Assistant Commissioner of Income tax, Latur V. M/s. Indo Enterprises Pvt Ltd, Latur

ITA 1014/PUN/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 6567 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 8 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-01-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 21-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MAHESH KADE
• Keywords: Fair market value
• Section: 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUN E BEFORE SHRI ANIL CHATURVEDI, AM AND SHRI PARTHA SARATHI CHAUDHURY, JM / ITA NO.1014/PUN/2017 / ASSESSMENT YEAR : 2012-13 THE ASSISTANT COMMISSIONER OF INCOME TAX, LATUR CIRCLE, LATUR. .... / APPELLANT / V/S. M/S. INDO ENTERPRISES PVT. LTD. B-44, EKMAT BHAVAN, MIDC ROAD, LATUR-413 512 PAN : AABCI1869B / RESPONDENT ASSESSEE BY : SHRI RAJENDRA AGIWAL REVENUE BY : SHRI MAHESH KADE / DATE OF HEARING : 09.01.2019 / DATE OF PRONOUNCEMENT : 11.01.2019 / ORDER PER PARTHA SARATHI CHAUDHURY, JM : THIS APPEAL PREFERRED BY REVENUE EMANATES FROM THE ORD ER OF THE LD. CIT(APPEALS)-2, AURANGABAD DATED 16.01.2017 FOR ASSESSMEN T YEAR 2012-13 AS PER FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE, L D. CIT(A)-2, AURANGABAD HAS ERRED IN DELETING THE ADDITION OF RS .1,52,00,000/- MADE BY THE AO IN THE ASSESSMENT ORDER. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE ORDER OF LD. CIT(A) MAY BE CANCELED AND THE ORDER OF THE AO MAY BE RESTORED. 2 ITA NO.1014/PUN/2017 A.Y.2012-13 3. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, MODIFY , DELETE AND AMEND ANY OF THE GROUNDS AS PER CIRCUMSTANCES OF THE CASE . 4. THE APPELLANT PRAYS LEAVE TO ADDUCE SUCH FURTHER EVIDENCE TO SUBSTANTIATE ITS CASE AS THE OCCASION MAY DEMAND. 2. THE BRIEF FACTS IN THIS CASE ARE THAT THE ASSESSEE, A PRIVATE LIMITED COMPANY ASSESSED IN THE STATUS OF A COMPANY HAD FILED T HE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2012-13 ON 28.09.2012 DECLARING TOTAL INCOME AT RS. NIL. THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND A CCORDINGLY, NOTICE U/S. 143(2) WAS ISSUED ON 07.08.2013 WHICH WAS DULY SERVED UPON THE ASSESSEE. THE CASE WAS ASSESSED U/S.143(3) OF THE ACT ON 31.03.2015 AFTER DULY HEARING THE LD.A.R. OF THE ASSESSEE. DURING THE COURS E OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSE E HAD MADE A PAYMENT OF RS.1,85,00,000/- TO THE DIRECTORS OF THE COMPA NY. SINCE, IN THE IMMEDIATELY PRECEDING PREVIOUS YEAR AN ADDITION OF RS.1,51 ,50,000/- HAD BEEN MADE U/S.40A(2)(B) OF THE INCOME TAX ACT, 1961 (HEREIN AFTER REFERRED TO AS THE ACT), THE ASSESSING OFFICER ADDED THE SUM OF RS .1,52,00,000/- TO THE TOTAL INCOME OF THE ASSESSEE. 3. WHEN THE MATTER TRAVELLED UPTO THE LD. CIT(APPEALS), HE DELETED THE ADDITION MADE BY THE ASSESSING OFFICER U/S.40A(2)(B) OF THE ACT AS PER DETAILS REASONS AND GROUNDS AS APPEARING IN HIS ORDER WHICH IS ON RECORD. 4. THE LD. AR OF THE ASSESSEE AT THE TIME OF HEARING AP PRAISED THE BENCH AT PARA 7 OF THE ASSESSMENT ORDER WHEREIN THE ASSES SING OFFICER HAS MADE THE SAID ADDITION FOLLOWING THE ORDER OF ASSESSMENT YEAR 2011-1 2 AND RELEVANT PART IS AS UNDER: 7.DURING THE YEAR UNDER ASSESSMENT, THE ASSESSEE CO MPANY HAS PAID REMUNERATION TO THE DIRECTORS TO THE TUNE OF RS.1,8 5,00,000/-. THIS ISSUE WAS SUBJECT MATTER OF SCRUTINY FOR THE IMMEDIATELY PROCEEDINGS YEAR AND 3 ITA NO.1014/PUN/2017 A.Y.2012-13 AN ADDITION OF RS.1,51,50,000/- WAS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE U/S. 42(A)(B) OF THE INCOME TAX ACT, 1961. THIS ISSUE HAS BEEN DISCUSSED AT LENGTH IN THE BODY OF T HE ASSESSMENT ORDER BY THE AO WHO HAS FRAMED THE ASSESSMENT. HOWEVER, THE SAME ISSUE IS SUB- JUDICE BEFORE THE LEARNED CIT(A), AND APPEAL DECISION IS YET AWAITED. THE LD. AR OF THE ASSESSEE FURTHER PLACED RELIANCE ON TH E DECISION OF CO-ORDINATE BENCH OF THE TRIBUNAL, PUNE IN THE CASE OF DCI T VS. M/S. INDO ENTERPRISES, IN ITA NO.1221/PUN/2016 FOR ASSESSMENT YEAR 2011-12 WHEREIN IDENTICAL FACTS AND SIMILAR ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE. 5. ON THE OTHER HAND, THE LD. DR HAS PLACED RELIANCE ON THE ORDER OF THE ASSESSING OFFICER. 6. WE HAVE PERUSED THE CASE RECORD AND CONSIDERED TH E JUDICIAL PRONOUNCEMENTS PLACED BEFORE US. WE FIND THAT THE CO-ORD INATE BENCH OF THE TRIBUNAL, PUNE IN ITA NO. 1221/PUN/2016 HAS UPHELD THE DE CISION OF THE LD. CIT(APPEALS) ON THE ISSUE AND HAD SUSTAINED THE RELIEF GRA NTED TO THE ASSESSEE. THE RELEVANT PORTION OF THE DECISION IS AS UNDER: 5. GROUND NO.1 RAISED BY THE REVENUE RELATES TO THE ADDITION ON ACCOUNT OF DISALLOWANCE U/S.40A(2)(B) OF THE ACT RELATING T O REMUNERATION PAID TO THE DIRECTORS. RELEVANT FACTS ARE ALREADY DISCUSSED IN THE PRECEDING PARAGRAPHS OF THIS ORDER. AO RESORTED TO ADHOC DISA LLOWANCE AND HELD PAYMENT OF REMUNERATION @ RS.1 LAKH PER MONTH PER D IRECTOR IS REASONABLE. AO DID NOT INDICATE THE REASONS FOR FIX ING THE REMUNERATION OF THE DIRECTORS @ RS.1 LAKH PER MONTH. HE HAS NOT BROUGHT ANY MARKET INFORMATION/COMPARABLE INSTANCES IN THIS REGARD. AO MERELY RELIED ON HIS OWN ESTIMATIONS UNSUPPORTED BY INDEPENDENT INFORMAT ION/EVIDENCES FOR MAKING DISALLOWANCE OF RS.1,51,50,000/-. CIT(A) DIS CUSSED THIS ISSUE