ITO 9(1)-3, MUMBAI V. EDICON MINING EQUIPMENT P. LTD, MUMBAI

ITA 416/MUM/2012

• Counselvise Citation: 41619914 RSA 2012
• Duration Of Justice: 3 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 03-08-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 19-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JEETENDRA KUMAR
• Assessee Lawyers: BRIJMOHAN P AGARWAL
• Keywords: Proportionate interest; Wholly owned subsidiary; Fair market value; Tax effect; Commercial expediency; Capital expenditure

Judgement Text

1 , INCOME TAX APPELLATE TRIBUNAL,MUMBAI E BENCH . . , , , BEFORE S/SH. A.D. JAIN,JUDICIAL MEMBER & RAJ ENDRA,ACCOUNTANT MEMBER /. ITA NO.416/MUM/2012, / ASSESSMENT YEAR - 2008 - 09 INCOME TAX OFFICER - 9(1) - 3 ROOM NO.224, AAYAKAR BHAVAN M.K. ROAD, MUMBAI - 400 020. VS M/S. EDICON MINING EQUIPMENT PVT. LTD.11/12, GURU GOVIND SINGH INDL. ESTATE, OFF WESTERN EXPRESS HIGHWAY, GOREGAON (E) MUMBAI - 400 063 PAN: AAACE 1338 C ( / APPELLANT ) ( / RESPONDENT ) /ASSESSEE BY : SHRI BRIJMOHAN P. AGARWAL - AR / REVENUE BY : SHRI JEETENDRA KUMAR - DR / DATE OF HEARING : 03 - 08 - 2015 / DATE OF PRONOUNCEMEN T : 03 - 08 - 2015 , 1961 254 ( 1 ) ORDER U/S.254(1)OF THE INCOME - TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER,DT.16.11.2011 O F CIT(A) - 19,MUMBAI THE ASSESSING OFFICER (AO) HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF INTEREST EXPENDITURE OF RS. 14,40,000/ - , ON THE GROUND T HAT FOR A.Y. 2005 - 06, THE DEPARTMENT HAS ACCEPTED THE CIT(A)'S DECISION. THE DISALLOWANCE WERE MADE BY THE ASSESSING OFFICER AS INTEREST EXPENSES WERE ON ACCOUNT OF INTEREST FREE ADVANCES WHICH WAS NOT USED FOR THE PURPOSE OF ASSESSEE'S BUSINESS. HOWEVE R, THE CIT(A)'S ORDER FOR A.Y. 2005 - 06 WAS NOT CHALLENGED DUE TO LOW TAX EFFECT, APPEAL ON THE SAME ISSUE IS PREFERRED AGAINST CIT(A)'S ORDER FOR A.Y. 2006 - 07 & 2007 - 08. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ER RED IN ALLOWING THE EXCESS DIRECTORS REMUNERATION DISALLOWED BY THE ASSESSING OFFICER OF RS. 24,36,940/ - . THE EXPENDITURE WAS CONSIDERED EXCESSIVE ON THE BASIS OF COMPARISON OF TWO COMPANIES HAVING SAME MANAGEMENT AND SAME LINE OF BUSINESS AND ASSESSEE' S FAILURE TO JUSTIFY THE HEAVY EXPENSES CLAIMED BY IT AS AGAINST THE EXPENSES CLAIMED BY ITS SISTER CONCERN WHICH ENJOYS BENEFIT U/S 10B. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING THE AD - HOC DISA LLOWANCES OF OPERATING AND ADMINISTRATIVE EXPENSES IGNORING THE FACT THAT THE COMPARISONS WERE MADE BETWEEN THE TWO COMPANIES HAVING SAME MANAGEMENT AND HAVING SAME LINE OF BUSINESS AND ASSESSEE'S FAILURE TO JUSTIFY THE HEAVY EXPENSES CLAIMED BY IT AS A GAINST THE EXPENSES CLAIMED BY ITS SISTER CONCERN WHICH ENJOYS BENEFIT U/S 10B. 416 /M/1 2 (08 - 09) EDICON MINING 2 4. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 5. THE APPELLANT CRAVES LEAVE TO AM END OR ALTER ANY GROUNDS OR ADD A NEW GROUND - ASSESSEE - COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF MINING TOOLS FILED ITS RETURN OF INCOME ON 25.7.2008 DECLARING TOTAL INCOME AT RS. 19.89 LACS THE AO COMPLETED THE ASSESSMENT ON 28.12.2010, U/S.143(3 ) OF THE ACT DETERMINING THE INCOME OF THE ASSESSEE AT RS.1.41 CRORES. 2. THE FIRST GROUND OF APPEAL IS AB O UT DELETING THE ADDITION OF INTER E ST EXPENDITU RE, AMOUNTING TO RS.14.40 LACS. DURING THE COURSE OF HEARING BEFORE US REPRESENTATIVES OF BOTH THE SIDE S AGREED THAT SIMILAR ISSUED HAD ARISEN IN OTHER YEARS AND THAT THE TRIBUNAL HAD DISMIS SED THE APPEAL FILED BY THE AO. WE FIND THAT WHILE DECIDING THE APPEAL FOR THE AYS. 2006 - 07, 20 07 - 08 A N D 20 09 - 10 (ITA / 7758/MUM2010, ITA/1364/MUM/2011 AND ITA /5088/MUM/201 2 DATED 10.6.2015), THE TRIBUNAL HAD DELIBERATED UPON THE ISSUE AND HAD DECIDED AS UNDER : 4.THE ISSUE ARISING OUT OF GROUND NOS. 1 & 2 IS AGAINST THE DELETION OF ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF INTEREST UNDER SECTION 36(1)(III) OF THE ACT. THE FACTS AND ISSUE IN THE PRESENT APPEALS ARE SIMILAR, HOWEVER, REFERENCE IS BEING MADE TO THE FACTS IN ITA NO. 7758/MUM/2010 TO ADJUDICATE THE ISSUE. 5.BRIEFLY IN THE FACTS OF THE CASE,ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF PNEUMATIC TOOLS . DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT ASSESSEE HAD MADE INVESTMENT OF RS. 110 LAKHS IN THE SHARES OF ITS SUBSIDIARY COMPANY, I.E. EDICON PNEUMATIC TOOLS CO. PVT. LTD., WHICH INCLUDED ADVANCE AGAINST SHARES OF RS. 109 LAKHS. DURING THE YEAR UNDER CONSIDERATION ASSESSEE HAD FURTHER ADVANCED LOAN OF RS. 75 LAKHS TO EDICON PNEUMATIC TOOLS CO. PVT. LTD. THE AO WAS OF THE VIEW THAT ASSESSEE HAD MADE INTEREST FREE ADVANCES TO ITS SUBSIDIARY COMPANY OF RS. 185 LAKHS FOR NON BUSINESS PURPOSES ALTHOUGH ASSESSEE HAD PAID INTEREST OF RS. 19,43,204/ - AND FINANCE CHARGES TO SECURED/UNSECURED LOANS OF RS. 6,82,252/ - . ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY PROPORTIONATE INTEREST RELATING TO INTEREST FREE LOANS & ADVANCES AND INVESTMENT MADE FOR NON BU SINESS PURPOSES SHOULD NOT BE DISALLOWED UNDER SECTION 36(1)(III) OF THE ACT. IN REPLY ASSESSEE STATED THAT THE SAID INVESTMENT WAS MADE IN 100% SUBSIDIARY COMPANY BY WAY OF SHARE CAPITAL OF RS. 1 LAKH AND SHARE APPLICATION MONEY OF RS. 109 LAKHS AND ADVANCE OF RS. 75 LAKHS. THE SAID INVESTMENT WAS CLAIMED TO HAVE BEEN MADE OUT OF CAPITAL & RESERVES AND SURPLUS OF THE COMPANY AND IT WAS CLAIMED THAT NO DISALLOWANCE UNDER SECTION 36(1)(III) OF THE ACT WAS WARRANTED. THE AO NOTED THAT THE SHARE CAPITAL OF ASSESS EE WAS RS. 20 LAKHS, WHICH WAS WITH THE COMPANY FOR THE PAST SEVERAL YEARS AND THE SAME HAD ALREADY BEEN UTILISED IN APPLICATION OF FUNDS IN THE EARLIER YEARS. THE AO ALSO NOTED THAT IN A.Y. 2005 - 06 SIMILAR DISALLOWANCE WAS MADE IN THE HANDS OF THE ASSESSEE . THE AO FURTHER HELD THAT WHERE THE AMOUNTS BORROWED BY THE ASSESSEE WERE ADVANCED TO ITS SUBSIDIARY WITHOUT INTEREST THEN THE SAME CANNOT BE SAID TO HAVE BEEN BORROWED FOR THE PURPOSE OF ASSESSEES OWN BUSINESS. FURTHER, THE CLAIM OF THE ASSESSEE THAT IN VESTMENT WAS MADE FOR THE PURPOSE OF BUSINESS WAS ALSO NOT ACCEPTED, SINCE THE SUBSIDIARY COMPANY WAS AN ALTOGETHER DIFFERENT ENTITY. THE AO THUS HELD THAT DISALLOWANCE OF RS. 18,50,000/ - WAS WARRANTED UNDER SECTION 36(1)(III) OF THE ACT. 6. THE CIT(A) NOT ED THAT THE LOANS AND ADVANCES HAVE BEEN ADVANCED TO 100% SUBSIDIARY OF THE ASSESSEE, WHICH WAS ALSO CARRYING ON THE SAME BUSINESS AS THE ASSESSEE. FURTHER, THE FINDING OF THE CIT(A) WAS THAT THE MONEY HAD BEEN UTILISED BY THE SAID SUBSIDIARY COMPANY FOR B USINESS PURPOSES. HENCE, AS PER THE CIT(A) THE ADVANCES WERE MADE IN FURTHERANCE OF THE BUSINESS 416 /M/1 2 (08 - 09) EDICON MINING 3 REQUIREMENTS OF THE ASSESSEE AND IT CANNOT BE HELD THAT THE SAME WERE UTILISED FOR NON BUSINESS PURPOSES, WHERE THE ADVANCES WERE MADE TO 100% SUBSIDIARY, WHIC H WAS IN THE SAME BUSINESS AS THAT OF THE ASSESSEE. SINCE THE SUBSIDIARY HAD UTILISED THE SAID AMOUNT FOR BUSINESS PURPOSES, THE CIT(A) HELD THAT NO DISALLOWANCE IS WARRANTED UNDER SECTION 36(1)(III) OF THE ACT. 7. REVENUE IS IN APPEAL AGAINST THE SAID OR DER OF THE CIT(A). THE LEARNED D.R. FOR THE REVENUE POINTED OUT THAT WHERE THE ASSESSEE HAD BORROWED FUNDS ON INTEREST AND INVESTMENT WAS MADE IN TAX FREE FUNDS, THOUGH WITH THE SUBSIDIARY, IN THE ABSENCE OF ANY TRADE BETWEEN THE TWO AND IN THE ABSENCE OF ANY COMMERCIAL EXPEDIENCY, THERE WAS NO MERIT IN THE PLEA OF THE ASSESSEE. 8.ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE POINTED OUT THAT THE TOTAL CAPITAL & RESERVE AND SURPLUS OF THE ASSESSEE AS ON THE CLOSE OF THE YEAR WAS RS. 3 CRORES AND EV EN THE BANK LOAN HAD REDUCED TO RS. 57 LAKHS. THE FIRST PLEA OF THE LEARNED COUNSEL FOR THE ASSESSEE WAS THAT THE SAID INVESTMENT WITH THE SUBSIDIARY WAS MADE OUT OF ITS OWN CAPITAL & RESERVES AND SURPLUS. ANOTHER PLEA RAISED BY THE LEARNED COUNSEL WAS THAT THE INVESTMENT WAS MADE BY THE ASSESSEE WITH ITS OWN SUBSIDIARY, WHO WAS IN THE SAME LINE OF BUSINESS WITH SAME DIRECTORS. THE NEXT PLEA RAISED BY HIM WAS THAT THE INCOME EARNED BY THE SUBSIDIARY GOES TO THE HOLDING COMPANY, HENCE THE SAID INVESTMENT WAS MADE FOR BUSINESS PURPOSES. RELIANCE IN THIS REGARD WAS PLACED UPON THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD. VS. CIT 288 ITR 21 (SC). 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. THE ISSUE ARISING IN THE PRESENT APPEAL IS IN RELATION TO COMPUTATION OF DISALLOWANCE, IF ANY, UNDER THE PROVISIONS OF SECTION 36(1)(III) OF THE ACT. THE ASSESSEE HAD MADE CERTAIN ADVANCES TO ITS 100% SUBSIDIARY. DURING THE YEAR UNDER CONSIDERATION ASSESSEE HAD ADVANCED LO AN OF RS. 75 LAKHS TO EDICON PNEUMATIC TOOLS CO. PVT. LTD. IN THE EARLIER YEAR ASSESSEE HAD MADE INVESTMENT OF RS. 110 LAKHS IN THE SHARES OF ITS SUBSIDIARY COMPANY. THE DIRECTORS OF THE ASSESSEE FIRM WERE ALSO DIRECTORS OF THE SUBSIDIARY COMPANY AND THE BUS INESS CARRIED ON BY THE SUBSIDIARY COMPANY WAS THE SAME AS THAT CARRIED ON BY THE ASSESSEE. THE CLAIM OF ASSESSEE BEFORE THE AO WAS THAT THE SAID INVESTMENT WAS MADE FOR BUSINESS PURPOSES, HENCE NO DISALLOWANCE OF INTEREST WAS WARRANTED UNDER SECTION 36(1) (III) OF THE ACT. THE FIRST ADVANCE WAS MADE BY ASSESSEE TO ITS SUBSIDIARY COMPANY VIS - A - VIS INVESTMENT IN THE SHARES OF THE SAID SUBSIDIARY COMPANY IN A.Y. 2005 - 06. IT WAS CLAIMED BY THE ASSESSEE THAT THE SAID INVESTMENT WAS OUT OF ITS SHARE CAPITAL. HOWE VER, THE AO DISMISSED THE CONTENTION OF THE ASSESSEE AND MADE DISALLOWANCE UNDER SECTION 36(1)(III) OF THE ACT. THE CIT(A) NOTED THAT BOTH THE ASSESSEE AND ITS SUBSIDIARY WERE IN THE BUSINESS OF MANUFACTURING OF MINING TOOLS. THE ADVANCE MADE BY THE ASSESS EE WAS UTILISED FOR THE BUSINESS OF THE SUBSIDIARY COMPANY, HENCE, IN TURN, RELYING UPON THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD. (SUPRA) IT WAS HELD THAT THE SAID ADVANCE WAS BECAUSE OF COMMERCIAL EXPEDIENCY AND H ENCE NO PART OF INTEREST WAS DISALLOWABLE UNDER SECTION 36(1)(III) OF THE ACT. THE ADDITION MADE BY THE AO WAS RS. 2,21,731/ - AND BECAUSE THE SMALL TAX EFFECT NO APPEAL WAS FILED BEFORE THE REVENUE AGAINST THE SAID ORDER. 10.IN THE INSTANT YEAR, ASSESSEE H AD FURTHER ADVANCED RS. 75 LAKHS TO ITS SUBSIDIARY COMPANY. A PERUSAL OF THE BALANCE SHEET FILED FOR A.Y. 2006 - 07 AT PAGES 1 TO 5 OF THE PAPER BOOK REFLECTS THAT THOUGH THE CAPITAL OF THE ASSESSEE COMPANY REMAINED AT RS. 20 LAKHS BUT THE RESERVES AND SURPLUS ES ARE AT RS. 3,27,67,981/ - AS AGAINST RS. 3,07,55,969/ - DECLARED IN THE PRECEDING YEAR. THE PROFIT DECLARED BY ASSESSEE FOR THE YEAR UNDER CONSIDERATION BEFORE TAXATION WAS RS. 34,73,256/ - . IN THE TOTALITY OF THE ABOVE SAID FACTS AND CIRCUMSTANCES, WHERE THE ASSESSEE HAD ESTABLISHED AVAILABILITY OF FUNDS OF ITS OWN AND ALSO WHERE THE INVESTMENT WAS MADE IN 100% SUBSIDIARY OF THE ASSESSEE, WHICH IN TURN WAS ENGAGED IN THE SAME LINE OF BUSINESS AND HAD