Crossover HR Services Pvt. Ltd., Bangalore V. DCIT, Bangalore

ITA 1148/BANG/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 7591 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 11 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 10-08-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR P V PRADEEP KUMAR
• Assessee Lawyers: SHREEHARI KULSA
• Keywords: Fair market value

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A. K. GARODIA , ACCOUNTANT MEMBER ITA NO. 1148 /BANG/201 5 ASSESSMENT YEAR : 20 08 - 09 M/S. CROSSOVER HR SERVICES PVT. LTD., NO. 190, ADARSH PALM MEADOWS, WHITE FIELD ROAD, BENGALURU 560 066. PAN : AA CCC 8050 D VS. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-11(2), 14/3, RBI, NRUPATUNGA ROAD, BENGALURU 560 001. APPELLANT RESPONDENT ASSESSEE BY : SHRI. SHREEHARI KULSA, CA REVENUE BY : SHRI. DR. P. V. PRADEEP KUMAR, ADDL. CIT DATE OF HEARING : 16 . 0 7 .201 8 DATE OF PRONOUNCEMENT : 20 . 0 7 .201 8 O R D E R PER SUNIL KUMAR YADAV, JUDICIAL MEMBER THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A) ON A SOLITARY GROUND THAT THE CIT(A) HAS ERRED IN UPHOLDING THE ADDITION OF RS.17,10,736/- MADE BY AO UNDER THE PROVISIONS OF SECTION 40A(2) OF THE INCOME TAX ACT (HEREINAFTER CALLED AS AN ACT), THOUGH VARIOUS GROUNDS ARE RAISED IN THIS APPEAL. THE FACTS IN BRIEF BORNE OUT FROM THE RECORD ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO HAS NOTED THAT ASSESSEE HAS CLAIMED DEDUCTION IN ITA NO. 1148/BANG/2015 PAGE 2 OF 4 RESPECT OF PAYMENT OF REMUNERATION TO ITS DIRECTORS AT RS.31,40,736/- AS ON 31.03.2008 WHEREAS THE CLAIM MADE IN THIS REGARD AS ON 31.03.2007 WAS ONLY RS.14,30,000/- AND THE AO WAS OF THE VIEW THAT WHEN COMPARED WITH THE RECEIPT OF PROFESSIONAL CHARGES AT RS.44,81,349/- AS ON 31.03.2008 VIS--VIS RS.41,21,000/- AS ON 31.03.2007, THE MARGINAL INCREASE OF ONLY RS.3,61,349/- WHICH DID NOT JUSTIFY THE STEEP INCREASE IN REMUNERATION OF RS.17,10,736/-. HE ACCORDINGLY DISALLOWED THE SAID SUM HAVING TREATED IT TO BE DISPROPORTIONATE TO THE PROFESSIONAL CHARGES RECEIVED. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) WITH THE SUBMISSION THAT THERE IS NO BAR IN INCREASE OF REMUNERATION OF DIRECTORS IN THE LIGHT OF THE FACT THAT THERE WERE ONLY 2 DIRECTORS WHO ARE RUNNING THE ENTIRE BUSINESS. BESIDES THESE DIRECTORS, NO OTHER EMPLOYEES WERE ENGAGED. CIT(A), BEING NOT CONVINCED WITH THE CONTENTIONS OF THE ASSESSEE CONFIRMED THE DISALLOWANCE MADE BY THE AO. 2. NOW THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL WITH THE SUBMISSION THAT THIS IS THE SECOND YEAR OF THE BUSINESS OF THE ASSESSEE. IN THE FIRST YEAR, DIRECTOR HAS CLAIMED THE MINIMAL REMUNERATIONS KEEPING IN VIEW THE FIRST YEAR OF BUSINESS. BUT IN THE SUBSEQUENT YEAR, WHEN THE BUSINESS OF THE ASSESSEE HAS BEEN IMPROVED, THE REMUNERATION WAS ACCORDINGLY INCREASED. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER CONTENDED THAT EXCEPT THESE 2 DIRECTORS, NO OTHER EMPLOYEES WERE ENGAGED. THEREFORE, THE INCREASE IN REMUNERATION OF THE DIRECTORS CANNOT BE DOUBTED. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER INVITED OUR ATTENTION TO THE CIRCULAR NO. 63 DATED 06.03.1978 ISSUED BY THE CBDT WITH THE SUBMISSION THAT THE OBJECT OF DISALLOWANCE UNDER SECTION 40A(2) OF THE ACT IS ONLY TO DISALLOW THE EXCESSIVE EXPENDITURE CLAIMED BY THE ASSESSEE ON ACCOUNT OF ITS PAYMENT TO ITS RELATIVES AS DEFINED IN SECTION 40A(2) OF THE ACT. THE REASONABLENESS OF ANY EXPENDITURE IS TO BE JUDGED HAVING REGARD TO THE FAIR MARKET VALUE OF SUCH SERVICES RENDERED BY THE PERSON. THE OBJECT OF PROVISION OF SECTION 40A(2) IS TO CURB THE TAX EVASION. IN THE INSTANT CASE, IT HAS BEEN CATEGORICALLY DEMONSTRATED THAT THESE 2 DIRECTORS ARE THE ONLY EMPLOYEES OF THE ASSESSEE COMPANY AND ENTIRE WORK ARE TO BE ITA NO. 1148/BANG/2015 PAGE 3 OF 4 PERFORMED BY THESE 2 DIRECTORS AND WITH THEIR HARD WORK, THE GROSS RECEIPT INCREASED FROM RS.41,20,000/- TO RS.44,81,349/-. THE AO HAS NOT BROUGHT OUT ANY MATERIAL ON RECORD TO DEMONSTRATE THAT THE ASSESSEE HAS CLAIMED THE EXPENDITURES ON ACCOUNT OF REMUNERATION TO DIRECTORS HIGHER THAN THE FAIR MARKET VALUE AS NO COMPARISON HAS BEEN BROUGHT ON RECORD BY THE AO. 3. HAVING CAREFULLY EXAMINED THE ORDERS OF THE AUTHORITIES BELOW IN THE LIGHT OF RIVAL SUBMISSIONS, WE FIND THAT UNDISPUTEDLY NO OTHER EMPLOYEES WERE HIRED BY THE ASSESSEE COMPANY EXCEPT THESE 2 DIRECTORS AND THESE 2 DIRECTORS ARE THE ONLY PERSONS WHO ARE RUNNING THE ENTIRE SHOW AND ARE RENDERING ALL SERVICES FOR THE COMPANY. IT IS ALSO AN UNDISPUTED FACT THAT THESE DIRECTORS ARE ALSO ASSESSED TO TAX. THEREFORE, WHATEVER REMUNERATION WAS PAID TO DIRECTOR, INCOME TAX WAS PAID. THEREFORE, IT IS NOT A CASE OF EVASION OF TAX. THE AO HAS ALSO GIVEN CALCULATIONS OF PROFIT OF THE COMPANY, AFTER REMUNERATION IT WAS OF RS.5,36,225/- AND WITHOUT REMUNERATION IT WOULD BE RS.36,76,961/- AND TAX THEREON WOULD BE RS.11,36,180/- (CALCULATED AT 30% PLUS EC AND SHEC), WHEREAS THE COMPANY HAS ALREADY PAID TAX OF RS.2,46,817/- AND THE 2 DIRECTORS HAVE PAID TAX OF RS.4,52,000/- AND RS.4,32,969/- WHICH MEANS TOTAL TAXES PAID BY THE COMPANY AND THE EMPLOYEES TOGETHER IS RS.11,31,786/-. THEREFORE, WE DO NOT FIND ANY EVASION OF THE TAX IN THE INSTANT CASE. MOREOVER, THE REMUNERATION IS TO BE DETERMINED BY THE COMPANY AND ITS BOARD OF DIRECTORS. IF THE ENHANCEMENT OF THE REMUNERATION IS BARRED BY ANY PROVISIONS OF LAW, THE CORRESPONDING EXCESS ENHANCEMENT CAN BE DISALLOWED. OTHERWISE, IF REMUNERATION ENHANCEMENT IS IN ACCORDANCE WITH LAW, NO DISALLOWANCE COULD BE MADE. KEEPING IN VIEW THE TOTALITY OF THE FACT AND CIRCUMSTANCES OF THE CASE, WE FIND NO MERIT IN THE ADDITIONS MADE BY THE AO AND CONFIRMED BY THE CIT(A). ACCORDINGLY, WE SET ASIDE THE ORDER OF THE CIT(A) AND DELETE THE ADDITIONS. ITA NO. 1148/BANG/2015 PAGE 4 OF 4 4. IN THE RESULT, APPEAL OF THE ASSESSEE STANDS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 20 TH JULY, 2018. SD/- SD/- BANGALORE. DATED: 20 TH JULY, 2018. /NS/* COPY TO: 1. APPELLANTS 2. RESPONDENT 3. CIT 4. GUARD FILE BY ORDER SR. PRIVATE SECRETARY, ITAT, BANGALORE. ( A. K. GARODIA ) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER