O R D E R
Per D. Manmohan, V.P. This appeal by the assessee firm is directed against the order passed by the CIT(A)-40, Mumbai and it pertains to AY 2010-11.
2. The only ground urged by the Revenue reads as under: -
"1. The learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of Rs.2,40,351/- under section 40A(2) out of the Business Centre Charges of Rs.3,40,351/- paid to M/s. Kukreja Services Pvt. Ltd."
3. Facts necessary for disposal of the appeal are stated in brief. Assessee is admittedly engaged in the business of real estate development and civil construction. In respect of previous year relevant to A.Y. 2010-11 assessee declared loss of Rs.39,60,991/-. During the course of scrutiny assessment proceedings the AO noticed that the assessee made payment to the tune of Rs.3,40,351/- towards Business Centre Charges to M/s. Kukreja Services Pvt. Ltd., a person specified under section 40A(2)(b) of the Act. Under these circumstances the AO was of the opinion that the payment made by the assessee is excessive. In his opinion Rs.1 lakh would be the required
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expenditure for utilisation of business centre and administrative charges. The case of the assessee, on the other hand, was that similar payments were made in the earlier assessment years also. In fact in A.Y. 2007-08 Business Centre Charges to the tune of Rs.16 lakhs and administrative charges to the tune Rs.4 lakhs were paid. Similarly for A.Y. 2008-09 also Rs.9,44,000/- was paid as Business Centre Charges and Rs.2,36,000/- under the head administrative charges. No doubt, there was increase in the corresponding amounts of expenditure compared to the expenditure incurred in A.Y. 2005- 06 and A.Y. 2006-07. The case of the assessee was that it is reasonable in the circumstances of the case.
4. In the opinion of the AO expenses beyond Rs.1 lakh deserve to be considered as excessive and hence by applying the provisions of section 40A(2)(b) he restricted the allowable expenditure to Rs.1 lakh and the balance was disallowed not only for the year under consideration but also for the immediately preceding years.
5. On an appeal filed by the assessee-firm the learned CIT(A) noticed that the facts and circumstances are identical as compared to the immediately preceding year. He also referred to the appellate order for 2009-10 passed by his predecessor to hold that payments made in excess of Rs.1 lakh should be treated as unreasonable within the meaning of section 40A(2)(b) of the Act. He has also referred to the appellate order for A.Y. 2008-09 to highlight that under similar circumstances expenditure to the extent of Rs.1 lakh was only held to be reasonable.
6. Further aggrieved, assessee is in appeal before us. It is not in dispute that the facts and circumstances are identical in A.Y. 2008-09 and A.Y. 2009-10. The learned counsel for the assessee placed before us copies of the orders of the ITAT "B" Bench, Mumbai in assessee's own case for the aforementioned assessment years (ITA No. 3683/Mum/2012 dated 24.12. 2013 and ITA No. 6773/Mum/2012 dated 10.10.2014) wherein the Tribunal exhaustively discussed the matter to hold that there is no basis for restricting the allowability of expenditure to Rs.1 lakh and in fact allowed the claim of deduction in toto. It is also not in dispute that compared to the
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expenditure claimed in the immediately preceding year the expenditure incurred in this year was much less. It is therefore submitted that no case was made out by the Department to restrict the allowability of expenditure to Rs.1 lakh.
7. On the other hand, the learned D.R. strongly relied upon the order passed by the AO as well as the CIT(A). He, however, did not deny the fact that in the immediately preceding assessment year, under similar circumstances, higher expenditure was accepted by the Tribunal as reasonable for the detailed reasons given therein.
8. We have considered the rival submissions and perused the orders passed by the ITAT (supra). We are of the view that the expenditure claimed in this year is very reasonable and hence the AO was not justified in invoking provisions of section 40A(2)(b) of the Act in the instant case. We, therefore, direct the AO to allow the claim of deduction of Rs.3,40,351/-.
9. In the result, the appeal filed by the assessee firm is allowed. Order pronounced in the open court on 3rdFebruary, 2015. Sd/- Sd/-
(Sanjay Arora) (D. Manmohan)
Accountant Member Vice President
Mumbai, Dated: 3rdFebruary, 2015
Copy to:
1. The Appellant
2. The Respondent
3. The CIT(A) - 40, Mumbai
4. The CIT- Central-II, Mumbai City
5. The DR, "B" Bench, ITAT, Mumbai By Order
//True Copy//
Assistant Registrar
ITAT, Mumbai Benches, Mumbai n.p.