THE ACIT, -2(1), Ujjain V. M/S. SHRIJI POLYMERS PVT. LTD., Ujjain

ITA 147/IND/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6246 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-04-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 04-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R A VERMA
• Assessee Lawyers: S S DESH
• Keywords: Business income; Business expenditure; Fair market value

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI B.C.MEENA, ACCOUNTANT MEMBER I.T.A.NO. 147/IND/2015 A.Y. : 2011-12 ACIT, M/S.SHRIJI POLYMERS PRIVATE LIMITED, 2(1), VS UJJAIN UJJAIN APPELLANT RESPONDENT PAN NO. AAICS6990E APPELLANTS BY : SHRI R.A.VERMA, DR RESPONDENT BY : SHRI S. S. DESHPANDE, C.A. O R D E R PER D.T.GARASIA, J.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF CIT(A), UJJAIN DATED 11.12.2014 FOR THE ASSESSME NT YEAR 2011-12. DATE OF HEARING : 17 . 0 3 .2016 DATE OF PRONOUNCEMENT : . 0 4 .2016 ACIT,2(1), UJJAIN VS. M/S. SHRIJI POLYMERS PRIVATE LIMITED, UJJAIN I.T.A.NO. 147//IND/2015 A.Y. 2011-12 2 2 2. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN 1. DIRECTING RELIEF OF RS. 49,75,054/-. 2. HOLDING THAT THE ABOVE AMOUNT OF RS. 49,75,054/- WAS PREMIUM PAID TOWARDS KEYMAN INSURANCE POLICY EVEN WHEN NO DOCUMENTARY EVIDENCE FILED TO ESTABLISH THAT THE POLICY WAS TAKEN UNDER THE KEYMEN INSURANCE POLICY SCHEME. 3. DIRECTING RELIEF OF RS. 49,75,054/- BY OBSERVING TH AT ON REDEMPTION THE AMOUNT WILL BE TAKEN IN THE HANDS OF THE COMPANY WITHOUT TAKING NOTE OF THE FACT THAT IN THE POLICY IN RESPECT OF ARPIT BANGUR THE NOMINEE WAS SHRI ANAND BANGUR AND NOT THE COMPANY. 4. DIRECTING SUCH RELIEF OF RS. 49,75,054/- EVEN WHEN NO EVIDENCE BROUGHT ON RECORD TO ESTABLISH THAT THE POLICY HOLDERS ARPIT BANGUR AND SHWETA JAJOO WERE ACIT,2(1), UJJAIN VS. M/S. SHRIJI POLYMERS PRIVATE LIMITED, UJJAIN I.T.A.NO. 147//IND/2015 A.Y. 2011-12 3 3 EVEN QUALIFIED/SKILLED ENOUGH TO BE CONSIDERED AS KEYMEN. 5. DIRECTING RELIEF OF RS. 23,23,241/- BEING COMMISSIO N DISALLOWED ON THE GROUND THAT SERVICES WERE RENDERED WITHOUT TAKING NOTE OF THE FACT THAT TO UNRELATED PARTIES COMMISSION PAID AT LOWER RATE. 3. THE SHORT FACTS OF THE CASE ARE THAT THE ASSESSEE I S A COMPANY CARRYING ON THE BUSINESS OF MANUFACTURING O F HDPE CONTAINERS AND CLOSURES. RETURN OF INCOME WAS FILED DECLARING TOTAL INCOME OF RS.6,52,57,590/- ON 22.09.2011. THE BOOKS ARE AUDITED AND AUDIT REPORT ALONGWITH TAR WAS FILED. THE AO MADE ADDITION OF