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M/s Hubert Ebner(I) (P) Ltd. C/o M/s RRA Taxinda D-28, South Extension, Part-1 New Delhi Vs. ITO Ward-12(4) New Delhi
September, 17th 2015
                                       1                          ITA NO. 1663/DEL/11


                   IN THE INCOME TAX APPELLATE TRIBUNAL
                       DELHI BENCH: `C' NEW DELHI
                  BEFORE SHRI N. K. SAINI, ACCOUNTANT MEMBER
                                     AND
                     SMT SUCHITRA KAMBLE, JUDICIAL MEMBER
                         I.T.A .No.-1663/Del/2011
                       (ASSESSMENT YEAR-2006-07)

     M/s Hubert Ebner(I) (P) Ltd.            vs    ITO
     C/o M/s RRA Taxinda                           Ward-12(4)
     D-28, South Extension, Part-1                 New Delhi
     New Delhi
     AABCH0536Q                                    (RESPONDENT)

     (APPELLANT)

                 Appellant by       Dr. Sh. Rakesh Gupta, Adv
                 Respondent by      Sh.T. Vasanthan, Sr. DR

                        Date of Hearing           25.08.2015
                     Date of Pronouncement
                                                  16.08.2015
                                      ORDER
PER SUCHITRA KAMBLE, JM


      This appeal is filed by the assessee against order dated 28/02/2011 passed
by CIT(A)XV, New Delhi. The grounds of appeal raised herein, is as follows:-
      "1.   That having regard to the facts and circumstances of the case, Ld. CIT(A)
            has erred in law and on facts in sustaining the disallowance of
            Rs.1,60,000/- made by Ld. AO, being the payment made to Mr. M. H.
            Pandey on account of legal and Professional charges under the
            provisions of Section 40A(2) (b) of the Income Tax Act, 1961.
      2.    That having regard to the facts and circumstances of the case, Ld. CIT(A)
            has erred in law and on facts in confirming the action of Ld. AO in
            disallowing a sum of Rs.1,80,000/- out of rent paid by the appellant.
      3.    That having regard to the facts and circumstances of the case, Ld. CIT(A)
            has erred in law and on facts in confirming the action of Ld. AO in
            disallowing a sum of Rs.15,00,000/- on account of Photo Films and
            Software expenses by treating it as capital expenditure, whereas
            assessee company claimed it as revenue expenses.
                                 2                          ITA NO. 1663/DEL/11


4.    That having regard to the facts and circumstances of the case, Ld. CIT(A)
      has erred in law and on facts in confirming the action of Ld. AO in
      making the disallowance of Rs.40,782/- on account of subscription
      expenses.
5.    That having regard to the facts and circumstances of the case, Ld. CIT(A)
      has erred in law and on facts in confirming the action of Ld. AO in
      treating the income of Rs.33,46,469/- as income from other sources
      instead of business income as claimed the assessee.
6.    That having regard to the facts and circumstances of the case, Ld. CIT(A)
      has erred in law and on facts in not reversing the action of Ld. AO in
      charging interest u/s 234B and 234C of the Income Tax Act, 1961."


2.    The assessee company was engaged in providing Post Licenses Drivers
Training Courses to educate user of motor vehicle on all aspect of shape and
defensive driving and sale of safe driving manual, safe driving equipments,
education books and equipment for driving.

3.    As regards Ground No. 1, the Assessing Officer observed that as per
profit & loss account of the company, the assessee claimed legal and
professional charges of Rs.2,60,000/- which were stated to be given to Mr.
Sanjay Verma and Rs.1,60,000/- were given to Mr. M. H. Pandey (wrongly
mentioned as M/s Mukesh Aggarwal & Co.). When the AR of the assesses
was confronted in this regard for furnishing of justification and evidences for
deduction of Tax on sources, the AR of the assessee could not furnish any
justification and evidences for deduction of Tax on source.     The legal and
professional charges claimed by the assessee to the extent of Rs.4,20,000/-
(Rs.2,60,000+1,60,000) was disallowed and added to the income of the
assessee by the Assessing Officer.

