Diversified Global Finlease Ltd. vs Commissioner of Income Tax

CM No. 2761/2007

This is an application for condonation of delay. Heard. The delay is condoned. Application stands disposed of.

ITA No. 206/2007 & CM No. 2762/2007

The assessee is aggrieved by an order dated 2-9-2005 passed by the Income Tax Appellate Tribunal (''Tribunal''), New Delhi in ITA No. 3909/Delhi/2001 for the assessment year 1997-98. The assessee has also challenged the order dated 31-5-2006 passed by the Tribunal dismissing an application for rectification filed by the assessee u/s 254(2) of the Income Tax Act, 1961 (''Act'').

The assessee is a lease finance company. According to the assessee, it had planned to raise further capital through public issue and through private placement of equity shares to individuals and institutions. In this regard it engaged the services of Mr. Anil Kumar (HUF) and Ms. Minakshi Goyal who had arranged some meetings with prospective investors. An amount of Rs. 8 lakhs was paid to Mr. Anil Kumar (HUF) and an amount of Rs. 10 lakhs was paid to Ms. Minakshi Goyal. It is the case of the assessee that since there was a slump in the share market, the public issue did not materialise.

The assessing officer was of the view that the payment made to Mr. Anil Kumar (HUF) and Ms. Minakshi Goyal was actually in the nature of advances and not any payment for services rendered. He also noticed that the advances were interest-free. He reasoned that if indeed the said advances were given on account of business consideration, there was no material on record to explain the nature of the services rendered by Mr. Anil Kumar (HUF) and Ms. Minakshi Goyal. In view of this, the assessing officer took the notional rate of interest at the rate of 12 per cent and calculated the notional interest on the amounts given to Mr. Anil Kumar (HUF) and Ms. Minakshi Goyal as Rs. 96,592 and Rs. 9,000 respectively.

The assessing officer also noticed that the assessee had paid excess salary to some of its employees who were relatives of the Director of the assessee-company. According to the assessing officer, the payment of excessive salaries did not relate to genuine business needs of the assessee. Accordingly, as against the total amount of Rs. 1,64,500 under the head of Salaries, the assessing officer allowed Rs. 82,500 in the appeal by the assessee, the Commissioner (Appeals) confirmed the order of the assessing officer as regards the addition of notional interest in the sum of Rs. 1,05,592. As regards salaries, the Commissioner (Appeals) limited the addition to Rs. 60,000 instead of Rs. 82,000. The assessee''s further appeal was dismissed by the Income Tax Appellate Tribunal (''ITAT'') by the first impugned order dated 2-9-2005.The rectification application was dismissed by the ITAT by the second impugned order dated 31-5-2006 on the ground that the assessee was attempting to get the Tribunal to review its order in the garb of a rectification application.

Before us it was contended by learned Counsel for the assessee that it is for the assessee to charge interest on the advances made by it. We are unable to agree. It has been found by the Appellate Authorities that the assessee is a financing company and engaged in the business of financing, sale and purchase of shares. There was no reason why the assessee had advanced loans to the two persons without charging any interest. It is then submitted by learned Counsel for the assessee that the payments were made to the persons for their services rendered to the financing company. However, the assessee was unable to furnish any materials or documents to show that the said two parties had rendered such services to the assessee-company. We accordingly, do not find any merit in the submissions of learned Counsel for the assessee on this aspect.

With regard to excess salaries paid to some of its employees, the assessee has not brought any material on record to establish the reasonableness of payment of excess salary to some of its employees who were relatives of its Director.

In our opinion, no substantial question of law arises in this appeal. The appeal as well as the pending application stand dismissed accordingly.