RS. 49,75,054/- BY DISALLOWING OF P REMIUM PAID TOWARDS KEYMAN INSURANCE POLICY. THE AO OBSER VED THAT THE ASSESSEE FAILED TO FURNISH THE VERY BASIC DOCUMENT I.E. COPY OF INSURANCE POLICY ISSUED BY THE INSURANCE CO MPANY. IN THE ABSENCE OF ANY DOCUMENTARY EVIDENCE I.E. COPY O F INSURANCE POLICY AND RELEVANT AUTHENTICATED DOCUMEN TS PROVING SMT. SHWETA JAJOO AND SHRI ARPIT BANGUR, DI RECTORS OF THE COMPANY AS KEYMAN, THE CLAIM OF THE ASSESSEE THAT THE PREMIUM AMOUNTING TO RS. 49,75,054/- PAID TOWARDS KEYMAN ACIT,2(1), UJJAIN VS. M/S. SHRIJI POLYMERS PRIVATE LIMITED, UJJAIN I.T.A.NO. 147//IND/2015 A.Y. 2011-12 4 4 INSURANCE POLICY WAS REJECTED AND ADDED TO THE TOTA L INCOME OF THE ASSESSEE. 4. THE MATTER CARRIED TO THE LD. CIT(A) AND THE LD. C IT(A) DELETED THIS ADDITION OF RS 49,75,054/-. 5. THE LD. DR RELIED UPON THE ORDER OF THE AO. 6. THE LD. AUTHORIZED REPRESENTATIVE CONTENDED THAT TH E ASSESSEE COULD NOT FURNISH THE COPY OF INSURANCE PO LICY AS THE SAME WAS NOT AVAILABLE AT THAT TIME. HOWEVER, THE A SSESSEE SUBMITTED THE COPY OF INSURANCE POLICY ALONGWITH REL EVANT DOCUMENTS IN SUPPORT OF THE FACT THAT DIRECTORS WER E KEYPERSONS. THE LD. AUTHORIZED REPRESENTATIVE FURT HER CONTENDED THAT THE CBDT VIDE ITS CIRCULAR NO. 762 D ATED 18.2.1998 HAS PROVIDED EXPLANATORY NOTES ON THE PRO VISIONS RELATING TO DIRECT TAXES CONTAINED IN FINANCE (NO.2 ) ACT, 1996. THE MATTER RELATING TO KEYMAN INSURANCE POLICY WAS E XPLAINED IN PARA 14.4 OF THE CIRCULAR. ACCORDINGLY, THE VARI OUS BENCHES OF I.T.A.T. HAVE GIVEN DECISIONS IN FAVOUR OF THE A SSESSEES. LD. AUTHORIZED REPRESENTATIVE RELIED ON THE DECISION OF I.T.A.T. AHMEDABAD BENCH IN THE CASE OF DCIT VS. M/S. NAVIN CHANDRA SECURITIES PVT.LTD., I.T.A.NO. 2564/AHD/2008 AND CO NTENDED ACIT,2(1), UJJAIN VS. M/S. SHRIJI POLYMERS PRIVATE LIMITED, UJJAIN I.T.A.NO. 147//IND/2015 A.Y. 2011-12 5 5 THAT THIS CASE IS SQUARELY APPLICABLE IN THE CASE O F THE ASSESSEE. IN THIS CASE, IT WAS HELD THAT THE PREMIU M PAID ON THE KEY MAN INSURANCE POLICY IS TO BE ALLOWED AS BU SINESS EXPENDITURE. RELIANCE WAS ALSO PLACED ON THE FOLLOWIN G DECISIONS IN SUPPORT OF HIS CLAIM :- (I) M/S. RADHA RAJ INSPAT PVT.LTD. VS. DEPARTMENT OF INCOME TAX, I.T.A.NO. 986/DEL/2010. (II) SUNITA FINLEASE LIMITED VS. DCIT, (2008) 8 DTE (BILASPUR)(TRIB.)183. (III) P. G. ELECTRONICS VS. ITO, (2005), 98 TTJ (DEL)896. THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED THAT TH E ADDITION MADE BY DISALLOWING INSURANCE PREMIUM PAID ON LIFE O F THE KEYPERSONS AMOUNTING TO RS. 49,75,054/- MAY BE DELE TED. 7. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. WE FIND THAT SHRI ARPIT BANGUR AND SMT. SH WETA JAJOO WERE DIRECTORS OF THE COMPANY. SHRI ARPIT BANGUR IS HIGHLY QUALIFIED TECHNICAL PERSON AND GRADUATE ENGINEER FR OM IIT, ROORKEE. SHRI ARPIT BANGUR IS SERVING IN THE FIELD OF CARRYING ACIT,2(1), UJJAIN VS. M/S. SHRIJI POLYMERS PRIVATE LIMITED, UJJAIN I.T.A.NO. 147//IND/2015 A.Y. 2011-12 6 6 OUT INTENSIVE STUDY ON THE PRODUCT OF THE COMPANY A ND ALSO SUGGESTING WAYS AND MEANS TO IMPROVE THE QUALITY OF THE PRODUCT, COST CUTTING MEASURES TO BE ADOPTED BY THE COMPANY AND PROMPTLY ATTENDING THE COMPLAINTS RECEIVED FROM THE CUSTOMERS AND ATTENDING THEM TO MINIMIZE THE SAME. SIMILARLY, SMT. SHWETA JAJOO IS B. COM GRADUATE AND SHE IS LOOKING AFTER ALL THE ADMINISTRATIVE AND HRD RELATE D WORK. THUS, BOTH THESE KEYPERSONS WERE PLAYING VITAL ROLE IN THE AFFAIRS OF THE COMPANY. THE COMPANY HAS TAKEN SAID POLICY IN ORDER TO PROTECT THE BUSINESS AGAINST THE FINANCIAL LOSS WHICH MAY OCCUR FROM THE DIRECTORS PREMATURE DEATH, TERM INATION OF EMPLOYMENT ETC. A 'KEYMAN' IS AN EMPLOYEE OR A DIRE CTOR, WHOSE SERVICES ARE PERCEIVED TO HAVE A SIGNIFICANT E FFECT ON THE PROFITABILITY OF THE BUSINESS. WE FIND THAT THE ASS ESSEE COULD NOT FURNISH COPY OF INSURANCE POLICY BEFORE THE AO AS THE SAME WAS NOT AVAILABLE AT THAT TIME, BUT IT WAS SUBMITTED AFTERWARDS BEFORE THE CIT(A). WE HAVE PERUSED THE CBDT CIRCULA R NO. 762 DATED 18.2.1998, WHICH HAS PROVIDED EXPLANATORY NOTE S ON THE PROVISIONS RELATING TO DIRECT TAXES CONTAINED I N FINANCE (NO.2) ACT, 1996. THE MATTER RELATING TO KEYMAN INS URANCE ACIT,2(1), UJJAIN VS. M/S. SHRIJI POLYMERS PRIVATE LIMITED, UJJAIN I.T.A.NO. 147//IND/2015 A.Y. 2011-12 7 7 POLICY HAS BEEN EXPLAINED IN PARA 14.4 OF THE CIRCU LAR. WE FIND THAT IN THE CASE OF DELT VS. M/S NAVINCHANDRA SECUR ITIES PVT. LTD. ITA NO. 2564/AHD/2008, IT WAS HELD THAT 'THE P REMIUM PAID ON THE KEYMAN INSURANCE POLICY IS TO BE ALLOWE D AS BUSINESS EXPENDITURE. THE ONLY THING TO BE SEEN IS WHETHER THE KEYMAN FALLS WITHIN THE DEFINITION LAID DOWN IN THE EXPLANATION BELOW SECTION 10(10D). THE EXPLANATION S TATES THAT ' EXPLANATION: FOR THE PURPOSES OF THIS CLAUSE , 'KEYMAN INSURANCE POLICY' MEANS A LIFE INSURANCE POLICY TAK EN BY A PERSON ON THE LIFE OF ANOTHER PERSON IS OR WAS THE E MPLOYEE OF THE FIRST-MENTIONED PERSON OR IS OR WAS CONNECTED IN ANY MANNER WHATSOEVER WITH THE BUSINESS OF THE FIRST-MENT IONED PERSON;. AS PER THE EXPLANATION, THE ONLY REQUIREME NT IS THAT 'KEYMAN' SHOULD BE AN EMPLOYEE OR A DIRECTOR AND/OR SHOULD BE CONNECTED IN SOME MANNER WITH THE BUSINESS OF THE FIRM. THE BOARD'S CIRCULAR NO. 762 HAS FURTHER CLARIFIED THAT THE 'KEYMAN' WOULD BE AN EMPLOYEE OR A DIRECTOR, WHOSE SE RVICES ARE PERCEIVED TO HAVE A SIGNIFICANT EFFECT ON THE P ROFITABILITY OF THE BUSINESS. IT IS NOTEWORTHY THAT THE WORDS USED A RE 'WHOSE SERVICES ARE PERCEIVED TO HAVE A SIGNIFICANT EFFECT ON THE ACIT,2(1), UJJAIN VS. M/S. SHRIJI POLYMERS PRIVATE LIMITED, UJJAIN I.T.A.NO. 147//IND/2015 A.Y. 2011-12 8 8 PROFITABILITY'. THIS WOULD IMPLY THAT IT IS FOR THE CONCERN TO IDENTIFY THE KEY PERSON OR THE KEYMAN, HAVING REGAR D TO HIS CONTRIBUTION TO THE PROFITABILITY ETC. IT IS FOR THE FIRM TO DECIDE WHO WOULD OR WOULD NOT BE IS KEYMAN. IT IS HIGHLY IMPR OBABLE THAT ANY FIRM WOULD INCUR THE EXPENDITURE OF A SUBS TANTIAL AMOUNT FOR INSURING THE LIFE OF A PERSON WHO HAS NO CONTRIBUTION TO MAKE TO THE AFFAIRS OF THE FIRM . THE PREMIUM UNDER SUCH POLICY HAS BEEN CATEGORICALL Y DECLARED BY THE BOARD TO BE ALLOWABLE AS DEDUCTION, SPECIFICALLY IN VIEW OF THE FACT THAT THE MATURITY A MOUNT RECEIVABLE UNDER THE POLICY IS NO LONGER EXEMPT FRO M TAX. IT IS A CARDINAL PRINCIPLE THAT WHERE ANY INCOME IS SUBJECT TO TAX, THE EXPENDITURE INCURRED ON EARNING OF SUCH INCOME WOULD BE ALLOWABLE. THE BOARD HAS MERELY REITERATED THIS PRIN CIPLE . WE UPHOLD THE ACTION OF THE LD. CIT(A) IN HOLDING THAT ON REDEMPTION/WITHDRAWAL OF THE AMOUNT UNDER THE ABOVE P OLICY WILL HAVE TO BE TAKEN AS INCOME IN THE HANDS OF THE COMPANY AS BUSINESS INCOME U/S 28(VI) IN THE RELEVANT YEAR AND AS SUCH THERE WILL BE DOUBLE TAXATION IF THE SAID AMOUNT IS DISALLOWED ACIT,2(1), UJJAIN VS. M/S. SHRIJI POLYMERS PRIVATE LIMITED, UJJAIN I.T.A.NO. 147//IND/2015 A.Y. 2011-12 9 9 AND ADDED TO THE INCOME UNDER PRESENT ASSESSMENT YE AR. OUR INTERFERENCE IS NOT REQUIRED. GROUND OF THE REVENUE FAILS. 8. NEXT GROUND RELATES TO THE DELETION OF ADDITION BY THE LD. CIT(A) OF RS. 23,23,241/- ON ACCOUNT OF DISALLO WANCE OF COMMISSION U/S 40A(2)(A) AND 40A(2)(B) OF THE ACT. 9. THE SHORT FACTS OF THE CASE ARE THAT THE AO FOUND T HAT THE COMPANY HAS PAID COMMISSION OF RS. 71,02,500/- TO M/S. PADMA POLYTEX (INDIA) PVT.LTD. @ 5.74 % AND COMMISS ION OF RS. 35,98,604/- TO M/S. ARPIT PLASTICS PVT.LTD. @ 4 .20 % ON SALES REALIZED THROUGH THESE PARTIES. THE AO OBSERV ED THAT THERE ARE COMMON DIRECTORS IN THE ABOVE COMPANIES A ND COMMISSION IS PAID AT VERY HIGHER RATE AS COMPARISO N WITH OTHER PARTIES TO WHOM COMMISSION PAYMENT IS MADE. THEREFORE, COMMISSION PAYMENT MADE TO THESE PARTIES WAS RESTRICTED TO 4% OF SALES REALIZED THROUGH THEM. TH E AO MADE ADDITION OF RS. 23,23,241/- OUT OF COMMISSION ON SA LE PAID TO ABOVE TWO PARTIES INVOKING PROVISIONS OF SECTION 40 A(2)(A) AND 40A(2)(B) OF THE ACT. 10. THE MATTER CARRIED TO THE LD. CIT(A) AND THE LD. C IT(A) DELETED THIS ADDITION HOLDING THAT THE AO HAS NOT G IVEN ACIT,2(1), UJJAIN VS. M/S. SHRIJI POLYMERS PRIVATE LIMITED, UJJAIN I.T.A.NO. 147//IND/2015 A.Y. 2011-12 10 10 EMPHASIS ON THE NATURE AND SCOPE OF THE WORK AND TH E SERVICES RENDERED AND AS PER SECTION 40A(2), WHICH M ADE IT APPARENT THAT REGARD MUST BE HAD TO THE FAIR MARKE T VALUE OF THE SERVICES, AS WELL AS TO THE LEGITIMATE NEEDS OF THE BUSINESS. THE ASSESSEE HAS PROVED THAT THESE TWO CR ITERIA WERE SATISFIED AND HENCE NO DISALLOWANCE WAS WARRANTED AND THE LD. CIT(A) DELETED THE ADDITION AMOUNTING TO R S. 23,23,241/- . 11. THE LD. DR RELIED UPON THE ORDER OF THE AO. 12. THE LD. AUTHORIZED REPRESENTATIVE CONTENDED THAT TH E ADDITION HAS BEEN MADE ON IRRELEVANT FACT, HYPOTHET ICAL GROUND AND ON CONJUNCTURES. DURING THE YEAR THE ASSESSEE H AS PAID COMMISSION OF RS. 71,02,500/- ON SALE TO M/S PADMA POLYTEX PVT. LTD AND RS. 35,98,604/- TO M/S ARPIT PLASTIC PVT. LTD. THE COMMISSION AGENTS WERE ENGAGED FOR THE SALE OF PRODU CTS OF THE COMPANY. THE LD. AUTHORIZED REPRESENTATIVE FURT HER CONTENDED THAT THE COMMISSION OF RS. 71,02,500/- WAS PAID TO M/S. PADMA POLYTEX (INDIA) PVT. LTD, @ 5.7 % ON SALE OF RS. 12,37,65,528/- MADE TO M/S LUPIN LIMITED. THE SAID AGENT HAS REGISTERED SALE OF RS. 12.38 CRORE, WHICH WAS FAR MORE ACIT,2(1), UJJAIN VS. M/S. SHRIJI POLYMERS PRIVATE LIMITED, UJJAIN I.T.A.NO. 147//IND/2015 A.Y. 2011-12 11 11 THAN SALES EFFECTED BY THE OTHER AGENTS. BESIDES TH IS THERE WAS A TERM OF PAYMENT OF 30 DAYS FROM THE DATE OF INVOI CE IN RESPECT OF ABOVE PARTY, WHICH WAS ALSO SHORTER PERIOD AS COMPARED TO OTHER PARTIES WHICH VARIED FROM 45 TO 70 DAYS. THEREFORE, AGENT M/S. PADMA POLYTEX PVT. LTD. HAS B EEN PAID HIGHEST RATE OF COMMISSION FOR MAKING EFFORTS IN CO LLECTING SALES PROCEED WITHIN SUCH SHORTER PERIOD AND REGISTE RING A HANDSOME SALES. FURTHER, COMMISSION OF RS 35,98,604 /- WAS PAID TO M/S ARPIT PLASTICS PVT. LTD @ 4.2 % ON SALE OF RS. 8,56,81,047/- MADE TO M/S DR. REDDY LAB. LTD. THE SAID AGENT HAD REGISTERED SALE OF RS. 8.57 CRORE WHICH WAS SECOND HIGHEST SALES AFFECTED BY THEM AMONG THE OTHER AGEN TS. BESIDES THIS IN THIS CASE ALSO THERE WAS A TERM OF P AYMENT OF 40 TO 45 DAYS FROM THE DATE OF INVOICE IN RESPECT O F ABOVE PARTY WHICH WAS ALSO SHORTER PERIOD AS COMPARED TO OTHER PA RTIES. THEREFORE, AGENT ARPIT PLASTIC PVT. LTD. HAS BEEN P AID SECOND HIGHER RATE OF COMMISSION FOR MAKING EFFORTS IN COL LECTING SALES PROCEED WITHIN SUCH SHORTER PERIOD AND REGISTERING A HANDSOME SALE. LOOKING TO THE SERVICES RENDERED BY THE ABOVE PARTIES, HIGHER RATE OF COMMISSION WAS PAID TO THEM. TDS HAS ACIT,2(1), UJJAIN VS. M/S. SHRIJI POLYMERS PRIVATE LIMITED, UJJAIN I.T.A.NO. 147//IND/2015 A.Y. 2011-12 12 12 BEEN DEDUCTED ON THE COMMISSION PAYMENT AND THE REC IPIENTS HAVE SHOWN THE SAME AS THEIR INCOME. THUS THE ASSESS EE HAS PROVED BEYOND DOUBT THE SERVICES WERE RENDERED AND COMMISSION WAS PAID. WHILE COMPARING THE RATES WITH T HE OTHER PARTIES, THE LD. AO HAS NOT CONSIDERED THE FA CT THAT COMMISSION TO THESE OTHER PARTIES WERE PAID ON FIX A MOUNT BASIS AND NOT ON THE RATE APPLYING ON SALES REGISTE RED THROUGH THESE PERSONS. THEREFORE, THE BASIS OF COMPARISON B Y THE ID. AO ITSELF WAS NOT CORRECT. THE SCOPE OF INQUIRY UNDE R THE PROVISION OF SECTION 40A(2) IS WITH REFERENCE TO FAI R MARKET VALUE OF THE SERVICES RENDERED OR GOODS SUPPLIED. I N THE ABSENCE OF AN ENQUIRY, AS CONTEMPLATED BY THE PROVI SIONS OF SECTION 40A(2), NO DISALLOWANCE CAN BE MADE. THE ONU S IS ON THE ASSESSING OFFICER TO BRING THE MATERIAL ON RECO RD TO PROVE THAT THE PAYMENT MADE BY THE ASSESSEE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE SERVICES RENDERED OR GOODS SUPPLIED. THE LD. AUTHOR IZED REPRESENTATIVE FURTHER CONTENDED THAT THE ID. AO. CONCENTRATED ON THE QUANTUM OF PAYMENT INVOLVED IN ORDER TO MAKE OUT A CASE FOR EXCESSIVE OR UNREASONABLE PAYME NT, ACIT,2(1), UJJAIN VS. M/S. SHRIJI POLYMERS PRIVATE LIMITED, UJJAIN I.T.A.NO. 147//IND/2015 A.Y. 2011-12 13 13 WITHOUT REFERENCE TO THE NATURE OF WORK INVOLVED. THE ID. AO HAS NOT GIVEN EMPHASIS ON THE NATURE AND SCOPE OF T HE WORK AND THE SERVICES RENDERED. IN FACT, SECTION 40A(2) ITSELF MAKES IT APPARENT THAT REGARD MUST BE HAD TO THE 'FAIR MA RKET VALUE' OF THE SERVICES, AS WELL AS TO THE 'LEGITIMATE NEED S OF THE BUSINESS'. THE ASSESSEE HAS PROVED THAT THESE TWO C RITERIA ARE SATISFIED AND HENCE NO DISALLOWANCE WAS WARRANTED. TH E LD. AUTHORIZED REPRESENTATIVE FURTHER RELIED ON THE DEC ISION IN THE CASE OF HIVE COMMUNICATION (P.) LTD. V. CIT [2011) 201 TAXMAN 99/12 TAXMANN.COM 287, IN WHICH THE HON'BLE DELHI HIGH COURT OBSERVED THAT THE QUESTION WHETHER THE EXPENDITURE WAS EXCESSIVE OR UNREASONABLE IN A GIVEN CASE HAD TO BE EXAMINED, KEEPING IN MIND THE ACTUAL SERVICES FOR WHICH PAYMENT WAS MADE, AND THAT, IN THE PROCESS, THE LEGI TIMATE NEEDS OF THE BUSINESS OR PROFESSION OF THE ASSESSEE OR THE BENEFIT DERIVED BY OR ACCRUING TO THE ASSESSEE FROM SUCH SERVICES WAS ALSO TO BE KEPT IN MIND. THE HON'BLE HI GH COURT ALSO CITED REFERENCE TO THE DECISION OF THE CALCUTT A HIGH COURT IN THE CASE OF CIT V. EDWARD KEVENTER (P.) LTD. [197 2] 86 ITR 370, LATER AFFIRMED BY THE SUPREME COURT IN CIT V. EDWARD ACIT,2(1), UJJAIN VS. M/S. SHRIJI POLYMERS PRIVATE LIMITED, UJJAIN I.T.A.NO. 147//IND/2015 A.Y. 2011-12 14 14 KEVENTER (P.) LTD. [1978] 115 ITR 149. THE LD. AUTH ORIZED REPRESENTATIVE FURTHER DREW OUR ATTENTION TO THE FOL LOWING JUDGMENTS :- (I) CIT V. DHANRAJGIRJI RAJA NARSINGIRJI (1973) 91 ITR 544 (SC) (II) HEMRAJ NEBHOMAL SONS V. CIT (2005) 278 ITR 345 (MP) (III) CIT VS. INDO SAUDI SERVICES (TRAVEL) PVT. LTD. 310 ITR 306 (BOM) (IV) CIT V. V.S. DEMPO & CO. (PP.) LTD. [2011J 196 TAXMAN 193 (BOM.) THE LD. AUTHORIZED REPRESENTATIVE CONCLUDED THE ARG UMENTS CONTENDING THAT THE ASSESSEE HAS INCURRED BONA FIDE EXPENSES AND IT IS NOT AT ALL ADVICE TO REDUCE TAX LIABILITY AND SUBMITTED THAT THE COMMISSION HAS IN FACT BEEN PAID TO VARIOU S AGENTS FOR THE SERVICES RENDERED BY THEM IN REGISTERING TH E SALES AND PRAYED THAT THE ADDITION OF RS. 23,23,241/- MAY BE DELETED. ACIT,2(1), UJJAIN VS. M/S. SHRIJI POLYMERS PRIVATE LIMITED, UJJAIN I.T.A.NO. 147//IND/2015 A.Y. 2011-12 15 15 13. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. WE HAVE GONE THROUGH THE ORDERS OF THE AUT HORITIES BELOW AND CASE LAWS CITED. WE FOUND THAT IN THIS CASE THE ID. AO HAS NOT GIVEN EMPHASIS ON THE NATURE AND SCOPE O F THE WORK AND THE SERVICES RENDERED. SECTION 40A(2) ITSEL F MAKES IT APPARENT THAT REGARD MUST BE HAD TO THE 'FAIR MARKE T VALUE' OF THE SERVICES, AS WELL AS TO THE 'LEGITIMATE NEEDS OF THE BUSINESS'. THESE TWO CRITERIA ARE SATISFIED AND HENC E NO DISALLOWANCE IS WARRANTED. WE OBSERVED THAT IN THE C ASE OF HIVE COMMUNICATION (P.) LTD. V. CIT [2011) 201 TAX MAN 99/12 TAXMANN.COM 287, THE HON'BLE DELHI HIGH COUR T OBSERVED THAT THE QUESTION WHETHER THE EXPENDITURE WA S EXCESSIVE OR UNREASONABLE IN A GIVEN CASE HAD TO BE EXAMINED, KEEPING IN MIND THE ACTUAL SERVICES FOR WHICH PAYMEN T WAS MADE, AND THAT, IN THE PROCESS, THE LEGITIMATE NEED S OF THE BUSINESS OR PROFESSION OF THE ASSESSEE OR THE BENEF IT DERIVED BY OR ACCRUING TO THE ASSESSEE FROM SUCH SERVICES WAS A LSO TO BE KEPT IN MIND. THE HON'BLE HIGH COURT ALSO CITED REF ERENCE TO THE DECISION OF THE CALCUTTA HIGH COURT IN THE CASE OF CIT V. EDWARD KEVENTER (P.) LTD. [1972] 86 ITR 370, LATER A FFIRMED BY ACIT,2(1), UJJAIN VS. M/S. SHRIJI POLYMERS PRIVATE LIMITED, UJJAIN I.T.A.NO. 147//IND/2015 A.Y. 2011-12 16 16 THE SUPREME COURT IN CIT V. EDWARD KEVENTER (P.) LT D. [1978] 115 ITR 149. WE FIND THAT IN THIS CASE, THE HON'BLE COURT HAD HELD THAT (I) THE LEGITIMATE BUSINESS NEEDS OF A CO MPANY MUST BE JUDGED FROM THE VIEW POINT OF THE COMPANY ITSELF AND MUST BE VIEWED FROM THE POINT OF VIEW OF A PRUDENT BUSINE SSMAN, (II) IT IS NOT FOR THE ASSESSING OFFICER TO DICTATE WHAT THE BUSINESS NEED OF THE COMPANY SHOULD BE AND HE IS ONLY TO JUD GE THE LEGITIMACY OF THE BUSINESS NEEDS FROM THE ANGLE OF A PRUDENT BUSINESSMAN, AND (III) THE BENEFIT DERIVED OR ACCRU ING TO THE COMPANY MUST ALSO BE CONSIDERED FROM THE ANGLE OF A PRUDENT BUSINESSMAN. THE HON'BLE COURT ALSO OBSERVED THAT ' THE TERM 'BENEFIT' TO A COMPANY IN RELATION TO ITS BUSINESS HAS A VERY WIDE CONNOTATION AND MAY NOT NECESSARILY BE CAPABLE OF BEING ACCURATELY MEASURED IN TERMS OF POUND, SHILLINGS AN D PENCE IN ALL CASES. BOTH THESE ASPECTS HAVE TO BE CONSIDERED JUDICIOUSLY, DISPASSIONATELY WITHOUT ANY BIAS OF ANY KIND FROM THE VIEW POINT OF A REASONABLE AND HONEST PERSON IN BUSINESS. ON THE FACTS OF THE CASE, THE HIGH COURT HELD THAT THE TRIBUNAL WAS NOT CORRECT IN LAW IN UPHOLDING THE DISALLOWANCE O F RS. 13.20 LAKHS OUT OF THE REMUNERATION PAID BY THE ASS ESSEE TO ACIT,2(1), UJJAIN VS. M/S. SHRIJI POLYMERS PRIVATE LIMITED, UJJAIN I.T.A.NO. 147//IND/2015 A.Y. 2011-12 17 17 'SP' BY INVOKING THE PROVISIONS OF SECTION 40A(2) O F THE ACT. ACCORDINGLY, THE HIGH COURT DELETED THE ADDITION MA DE, AND ALLOWED THE APPEAL. WE, THEREFORE, UPHOLD THE ACTIO N OF THE LD. CIT(A) IN DELETING THE ADDITION AMOUNTING TO RS. 23 ,23,241/-. OUR INTERFERENCE IS NOT CALLED FOR. THIS GROUND OF THE REVENUE ALSO FAILS. 14. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 22 ND APRIL, 2016. SD/- (B.C.MEENA) ACCOUNTANT MEMBER SD/- ( D.T.GARASIA) JUDICIAL MEMBER DATED : 22 ND APRIL, 2016. CPU* 6,4