AI Drafter 
TaxTMI 
TaxTMI 
2023 (10) TMI 711
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....ue and accordingly framed the solitary substantial question of law arising in the present appeals. For convenience, order dated 21.09.2023 in ITA 972/2018 is extracted below: "1. This appeal concerns Assessment Year (AY) 2011-12. 2. There are two issues which arise for consideration before this court. 2.1 First, as to whether the Income Tax Appellate Tribunal [in short, "Tribunal"] had rightly upheld the disallowance of salary by the Assessing Officer (AO) by taking recourse to Section 40A(2)(b) of the Income Tax Act, 1961 [in short, "Act"]? 2.2 Second, whether the Tribunal was correct, in the facts and circumstances of the case, in sustaining the disallowance of interest concerning interest-free loans and advances made over to persons referred to in the assessment order? 3. Insofar as the second issue is concerned, which relates to interest paid on interest-free loans and advances given to certain persons, the details with regard to the same, as given in the assessment order, are set forth hereafter: Name Loans/Advances (A.Y. 2011-12) Loans/Advances (A.Y. 2010-11) C.L. Mehra 10,44,351 13,78,377 C.L....
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....tary] evidence and the explanation which was produced before the AO on 07.03.2014 at the time of assessment proceedings and the issues are decided as under: 1. C. L. Mehra. : The advance of Rs 10,44,351.10 shows a decline of from: Rs. 13,78,377.00 as on 31.3.2010. 2. C. L. Mehra & Sons (HUF): The advance increased from Rs. 13,92,839/- as on 31.3.2010 to Rs 21,98,004/- as on 31.3.2011. An increase of Rs 8,05,l68/- Submission of the assessee Shri C. L. Mehra is the owner of the trademark "Mehrasons." The Company approached Shri C. L. Mehra to permit the Company to use the trademark "Mehrasons" for its jewellery business. The Company has been using the trademark of "Mehrasons" since 2003-04, when the Company entered jewellery retail. The trademark "Mehrasons" is a valuable asset and carries considerable goodwill. The use of the "Mehrasons'' trademark was crucial in enabling the Company to mobilize working capital loans from banks, build credibility with customers, build credibility with suppliers, take the loan from the bank to purchase the C-I 1 Connaught Place, New Delhi 11 0001 property, etc. The Company earned handsomely by* utilizing th....
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..... 4. Mehrasons Jewellers Pvt Ltd: RS 23,50,000/-. The Company rented out its space to M/s Reebok India Limited. It therefore needed to take a place on* rent. In order to save on expenses, the Company negotiated an arrangement with M/s Mehrasons Jewellers Pvt Ltd, which owned a property in Karol Bagh, wherein the Company would extend it an advance, and utilize its space rent free. This is also treated as advance for business purpose and assessee's contention is accepted. 5. Namita Mehra : Rs 6,94,914/-. The amount of advance is the same as on 31.3.2010 and there has not been any increase. Smt. Namita Mehra was an employee of the Company and the Company was duly paying her a salary. In previous years, she was extended an advance against her salary. However, as the Company ran into losses on account of the global financial crisis, it could not afford to* pay her a salary: The amount continued to be shown as an advance. This is also treated as advance for business purpose and assessee's contention is accepted. 6. Sakshi Mehra: Rs 2,50,799/-. The amount decreased from Rs. 5,39,449/- as on 31.3.2010, i.e. a decrease of Rs 2,88....
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.... the assessee as well as the Revenue are in appeal before the Tribunal. 22. We have heard the rival arguments made by both the sides and perused the material on record. So far as disallowance of interest on advances paid to Mehra Sons Jewellers Pvt. Ltd. Namita Mehra and Sakshi Mehra are concerned, the ld. CIT(A) has given a categorical finding that these advances are for business purpose or salary advance for which no disallowance of interest is called for. So far as advances to other parties are concerned, ld. CIT(A) has given a finding that the assessee could not substantiate with evidence regarding the justification of diversification of interest bearing funds for which he sustained the disallowance of interest. Under these circumstances and in view of the detailed reasoning given by the ld. CIT(A) on this issue, we find no infirmity in his order on this issue. Accordingly the order of the ld. CIT(A) on this issue is upheld and the ground raised by the assessee and the Revenue are dismissed." [Emphasis is ours] 8. The CIT(A), as would be evident, had disallowed interest concerning the advances made over to Mr C.L. Mehra, Mr Chand Mehra and Mr Vinay Me....
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....i Charanjeet Lal Mehra, Smt. Lata Rani Mehra, Smt. Namita Mehra and Ms. Sakshi Mehra in Financial Years 2008-09 and 2009-10 as well as circumstances under which a meagre salary was paid to them for subsequent years relevant for present purposes. In an effort to justify the payment of salary to the persons concerned, learned counsel for appellant/assessee took us through the detailed profile of the said persons including their educational qualifications, experience and job contribution in the business of the assessee company. On the other hand, learned counsel for respondent/revenue supported the impugned orders and submitted that since the appellant/assessee led no evidence in support of its contentions, there was no illegality in the impugned orders. 5. The provision under Section 40A(2)(b) of the Act stipulates: "40A. Expenses or payments not deductible in certain circumstances.-(1) The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provision of this Act relating to the computation of income under the head "Profits and gains of business or profession". (2) (a) Where the assessee incurs any expendit....
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....f such assessee, has a substantial interest in the business or profession of that person; or (B) where the assessee being a company, firm, association of persons or Hindu undivided family, or any director of such company, partner of such firm or member of the association or family, or any relative of such director, partner or member, has a substantial interest in the business or profession of that person. Explanation.-For the purposes of this sub-section, a person shall be deemed to have a substantial interest in a business or profession, if,- (a) in a case where the business or profession is carried on by a company, such person is, at any time during the previous year, the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) carrying not less than twenty per cent of the voting power; and (b) in any other case, such person is, at any time during the previous year, beneficially entitled to not less than twenty per cent of the profits of such business or profession". (emphasis is ours) 6. There is no dispute that the said persons, namely Shri Charanj....