MANSURI CATERERS P. LTD, MUMBAI v. DCIT CIR 5(2), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G MUMBAI BEFORE SHRI RAJENDRA SINGH A.M. AND SHRI V. DURGA RAO J.M. ITA NO. 2263/MUM/2010 ASSESSMENT YEAR: 2006-07 MANSURI CATERERS PVT. LTD. APPELLANT ROOM NO. 7 & 8 1 ST FLOOR 202/228 DINNATH BLDG. P.B. MARG GRANT ROAD (E) MUMBAI 400 004. (PAN AACCM0927F) VS. DY. COMMISSIONER OF INCOME-TAX RESPONDENT CIRCLE 5(2) AAYAKAR BHAVAN M.K. MARG CHURCHGATE MUMBAI 400 020. APPELLANT BY : MR. KISHORE PATEL RESPONDENT BY : MRS. MALATI SRIDHARAN ORDER PER V. DURGA RAO J.M.: THIS APPEAL FILED BY THE ASSESEE IS DIRECTED AGAIN ST THE ORDER OF CIT(A)- 9 MUMBAI PASSED ON 02/01/2010 FOR THE ASS ESSMENT YEAR 2006-07 WHEREIN THE ASSESSEE HAS RAISED THE FOLLOWI NG GROUND OF APPEAL:- THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE DISA LLOWANCE OF A SUM OF RS. 1 80 000/- BEING 50% OF CONSULTING CHARG ES PAID TO THE DIRECTOR MOHD. JAFFER G. MANSURI U/S 40A(2)(B) OF THE ACT ON THE GROUND THAT THE AFORESAID EXPENSES ARE EXCESSIV E AND UNREASONABLE HAVING REGARD TO THE NATURE AND VOLUME OF THE BUSINESS OF THE ASSESSEE. ON THE FACTS AND IN THE C IRCUMSTANCES OF THE CASE THE AFORESAID EXPENSES BEING REASONABL E THE DISALLOWANCE OUGHT TO BE DELETED. ITA NO. 2263/MUM/2010 MANSURI CATERORS PVT. LTD. 2 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSE SSEE COMPANY IS ENGAGED IN THE BUSINESS OF RESTAURANT. DURING THE Y EAR UNDER CONSIDERATION THE ASSESSEE HAD SHOWN TURNOVER RS. 6 95 23 293/- AND OTHER INCOME OF RS. 17 23 481/- IN THE P&L A/C. THE AO FOUND THAT THE ASSESSEE HAD PAID CONSULTANCY CHARGES OF R S. 3 60 000/- TO MOHD. JAFFER G. MANSURI. HE WAS OF THE VIEW THAT TH E SAID PERSON IS AN ASSOCIATE PERSON AND CONSULTANCY CHARGES PAID WE RE COVERED BY THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. WHICH CAST ONUS ON THE ASSESSEE TO ESTABLISH THAT THE EXPENSES HAVE BEEN I NCURRED AT ARMS LENGTH AND ARE INCURRED EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. THE AO NOTICED THAT THE THERE WAS AN INCREASE IN EX PENDITURE FROM EARLIER YEAR TO CURRENT YEAR I.E. RS. 1 05 000/- TO RS. 3 75 000/-.SINCE THE ASSESSEE FAILED TO GIVE ANY COGENT EVIDENCE AND EXPLAINING THE NATURE OF EXPENSES THE AO HELD THAT THE EXPENSES I NCURRED BY THE ASSESSEE WERE EXCESSIVE AND UNREASONABLE LOOKING AT THE NATURE AND VOLUME OF BUSINESS OF THE ASSESSEE. HENCE THE AO D ISALLOWED 50% OF RS. 3 60 000/- I.E. RS. 1 80 000/- AND ADDED BACK T O THE TOTAL INCOME OF THE ASSESSEE. AGGRIEVED THE ASSESEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). 3. BEFORE THE CIT(A) THE ASSESSEE CONTENDED THAT T HE AO WAS NOT JUSTIFIED IN MAKING THE DISALLOWANCE HOLDING THAT T HE EXPENSES ARE EXCESSIVE AND REASONABLE HAVING REGARD TO THE NATUR E AND VOLUME OF THE BUSINESS OF THE ASSESSEE. HE SUBMITTED THAT MR. MHOD. JAFFER MANSURI IS A CHEF AND CAN COOK EVERY ITEM ON THE ME NU OF THE RESTAURANT AND THE RICH EXPERIENCE OF JAFFER IN THE RESTAURANT BUSINESS HAS TREMENDOUSLY HELPED THE ASSESSEE TO GR OW ITS BUSINESS FROM STRENGTH TO STRENGTH RESULTING INTO WHICH ITS REVENUE RS. 4.85 CRORES IN THE IMMEDIATELY PRECEDING YEAR TO RS. 6.9 5 IN THE YEAR UNDER CONSIDERATION. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE THE CIT(A) UPHELD THE DISALLOWANCE ON THE GROUND THAT T HE PAYMENTS MADE ON ADHOC BASIS AND THERE IS NO AGREEMENT FOR THE PA YMENT OF ITA NO. 2263/MUM/2010 MANSURI CATERORS PVT. LTD. 3 CONSULTANCY CHARGES TO MR. JAFFER. STILL AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE THE ITAT. 4. BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE HAS REITERATED THE SUBMISSIONS AS MADE BEFORE THE CIT(A) AND SUBMI TTED THAT DUE TO RICH EXPERIENCE OF MR. JAFFER THE BUSINESS OF THE ASSESSEE HAS BEEN TREMENDOUSLY INCREASED FROM RS. 4.85 CRORES TO RS. 6.95 CRORES FROM EARLIER YEAR TO THE YEAR UNDER CONSIDERATION. THE A SSESSEE SUBMITTED THAT FEE PAID BY THE ASSESSEE TO MR. JAFFER IS COMP ARABLE HAVING REGARD TO THE NATURE OF SERVICES RENDERED BY MR. JA FFER AND THE BENEFIT DERIVED BY THE ASSESSEE. 5. ON THE OTHER HAND THE LEARNED DR HAS RELIED UPO N THE ORDERS OF THE REVENUE AUTHORITIES. 6. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND PERUSED THE RECORD. THE GRIEVANCE OF THE ASSESSEE B EFORE THE REVENUE AUTHORITIES IS THAT DUE TO THE TRAINING AND SERVICE S PROVIDED BY MR. JAFFER TO THE ASSESSEE THE ASSESSEE HAS BEEN ABLE TO GROW ITS REVENUE RS. 4.85 CRORES IN THE IMMEDIATELY PRECEDING YEAR T O RS. 6.95 CRORES IN THE YEAR CONSIDERATION. THEREFORE THE ASSESSEE BENEFITED FROM THE SERVICES PROVIDED BY MR. JAFFER AND BY TAKING INT O CONSIDERATION THE COMMERCIAL EXPEDIENCY THE FEES PAID TO MR. JAFFER IS REASONABLE IN THE LINE OF BUSINESS. BEFORE US THE LEARNED COUNSE L FOR THE ASSESSEE HAS FILED A CHART WHICH SHOWS THE SALARY FOR HOTEL INDUSTRY TO ESTABLISH THAT THE PAYMENT OF RS. 3 60 000/-MADE TO MR. JAFFER ON ACCOUNT OF CONSULTANCY CHARGES IS PROPER. WE FIND T HAT THE ABOVE CHART WAS NEITHER FILED BEFORE THE AO NOR FILED BEF ORE THE CIT(A). WE SET ASIDE THE ORDER OF THE CIT(A) AND REMIT THE MAT TER BACK TO THE FILE OF THE AO WITH A DIRECTION TO DECIDE THE ISSUE BY C ONSIDERING THE CHART FILED BY THE ASSESSEE AND IN ACCORDANCE WITH LAW AF TER PROVIDING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. ITA NO. 2263/MUM/2010 MANSURI CATERORS PVT. LTD. 4 7. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 28 TH DAY OF FEBRUARY 2011. SD/- SD/- (RAJENDRA SINGH) (V. DU RGA RAO) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI DATED: FEBRUARY 2011 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE G BENCH I.T .A.T. MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR I.T.A.T. MUMBAI. KV S.NO. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON 24/02/11 SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR 24/02/11 SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER