ACIT, CHENNAI V. M/s Swift Audio-Video Entertainment Pvt. Ltd., CHENNAI

ITA 1110/CHNY/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 9909 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 16-12-2009
• Assessment Year: 2006-2007
• Appeal Filed On: 07-07-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P B SEKHARAN
• Assessee Lawyers: S SRIDHAR
• Keywords: Fair market value

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH B CHENNAI BEFORE SHRI HARI OM MARATHA, JM AND SHRI ABRAHAM P.GEORGE, AM .. I.T.A. NO. 1110 /MDS/2 00 9 A Y: 200 6 - 0 7 THE A SSISTANT C.I.T MEDIA CIRCLE II CHENNAI - VS. M/S SWIFT AUDIO VIDEO ENTERTAINMENT PVT. LTD NO. 8/23, VENUS COLONY 2 ND STREET, ALWARPET CHENNAI 600 018 (PAN NO. AAACS 4927 R (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S. SRIDHAR DEPARTMENT BY : SHRI P.B. SEKHARAN O R D E R PER ABRAHAM P. GEORGE, AM IN THIS APPEAL, REVENUE IS AGGRIEVED REGARDING CER TAIN DISALLOWANCES MADE BY ASSESSING OFFICER INVOKING SECTION 40A(2)(B ) OF THE INCOME-TAX ACT, 1961 [IN SHORT, THE ACT], WHICH WERE DELETED B Y THE CIT(A). PAGE 2 OF 7 I.T.A. NO. 1110/MDS/2009 2. THE DISALLOWANCES COMPRISED OF RS. 8,98,000/- PA ID AS COMMISSION AND INCENTIVE AND RS, 2,29,000/- PAID TOWARDS CONS ULTANCY CHARGES. ACCORDING TO THE REVENUE, ASSESSEE HAD NOT PRODUCED ANY EVIDENCE FOR SERVICES RENDERED BY THE RECIPIENTS OF ABOVE AMOUNT S WHO FELL WITHIN THE PURVIEW OF SEC 40A(2)(B) OF THE ACT, NOR COULD IT S UBSTANTIATE THE BUSINESS EXPEDIENCY FOR SUCH PAYMENTS. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS OF T HE ASSESSEE, WHICH IS ENGAGED IN AUDIO VISUAL SERVICES, ASSESSING OFFI CER NOTED THAT THERE WAS CLAIM FOR COMMISSION AND INCENTIVE PAYMENT OF RS. 1 2,86,042/-. THIS INCLUDED THE FOLLOWING PAYMENTS WHICH FELL WITHIN T HE PURVIEW OF SEC 40A(2)(B) OF THE ACT: I. SHRI SIDHARTH LULLA, DIRECTOR RS. 97,340/- II. SHRI MANOHAR LULLA, BROTHER OF SHRI RAMESH LULLA RS. 2,75,000/- III. SMT. PADMINI LULLA, W/O SHRI MANOHAR LULLA RS. 5,25,660/- ASSESSEE WAS CALLED UPON TO EXPLAIN THE COMMERCIAL NECESSITY OF THE PAYMENTS OF THE ABOVE PERSONS WHEREUPON HIS REPLY W AS AS UNDER: (I) SHRI SIDHARTH LULLA, DIRECTOR PAGE 3 OF 7 I.T.A. NO. 1110/MDS/2009 (A) HE IS ELIGIBLE FOR A COMMISSION CALCULATED @ 0. 25% OF THE TURNOVER ACHIEVED NET OUT OUTSIDE SUPPLIER PAYMENT (B) HE IS ALSO ELIGIBLE FOR A COMMISSION CALCULATED @ 5.50 % ON THE COMMISSION EARNED FROM TRIAX FOR THE ORDER PROC URED ON ALL INDIA BASIS. COMMISSION PAID DURING THE YEAR 40,840/- (II) SHRI MANOHAR LULLA, BROTHER OF SHRI RAMESH LUL LA MD OF THE COMPANY HE IS ELIGIBLE FOR A FIXED COMMISSION OF RS. 2,75,0 00/- PER ANNUM. IF THE CUMULATIVE NET BUSINESS IN DELHI EXCEEDS RS. 1 CRORE. COMMISSION PAID DURING THE YEAR RS. 2,75,000/- SMT. PADMINI LULLA, W/O SHRI MANOHAR LULLA (A) SHE IS ELIGIBLE FOR A COMMISSION OF 5% ON THE NET COLLECTIONS MADE IN DELHI ZONE EXCLUDING THE PAYMENT MADE TO SU PPLIERS COMMISSION PAID DURING THE YEAR RS. 4,94,850/- (B) SHE IS ALSO ELIGIBLE FOR A COMMISSION OF 10% O N THE COMMISSION EARNED FROM TRIAX FOR THE TRIAX ORDER PR OCURED IN DELHI ZONE COMMISSION PAID DURING THE YEAR RS. 30,810/- PAGE 4 OF 7 I.T.A. NO. 1110/MDS/2009 4. ASSESSING OFFICER WAS OF THE VIEW THAT ASSESSEE COULD NOT PRODUCE ANY AGREEMENT VIS A VIS COMMISSION PAID TO SHRI MAN OHAR LULLA NOR COULD CLARIFY THE SERVICES RENDERED BY HIM. VIS A VIS PAY MENT MADE TO SMT. PADMINI LULLA, ASSESSING OFFICER NOTED THAT ASSESSE E WAS UNABLE TO PRODUCE DETAILS OF SERVICES NOR THE ORDERS PROCURED THROUGH HER. SIMILAR LACUNA WAS NOTED IN THE CASE OF PAYMENT TO SHRI SID HARTH LULLA ALSO. THEREFORE, INVOKING THE PROVISIONS OF SEC. 40A(2)(B ) OF THE ACT, HE DISALLOWED THE SUM TOTALLING RS. 8,98,000/-. 5. ASSESSEE HAD ALSO PAID CONSULTANCY CHARGES OF RS . 5,73,558/- DURING THE RELEVANT PREVIOUS YEAR WHICH INCLUDED A SUM OF RS. 1,09,000 TO SHRI MANOHAR LULLA AND RS. 1,20,000/- TO SHRI SIDDHARTH LULLA. ACCORDING TO THE ASSESSING OFFICER, ASSESSEE WAS UNABLE TO ESTAB LISH WHAT SERVICES WERE RENDERED BY SUCH PERSONS TO THE COMPANY AND HE , THEREFORE, ONCE AGAIN INVOKED SEC 40A(2)(B) OF THE ACT AND MADE DI SALLOWANCE OF RS. 2,29,000/-. 6. IN ITS APPEAL BEFORE LD. CIT(A), ASSESSEE GAVE D ETAILS OF THE SERVICE PROFILE AND SERVICES RENDERED BY ALL THREE PERSONS. ACCORDING TO HIM, SHRI PAGE 5 OF 7 I.T.A. NO. 1110/MDS/2009 SIDHARTH LULLA WAS A GRADUATE WITH VAST EXPERIENCE, WORKING AS WHOLE TIME DIRECTOR OF ASSESSEE COMPANY. SHRI MANOHAR LU LLA WAS EXPLAINED TO BE INVOLVED IN THIS INDUSTRY SINCE 1994 AND DOING E XECUTION OF CONTRACT WORK, NEGOTIATIONS AND OPERATIONS. VIS A VIS SMT. P ADMINI LULLA, EXPLANATION WAS THAT SHE WAS ATTENDING CLIENTS MEET INGS, CONTRACT NEGOTIATION, ETC. ASSESSEE ALSO FURNISHED DETAILS OF COMMISSION AND INCENTIVES PAID TO VARIOUS PERSONS WHO WERE NOT FAL LING WITHIN THE PURVIEW OF SEC. 40A(2)(B) OF THE ACT AND ARGUED THA T THE PAYMENTS MADE TO ABOVE THREE PARTIES WERE COMPETITIVE. LD. CIT(A ) NOTING THAT THERE WERE LARGER PAYMENTS OF COMMISSION AND INCENTIVE TO PERSONS WHO WERE NOT RELATED TO ASSESSEE OR ITS DIRECTORS AND WHO WE RE HAVING LESSER EXPERIENCE THAN WHAT WAS PAID TO THE ABOVE MENTIONE D PARTIES, HELD THAT SEC 40A(2)(B) OF THE ACT WAS NOT APPLICABLE. HE, T HEREFORE, DELETED THE DISALLOWANCES MADE. 7. NOW BEFORE US, THE LD. D.R. STRONGLY SUPPORTED T HE ORDER OF ASSESSING OFFICER. 8. PER CONTRA, LD. A.R. SUBMITTED THAT LD. CIT(A) H AD DELETED THE DISALLOWANCE AFTER CORRECTLY APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE DATA FURNISHED BY ASSESSEE. PAGE 6 OF 7 I.T.A. NO. 1110/MDS/2009 9. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND MAT ERIAL ON RECORD. FOR INVOKING CLAUSE (B) OF SUB-SECTION 2 OF SEC 40A OF THE ACT, FIRST REQUIREMENT IS THAT ASSESSING OFFICER HAS TO HAVE A N OPINION THAT THE EXPENDITURE INCURRED IN RELATION TO THE RELATED PAR TIES WERE EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE SERVICES, OR THE PAYMENTS MADE WERE FOR THE LEGITIMATE NEEDS OF THE BUSINESS OF ASSESSEE. HERE, ASSESSING OFFICER HAS NOT AT ANY P OINT OF TIME CONSIDERED THE FAIR MARKET VALUE OF THE SERVICES RENDERED BY T HE ABOVE THREE PERSONS. THERE IS NO COMPARATIVE STUDY OF SIMILAR PAYMENTS MADE BY ASSESSEE TO OTHER PERSONS, BEFORE COMING TO A CONCL USION THAT SUCH PAYMENTS WERE EXCESSIVE OR UNREASONABLE. LD. CIT(A ) AFTER NOTING THAT ASSESSEE WAS PAYING HIGHER OR COMPARABLE AMOUNTS TO PERSONS WHO WERE HAVING LESSER EXPERIENCE WAS OF THE OPINION THAT SE C 40A(2)(B) OF THE ACT IS NOT APPLICABLE. THUS THERE WAS SUFFICIENT REASO N FOR LD. CIT(A) TO HAVE DELETED THE DISALLOWANCES. ASSESSING OFFICER BEING UNABLE TO ESTABLISH THE EXCESSIVENESS OR UNREASONABLENESS OF THE PAYMEN TS MADE BY ASSESSEE TO THE ABOVE PERSONS, WHEN COMPARED WITH THE FAIR M ARKET VALUE OF THE SERVICES RENDERED BY THEM THE DISALLOWANCES MADE WE RE NOT WARRANTED. PAGE 7 OF 7 I.T.A. NO. 1110/MDS/2009 WE, THEREFORE, FIND NO REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A) AND GROUNDS RAISED BY REVENUE STAND DISMISSED. 8. IN THE RESULT, APPEAL FILED BY REVENUE STANDS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 08.01.2010. ( HARI OM MARATHA] ( ABRAHAM P.GEORGE ) JUDICIAL MEMBER ACCOUNTANT M EMBER CHENNAI, DATED THE 8 TH JANUARY 2010. VL COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE