Renovision Exports (P) Ltd., Patna V. ACIT, Patna

CO 1/PAT/2014

• Counselvise Citation: [2017] 123 COUNSELVISE.COM (IT) 2998 (ITAT-PATNA)
• Duration Of Justice: 3 year(s) 3 month(s) 2 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 06-04-2017
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 03-01-2014
• Court: TRIBUNAL
• Department Lawyers: S K PAUL DR SHRI S K NAR
• Assessee Lawyers: T VARKEY JUDIC IA L M EMBER

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, PATNA BENCH:P ATNA BEFORE SHRI ABY T. VARKEY, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO. 250/PAT/2013 ASSESSMENT YEAR:2010-11 ASSISTANT COMMISSIONER OF INCOME-TAX, CIRLE-2, PATNA / V/S . M/S. RENOVISION EXPORTS PVT. LTD., REPL PLAZA, PHULWARISHARIF, PATNA PAN: AABCR7100A /APPELLANT .. /RESPONDENT & C.O. NO.01/PAT/2014 IN ITA NO. 250/PAT/2013 ASSESSMENT YEAR:2010-11 M/S. RENOVISION EXPORTS PVT. LTD / V/S . ASSISTANT COMMISSIONER OF INCOME-TAX, CIRLE-2, PATNA ASSESSEE/CROSS OBJECTOR .. /RESPONDENT /BY REVENUE SHRI S. K. PAUL, DR /BY ASSESSEE SHRI S. K. NARAYAN, ADVOCATE /DATE OF HEARING 06-04-2017 /DATE OF PRONOUNCEMENT 06-04-2017 /O R D E R PER BENCH: THIS APPEAL FILED BY THE REVENUE AND THE CROSS O BJECTION FILED BY THE ASSESSEE ARE ARISING OUT OF ORDER OF COMMISSIONER OF INCOME-TAX( APPEAL), DHANBAD DATED 30-09-2013 FOR AY 2010-11. SINCE BOTH THE APPEAL AND THE CROS S OBJECTION HAVE BEEN HEARD TOGETHER WE DISPOSE OF THE SAME BY THIS CONSOLIDATED ORDER F OR THE SAKE OF CONVENIENCE. 2. THE FIRST AND SECOND GROUNDS OF APPEAL OF REVENU E IS AGAINST THE ACTION OF LD. CIT(A) IN DELETING THE DISALLOWANCE MADE BY THE AO TAKING NOTE THAT THE DIRECTORS 2 ITA NO. 250/PAT/2013 RENOVISION EXPORTS PVT. LTD., AY 2010-11 REMUNERATION IS EXCESSIVE U/S. 40A(2) OF THE INCOME -TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). 3. AT THE OUTSET ITSELF, IT WAS POINTED OUT BY THE LD. COUNSEL FOR THE ASSESSEE THAT IN THE STATEMENT OF FACTS FILED ALONG WITH THE GROUNDS OF APPEAL, THE AO HAS STATED THAT THE ORDER OF THE LD. CIT(A) IS ACCEPTABLE ON THE ISSUE OF DELETI ON OF ADDITION OF RS.46,32,000/- MADE UNDER THE HEAD PART DISALLOWANCE OF DIRECTORS REM UNERATION. SO, REVENUE HAS ACCEPTED THE LD. CIT(A)S ORDER. HOWEVER, THE LD. DR RELIED ON THE ORDER OF THE AO AND ASSAILED THE ORDER OF THE LD. CIT(A) IN DELETING THE DISALLOWANC E MADE U/S. 40A(2) OF THE ACT BY THE AO. 4. BRIEF FACTS OF THE CASE IS THAT THE AO NOTED THA T THE DIRECTORS DREW THE FOLLOWING REMUNERATION: I) ASHFAQUE REHMAN RS.48,00,000/- II) TANWEER FATMA RS.24,00,000/- III) SULTANA BANO RS. 2,16,000/- THUS, THE TOTAL AMOUNT OF RS.74,16,000/- WAS SHOWN AS EXPENSES TOWARDS PAYMENT OF REMUNERATION TO THE DIRECTORS. ACCORDING TO AO, TH E REMUNERATION WAS QUITE EXCESSIVE AND AFTER TAKING NOTE OF THE REPLY GIVEN BY THE ASSESSE E DISALLOWED AN AMOUNT OF RS.46,32,000/- BY DRAWING CHART AS