AT LENGTH AND HELD THE ONUS IS ON THE AO IN MATTERS RELATING TO INVOKING OF PROVISIONS OF SECTION 40A(2)(B) OF THE ACT ON MENTI ONED THAT THE ASSESSEE DISCHARGED THE PRIMARY ONUS. CIT(A) HELD THAT THE A O SHOULD HAVE MADE USE OF THE SAID INFORMATION FURNISHED BY THE ASSESS EE AND CONDUCED MARKET ENQUIRIES BEFORE QUANTIFYING THE ALLOWABLE R EMUNERATION TO THE DIRECTORS BASED ON THE SCIENTIFIC DATA OR MARKET DA TA OR COMPARABLE CASES ETC. AO HAS NOT DONE ANY OF SUCH EXERCISE. HE MERELY DISALLOWED RESORTING TO ADHOCISM. THEREFORE, THE CIT(A) DID NO T APPROVE THE ADDITION MADE BY THE AO AND RELIED ON THE JURISDICTIONAL HIG H COURT JUDGMENT IN THE CASE OF M/S. INDO SAUDI SERVICES TRAVEL PRIVATE LIMITED (SUPRA). CIT(A) ALSO DID NOT ENTERTAIN THE ADHOC DISALLOWANC E MADE BY THE AO AND DESCRIBED IT AS ARBITRARY AND UNSUPPORTED BY AN Y EVIDENCES. CIT(A) ANALYSED THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT AND REFERRED TO VARIOUS DECISION IN PARA NOS. 10 TO 12 AND HELD AGA INST THE REVENUE. IN 4 ITA NO.1014/PUN/2017 A.Y.2012-13 THIS REGARD, WE PERUSED THE RELEVANT ORDER OF CIT(A ) AND FIND IT RELEVANT TO EXTRACT THE SAME. THE SAID FINDING GIVEN IN PARA NOS. 13 TO 15 OF HIS ORDER READS AS UNDER : 13. I HAVE CONSIDERED THE SUBMISSION MADE BY THE A PPELLANT AND THE OBSERVATIONS OF THE A.O. THE DISALLOWANCE MADE BY THE A.O. U/S.40A(2)(B) IS BASED ON CONJECTURES AND SURMISES. HE HAS SIMPLY DISBELIEVED THAT THE DIRECTORS OF THE COMPAN Y WOULD BE RENDERING ANY SORT OF SERVICE TO THE ASSESSEE COMPA NY. ON THE CONTRARY THE ASSESSEE HAS BEEN ABLE TO DEMONSTRATE THAT SPECIFIC AS WELL AS GENERAL FUNCTIONS WERE BEING PERFORMED B Y THE DIRECTORS WHICH WERE IN THE INTEREST OF THE LONG-TE RM GOALS OF THE ASSESSEE COMPANY. DISALLOWANCE U/S.40A(2)(B) BY SAY ING THAT THE DIRECTORS COULD NOT HAVE PERFORMED THE SERVICES IS NOT CORRECT. VARIOUS COURTS HAVE HELD THAT THE AO CANNOT DICTATE TO THE ASSESSEE AS TO HOW THE BUSINESS SHOULD BE DONE. HON 'BLE ITAT IN THE CASE OF BINIT CORPN. V. ITO [1986] 25 TAXMAN 23 8 (AHD.)(MAG.) HAS AFTER CONSIDERING VARIOUS JUDICIAL PRONOUNCEMEN T STATED THAT FIRST OF ALL THE AO HAS TO SATISFY HIMSELF WHETHER THE EXPENDITURE ITSELF IS GENUINE OR NOT AND IF IT IS GENUINE THEN FOR THE PURPOSE OF FINDING OUT THE PORTION OF DISALLOWANCE HE SHALL HA VE TO FIND OUT THE FAIR MARKET VALUE OF THE SERVICES AND THIS WOUL D PRESUPPOSE THAT SERVICES ARE COMMONLY AVAILABLE FOR WHICH MARK ET VALUE CAN BE KNOWN. THEREAFTER, THE AO SHALL HAVE TO EVALUATE THE LEGITIMATE NEEDS OF THE BUSINESS AT A POINT OF TIME WHEN THE S ERVICES WERE RENDERED AND THIS WOULD INVOLVE IN INQUIRY AS A BUS INESSMAN BECAUSE IN TIMES OF DIRE NEED SERVICES ARE OBTAINED EVEN AT HIGHER COST, THE ULTIMATE AIM BEING TO EARN PROFIT OR TO M AINTAIN THE BUSINESS RELATIONS. ACCORDING TO THE ITAT, THE AO S HALL HAVE TO FIND OUT WHAT BENEFIT IS DERIVED BY THE ASSESSEE AN D THIS WOULD NOT NECESSARILY CONFINE TO THE YEAR IN QUESTION BUT SHALL HAVE TO TAKE OVERALL PICTURE DEPENDING UPON THE FACTS OF EA CH CASE. EVEN THE BENEFIT ACCRUING TO THE ASSESSEE SHALL HAVE TO BE EVALUATED. THIS AGAIN MAY NOT BE CONFIRMED TO THE PERIOD OF AC COUNTING YEAR ONLY AND AGAIN IT WOULD NOT BE ESSENTIAL THAT BENEF IT MUST BE IN THE REVENUE FIELD. THEREAFTER ACCORDING TO THE ITAT THE AO SHALL HAVE TO GIVE REASONABLE OPPORTUNITY TO THE ASSESSEE TO REBUT HIS FINDING. IF COMPARABLE INSTANCES OF OTHER PARTIES A RE NOT AVAILABLE AT LEAST COMPARE WITH EARLIER YEAR, AD-HOC DISALLOW ANCE CANNOT STAND THE TEST OF APPEAL. 14. THE PROVISIONS OF SECTION 40A(2)(B) ARE TO BE A PPLIED WHEN THE AO IS OF THE OPINION THAT AN EXPENDITURE IS EXCESSI VE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE SERVICES FOR WHICH THE PAYMENT IS MADE. IN THE PRES ENT CASE, THE ONLY REASON FOR THE IMPUGNED ADDITION WAS AN OUT IN THE MIND OF THE ASSESSING OFFICER THAT IT WILL NOT BE POSSIBLE FOR THE DIRECTORS TO DEVOTE ANY TIME TOWARDS THE WORKING OF THE ASSESSEE COMPANY. THE ASSESSING OFFICER HAS ALSO DOUBTED THE CONTRIBU TION OF SMT.VAISHALI V. DESHMUKH TOWARDS THE WORKING OF THE COMPANY ON THE GROUND THAT SHE IS A HOUSEWIFE. THE ASSESSIN G OFFICER HAS DONE NOTHING AND HAS NOT CONFRONTED ANY OF THE DIRE CTORS TO CLEAR HIS DOUBTS THAT THEY HAVE NOT RENDERED ANY SERVICE IN THE FUNCTIONING OF THE ASSESSEE COMPANY. BUT BEFORE ARR IVING TO A CONCLUSION THAT THE PAYMENT WAS EXCESSIVE, THE AO W AS EXPECTED TO PLACE ON RECORD THE REASON FOR HOLDING SUCH OPIN ION. IT IS NOTED THAT NO SUCH COMPARABLE INSTANCE WAS QUOTED BY THE AO. IT HAS ALSO BEEN BROUGHT TO MY NOTICE THAT ALL THE ASSESSE E'S ARE IN THE HIGHEST TAX BRACKET AND HENCE THERE COULD NOT HAVE BEEN ANY INTENTION TO SAVE THE TAX. AS STATED IN CIRCULAR NO .6-P, DATED 5 ITA NO.1014/PUN/2017 A.Y.2012-13 06/07/1968, THE OBJECTIVE BEHIND INTRODUCTION OF TH IS SECTION IS TO PREVENT EVASION OF TAX. IF IT CANNOT BE DEMONSTRATE D THAT THERE HAS BEEN ANY EVASION OF TAX DUE TO SUCH REMUNERATIONS B EING PAID, THERE CANNOT BE A CAUSE FOR ANY DISALLOWANCE. IT HA S BEEN HELD IN THE CASE OF INDO SAUDI SERVICES (SUPRA) BY THE HONO URABLE BOMBAY HIGH COURT AS UNDER: '(V) UNDER THE CEDT CIRCULAR NUMBER 6-P DT. 6TH JUL Y, 1968 IT IS STATED THAT NO DISALLOWANCE IS TO BE MADE IN THE S.40A(2) IN RESPECT OF PAYMENTS MADE TO THE RELATIV ES AND SISTER CONCERNS WHEN THERE IS NO ATTEMPT TO EVADE T AX. 5. IN VIEW OF THE AFORESAID ADMITTED FACTS WE ARE O F THE VIEW THAT THE TRIBUNAL WAS CORRECT IN COMING TO THE CONCLUSION THAT THE CIT(A) WAS WRONG IN DISALLOWING HALF PERCENT COMMISSION PAID TO THE SISTER CONCERN OF THE ASSESSEE DURING THE ASSTT. YRS. 1991-92 AND 1992-93 . THE LEARNED ADVOCATE APPEARING FOR THE APPELLANT WAS AL SO NOT IN A POSITION TO POINT OUT HOW THE ASSESSEE EVADED PAYMENT OF TAX BY ALLEGED PAYMENT OF HIGHER COMMISS ION TO ITS SISTER CONCERN SINCE THE SISTER CONCERN WAS ALS O PAYING TAX AT HIGHER RATE AND COPIES OF THE ASSESSMENT ORD ERS OF THE SISTER CONCERN WERE TAKEN ON RECORD BY THE TRIB UNAL.' 15. THUS, THE TOTALITY OF THE CIRCUMSTANCES DEMONST RATES THAT THERE WAS NO JUSTIFICATION ON THE PART OF THE AO TO MAKE SUCH AN AD HOC ADDITION. RESULTANTLY, I DELETE THE ADDITION MADE B Y THE ASSESSING OFFICER U/S.40A(2B). FROM THE ABOVE, IT IS CLEAR THAT THE CIT(A) HAS FOL LOWED THE SETTLED LAW OF THE LAND QUA THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT AND DELETED THE ADDITION. THE REASONING GIVEN BY THE CIT(A), IN OUR VIEW, IS ON SOUND FOOTING AND, THEREFORE, THE SAME IS SUSTAINABLE. ACCORDINGL Y, GROUND NO.1 RAISED BY THE REVENUE STANDS DISMISSED. RESPECTFULLY, FOLLOWING THE AFORESAID DECISION, WE SUSTAIN THE RELIEF PROVIDED TO THE ASSESSEE BY THE LD. CIT(APPEALS). HENCE, G ROUNDS OF APPEAL RAISED BY REVENUE ARE DISMISSED. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON 11 TH DAY OF JANUARY, 2019. SD/- SD/- ANIL CHATURVEDI PARTHA SAR ATHI CHAUDHURY ACCOUNTANT MEMBER JUDICIAL MEMBER / PUNE; / DATED : 11 TH JANUARY, 2019. SB 6 ITA NO.1014/PUN/2017 A.Y.2012-13 !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(APPEALS)-2, AURANGABAD. 4. THE PR. CIT-2, AURANGABAD. 5. '#$ %%&' , ( &' , )*+ , / DR, ITAT, A BENCH, PUNE. 6. $,- ./ / GUARD FILE. // TRUE COPY // (0 / BY ORDER, %1 &+ / PRIVATE SECRETARY ( &' , / ITAT, PUNE. 7 ITA NO.1014/PUN/2017 A.Y.2012-13 DATE 1 DRAFT DICTATED ON 09 .01.2019 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 10 .01 .201 9 SR.PS/PS 3 DRAFT PROPOSED AND PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/JM 5 APPROVED DRAFT COMES TO THE SR. PS/PS SR.PS/PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7 DATE OF UPLOADING OF ORDER SR.PS/PS 8 FILE SENT TO BENCH CLERK SR.PS/PS 9 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 10 DATE ON WHICH FILE GOES TO THE A.R 11 DATE OF DISPATCH OF ORDER