Asian Thottumkal, Cochin V. DCIT, Ernakulam

ITA 589/COCH/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1030 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-01-2013
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 11-11-2011
• Court: TRIBUNAL
• Department Lawyers: M ANIL KUMAR
• Assessee Lawyers: S V PATTABHIRAMAN
• Keywords: Depreciation; Fair market value
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. 589/COCH/2011 ASSESSMENT YEAR : 2007-08 MS. ASIN THOTTUMKAL, ASINS NO. 2001, BLUE MOUNTAIN, SHASTRI NAGAR, LOKHANDWALA, ANDHERI (W), MUMBAI-400 053. [PAN: AFBPA 1534R] VS. THE DEPUTY COMMISSIONER OF INCOME-TAX,CIRCLE-2(1), ERNAKULAM. (ASSESSEE -APPELLANT) (REVENUE-RE SPONDENT) ASSESSEE BY SHRI S.V. PATTABHIRAMAN, CA REVENUE BY SHRI M. ANIL KUMAR, CIT(DR) DATE OF HEARING 19/11/2012 DATE OF PRONOUNCEMENT 11/01/2013 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 25-08-2011 PASSED BY LD CIT(A)-II, KOCHI AND IT RELATES TO THE ASSESSMENT YEAR 2007-08. 2. THE GROUNDS OF APPEAL URGED BY THE ASSESSEE GIVE RISE TO THE FOLLOWING ISSUES:- (A) DISALLOWANCE OF SALARY PAID TO FATHER OF THE A SSESSEE RS.4,80,000/- (B) DISALLOWANCE OF PART OF VARIOUS EXPENSES RS .6,33,402/- (C) ADDITION TOWARDS LOW DRAWINGS RS.17,00,000/ - 3. THE FACTS RELATING TO THE ABOVE SAID ADDITIO NS ARE STATED IN BRIEF. THE ASSESSEE IS IN THE PROFESSION OF MODELING AND ACTIN G. SHE FILED HER RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION DECLARING A TOTAL INCOME OF RS.2.71 CRORES. THE ASSESSING OFFICER COMPLETED THE ASSESS MENT BY DETERMINING THE TOTAL INCOME AT RS.3.01 CRORES BY MAKING VARIOUS ADDITION S. IN THE APPEAL PREFERRED I.T.A. NO.589/COCH/2011 2 BY THE ASSESSEE, THE LD CIT(A) GRANTED A MARGINAL R ELIEF. STILL AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE FIRST ISSUE RELATES TO THE DISALLOWANCE OF SALARY PAID TO THE FATHER OF THE ASSESSEE. THE ASSESSEE CLAIMED A SUM OF RS.4,80,00 0/- AS SALARY PAID TO HER FATHER NAMED SHRI JOSEPH THOTTUMKAL @ RS.40,000/- P ER MONTH. IT WAS EXPLAINED THAT THE FATHER OF THE ASSESSEE IS LOOKIN G AFTER THE PRO WORKS, APPOINTMENT, CO-ORDINATION WORK, FINANCIAL MANAGEME NT ETC. THE AO NOTICED THAT THE NUMBER OF ASSIGNMENTS TOWARDS MODELING AND ACTING HAS NOT INCREASED DURING THE YEAR. FURTHER THE ASSESSEE HAS RECEIVED ALL PAYMENTS BY WAY OF CHEQUE. THE AO TOOK THE VIEW THAT THE ASSESSEE DID NOT JUSTIFY THE PAYMENT OF RS.4.80 LAKHS AS SALARY TO HER FATHER. ACCORDINGLY , THE AO DISALLOWED THE SAID SALARY CLAIM OF RS.4,80,000/- U/S 40A(2)(A) OF THE ACT. THE LD CIT(A) CONCURRED WITH THE VIEWS OF THE AO AND ACCORDINGLY CONFIRMED THE SAID DISALLOWANCE. 5. THE LD COUNSEL FOR THE ASSESSEE SUBMITTED TH AT THE FIELD IN WHICH THE ASSESSEE IS IN CALLS FOR UTMOST VIGILANCE AND CARE IN VIEW OF THE TRICKY NATURE OF THE INDUSTRY. HENCE, THE ASSESSEE, BEING VERY YOUN G, WOULD REQUIRE A PERSON, WHO IS PROTECTIVE, HONEST AND TRUST WORTHY. HE FURT HER SUBMITTED THAT THE ASSESSEE HAS PAID A SUM OF RS.4,20,000/- AS SALARY TO HER FATHER IN THE IMMEDIATELY PRECEDING YEAR AND THE SAME WAS ALLOWED BY THE ASSESSING OFFICER IN THE 143(3) ASSESSMENT. HE FURTHER SUBMITTED THAT S HRI JOSEPH THOTTUMKAL LOOKS AFTER THE ADMINISTRATIVE AND FINANCE FUNCTIONS OF T HE ASSESSEE. HE IS ENGAGED IN TASKS CONNECTED WITH NEGOTIATIONS, FINALISATION OF AGREEMENTS/CONTRACTS, CO- ORDINATION WITH PRODUCERS/CREATIVE TECHNICIANS, DA TE MANAGEMENT, PUBLIC RELATIONS BOTH WITH MEDIA AND PUBLIC ETC. HE FURTH ER SUBMITTED THAT THE SALARY PAID TO SHRI JOSEPH WORKS OUT TO ONLY 1.69% OF THE TOTAL RECEIPTS. THE AO TOOK THE VIEW THAT THE THERE IS NO INCREASE IN THE NUMBE R OF ASSIGNMENTS, BUT THE FACT REMAINS THAT HER GROSS RECEIPTS HAS INCREASED TO RS .2.83 CRORES FROM RS.1.21 CRORES. THE LD A.R ALSO PLACED RELIANCE ON THE DEC ISION OF HONBLE KARNATAKA I.T.A. NO.589/COCH/2011 3 HIGH COURT IN THE CASE OF RECON MACHINE TOOLS (P) L TD (2006)(155 TAXMANN 252), WHEREIN A PAYMENT OF 5% TO A PROFESSIONAL IN THE CONTEXT OF 40A(2)(A) WAS FOUND TO BE REASONABLE. 6. ON THE CONTRARY, THE LD D.R SUBMITTED THAT T HE FATHER OF THE ASSESSEE IS A NATURAL GUARDIAN AND HE HAS THE DUTY TO TAKE CARE O F THE AFFAIRS OF HIS DAUGHTER. THE LD D.R FURTHER POINTED OUT THAT THERE WAS NO IN CREASE IN THE NUMBER OF ASSIGNMENTS UNDERTAKEN BY THE ASSESSEE DURING THE Y EAR UNDER CONSIDERATION VIS--VIS THE IMMEDIATELY PRECEDING YEAR, WHICH FAC T PROVES THAT THERE WAS NO EFFECTIVE CONTRIBUTION ON THE PART OF THE ASSESSEE S FATHER IN IMPROVING THE PROFESSIONAL WORK OF THE ASSESSEE. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND CARE FULLY PERUSED THE RECORD. THE AO HAS TAKEN THE VIEW THAT THERE WAS NO INCREASE IN THE NUMBER OF ASSIGNMENTS UNDERTAKEN BY THE ASSESSEE, WHICH MAY NOT BE THE CO RRECT SCALE TO JUDGE THE CORRECTNESS OF THE PAYMENT OF SALARY. IN CASE OF A NY BUSINESS ACTIVITY, ONE CANNOT EXPECT SUCCESS IN ALL THE ATTEMPTS MADE. ONE MAY MAKE 100 ATTEMPTS, OUT OF WHICH ONLY TWO MAY TURN OUT TO BE SUCCESSFUL . UNDER SEC. 40(A)(2)(A) OF THE ACT, THE QUESTION WHETHER THE PAYMENT IS EXCESS IVE OR UNREASONABLE IS DECIDED HAVING REGARD TO THE FAIR MARKET VALUE OF T HE GOODS, SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE OR THE LEGITIMATE NEE DS OF THE BUSINESS OR PROFESSION OF THE ASSESSEE. FROM THE DETAILS OF SA LARY FURNISHED BY THE ASSESSEE, WE NOTICE THAT THE SALARY HAS BEEN PAID TO FIVE LAB OURERS AND ALSO TO HER FATHER. THUS, IT IS SEEN THAT THE ASSESSEE HAS NOT ENGAGED ANY EDUCATED AND QUALIFIED PERSON TO TAKE CARE OF HER PROFESSIONAL WORKS OTHER THAN HIS FATHER, WHICH MEANS THAT THE FATHER OF THE ASSESSEE HAS BEEN LOOKING AF TER AND MANAGING HER PROFESSIONAL WORKS. THERE SHOULD NOT BE ANY DISPUT E THAT THE NEGOTIATION AND FINALIZATION OF PROFESSIONAL DEALS IN THE CINE AND ADVERTISEMENT WORLD REQUIRES SKILL AND EXPERTISE, WITH OUT WHICH IT WOULD BE DIF FICULT TO GET APPROPRIATE REMUNERATION. HENCE, THE REQUIREMENT OF A QUALIFIE D AND ABLE PERSON TO MANAGE I.T.A. NO.589/COCH/2011 4 THE PROFESSIONAL AFFAIRS OF THE ASSESSEE CANNOT BE DISCOUNTED WITH. HENCE, THE ASSESSEE HAS TAKEN THE SERVICES OF HER FATHER TO MA NAGE THE SAID AFFAIRS AND IN OUR VIEW, IT IS IN THE LEGITIMATE NEEDS OF THE PROF ESSION OF THE ASSESSEE. THE A.R OF THE ASSESSEE HAS POINTED OUT THAT THE GROSS RECE IPTS HAVE INCREASED DURING THE YEAR FROM RS.1.21 CRORES TO RS.2.83 CRORES, WHICH S HOWS THAT THERE WERE EFFECTIVE NEGOTIATIONS. THE LD A.R HAS POINTED OUT THAT THE ASSESSING OFFICER HAS ALLOWED THE SALARY PAYMENT OF RS.4.20 LAKHS MADE IN THE IMMEDIATELY PRECEDING YEAR TO THE FATHER OF THE ASSESSEE. HENCE, WE DO N OT FIND ANY REASON TO DISALLOW THE ENTIRE AMOUNT OF PAYMENT OF SALARY DURING THE Y EAR UNDER CONSIDERATION. HOWEVER, AS POINTED OUT EARLIER, IT IS REQUIRED TO BE SEEN WHETHER THE PAYMENT MADE TO RELATIVES IS IN ACCORDANCE WITH MARKET RATE S. THE ASSESSEE HAS NOT BROUGHT ON RECORD ANY MATERIAL TO JUSTIFY THE QUANT UM OF SALARY. UNDER THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE SALARY P AID TO THE FATHER OF THE ASSESSEE MAY BE ALLOWED AT THE SAME LEVEL AS IT WAS ALLOWED IN THE IMMEDIATELY PRECEDING YEAR. ACCORDINGLY, WE SET ASIDE THE ORDE R OF LD CIT(A) AND DIRECT THE ASSESSING OFFICER TO ALLOW THE SALARY PAID TO THE F ATHER OF THE ASSESSEE TO THE EXTENT OF RS.4,20,000/- AND DISALLOW THE PAYMENT PA ID IN EXCESS OF THE ABOVE SAID AMOUNT. 