 2012-13, the Ld. Sr. DR submitted that this ground was identical to Ground No.2 of Departmental Appeal in Assessment Year 2011- 12 i.e., it pertained to the payment of salary to 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 th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....orked in a Hotel in Dubai and U.K and she also had an experience of running a restaurant by the name of 'Climax Tavern on the Greens' for almost five years. It was submitted that, therefore, it was incorrect on the part of the Assessing Officer to allege that she had no work experience and that she had been appointed only by virtue of being the daughter of Mr. Suresh 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 incur....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt Years 2009-10 and 2010-11 wherein the ITAT had held that no disallowance can be made u/s 14A where the assesee had not earned any exempt income during the year. Reliance was placed on the judgment of the Hon'ble Delhi High Court in the case of Cheminvest Ltd. vs. ACIT reported in 378 ITR 33 (Del). 4.1.2 In Assessment Year 2013-14 likewise, the Ld. Authorized Representative 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... that the Assessing Officer has not brought any evidence on record to prove that no service had been rendered. It was further submitted that no tax was required to be deducted at source on this payment in terms of Articles- 14, 7 and 22.1 of the Double Taxation Avoidance Agreement between India and UAE. The Ld. Authorized Representative also relied on the findings of the Ld. CIT (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 partie....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r: "Under section 37(1) of the Income-tax Act, 1961, the jurisdiction of the Revenue is confined to deciding the reality of the business expenditure, viz., whether the amount claimed as a deduction was factually expended or laid out and whether it was wholly and exclusively for the purpose of the business. It must not, however, suffer from the vice of collusiveness or colourable device. The 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,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ome which does not form part of the total income. However, if one examines the provision carefully, it would be found that the Assessing Officer is required to determine the amount of such expenditure only if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....remains. 5.2.2 Coming to the Departmental grounds challenging the deletion of disallowance u/s 14A of the Act in Assessment Years 2012-13 and 2013-14, it is seen that, undisputedly, in both these years the assessee has not earned any exempt income. The Ld. CIT (A) has deleted the disallowance by duly noting the same. The issue of disallowance u/s 14A of the Act in absence of exempt income earned is no longer res integra. The Hon'ble 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 throu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e schedule of fixed assets and depreciation has been claimed at Rs. 13,03,519/-. Once the cars are owned by the assessee company and is found to part of fixed assets then, ostensibly depreciation has to be allowed. The assessee before the AO as well as before the Ld. CIT (A) has categorically submitted that since renovation work was carried out at hotel premises, therefore, these cars were parked at the residence of Shri Suresh Nanda and his son Shri Sanjeev 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ment has been bought by the company and is appearing at the fixed assets in the balance sheet of the assessee company and said assets has been acquired during the running of hotel business. Then simply because it is being used by Managing Director it cannot be held to be for private use so as to warrant disallowance of depreciation. At the most if any equipment has been placed for exclusive use of Managing Director the same should be added as perquisite in the hands of the said 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 ma....