Sunij Pharma (P) Ltd. & Ors. v. DCIT & Ors.

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The Tax Publishers2015 TaxPub(DT) 4874 (Ahd-Trib)div class=Section1> Sunij Pharma (P) Ltd. & Ors. v. Dy. CIT & Ors. INCOME TAX ACT, 1961 --Business expenditure--Allowability Commission paid to out-station agents --The assessee paid commission to out-station agents. The commission was paid at rate of 1 per cent on sales effected by three parties. The assessee claimed commission payment as allowable. However, AO denied the claim of assessee. The CIT(A) allowed the claim of assessee. *Held:* The TDS as applicable was made at the time of making the payment of commission to the payees. Complete details of the payment of commission were maintained in the account books of the assessee. The assessee had also filed affidavits of the payees of the commission payment. The CIT(A) recorded that the assessee had made a request to the AO to call for the concerned parties by issuing summons, but he had not considered this request. CIT(A) had recorded that all important evidences in the form of PAN, addresses, contra account and confirmation, including affidavits from all such commission agents, were submitted by the assessee. In these facts of the case, there was no mistake in the order of the CIT(A) in holding that all these evidences were sufficient to discharge the onus of the assessee for claiming such expenditure. Income Tax Act, 1961 Section 37(1) *REFERRED :* FAVOUR : In assessee's favour. A.Y. : 2002-03 to 2006-07 INCOME TAX ACT, 1961 --Penalty under section 271(1)(c)--Concealment or furnishing of inaccurate particulars of income Disallowance of claim of assessee --The issue arose in the instant appeal was as to whether the penalty imposed on assessee under section 271(1)(c) on two counts, i.e., disallowance of education expenses of grand daughter of MD of assessee company and second disallowance of depreciation on goodwill by Revenue was justified. *Held* As regarding the first issue, the assessee had made full disclosure of all the material facts in its account statements, and also in the audited report of its accounts for the relevant period. There could always be an honest difference of opinion between the assessee and the Revenue regarding allowability or otherwise of a particular expenditure incurred by the assessee. The fact that the assessee had incurred expenditure on higher education of the trainee and all these facts were disclosed in the account statements of the assessee was not in dispute. In these facts, no penalty under section 271(1)(c) was imposable. With regard to second issue of penalty on disallowance of depreciation on goodwill, disallowance itself had been deleted while deciding the quantum appeal and accordingly, there remained no basis for imposition of penalty on the assessee. Even on merits, since the assessee had disclosed all the facts and claim of the assessee for depreciation on goodwill was bona fide, the penalty under section 271(1)(c) could not be levied. Income Tax Act, 1961 Section 271(1)(c) *REFERRED :* FAVOUR : In assessee's favour. A.Y. : 2004-05 INCOME TAX ACT, 1961 --Business disallowance under section 40A(2)--Excessive or unreasonable payment Education expenses relating to grand daughter of MD of assessee company --The assessee claimed education expenses of trainee of assessee-company. AO disallowed the claim of assessee on the ground that she happens to be grand-daughter of the Managing Director of assessee company. Before CIT(A) assessee referred to MOU between the trainee, Payal N. Parikh and the assessee-company, wherein she had given an undertaking to the company that after obtaining the qualification and on being sponsored by the company, she would be in employment of the company for a period of two years after completing M.B.A. Course on the remuneration to be fixed thereinafter and would not leave the said job without prior permission of the company and without discharging all the obligation. However, CIT(A) also confirmed the disallowance. *Held:* The MOU entered into by the trainee with the assessee-company was merely a self-serving document. There was no evidence brought on record on behalf of the assessee to show that her selection for higher education was on merits and not due to the fact that she was closely related to the Managing Director of the assessee-company. There was no scheme laid down by the assessee-company to send employees abroad for training and employment thereafter with the assessee-company. Further, there was no penalty clause, whatsoever, in the MOU that in case of failure on the part of the trainee to comply with the terms and conditions of the MOU, how the trainee would compensate the assessee-company for the heavy expenditure incurred on her higher education. In these facts, the expenditure claimed by the assessee on higher education of the grand-daughter of the Managing Director of the assessee was not wholly and exclusively for the purpose of business of the assessee, and accordingly, the order of the CIT(A) was confirmed. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2015 TaxPub(DT) 4874 (Ahd-Trib)div class=Section1>

Sunij Pharma (P) Ltd. & Ors. v. Dy. CIT & Ors.