UTILISED THE FUNDS FOR ITS BUSINESS, THE EXISTENCE OF COMME RCIAL EXPEDIENCY STANDS PROVED. IN CASE THE CONNECTION BETWEEN THE LENDER AND THE BORROWER IS OF COMMERCIAL EXPEDIENCY, THEN IN VIEW OF THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN SA BUILDERS LTD. (SUPRA), NO DISALLOWANCE IS WARRANTED UNDER SECTION 36(1)(III) OF THE ACT. IN VIEW THEREOF WE HOLD THAT THERE IS NO JUSTIFICATION FOR DISALLOWING 416 /M/1 2 (08 - 09) EDICON MINING 4 INTEREST UNDER SECTION 36(1)(III) OF THE ACT AND UPHOLD THE ORDER OF THE CIT(A). WE DISMISS THE GROUNDS OF APPEAL NOS. 1 & 2 RAISED BY REVENUE. RESPECTFULLY, FOL LOWING THE ABOVE ORDER FOR THE OTHER AYS WE DECIDE THE FIRST GROUND OF APPEAL AGAINST THE AO. 3. THE NEXT GROUND OF APPEAL IS ABOUT DISALLOWING REMUNERATION OF RS. 24.36 LACS. THE AO WAS OF THE OPINION THAT THE EXPENDITURE WAS EXCESSIVE ON THE BASIS OF CO MPARISONS OF TWO COMPANIES HAVING SAME MANAGEMENT AND SAME LINE OF BUSINESS AND ASSESSE S FAILURE TO JUSTIFY THE HEAVY EXPENSES CLAIMED BY IT AGAINST THE EXPENSES CLAIMED BY ITS SISTER CONCERN. DURING THE COURSE OF HEARING BEFORE US THE REPRESENTATIVES AGR EED THAT SIMILAR ISSUE HAD BEEN DECIDED BY THE TRIBUNAL IN ORDER D ATED 10.6.2015(SUPRA). WE FIND THAT THE TRIBUNAL HAS DISCUSSED THE ISSUE AS UNDER : - 14.NOW COMING TO GROUND NO. 2 RAISED BY THE REVENUE,THE ISSUE IS AGAINST THE ALLOWANCE OF REMUNERATION PA ID TO THE DIRECTORS AT RS. 22,80,000/ - . ON COMPARISON OF THE REMUNERATION PAID BY THE ASSESSEE COMPANY TO ITS DIRECTORS AND THE REMUNERATION PAID TO THE DIRECTORS OF EDICON PNEUMATIC TOOLS CO. PVT. LTD, THE AO WAS OF THE VIEW THAT THERE WAS NO JUSTIFICATION FOR HUGE PAYMENT OF REMUNERATION OF DIRECTORS IN ASSESSEES CASE VIS - A - VIS ITS SISTER CONCERN, WHERE THE COMPANY WAS IN THE SAME LINE OF BUSINESS AND HAVING COMMON DIRECTORS. AS PER THE AO IT WAS EVIDENT THAT SIMILAR NATURE OF SERVICES WERE RENDERED BY TH E DIRECTORS IN BOTH THE COMPANIES. THE ONLY DIFFERENCE BETWEEN THE COMPANIES WAS THAT ASSESSEE COMPANY WAS 36 YEARS OLD WHEREAS THE SUBSIDIARY WAS ONLY 5 YEARS OLD AND IN VIEW THEREOF AO ALLOWED ONLY A REMUNERATION OF RS. 3,50,000/ - AND THE BALANCE REMUNERA TION OF RS. 22,80,000/ - WAS DISALLOWED. 15.THE CIT(A), ON CONSIDERATION OF THE FACTS, OBSERVED AS UNDER: - 5.3.I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, THE SUBMISSIONS OF THE APPELLANT THE ASSESSMENT ORDER AND THE ORDER OF CIT(A) FOR A.Y. 2008 - 09 . THE A.O. HAS DISALLOWED THE REMUNERATION ON THE GROUND THAT MUCH LESS REMUNERATION WAS PAID IN THE CASE OF SISTER CONCERN. ALTHOUGH, THIS COULD BE A STARTING POINT TO SUSPECT THAT EXCESSIVE REMUNERATION WAS PAID BUT FOR EFFECTING AN ADDITION THE SUSPICIO N HAS TO BE GROUNDED ON FAIR MARKET VALUE OF SERVICES RENDERED. THE A.O. HOWEVER, DID NOT CARRY OUT SUCH EXERCISE. ON THE OTHER HAND THE APPELLANT HAS EXPLAINED THAT THE APPELLANT IS A 35 YEAR OLD COMPANY WHEREAS THE SUBSIDIARY IS ONLY IN BUSINESS FOR LAST 4 YEARS. IT HAS ALSO BEEN MENTIONED THAT THE SUBSIDIARY IS EXPORT ORIENTED UNIT WHICH IS MAINLY AUTOMATED AND LOCATED IN SINGLE BUILDING WITH LESS OVERHEADS. THE A.O. HAS NOT INDICATED AS TO HOW THE TURNOVER COULD BE A SOUND BASIS FOR COMPARISON OF REMUNE RATION. EVEN IF IT IS SO, THERE COULD BE A CASE FOR EXAMINING THE LESSER REMUNERATION PAID IN THE CASE OF SUBSIDIARY COMPANY. THE REMUNERATION OF AROUND RS.25 LAKHS PAID TO THREE DIRECTORS WHO WERE PROMOTERS OF THE COMPANY IN 35 YEAR OLD COMPANY DOES NOT S EEM TO BE EXCESSIVE AND THUS THE DISALLOWANCE OF RS.22,80,000/ - IS DIRECTED TO DELETED. GROUND NO. 2 IS ALLOWED. 16.THE LEARNED D.R. FOR THE REVENUE COULD NOT CONTROVERT THE FINDINGS OF THE CIT(A). IN VIEW THEREOF WE UPHOLD THE ORDER OF THE CIT(A) IN ALLO WING THE CLAIM OF DIRECTORS REMUNERATION. THE GROUND OF APPEAL NO. 2 RAISED BY THE REVENUE IS DISMISSED. RESPECTFULLY, FOLLOWING THE ABOVE ORDER OF THE TRIBUNAL WE DECIDE GROUND NO.2 AGAINST THE AO,AS THE FACTS OF THE CASE UNDER APPEAL ARE SAME EXCEPT FOR THE AMOUNT INVOLVED. 3. LAST GROUND OF APPEAL IS ABOUT DISALLOWANCE OF OPERATIVE AND ADMINISTRATION EXPENSES , AMOUNTING TO RS. 82.45 LACS OUT OF THE TOTAL EXPENSES OF RS. 2.03 CRORES. ON COMPARISON WITH THE 416 /M/1 2 (08 - 09) EDICON MINING 5 OPERATING AND ADMINISTRATIONS EXPENSES OF THE SUBS I DIARY COMPANY AND ADOPTING THE RATIO BETWEEN OPERATING AND ADMINISTRATIONS EXPENSES AND TURNOVER OF SUBSIDIARY TO THE TURNOVER OF THE ASSESSEE - COMPANY,THE AO HELD THAT EXCESS EXPENDITURE OF RS.82,45,446/ - UNDER THE ABOVE MENTIONED TWO HEADS WAS NOT JUSTIF IABLE. 3.1. BEFORE THE FAA, THE ASSESSEE CONTENDED THAT THE AO HAD COMPARED THE TURNOVER AND EXPENDITURE OF THE ASSESSEE WITH ITS SISTER CONCERN AND HAD DISALLOWED THE EXPENDITURE THAT IT SHOULD HAVE INCURRED IN PROPORTION TO WHAT HAD BEEN INCURRED BY TH E SISTER CONCERN,THAT THE AO HAD WRONGLY COMPARED THE EXPENDITURE OF ONE COMPANY TO ANOTHER COMPANY,THAT THEIR LOCATIONS WAS AT DIFFERENT PLACES I.E.TURBHE AND GOREJEOTI,THAT ONE WAS IN EXISTENCE FROM 30 YEAR,THAT THE ANOTHER WAS EXISTENCE FOR 3 YEARS,T HAT NO COMPANY COULD HAVE A SIMILAR EXPENDITURES,THAT THE AO SH OULD NOT HAVE DISALLOWED THE EXPENDITURE WHICH WAS INCURRED WHOLLY AND EXCLUSIVELY FOR PURPOSE OF BUSINESS,THAT THE PAYMENTS WERE NOT MADE TO RELATIVES OF THE DIRECTORS NOR ANY EXTRA EXPENDIT URES HAD BEEN INCURRED,THAT IT WAS NOT CAPITAL EXPENDITURE NOR WAS IT PERSONAL EXPENDITURE OF THE DIRECTORS,THAT BOOKS OF ACCOUNT WERE AUDITED,THAT ALL THE RELEVANT DETAILS CALLED BY THE AO HAD BEEN SUBMITTED,THAT ALL THE PAYMENTS WERE MADE BY CHEQUES, THAT THE AO WAS TOTALLY WRONG IN ARRIVING AT THE CONCLUSION THAT EXCESS EXPENDITURE WAS INCURRED,THAT HE ENTERED INTO FOOTSTEP OF A BUSINESSMEN. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDER,THE FAA HELD THAT THE ASSESSEE HAD EXPLAINED THE REASONS FOR HIGHER ADMINISTRATIVE AND OPERATIVE EXPENSES, THE AO HAD NOT REFUTED THE FACTS EITHER IN THE ASSESSMENT OR THE REMAND PROCEEDINGS, THAT THE REASONS FOR HIGHER EXPENSES RELATED TO AGE OF MACHINERY, PROCESS INVOLVED AND LOCATION AND NATURE OF THE PREMISES, THAT THERE WAS NO VALID JUSTIFICATION FOR DISALLOWANCE OF EXPENSES BY COMPARING THE EXPENSES TO TURNOVER RATIO OF THE SUBSIDY. 3.2. BEFORE US,THE DEPARTMENTAL REPRESENTATIVE(DR)SUPPORTED THE ORDER OF THE AO.THE AUTHORISED REPRESENTA TIVE(AR)ARGUED THAT THE BASIS ADOPTED BY THE AO ITSELF WAS FAULTY,THAT COMPARING A NEWLY STARTED COMPANY WITH AN ESTABLISHED ENTITY WAS NOT JUSITIFIED,THAT GENUINENESS OF THE EXPENDITURE WAS NOT IN DOUBT,THAT IN SIMILAR CIRCUMSTANCES THE TRIBUNAL HAD ALLOW ED THE EXPENDITURE INCURRED BY THE ASSESSEE UNDER THE HEAD REMUNERATION TO THE DIRECTORS THAT WAS HELD TO BE EXCESS BY THE AO. 3.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE AO HAD MADE A DISALLOWANCE OF RS.82.4 5 LAKHS ON THE BASIS OF THE EXPENDITURE INCURRED BY THE SISTER CONCERN OF THE ASSESSEE .WHAT WAS THE LEGAL BASE FOR HOLDING THAT THE EXPENDITURE WAS EXCESS IS NOT CLEAR FROM THE ASSESSMENT ORDER.TWO DISSIMILAR COMPARABLES HAVE BEEN COMPARED TO MAKE THE ADDI TION.UNTIL AND UNLESS EXPENDITURE IS NOT PROVED TO BE PERSONAL OR CAPITAL NATURE,SAME CANNOT BE DISALLOWED U/S.37 (1) OF THE ACT.INCURRING LESSER EXPENSES BY THE SISTER CONCERN DOES NOT MEAN THAT THE ASSESSEE SHOULD ALSO INCUR EXPENSES ON SIMILAR SCALE.INC URRING OR NOT INCURRING EXPENSES AND QUANTUM OF SUCH EXPENDITURE IS THE DOMAIN OF THE ASSESSEE AND THE AO CANNOT TAKE 416 /M/1 2 (08 - 09) EDICON MINING 6 OVER THE ROLE OF A BUSINESSMAN.THE FAA HAS RIGHTLY OBSERVED THAT THE DISALLOWANCE MADE BY THE AO WAS NOT SUSTAINABLE. WE ARE OF THE OPINION THAT HIS ORDER DOES NOT SUFFER FROM ANY LEGAL OR FACTUAL INFIRMITY.SO, CONFIRMING HIS ORDER,WE DECIDE GROUND NO.3 AGAINST THE AO. AS A RESULT,APPEAL FILED BY THE AO STAND S DISMISS ED. . ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD ,AUGUST,2015. 3 , 2015 SD/ - SD/ - ( . . /A. D. JAIN) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / MUMBAI, /DATE: 03 . 08 . 2015 . . . JV. SR.PS . / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR E BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , / ITAT, MUMBAI.