4.    The CIT(A) held that the AO has also disallowed an amount of
Rs.1,60,000/- on account of payment made to Mr. M. H. Pandey, one of the
Directors of the company for services rendered by him. The above payment is
covered by the provisions of Section 40A (2) (b) of the Income Tax Act, 1961
(hereinafter referred as the Act), since the payment has been made to a director
of the assessee company. No details have been filed by the assessee regarding
                                 3                          ITA NO. 1663/DEL/11


the nature of services rendered by Mr. Pandey for which the above payment of
Rs.160000/- has been made to him. In the absence of any details about the
nature of services rendered by Mr. Pandey the expenditure incurred is
unreasonable and therefore, not allowable under the provisions of Section
40A(2) (b) of the Act.    The disallowance made by the AO out of legal and
professional services to the extent of Rs.160000/- on account of payment made
to Mr. Pandey was upheld by the CIT(A).






5.    The AR submitted that Assessing Officer has incorrectly mentioned Mr.
Mukesh Agarwal instead of Mr. M. H. Pandey whom the assessee company paid
RS. 1,60,000/-      towards legal and Professional charges for A.Y. 06-07
(Rs.20,000/- per month). The details were mentioned in the paper book filed by
the Assessing Officer before the CIT(A). The AR further submitted that Section
40A(2)(b) of the Act is not applicable in the present case as the said amount
paid towards the legal and professional charges to Mr. M. H. Pandey.




6.    The DR submitted that details were not submitted before the AO and thus
the onus is on the Assessee. The DR also relied upon the Assessment Order as
well as CIT(A)'s order.




7.    We have perused all records and heard the arguments of both the sides,
as Mr. M. H. Pandey himself is the director of the assessee company, thus
Section 40A(2)(b) of the Act is correctly applied by the Assessing Officer as well
as the CIT(A). In this case the assessee company has not given any details in
respect of nature of service in the Bills as well as in the TDS certificates shown
before the authorities. In result ground No. 1 of the assessee's appeal is
dismissed.
                                 4                          ITA NO. 1663/DEL/11


8.    As regards to Ground No. 2, the Assessing Officer held that during the
period from Aug., 2005 to Dec., 2005, the assessee company had paid rent @
Rs.15,000/-p.m. to one Mrs. Ranjana Pandey but in Jan., 2006 a lumpsum
payment of 1,20,000/- was paid to the same land lady and thereafter for Feb.,
2006, it was paid @ Rs.50,000/-p.m. and for March 2006 to same landlord @
Rs.55,000/-. The AR of assessee was asked to furnish justification for variation
for the abnormality in increase of rent to above mentioned landlady.              The
assessee company could not furnish any justification and evidences including
lease agreement in support of substantial increase in rent for Jan., 2006 to
March, 2006 to the same landlady. In view of these facts, it is clear that the
assessee claimed excessive rent of the premises for the month of Jan, 2006 to
March 2006. In these circumstances, the rent for Jan, 2006 to March, 2006
was restricted to Rs.15,000/- p.m. and balance excessive         rent claimed by
assessee amounting to Rs.1,80,000/- was disallowed by the Assessing Officer.

9.    The CIT(A) held that the assessee had taken the premises on rent from
Mrs. Ranjana Pandey who was the wife of Mr. Mike Pandey one of the Directors
of the assessee company. Since the above payment had been made to the wife of
Director, therefore, the provisions of Section 40A (2) (b) are applicable in this
case. The onus is on the assessee to prove that the expenditure is not excessive
or unreasonable as compared to the fair market value of the services or facilities
for which the payment has been made. In the instant case it is seen that no
evidences regarding the fair market value of the above premises which were
taken on rent was filed by the assessee before the AO. Moreover, no copy of
lease agreement entered into for taking the premises on rent was filed before the
AO.   Despite opportunity provided by the AO no justification for increase
payment of rent was filed by the assessee before the AO. In view of the findings
above CIT(A) upheld the views of the AO regarding the disallowance of rent of
Rs.180000/- on account of the rent being excessive and unreasonable as per
the provisions of Section 40A(2) (b) of the Act and dismissed this ground.
                                    5                           ITA NO. 1663/DEL/11




10.   The AR submitted that the Agreement clearly stated that lease rent of Rs.
50,000/- be paid to Mrs. Ranjana Pandey w.e.f. 1.08.2005. There are two
separate Agreements, one is for entire 2nd floor and the other for part of portion
of first floor. Thus, there is no excessive payment made to her by the assessee
company.




11.   The DR submitted that rent is on higher side and no documents
submitted by the assessee before the Assessing Officer. Thus the same cannot
be taken into account as the AO has rightly invoked Section 40A(2)(b) of the Act.




12.   We have perused all the records including lease agreements as well as the
arguments of both the parties. The assessee company has shown the lease
agreement but assessee could not establish that on what basis the rent for the
residential premises was calculated and determined to Mr. Ranjana Desai. The
premises which were taken by the assessee company was not of commercial
nature and this fact was noted by the AO and after taking into consideration all
these facts has correctly disallowed this deduction. Besides that Mrs. Ranjana
Pandey is wife of Mr. M. H. Pandey, the director of the assessee company thus
the Assessing Officer has correctly applied Section 40A(2)(b) which is confirmed
by the CIT(A). In result ground No. 2 of the assessee's appeal is dismissed.




13.   Coming to Ground No. 3, the Assessing Officer held that during the
assessment    proceedings   the     company      under   the   head   "Administrative
Expenses" had debited Rs.15.00 lacs in respect of Photo Films and Software
expenses.    The detail of payment were given which inter alia includes
Rs.7,50,000/-   paid   to   River       Bank,   Rs.4,00,000    to   R.E   Record      and
                                   6                         ITA NO. 1663/DEL/11


Rs.3,50,000/- paid to Dolphin Communication. All these expenses are being
debited in March 2006 i.e. at the fag end of the year. Beside these details, the
assessee did not furnish any documentary evidences in support thereof and
also not furnish any justifiable reason for its allowability.             In these
circumstances, the expenses debited in the month of March amounting to
Rs.15,00,000/- was disallowed in the absence of supporting evidences and
justification and added to the income of the assessee.




14.      The CIT(A) held that the assessee had claimed an expenditure of Rs.15.00
lakhs on account of making 3 films on traffic education on behalf of M/s Hubert
Ebnor Gambh, Austria.       The assessee had claimed the above expenditure as
revenue expenditure but the AO disallowed the above expenditure, in view of the
facts that the assessee could not submit any evidences in support of the above
expenditure. The AO disallowed the above expenditure of Rs.15.00 lakhs but
however, allowed depreciation @        60% on the above photo film and software
amounting to Rs.4.50 lakhs thus resulting in a net disallowance of Rs.10.50
lakhs.     The expenditure claimed by the assessee on account of making films
and software is clearly in the nature of capital expenditure. Since no evidences
were filed by the assessee regarding the above expenditure and also in view of
the fact that the above expenditure          was not in the nature of revenue
expenditure, the disallowance made by the AO is as per law and dismissed this
ground of the appeal.




15.      The AR submitted that details in respect of administrative expense are to
be taken into consideration. The revenue themselves were allowing depreciation
and these expenditure does not belong to assessee.
                                  7                              ITA NO. 1663/DEL/11


16.    The DR relied upon the Assessment Order as well as the CIT(A)'s order.




17.    We have perused the records and heard the arguments of both the
counsel, it can be seen that the evidence submitted before the AO was
insufficient in respect of administrative expenses. The AR has pointed out
certain documents which has to be looked upon. Therefore in this respect the
matter is remanded back to the Assessing Officer. Ground No. 3 is remanded
back to the Assessing Officer.




18.    As regards ground no. 4 the AR did not urged, hence this ground is
dismissed.

19.    As regards ground no. 5 on perusal of the income details, it was noticed
that   the   company   declared       income   amounting    to    Rs.33,46,469/-        as
"Reimbursement of Expenditures" for the first time. The Assessing Officer held
that the assessee could not furnish any details about nomenclature of above
mentioned income on account of reimbursement on the expenditure.                       The
company also could not furnish any details thereof and any agreement whereby
it can be proved as reimbursement of the expenses. Details of expenses which
were reimbursed were also not filed.           Further, the assessee also failed to
establish nexus between incurring          of expenses and         reimbursement of
expenditure. Since the assessee could not furnish documentary evidences in
support of reimbursement of expenditure, the nature of income has been
changed and treated as `Income from Other Sources' instead of business
income.




20.    The CIT(A) held that the assessee has claimed that the income of
Rs.3346469/- was received on account of making of films and software
                                 8                          ITA NO. 1663/DEL/11


programme for M/s Hubert Ebner Gambh, Austria and was therefore, business
income.   The primary business of the assessee is to prove driver training
courses to educate the users in all aspect of safe driving. The making of films is
not the primary business of the assessee. Moreover, the assessee also could not
submit any evidences before the AO that the amount of Rs.3346469/- was
received on account of reimbursement of expenditure. No copy of agreement
regarding the making of films and also getting reimbursement of expenditure for
the above purpose was filed by the assessee before the AO.         In view of the
findings above the action of the AO in assessing the above income as "income
from other sources" was upheld by the Ld. CIT(A).        Now the assessee is in
appeal.

21.   The AR submitted that a lump sum amount was prepaid earlier and thus
the said expenses has to be treated as expenses in this year.

22.   The DR submitted that the same capital expenditure and reimbursement
cannot be interlinked with the same.









23.   We have perused the records and heard the arguments of both the
parties, in the present case it appears that neither the AO nor the Ld. CIT(A)
examined this fact that the expenses were paid in earlier year but pertained to
this year. The assessee also did not furnish the relevant material to establish
that it was the reimbursement of the expenses. We therefore in the absence of
the clear facts on record, deem it appropriate to remand this issue back to the
file of the AO to be adjudicated afresh, in accordance with law after providing
due and reasonable opportunity of being heard to the assessee.

24.   Ground No. 6 was not urged by the AR and hence the same is dismissed.
                                       9                             ITA NO. 1663/DEL/11


25.   In result, the appeal is dismissed in respect of ground no. 1, 2, 4, 6 and
grounds no. 3 & 5 are remanded back to the Assessing Officer.

      The order is pronounced in the open court on 16th          of September 2015.



      Sd/-                                                    Sd/-

( N. K. SAINI)                                          (SUCHITRA KAMBLE)
ACCOUNTANT MEMBER                                        JUDICIAL MEMBER


Dated:    16 /09/2015

*R. Naheed*

Copy forwarded to:

1.                         Appellant
2.                         Respondent
3.                         CIT
4.                         CIT(Appeals)
5.                         DR: ITAT                  ASSISTANT REGISTRAR
                                                        ITAT NEW DELHI



                                              Date

1.    Draft dictated on                    26.08.2015    PS

2.    Draft placed before author           27.08.2015    PS

3.    Draft proposed & placed before       30.08.2015    JM/AM
      the second member

4.    Draft discussed/approved     by 15/09/2015 JM/AM
      Second Member.

5.    Approved Draft comes to the                        PS/PS
      Sr.PS/PS                    16.09.2015

6.    Kept for pronouncement on                          PS
                                          10                 ITA NO. 1663/DEL/11


7.    File sent to the Bench Clerk                      PS
                                           16.09.2015

8.    Date on which file goes to the AR

9.    Date on which file goes to the
      Head Clerk.

10.   Date of dispatch of Order.

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