The Tax Publishers2010 TaxPub(DT) 0329 (Bang-Trib) : (2010) 130 TTJ 0234 : (2010) 037 DTR 0310 : (2011) 008 ITR (Trib) 0434

Tally Solutions (P) Ltd. v. Dy. CIT

INCOME TAX ACT, 1961

Business Disallowance under section 40A(2)- Excessive or unreasonable expenses-Payment to director

AO during assessment proceedings, noticed that director of the company had been paid consultancy fees. Assessee-company was requested to furnish details of services rendered and the benefits derived by the company and to state as to how the expenses are admissible under section 37. Assessee filed reply through letter in which it submitted that director was involved in the pre-investment phase of company. Director had being financial management software, therefore, he was providing necessary consultancy services. Director was also involved in recasting the organization structure including greater empowerment to the regional offices in India and abroad, recasting in product road map with specific focus on upward scalability of the products, assessment of existing strategies and product portfolios and correct positioning and distribution methodologies. Held: AO was not bound independently to collect evidence and decide that allowance claimed is excessive or unreasonable but the onus was on assessee to produce evidence in support of claim for allowance, in case such allowance could be considered for the purpose of disallowance under section 40A(2). Although director was a person covered under section 40A(2)(b) but AO had disallowed the expenditure under section 37. Further, revenue had not established that payment to director was made to evade tax, on the other hand, director was on the highest tax bracket and therefore, there was no case of tax evasion. It was held that no disallowance in respect of payment to director could be made either under section 37 or under section 40A(2).

Income Tax Act, 1961 Section 40A(2)

Case Law Analysis:CIT v. Dalmia Cement (Bharat) Ltd. [2002] 174 CTR (Delhi) 188 :[2002] 254 ITR 377 (Delhi), CIT v. Indo Saudi Services ( Travel) ( P) Ltd. [2008] 219 CTR (Bom.) 562 :[2008] 12 DTR (Bom.) 304 :[2009] 310 ITR 306 (Bom.), CIT v. NEPC India Ltd. [2008] 303 ITR 271 (Mad.), Director of IT ( Exemptions) v. Escorts Cardiac Diseases Hospital Society [2008] 300 ITR 75 (Delhi), Dy. CIT v. Microtex Separators Ltd. [2007] 209 CTR (Kar.) 62 :[2007] 160 Taxman 244 (Kar.), Gujarat Guardian Ltd. v. Jt. CIT [2008] 114 TTJ (Delhi) 565 :[2008] 1 DTR (Delhi)(Trib.) 328, Nund & Samonta Co. ( P) Ltd. v. CIT [1970] 78 ITR 268 (SC), Radhasoami Satsang v. CIT [1991] 100 CTR (SC) 267 :[1992] 193 ITR 321 (SC) and S.A. Builders Ltd. v. CIT (A) [2006] 206 CTR (SC) 631 :[2007] 288 ITR 1 (SC).

Decision: In favour of Assessee.
A.Y. 2004-05

INCOME TAX ACT, 1961

Business deduction under section 35- Scientific research expenditure-Expenses on development of expenditure for new product/software

SUBSCRIBE TaxPublishers.inSUBSCRIBE FOR FULL CONTENT

TaxPublishers.in

'Kedarnath', 7, Avadh Vihar, Near Nirali Dhani,

Chopasni Road

Jodhpur - 342 008 (Rajasthan) INDIA

Phones : 9785602619 (11 am - 5 pm)

E-Mail : mail@taxpublishers.in / mail.taxpublishers@gmail.com