8. THE NEXT ISSUE RELATES TO THE DISALLOWANCE O F EXPENSES. THE AO DISALLOWED A PART OF THE FOLLOWING EXPENSES ON THE REASONING T HAT SOME PART OF THOSE EXPENSES MIGHT HAVE BEEN USED FOR PERSONAL PURPOSES . THE DETAILS OF EXPENSES AND THE AMOUNT DISALLOWED ARE GIVEN BELOW:- DRIVERS SALARY 44,000 ELECTRICITY 13,151 BEAUTIFICATION, COSTUME, TELEPHONE ETC. 2 ,00,000 VEHICLE EXPENSES 1,50,000 DEPRECIATION ON VEHICLES AND FURNITURE 3, 26,251 -------------- 7,33,402 ======== I.T.A. NO.589/COCH/2011 5 THE LD CIT(A) GRANTED A RELIEF OF RS.1.00 LAKH AND CONFIRMED THE BALANCE AMOUNT OF RS.6,33,402/-. 9. THE LD COUNSEL FOR THE ASSESSEE SUBMITTED TH AT THESE EXPENSES ARE SUPPORTED BY BILLS AND FURTHER THEY HAVE BEEN INCUR RED EXCLUSIVELY FOR THE PURPOSES OF BUSINESS. ON THE CONTRARY, THE LD D.R SUBMITTED THAT THE ASSESSEE WOULD BE MOSTLY OUT OF STATION TO ATTEND HER PROFES SIONAL WORKS AND HENCE THE AO WAS JUSTIFIED IN MAKING THE ABOVE SAID DISALLOWA NCES. 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PER USED THE RECORD. AS POINTED OUT BY LD D.R, THE ASSESSEE WOULD BE MOSTLY OUT OF STATION TO ATTEND HER PROFESSIONAL WORKS, WHERE SHE WILL BE TAKEN CARE OF THE CONCERNED COMPANIES. HENCE, IN OUR VIEW, THERE IS JUSTIFICATION IN DISAL LOWING PART OF EXPENSES VIZ., DRIVERS SALARY, ELECTRICITY CHARGES, VEHICLE EXPEN SES, DEPRECIATION. 11. HOWEVER, THE EXPENSES CLAIMED ON BEAUTIFICA TION, COSTUME, CDS ETC., IN OUR VIEW, ARE FULLY ALLOWABLE FOR THE REASON THAT T HE LOOK OF THE ASSESSEE IS HER CAPITAL IN CARRYING OUT THE PROFESSION OF MODELIN G AND ACTING. IT IS A MUST FOR A MODEL/ACTOR TO MAINTAIN HER APPEARANCE WHEREVER SHE GOES. WE NOTICE THAT THE AO HAS DISALLOWED A SUM OF RS.2.00 LAKHS OUT OF THE SE EXPENSES. THE LD CIT(A) GRANTED AN ADHOC RELIEF OF RS.1.00 LAKH WITHOUT MAK ING REFERENCE TO ANY PARTICULAR EXPENSE. UNDER THESE CIRCUMSTANCES, WE PRESUME THAT THE RELIEF GRANTED BY THE LD CIT(A) IS TOWARDS THESE EXPENSES ONLY. IN VIEW OF THE DISCUSSIONS MADE SUPRA, THE ENTIRE DISALLOWANCE OF RS.2.00 LAKHS NEEDS TO BE DELETED. SINCE THE LD CIT(A) HAS GRANTED A RELIEF OF RS.1.00 LAKH, WE DIRECT THE AO TO ALLOW FURTHER RELIEF OF RS.1.00 LAKH TO THE A SSESSEE, SO THAT THE ENTIRE DISALLOWANCE OF RS.2.00 LAKHS SHALL BE DELETED. WE ORDER ACCORDINGLY. 12. THE LAST ISSUE RELATES TO THE ADDITION OF RS .17.00 LAKHS MADE ON ACCOUNT OF LOW DRAWINGS. THE AO NOTICED THAT THE ASSESSEE HAD WITHDRAWN ONLY A SUM OF I.T.A. NO.589/COCH/2011 6 RS.1.00 LAKH TOWARDS HER PERSONAL EXPENSES. THE AO ESTIMATED THE PERSONAL EXPENSES AT RS.1.50 LAKHS PER MONTH, WHICH WORKED O UT TO RS.18.00 LAKHS PER ANNUM. ACCORDINGLY, THE AO MADE AN ADDITION OF RS. 17.00 LAKHS TOWARDS LOW WITHDRAWALS. THE LD CIT(A) ALSO CONFIRMED THE SAID ADDITION. 12. THE LD COUNSEL FOR THE ASSESSEE SUBMITTED TH AT THE ASSESSEE HAD SEPARATELY ACCOUNTED FOR RENT OF RS.4.80 LAKHS. SH E HAS DEBITED THE PROFIT AND LOSS ACCOUNT WITH THE ABOVE SAID RENT AMOUNT AND DI SALLOWED THE SAME WHILE COMPUTING THE TOTAL INCOME. ACCORDINGLY, HE SUBMIT TED THAT THE SAID AMOUNT OF RS.4.80 LAKHS SHOULD ALSO BE CONSIDERED AS DRAWINGS . HE FURTHER SUBMITTED THAT THE VARIOUS DISALLOWANCES MADE BY THE ASSESSING OFF ICER SHOULD ALSO BE GIVEN SET OFF AGAINST THE ESTIMATE MADE BY THE ASSESSING OFFI CER, SINCE THE SAID DISALLOWANCES HAVE BEEN MADE TOWARDS PERSONAL USE . ON THE CONTRARY, THE LD D.R SUBMITTED THAT THE ASSESSEE HAS WITHDRAWN ONLY A SUM OF RS.1.00 LAKH TOWARDS HER DRAWING DURING THE ENTIRE YEAR. HE FUR THER SUBMITTED THAT THE AO WAS JUSTIFIED IN ESTIMATING THE PERSONAL EXPENSES A T RS.18.00 LAKHS. 13. WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSUE. THERE SHOULD NOT BE ANY DISPUTE THAT THE ASSESSEE, BEING AN ACTOR AND M ODEL, IS REQUIRED TO MAINTAIN A DECENT STANDARD OF LIVING. HENCE, IN OUR VIEW, T HE ASSESSING OFFICER IS JUSTIFIED IN ESTIMATING HER PERSONAL EXPENSES AT RS.18.00 LAK HS PER ANNUM. AT THE SAME TIME, WE ALSO FIND MERIT IN THE CONTENTION OF THE A SSESSEE THAT THE ASSESSING OFFICER SHOULD HAVE CONSIDERED THE RENT, WHICH WAS SEPARATELY ACCOUNTED AND ALSO THE PORTIONS OF EXPENSES DISALLOWED TOWARDS PE RSONAL USE. THE AMOUNT DISALLOWED TOWARDS DRIVERS SALARY, ELECTRICITY AND VEHICLE EXPENSES WORKS OUT TO ABOUT RS.2.00 LAKHS AND THE RENT AMOUNT SEPARATELY ACCOUNTED WORK OUT TO RS.4.80 LAKHS. THE ASSESSEE HAS WITHDRAWN AN AMOUN T OF RS.1.00 LAKH. CONSIDERING THESE THREE AMOUNTS, THE AMOUNT TO BE A DDED ON ACCOUNT OF LOW DRAWINGS WORKS OUT TO RS.10.00 LAKHS. IN OUR VIEW, THIS ISSUE WOULD MEET THE ENDS OF JUSTICE, IF THE AMOUNT OF ADDITION ON ACCOU NT OF LOW WITHDRAWALS IS I.T.A. NO.589/COCH/2011 7 RESTRICTED TO RS.10.00 LAKHS. WE ORDER ACCORDINGLY. THE ORDER OF LD CIT(A) ON THIS ISSUE IS MODIFIED ACCORDINGLY AND THE AO IS DI RECTED TO RESTRICT THE ADDITION ON ACCOUNT OF LOW DRAWINGS TO RS.10.00 LAKHS. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE I S PARTLY ALLOWED. PRONOUNCED ACCORDINGLY ON 11-01-2013. SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 11TH JANUARY, 2013 GJ COPY TO: 1. MS. ASIN THOTTUMKAL, ASINS NO. 2001, BLUE MOUN TAIN, SHASTRI NAGAR, LOKHANDWALA, ANDHERI (W), MUMBAI-400 053. 2. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-2( 1), ERNAKULAM. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-II, KOC HI. 4. THE COMMISSIONER OF INCOME-TAX, KOCHI 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN