Unity Dychem Pvt.Ltd., Anand V. The ACIT.,Circle-3, Baroda

CO 187/AHD/2010

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 8185 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 6 month(s) 10 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 24-01-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 14-07-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: D K SINGH SR DR
• Assessee Lawyers: N C AMIN
• Keywords: Fair market value; Onus to prove
• Section: 143(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE SHRI, A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER ITA NO.1738/AHD/2010 & C.O. NO.187/AHD/2010 (A/O ITA NO. 1738/AHD/2010) ASSESSMENT YEAR:2007-08 ASSTT. COMMISSIONER OF INCOME-TAX, CIRCLE-3, 3 RD FLOOR, AAYKAR BHAVAN RACE COURSE CIRCLE, BARODA UNITY DYECHEM PVT. LTD. GOLANA ROAD, SOKHADA TAL. KHAMBHAT, ANAND [ PAN NO. AAACU 5068R ] V/S . V/S . UNITY DYECHEM PVT. LTD., GOLANA ROAD, AT: SOKHADA, TA: KHAMBHAT, DIST. ANAND ACIT, CIRCLE-3, 3 RD FLOOR, AAYAKAR BHAVAN, RACE COURSE CIRCLE, BARODA /APPELLANT .. / RESPONDENT /BY ASSESSEE SHRI N.C. AMIN, AR /BY REVENUE SHRI D.K. SINGH, SR-DR /DATE OF HEARING 09-01-2013 ! /DATE OF PRONOUNCEMENT 24-01-2013 ' ' ' ' / // / O R D E R PER KUL BHARAT, JUDICIAL MEMBER:- THE REVENUE AND ASSESSEE BOTH HAVE FILED APPEAL AN D CROSS OBJECTION (CO) CHALLENGING THE ORDER OF COMMISSIONER OF INCOM E-TAX (APPEALS)-I, BARODA (CIT(A) FOR SHORT) DATED 12-02-2010 PERTAI NING TO ASSESSMENT YEAR (AY) 2007-08. FIRST WE TAKE UP REVENUES APPEAL IN ITA NO.1738/AH D/2010. ITA NO.1738/AHD/2010 & CO 187/AHD/2010 A.Y 0 7-08 ACIT CIR-3 ABD V. UNITY DYECHEM PVT. LTD. PAGE 2 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(APPEALS) ERRED IN DELETING THE ADDITION OF RS.2 4,693/- PAID FOR OBTAINING ISO CERTIFICATE. THE LD. CIT(A) ERRED IN TREATING THE EXPENDITURE AS REVENUE IN NATURE ON THE GROUND THAT THE FIXED C APITAL OF THE ASSESSEE WAS NOT ENHANCED IN ANY MANNER, BUT DID NO T APPRECIATE THE FACT THAT THE CERTIFICATION IS VALID FOR 3 YEARS AN D THE POSITIVE IMAGE OF THE ASSESSEES PRODUCTS WAS CREATED FOR THE SMOOTH CONDUCT OF BUSINESS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(APPEALS) ERRED IN DELETING THE ADDITION OF RS.1 8.00 LACS MADE ON ACCOUNT OF DISALLOWANCE OF EXCESS REMUNERATION TO D IRECTORS. THE ASSESSEE, A CAPITAL INCENTIVE INDUSTRY, HAD FAILED TO JUSTIFY THE INCREASE OF ALMOST 89% IN THE COMMISSION EXPENSE WHEREAS SAL ES HAS INCREASED ONLY 34.51% AND THAT AS TO THE ROLE OF THE DIRECTOR S FOR THE INCREASE OF PRODUCTION OF THE COMPANY. 3. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE-COMPA NY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF DYES AND I NTERMEDIATES. THE CASE OF ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND T HE ASSESSMENT U/S 143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REF ERRED TO AS THE ACT) WAS FRAMED THEREBY THE ASSESSING OFFICER MADE VARIOUS D ISALLOWANCES I.E. EXPENSES TOWARDS SERVICE CHARGES PAID FOR OBTAINING ISO CERTIFICATE, CLAIM OF INTEREST EXPENSES, DISALLOWANCE OF SUBSIDY AMOUNT, DISALLOWANCE OF EXCESS CLAIM OF DIRECTORS REMUNERATION AND DISALLOWANCE O F FOREIGN TRAVELING EXPENSES. AGAINST THESE, ASSESSEE FILED APPEAL BEFO RE LD. CIT(A) WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE PARTLY ALLOWED THE APPEAL THEREBY THE EXPENDITURE TOWARDS CERTIFICATION OF IS O WAS TO BE DELETED AND THE INTEREST INCOME REMUNERATION TO THE DIRECTORS AND E XPENDITURE ON FOREIGN TRAVEL WAS DIRECTED TO BE DELETED. 4. AGAINST THIS, REVENUE HAS FIELD PRESENT APPEAL B EFORE THE TRIBUNAL. 5. FIRST GROUND IS WITH REGARD TO DELETION OF ADDIT ION OF RS.24,693/- PAID FOR OBTAINING OF ISO CERTIFICATE. LD. SR-DR FOR THE REV ENUE STRONGLY SUPPORTED THE ITA NO.1738/AHD/2010 & CO 187/AHD/2010 A.Y 0 7-08 ACIT CIR-3 ABD V. UNITY DYECHEM PVT. LTD. PAGE 3 ORDER OF ASSESSING OFFICER AND SUBMITTED THAT THE E XPENSES INCURRED IN OBTAINING ISO CERTIFICATE IS OF CAPITAL IN NATURE. ON THE CONTRARY, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS COVERED I N FAVOUR OF ASSESSEE BY THE DECISION OF HONBLE KARNATAKA HIGH COURT RENDERED I N THE CASE OF CIT AND ANOTHER V. INFOSYS TECHNOLOGIES LTD. (NO.1) (2012) 349 ITR 582 (KARN). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD AND THE CASE LAW CITED BY LD. C OUNSEL FOR THE ASSESSEE. WE FIND THAT THIS ISSUE IS SQUARELY COVERED IN FAVO UR OF ASSESSEE BY THE DECISION OF HONBLE KARNATAKA HIGH COURT RENDERED I N THE CASE OF INFOSYS TECHNOLOGIES LTD.(NO.1) (SUPRA) AND IN THE LIGHT OF DECISION RENDERED IN T HE CASE OF ACIT V. TIRUPATI MICRO TECH (P) LTD. 111 TTJ 149 WE DO NOT FIND ANY INFIRMITY INTO THE ORDER PASSED BY LD. CIT(A). HENC E, SAME IS HEREBY UPHELD. THIS GROUND OF REVENUES APPEAL IS DISMISSED. 7. NEXT ISSUE IS WITH REGARD TO DISALLOWANCE OF EXC ESS REMUNERATION PAID TO DIRECTORS OF RS.18 LAKHS. LD. SR-DR FOR THE REVE NUE SUBMITTED THAT THERE IS SUDDEN HUGE INCREASE INTO THE REMUNERATION OF THE D IRECTORS WITHOUT ANY JUSTIFICATION. HE SUBMITTED THAT ASSESSEE HAD SUDDE NLY HIKED THE REMUNERATION OF DIRECTORS FROM RS.3 LAKH TO RS.9 LAKH. HE SUBMIT TED THAT ASSESSING OFFICER HAS RIGHTLY REJECTED THE SUBMISSIONS OF THE ASSESSE E THAT THE INCREASE IN DIRECTORS REMUNERATION WAS DUE IN TURNOVER OF 3.60 TO RS.4.36 CRORES. HE SUBMITTED THAT IT IS CLEAR FINDING BY THE ASSESSING OFFICER THAT THE ASSESSEE BEING THE CAPITAL INTENSIVE INDUSTRY DIRECTOR COULD DO WHOLLY. HE FURTHER SUBMITTED THAT CHEMIST WAS NOT GIVEN ANY HIKE. UNDE R THESE CIRCUMSTANCES, THE ACTION OF THE AO WAS JUSTIFIED. LD. DR SUBMITTE D THAT THE BURDEN OF PROOF IS ON THE ASSESSEE TO PRODUCE THE EVIDENCE IN SUPPORT OF NECESSITY TO PAY REMUNERATION IN EXCESS. HE SUBMITTED THAT ASSESSEE HAS FAILED TO FURNISH THE EVIDENCE DEMONSTRATING THE REASON FOR SUCH EXCESSIV E INCREASE IN ITA NO.1738/AHD/2010 & CO 187/AHD/2010 A.Y 0 7-08 ACIT CIR-3 ABD V. UNITY DYECHEM PVT. LTD. PAGE 4 REMUNERATION. ON THE CONTRARY, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE IS NO ATTEMPT BY THE ASSESSING OFFICER TO DEM ONSTRATE THAT EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE F AIR MARKET VALUE TO THE SERVICES RENDERED BY THE DIRECTORS. HE PLACED RELIA NCE ON THE CBDT CIRCULAR NO. 6-C DATED 06-07-1968. IN SUPPORT OF THE CONTENT ION THAT NO DISALLOWANCE IS TO BE MADE IN RESPECT OF PAYMENT TO SISTER CONCE RN WHERE THERE IS NO ATTEMPT TO EVADE TAX AND AO NOT BEING ABLE TO SHOW AS TO HOW 0.5% HIGHER COMMISSION PAID BY ASSESSEE CONCERN WHICH WAS ALSO BEING ASSESSED AT HIGHER RATE AND RESULTED IN TAX EVASION. HE ALSO PL ACED RELIANCE ON THE JUDGMENT OF HONBLE BOMBAY HIGH COURT RENDERED IN T HE CASE OF CIT V. V.S. DEPO &CO. PVT. LTD. (2010) 37(1) ITCL 43 (BOM). IN SUPPORT OF THE CONT ENTION THAT MERE MAKING OF PAYMENT TO A RELATIVE WILL NOT AUTOMATICALLY CALL FOR DISALLOWANCE U/S 40A(2)(B) AS THE ASSESSING OFFICER HAS TO PROVE THAT THE PAYMENT SO MADE WAS EXCESSIVE O UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE FOR THE GOODS, SERVICES OR SUCH FACILI TIES FOR WHICH THE PAYMENT IS MADE; OR SUCH EXPENDITURE IS EXCESSIVE OR UNREASONA BLE HAVING REGARD TO THE LEGITIMATE NEEDS OF THE BUSINESS OR PROFESSION OF T HE ASSESSEE FOR WHICH THE PAYMENT IS MADE; AND SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE BENEFIT DERIVED BY OR ACCRUING TO HIM THEREFROM FOR WHICH THE PAYMENT IS MADE. LD. COUNSEL FOR THE ASSESSEE SUBMI TTED THAT DIRECTORS ARE HIGHLY TECHNICAL PERSON IN TOUCH WITH FOREIGN TECHN ICIAN FOR DEVELOPMENT OF BUSINESS AND THEY ARE ENGAGED IN THE HIGHLY SPECIAL IZED BUSINESS FOR MANUFACTURING OF DYES AND PIGMENTS. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AO FAILED TO APPRECIATE THAT DIRECTORS ARE HIGHLY TECHNICAL AND THEY HAVE BEEN LOOKING AFTER RATHER MOST OF THE AFFAIRS OF THE ASSESSEE-COMPANY AS EXCEPT THE CHEMIST AND NO EMPLOYEE HAS BEEN APPOINT ED 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE OBJECTION OF ASSESSING OFFICER IS THAT ASSESSEES BUSINESS IS CAPITAL INTENSIVE WHERE THE DIRECTORS COULD DO NOTHING ITA NO.1738/AHD/2010 & CO 187/AHD/2010 A.Y 0 7-08 ACIT CIR-3 ABD V. UNITY DYECHEM PVT. LTD. PAGE 5 INCREASE PRODUCTION. THE AO ALSO WAS OF THE VIEW TH AT CHEMIST WHO WAS LOOKING AFTER THE PRODUCTION WAS NOT GIVEN ANY HIKE IN SALARY. THE AO HAS OBSERVED THAT ONE OF THE DIRECTOR IS 1982 BORN SON OF OTHER DIRECTOR. HE SUBMITTED THAT HAD THE DIRECTOR BEING NOT RELATED P ARTY HE WOULD NOT GIVEN THE HIKE. WE FIND THAT BEFORE LD. CIT(A) IT WAS SUBMITT ED BY ASSESSEE THAT DIRECTORS OF THE ASSESSEE-COMPANY ARE PERFORMING FO LLOWING DUTIES:- 1) BORROWING FINANCE FROM RELATIVES, FRIENDS, BANK , INSTITUTION WITH THEIR PERSONAL CAPACITY IN THE MARKET 2) THE SHARE CAPITAL WAS ONLY RS.25 LACS AND BUSINE SS OF THE APPELLANT IS RUNNING CRORES OF RUPEES. THE MOST OF THE TECHNI CAL AND OTHER WORK IS BEING ATTENDED BY THE DIRECTORS PERSONALLY. ONLY ON E CHEMIST WAS ENGAGED SINCE AND PAID SALARY OF RS.5,000 P.M. CLE ARING AND FORWARDING WORK IS DONE BY DIRECTORS PERSONALLY, WH O IS WORKING IN LABORATORY AND OTHER MISC. WORK AND FOR STARTING PL ANT, MFG. OF GOODS, VARIOUS PROCESSORS, BATCHES, SUPERVISION OF PLANT, QUALITY CONTROL, CHECKING OF DAMAGE OF RAW MATERIALS, FINISHED GOODS ETC. 3) NO MANAGER, SALESMAN, LABOUR OFFICER AND ONLY TH REE STAFF MEMBERS AND ALL THE WORKS ARE MOSTLY ATTENDED BY FULL TIME DIRECTORS WHO ARE RENDERING 12 HOURS SERVICE AS THEY ARE RESIDING IN THE VICINITY OF THE COMPANY. 4) PACKING, FORWARDING, TRANSPORT SERVICE, ADVERTIS EMENT, POLLUTION CONTROL WORK, SALES, AFTER SALES SERVICE, COLLECTIO N WORK, INSURANCE OF GOODS, PLANT, MACHINERY, MAINTENANCE OF PLANT AND M ACHINERY ETC., IS ATTENDED BY THE DIRECTORS. 5) THE DIRECTORS ARE NOT GETTING ANY TYPES OF PERKS LIKE ACCOMMODATION, HRA, PENSION CONTRIBUTION, SUPERANNUATION CONTRIBUT ION, LTC CLUB FEES, VACATION ALLOWANCE ETC., EXCEPT DIRECTOR REMUNERATI ON NOTHING SORT OF ANY AMOUNT OF PERKS IS GRANTED BY THE COMPANY TO TH E DIRECTORS. WE FIND THAT LD. CIT(A) HAS ACCEPTED THE EXPLANATIO N OF THE ASSESSEE WITHOUT MAKING ANY ATTEMPT TO CONSIDER THE OBJECTION OF THE ASSESSING OFFICER. IN THIS VIEW OF THE MATTER THIS ISSUE IS REMITTED BACK TO T HE FILE OF LD. CIT(A) TO DECIDE ITA NO.1738/AHD/2010 & CO 187/AHD/2010 A.Y 0 7-08 ACIT CIR-3 ABD V. UNITY DYECHEM PVT. LTD. PAGE 6 AFRESH AND PASS A SPEAKING ORDER CONSIDERING ALL TH E OBJECTIONS OF THE ASSESSING OFFICER. THIS GROUND OF REVENUES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES AS INDICATED ABOVE. 9. IN THE RESULT, REVENUES APPEAL IS PARTLY ALLOWE D. COMING TO ASSESSEES CO. 10. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS:- 1. THAT THE GROUNDS RAISED IN SR. NO.1 IS DECIDED BY THE LEARNED CIT(A) BARODA AFTER CONSIDERING THE DECISION OF HON . ITAT JODHPUR BENCH AND THE HON/. ITAT HAS RELIED ON THE DECISION OF HON. SUPREME COURT IN THE CASE OF EMPIRE JUTE CO. LTD. VS. CIT R EPORTED IN 124 IR PAGE-1 AND THEREFORE THIS GROUND RAISED BY THE DEPA RTMENT DESERVES O BE REJECTED. 2. THAT THE APPELLANT HAS SUBMITTED ITS WRITTEN SUB MISSIONS IN DETAIL AND AT LENGTH, FROM TIME TO TIME AND CONSIDERING IT IN PROPER PERSPECTIVE THE LEARNED CIT(A) HAS ALLOWED THIS GROUND WHICH IS WHO LLY JUSTIFIED CONSIDERING FACTS AND EVIDENCES LYING ON RECORD THE GROUND RAISED BY THE DEPARTMENT REQUIRES TO BE DISMISSED. 3. THAT THE GROUND RAISED BY THE DEPARTMENT IS SOME WHAT DIFFERENT THAN THE FACTS AND MATERIALS ON WHICH THE DEDUCTION WAS ALLOWED BY THE LEARNED CIT(A) AND THEREFORE THE IRRELEVANT GROUND RAISE BY THE DEPARTMENT DESERVES TO BE REJECTED. 11. AT THE OUTSET LD. COUNSEL FOR THE ASSESSEE SUBM ITTED THAT CO HAS BEEN FILED TO SUPPORT THE ORDER OF LD. CIT(A). SINCE WE HAVE PARTLY ALLOWED THE APPEAL OF REVENUE FOR STATISTICAL PURPOSES AND REMI TTED ONE ISSUE RELATING TO THE REMUNERATION PAID TO THE DIRECTORS TO THE FILE OF LD. CIT(A), THE CO IS ALSO ACCORDINGLY HAS NOW BECOME INFRUCTUOUS AND SAME IS DISMISSED AS INFRUCTUOUS. ITA NO.1738/AHD/2010 & CO 187/AHD/2010 A.Y 0 7-08 ACIT CIR-3 ABD V. UNITY DYECHEM PVT. LTD. PAGE 7 12. IN THE RESULT, ASSESSEES CO IS DISMISSED. 13. IN COMBINED RESULT, REVENUES APPEAL IS PARTLY ALLO WED FOR STATISTICAL PURPOSES AND THAT OF ASSESSEES CO IS D ISMISSED AS INFRUCTUOUS. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE. SD/- SD/- (A.MOHAN ALANKAMONY) (KUL BHARAT) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD, *DKP #$%- 24/01/2013 ,-. / ' ' ' ' 001 001 001 001 21 21 21 21 / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. $.$04 5 / CONCERNED CIT 4. 5- / CIT (A) 5. 1 78 0004, 04!, ,-. / DR, ITAT, AHMEDABAD 6. 8;< => / GUARD FILE. BY ORDER/ ' , /TRUE COPY/ ?/, $ 04!, ,-. / STRENGTHEN PREPARATION & DELIVERY O F ORDERS IN THE ITAT 1) DATE OF TAKING DICTATION 15/01 2) DIRECT DICTATION BY MEMBER STRAIGHT ON COMPUTER/LAPTOP/DRAGON DICTATE NO 3) DATE OF TYPING & DRAFT ORDER PLACE BEFORE MEMBER 15/01 4) DATE OF CORRECTION 16/01 5) DATE OF FURTHER CORRECTION - - 6) DATE OF INITIAL SIGN BY MEMBERS 22/01 7) ORDER UPLOADED ON 24/01 8) ORIGINAL DICTATION PAD-PART HAS BEEN ENCLOSED IN THE FILE YES 9) FINAL ORDER AND 2 ND COPY SEND TO BENCH CLERK ON 24/01