INCOME TAX ACT, 1961

--Business expenditure--Allowability Commission paid to out-station agents --The assessee paid commission to out-station agents. The commission was paid at rate of 1 per cent on sales effected by three parties. The assessee claimed commission payment as allowable. However, AO denied the claim of assessee. The CIT(A) allowed the claim of assessee. Held: The TDS as applicable was made at the time of making the payment of commission to the payees. Complete details of the payment of commission were maintained in the account books of the assessee. The assessee had also filed affidavits of the payees of the commission payment. The CIT(A) recorded that the assessee had made a request to the AO to call for the concerned parties by issuing summons, but he had not considered this request. CIT(A) had recorded that all important evidences in the form of PAN, addresses, contra account and confirmation, including affidavits from all such commission agents, were submitted by the assessee. In these facts of the case, there was no mistake in the order of the CIT(A) in holding that all these evidences were sufficient to discharge the onus of the assessee for claiming such expenditure.

Income Tax Act, 1961 Section 37(1)

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2002-03 to 2006-07

INCOME TAX ACT, 1961

--Penalty under section 271(1)(c)--Concealment or furnishing of inaccurate particulars of income Disallowance of claim of assessee --The issue arose in the instant appeal was as to whether the penalty imposed on assessee under section 271(1)(c) on two counts, i.e., disallowance of education expenses of grand daughter of MD of assessee company and second disallowance of depreciation on goodwill by Revenue was justified. Held As regarding the first issue, the assessee had made full disclosure of all the material facts in its account statements, and also in the audited report of its accounts for the relevant period. There could always be an honest difference of opinion between the assessee and the Revenue regarding allowability or otherwise of a particular expenditure incurred by the assessee. The fact that the assessee had incurred expenditure on higher education of the trainee and all these facts were disclosed in the account statements of the assessee was not in dispute. In these facts, no penalty under section 271(1)(c) was imposable. With regard to second issue of penalty on disallowance of depreciation on goodwill, disallowance itself had been deleted while deciding the quantum appeal and accordingly, there remained no basis for imposition of penalty on the assessee. Even on merits, since the assessee had disclosed all the facts and claim of the assessee for depreciation on goodwill was bona fide, the penalty under section 271(1)(c) could not be levied.

Income Tax Act, 1961 Section 271(1)(c)

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2004-05

INCOME TAX ACT, 1961

--Business disallowance under section 40A(2)--Excessive or unreasonable payment Education expenses relating to grand daughter of MD of assessee company --The assessee claimed education expenses of trainee of assessee-company. AO disallowed the claim of assessee on the ground that she happens to be grand-daughter of the Managing Director of assessee company. Before CIT(A) assessee referred to MOU between the trainee, Payal N. Parikh and the assessee-company, wherein she had given an undertaking to the company that after obtaining the qualification and on being sponsored by the company, she would be in employment of the company for a period of two years after completing M.B.A. Course on the remuneration to be fixed thereinafter and would not leave the said job without prior permission of the company and without discharging all the obligation. However, CIT(A) also confirmed the disallowance. Held: The MOU entered into by the trainee with the assessee-company was merely a self-serving document. There was no evidence brought on record on behalf of the assessee to show that her selection for higher education was on merits and not due to the fact that she was closely related to the Managing Director of the assessee-company. There was no scheme laid down by the assessee-company to send employees abroad for training and employment thereafter with the assessee-company. Further, there was no penalty clause, whatsoever, in the MOU that in case of failure on the part of the trainee to comply with the terms and conditions of the MOU, how the trainee would compensate the assessee-company for the heavy expenditure incurred on her higher education. In these facts, the expenditure claimed by the assessee on higher education of the grand-daughter of the Managing Director of the assessee was not wholly and exclusively for the purpose of business of the assessee, and accordingly, the order of the CIT(A) was confirmed.