UNDER: NAME OF THE DIRECTOR REMUNERATION CLAIMED REMUNERAT ION HELD TO BE ALLOWABLE BALANCE TO BE ADDED TO TOTAL INCOME ASHFAQUE REHMAN TANWEER FATMA SULTANA BANO 48,00,000 24,00,000 2,16,000 24,00,000 2,40,000 1,44,000 24,00,000 21,60,000 72,000 TOTAL DISALLOWANCE U/S. 40A(2) 46,32,000 AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A), WHO WAS PLEASED TO DELETE THE SAME BY TAKING NOTE OF THE ORDER OF HIS PREDECESSOR FOR AY 2007-08 WHEREIN THE SIMILAR DISALLOWANCE WAS DELETED BY THE LD. CIT(A). THE LD. CIT(A) HAS DELETED THE DISALLOWANCE BY HOLDING AS UNDER: 3 ITA NO. 250/PAT/2013 RENOVISION EXPORTS PVT. LTD., AY 2010-11 I H A VE C O N S ID E R E D T H E F A C T S OF TH E C A SE . TH E A PP E LL A NT I S A PRI VA T E LI M I T E D . 1 C O MPA N Y A N D N O EX P RES S LIMIT H AS B EE N PL A CE D ON IT E ITH E R B Y T H E IN C O M E T A X ACT O R CO MP A NI ES A C T OR A N Y OT H E R L A W A S FA R A S P A Y M ENT OF D I R E C TOR'S R E MUN E R A TI O N I S CONC E RN E D . S I MIL A R ISSUE C A M E UP IN A.Y . 2 007 - 08 IN TH E CAS E O F T HE AP P E L L A NT I TS E LF . TH E S A M E WAS DECID E D V ID E ORD E R DAT E D 29. 07. 2 0 1 1 IN A PP EA L NO . 1 2 1/ CIT(A) - IL/CO/PAT/2009-10 . F O R R E FERENC E, THE R E LE V ANT P A R T I S BE I NG R E PR OD U C E D H E R E UND E R : - ' 1 0 . 1 HAV E C ONSID E R E D TH E ABOVE MATTER. IN THE WORLD OF BUSINESS , EDUCATI O N Q UA L IFICAT ION IS NO G UARANT E E FOR REMUNERATION AND VICE-VERSA. SIMILARLY , TH E E DUCAT IO N O R THE LACK O F IT , IS ALSO NOT A DETERMINING FACTOR FOR SUCC E SS IN BU S IN E SS . FURT H E R , SALARY OF DIRECTORS CANNOT BE COMPAR E D WITH TH E SALARY OF E MP L OYEES AS IT I S TH E DIRECTORS IN A PRIVATE LIMIT E D COMPANY WHO ARE RESPONSIBL E FO R AN Y P R O F I T O R LO S S OF THE COMPANY AND THEIR INVOLVEMENT AND PERSONAL C OMMIT M E NT I S I N C O MPARABLE. THE AO HAS NOT MENTIONED . WHETH E R THES E LAD Y D IR EC TO R S WE R E AC TU A LL Y I NV OLV E D ON DAY TO DAY BASIS WITH THE COMPANY AND T HE EX T EN T OF S E R V I C ES R E N DE R E D BY THEM . CASE LAW R EL IED UPON BY THE A O I S ALS O N OT A PP L I C AB L E TO TH E FA C TS OF THE C ASE. UNLIKE IN TH E C ASE OF A FIRM , THER E I S NO L IMI T A L SO IN TH E INC OM E -TAX OR TH E COMPANYS ACT REGARDING PAYMENT OF SALARY T O DIRECTORS. THEREFORE, FA CTS B R O UGHT OUT BY THE AO ARE INSUFFICIENT TO DISTURB THE ACCE PT E D P OSI TI O N IN A . Y . 2004-05 . THUS, ADDITION . OF RS.5,82,000/- ON THIS AC C OU N T I S DE L E T E D . ' 5. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE TAKE NOTE THAT THE ASSESSEE IS A PRIV ATE LIMITED COMPANY AND ALL ITS AFFAIRS ARE MANAGED BY THE DIRECTORS WHO ARE RESPONSIBLE FOR TH E GROWTH OF THE COMPANY. WE NOTE THAT THE TURNOVER FOR THE IMMEDIATE PRECEDING YEAR I.E. AY 2009-10 WAS RS.7.74 CR. AND IT HAS INCREASED TO RS.10.75 CR. IN THE INSTANT ASSESSMENT YEAR. THE ASSESSEE HAS SHOWN THE NET INCOME OF RS.94,46,520/-. WE NOTE THAT UNLIKE PART NERSHIP FIRM THERE IS NO STATUTORY RESTRICTION IN RESPECT TO PRIVATE LIMITED CO. TO FI X THE REMUNERATION OF ITS DIRECTORS. IT WAS BROUGHT TO OUR NOTICE THAT OUT OF THE THREE DIRECTO RS THE MAIN DIRECTOR ASHFAQUE REHMAN MOSTLY GOES ON TOUR OUT OF PATNA TO PROMOTE THE SAL E AND FOR PROCUREMENT OF RAW MATERIAL AND THE OTHER WORK. LADY DIRECTORS LOOKS AFTER THE MANUFACTURING UNIT AND WORK OF LOCAL OFFICE AT PATNA. THE REMUNERATION OF ALL THE DIREC TORS WERE ASSESSED TO TAX. THE AO HAS NOT FOUND FAULT WITH THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE AND HAS NOT FOUND ANY FAULT WITH THE ASSESSEE IN MAINTAINING ITS BOOKS. I T IS NOT THE CASE OF THE AO THAT THE LADY DIRECTORS HAVE NOT RENDERED ANY SERVICES TO THE ASS ESSEE COMPANY. WITHOUT BRINGING ANY ADVERSE MATERIAL TO SUBSTANTIATE THAT THE LADY DIRE CTORS ARE NOT RENDERING ANY SERVICES TO THE COMPANY, ON ASSUMPTIONS AND SURMISES THE DISALLOWAN CE OF THE REMUNERATION GIVEN TO THE DIRECTORS OUGHT NOT TO HAVE MADE BY THE AO. THE LD . CIT(A) HAS RIGHTLY OBSERVED THAT 4 ITA NO. 250/PAT/2013 RENOVISION EXPORTS PVT. LTD., AY 2010-11 THERE IS NO LIMIT NEITHER IN THE INCOME TAX ACT NOR IN THE COMPANIES ACT REGARDING PAYMENT OF SALARY TO THE DIRECTORS. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A) AND SO, WE REFRAIN FROM IN TERFERING IN THE SAID ORDER AND, THEREFORE, WE DISMISS THESE GROUNDS OF APPEAL OF RE VENUE. 6. THIRD GROUND IS IN RESPECT OF DELETION OF ADDITI ON OF RS.13,25,078/- UNDER THE HEAD SALES PROMOTION BY VIOLATION OF RULE 46A OF THE I NCOME-TAX RULES, 1962 (HEREINAFTER REFERRED TO AS THE RULES). 7. BRIEF FACTS OF THE CASE AS NOTED BY THE LD. CIT( A) ARE THAT THE AO OBSERVED THAT THE ASSESSEE HAS CLAIMED AN AMOUNT OF RS.13,82,738/- AS SALES PROMOTION EXPENSES WHICH WAS FOR PURCHASE OF ITEMS LIKE DIARIES, CALENDARS AND O THER STATIONERY ITEMS WHICH WERE GIVEN TO DEALERS. ACCORDING TO THE AO, NORMALLY SUCH ITEMS PURCHASES AND HANDED OVER TO DEALERS PERCOLATE DOWN TO THE DOCTORS TO ALLURE THEM TO PRE SCRIBE MEDICINES OF A PARTICULAR COMPANY. SO, ACCORDING TO THE AO, THE SAME WAS UNE THICAL AS PER GUIDELINES OF MCI AND THE SAID EXPENDITURE WAS IN VIOLATION OF LAW. ACCO RDINGLY, IT WAS DISALLOWED. ON APPEAL, THE LD. CIT(A) GAVE PARTIAL RELIEF TO THE ASSESSEE BY SUSTAINING THE DISALLOWANCE OF RS.28,825/- OUT OF RS.13,82,738/- BY AO. AGGRIEVED , THE REVENUE IS BEFORE US BY PREFERRING THIS APPEAL AND ASSESSEE HAS PREFERRED A CROSS OBJE CTION AGAINST SUSTENANCE OF ADDITION OF RS.28,825/-. 8. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE NOTE THAT THE ASSESSEE IS ENGAGED IN MANUFACTURING OF AYURVEDIC PRODUCTS. SO THE QUESTION OF MCI GUIDELINES DOES NOT APPLY IN TH E CASE OF ASSESSEE. MCI GUIDELINES ARE FOR ALLOPATHIC DOCTORS AND THE ASSESSEE IS DEALING WITH AYURVEDIC PRODUCTS. THEREFORE, THE VERY PREMISE ON WHICH THE AO HELD THAT THE EXPENDIT URE FOR PURCHASE OF ITEMS LIKE DIARIES, CALENDARS AND OTHER STATIONERY ITEMS FOR DEALERS ARE VIOLATIVE OF LAW, CANNOT BE SUSTAINED AND THE LD. CIT(A) RIGHTLY HELD SO. MOREOVER, WE N OTE THAT THE ASSESSEES CASE IS THAT THESE ITEMS ARE GIVEN TO DEALERS FOR PROMOTING THEIR AYUR VEDIC PRODUCTS. WE NOTE THAT THESE ITEMS ARE CALENDAR, STICKERS, PAPER WEIGHTS ETC. HOWEVER , ACCORDING TO AO, ITEMS PERCOLATE DOCTORS, WHICH FINDING IS NOT BASED UPON ANY MATERI AL ON RECORD, SO THE FINDING OF AO IS PERVERSE AND SO, THE LD. CIT(A) HAS RIGHTLY DELETED AND PARTIAL RELIEF GIVEN TO ASSESSEE. THE LD. CIT(A) HAS GIVEN THE DETAILS OF THE EXPENDI TURE FROM PAGE 4 TO 6 OF HIS IMPUGNED 5 ITA NO. 250/PAT/2013 RENOVISION EXPORTS PVT. LTD., AY 2010-11 ORDER. WE NOTE THAT THE EXPENDITURE INCLUDES PAYME NT MADE BY ASSESSEE TO DEPARTMENT OF AYUSH AND FICCI. HOTEL ROOM AND FOODING CHARGES WE RE TO THE TUNE OF RS.65,991/- WHICH HAVE BEEN INCURRED FOR DEALERS AND OTHER PERSONS CO NNECTED WITH THE BUSINESS OF THE ASSESSEE ON VISITING PATNA FROM OUTSIDE. RS.5,14,1 94/- HAS BEEN PAID TO M/S. GOD PRINTS FOR PRINTING OF STICKERS AND POSTERS. AMOUNT OF RS.3,7 7,451/- HAS BEEN PAID TO M/S. VISHAL INDUSTRIES FOR SUPPLY OF POUCHES AND PAPER WEIGHTS WITH THE NAME AND DETAILS OF PRODUCTS MANUFACTURED BY THE ASSESSEE DULY ENGRAVED ON IT. FROM THE AFORESAID FACTS, THE LD. CIT(A) WAS CORRECT IN CONCLUDING THAT THE AO HAS NOT EXAMI NED THE DETAILS OF THE EXPENDITURE PROPERLY AND THAT THE AO ERRED IN COMING TO THE CON CLUSION THAT THERE IS VIOLATION OF LAW. WE AGREE WITH THE OPINION OF THE LD. CIT(A) AND FIN D NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A). THEREFORE, WE DISMISS THE REVENUE S GROUND OF APPEAL. 9. COMING TO THE CROSS OBJECTION AGAINST THE ADDITI ON SUSTAINED BY THE LD. CIT(A) IN RESPECT TO THE EXPENDITURE CLAIMED BY THE ASSESSEE FOR THE EXPENDITURE OF RS.27,325/- FOR PURCHASE OF WATCHES AND OF RS.1500/- FOR PURCHASE O F MOBILE PHONE FOR ONE DR. MUKESH KUMAR (NON-ALLOPATHIC DOCTOR). AT THE TIME OF HEAR ING, LD. COUNSEL FOR THE ASSESSEE DOES NOT WANT TO PRESS THIS GROUND OF APPEAL CONSIDERING THE SMALLNESS OF THE AMOUNT. THEREFORE, WE DISMISS THIS GROUND OF ASSESSEES CROSS OBJECTIO N TAKING NOTE OF THE SMALLNESS OF THE AMOUNT INVOLVED. 10. IN THE RESULT, BOTH THE APPEAL OF THE REVENUE A S WELL AS THE CROSS OBJECTION OF ASSESSEE ARE DISMISSED. ORDER IS PRONOUNCED IN OPEN COURT. SD/- SD/- (WASEEM AHMED) (ABY. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATE: 6 TH APRIL, 2017 JD. SR. PS 6 ITA NO. 250/PAT/2013 RENOVISION EXPORTS PVT. LTD., AY 2010-11 / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. ' / CONCERNED CIT 4. ' - / CIT (A) 5. # && , / DR, ITAT, PATNA 6. ( / GUARD FILE. BY ORD ER/ , ASSISTANT REGI STRAR, ITAT, PATNA,