M/s. Viraje Cargo Care (P) Ltd., INDORE V. The ACIT-4(1) Range-4, INDORE

ITA 152/Ind/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 7710 (ITAT-INDORE)
• Duration Of Justice: 11 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-01-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2015-2016
• Appeal Filed On: 18-02-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PUNIT KUMAR
• Keywords: Fair market value
• Section: 143(3); 13; 20

Judgement Text

[ITA NO.152/IND/2019] [M/S. VIRAJE CARGO CARE PRIVATE LIMITED, INDORE] , , IN THE INCOME TAX APPELLATE TRIBUNAL INDORE SMC BENCH, INDORE BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER ITA NO.152/IND/2019 ASSESSMENT YEAR: 2015-16 M/S. VIRAJE CARGO CARE PVT. LTD. 302/A, 3 RD FLOOR, THE MARK, 20 OLD PALASIA INDORE, M.P. / VS. ACIT - 4(1) RANGE-4 INDORE ( APPELLANT ) ( REVENUE ) P.A. NO. AACCV9586D APPELLANT BY SHRI S.N. AGRAWAL, A.R. & SHRI PANKAJ MOGRA, D.R. RESPONDENT BY SHRI PUNIT KUMAR, SR. D.R. DATE OF HEARING: 23.01.2020 DATE OF PRONOUNCEMENT: 28.01.2020 / O R D E R PER KUL BHARAT, J.M: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST ORDER O F THE LD. CIT(A)-2, INDORE DATED 27.11.2018 PERTAINING TO THE [ITA NO.152/IND/2019] [M/S. VIRAJE CARGO CARE PRIVATE LIMITED, INDORE] 2 ASSESSMENT YEAR 2015-16. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) ERRED IN MAINTAINING THE DISALLOWANCE OF RS.5,00,000/- MADE BY THE ASSESSING OFFICER OUT OF DIRECTOR REMUNERATI ON BY INVOKING THE PROVISIONS OF SECTION 40A(2)(B) OF THE INCOME TAX A CT WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE HIM. 2. THE APPELLANT RESERVES ITS RIGHT TO ADD, ALTER AND MODIFY THE GROUNDS OF APPEAL AS TAKEN BY IT. 2. THE ONLY EFFECTIVE GROUND IS AGAINST ADDITION OF R S.5 LAKHS MADE ON ACCOUNT OF DISALLOWANCE OF DIRECTORS REMUNERATION BY INVOKING PROVISIONS OF SECTION 40A(2 )(B) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS THE A CT). THE FACTS GIVING RISE TO THE PRESENT APPEAL ARE THAT CASE OF THE ASSESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S 143(3) OF THE ACT WAS FRAMED VIDE ORDER DATED 17.11.2017. WHILE FRAMING THE ASSESSMENT, THE A .O. [ITA NO.152/IND/2019] [M/S. VIRAJE CARGO CARE PRIVATE LIMITED, INDORE] 3 OBSERVED THAT DURING THE FINANCIAL YEAR 2014-15, THE ASSESSEE COMPANY PAID RS.10 LAKHS EACH TO THE DIRECTORS REMUNERATION. THIS IS SUBSTANTIAL INCREASE FROM THE LAS T YEAR WHEN THEY WERE PAID ONLY RS.12,50,000/-. THE A. O. THEREFORE ISSUED A SHOW CAUSE TO THE ASSESSEE CALLING HIM TO EXPLAIN AS TO WHY THERE IS SUCH INCREASE IN THE REMUNERATION OF THE DIRECTORS. IN RESPONSE THERETO, THE ASSESSEE FILED A REPLY. HOWEVER, THAT REPLY WAS NOT ACCEPTABLE TO THE A.O. THEREFORE, HE MADE ADDITION OF RS.5 LAKHS. AGGRIEVED AGAINST THIS, THE ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS DISMISSED THE APPEAL. NOW THE ASSESSEE IS IN FURTHER APPEAL BEFORE THIS TRIBUNAL. 3. LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS AS MADE IN THE WRITTEN SYNOPSIS. FOR THE SAKE OF CLARITY, THE SUBMISSIONS OF THE ASSESSEE ARE REPRO DUCED AS UNDER: [ITA NO.152/IND/2019] [M/S. VIRAJE CARGO CARE PRIVATE LIMITED, INDORE] 4 [ITA NO.152/IND/2019] [M/S. VIRAJE CARGO CARE PRIVATE LIMITED, INDORE] 5 [ITA NO.152/IND/2019] [M/S. VIRAJE CARGO CARE PRIVATE LIMITED, INDORE] 6 [ITA NO.152/IND/2019] [M/S. VIRAJE CARGO CARE PRIVATE LIMITED, INDORE] 7 [ITA NO.152/IND/2019] [M/S. VIRAJE CARGO CARE PRIVATE LIMITED, INDORE] 8 [ITA NO.152/IND/2019] [M/S. VIRAJE CARGO CARE PRIVATE LIMITED, INDORE] 9 [ITA NO.152/IND/2019] [M/S. VIRAJE CARGO CARE PRIVATE LIMITED, INDORE] 10 [ITA NO.152/IND/2019] [M/S. VIRAJE CARGO CARE PRIVATE LIMITED, INDORE] 11 [ITA NO.152/IND/2019] [M/S. VIRAJE CARGO CARE PRIVATE LIMITED, INDORE] 12 [ITA NO.152/IND/2019] [M/S. VIRAJE CARGO CARE PRIVATE LIMITED, INDORE] 13 4. ON THE CONTRARY, LD. D.R. OPPOSED THESE SUBMISSIO NS AND SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 5. I HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIALS AVAILABLE ON RECORDS AND GONE THROUGH THE ORDER S OF THE AUTHORITIES BELOW. THE A.O. HAS MADE DISALLOW ANCE BY INVOKING THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT BY OBSERVING AS UNDER: [ITA NO.152/IND/2019] [M/S. VIRAJE CARGO CARE PRIVATE LIMITED, INDORE] 14 IF WE CALCULATE THE PBT OF THE COMPANY FOR F.Y. 20 14-15 AND FY 2013-14 BY ADDING BACK THE DIRECTORS REMUNERATION, TO SEE HOW MUCH PROFITS ROSE EXCLUDING THIS AMOUNT, WE SEE THAT THE PBT INCREASE D YEAR ON YEAR BY C. 22% - RS.36,16,898/- + RS.20,00,000/- (FY 2014-15) V/S RS.33,52,000/- + RS.12,50,000/- (FY 13-14). THUS, AT BEST, THE INCREASE IN REMUNERATION THAT CA N BE JUSTIFIED IS C. 22%, I.E. TOTAL OF C. RS.15,00,000/- (DESPITE THE FACT T HAT WILL REDUCE THE DISTRIBUTABLE PROFITS OF THE COMPANY BY A LARGER PR OPORTION), RATHER THAN THE 60% HIKE ACTUALLY OFFERED. THEREFORE, REMUNERATION PAID TO DIRECTORS IS BEING RESTRICTED TO RS.15,00,000/- AND RS.5,00,000/ - IS BEING DISALLOWED U/S 40A(2)(B) OF THE I.T. ACT, 1961. 6. THERE IS NO AMBIGUITY SO FAR LAW IS CONCERNED. SE CTION 40A(2)(B) OF THE ACT AUTHORIZES THE A.O. TO MAKE DISALLOWANCE, IF IN HIS OPINION THE EXPENDITURE INCUR RED IN RESPECT OF WHICH PAYMENT IS MADE OR IS TO BE MADE IN PERSON REFERRED TO IN CLAUSE (B) OF THE SUB-SECTION (2) OF SECTION 40A, HE CAN MAKE DISALLOWANCE BY CONSIDERING TH E EXPENDITURE BEING EXCESSIVE OR UNREASONABLE HAVING REG ARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACI LITIES FOR WHICH THE PAYMENT IS MADE OR THE LEGITIMATE NEED S OF THE BUSINESS OR PROFESSION OF THE ASSESSEE OR THE BE NEFIT [ITA NO.152/IND/2019] [M/S. VIRAJE CARGO CARE PRIVATE LIMITED, INDORE] 15 DERIVED BY OR ACCRUING TO HIM THERE FROM SO MUCH OF THE EXPENDITURE AS IS CONSIDERED TO BE EXCESSIVE OR UNREASONABLE. THEREFORE, THE FINDING OF THE A.O. IS REQUIRED TO BE BASED UPON THE FAIR MARKET VALUE OF THE SERVICES, WHICH IS A CONDITION PRECEDENT BEFORE MAKING DISALLOWAN CE. THE A.O. IN THE PRESENT CASE HAS NOT GIVEN SUCH FINDI NG AS WHAT IS THE FAIR MARKET VALUE, WHAT THE A.O. HAS BASED HI S FINDING PURELY ON THE BASIS OF THE PAST HISTORY OF TH E ASSESSEE. THERE IS NO SUCH FINDING THAT UNDER THE ID ENTICAL FACTS AND CIRCUMSTANCES HOW MUCH REMUNERATION IS BEING PAID TO THE DIRECTORS BY OTHER SIMILARLY SITUATED ASSE SSEES. THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF E DWISE CONSULTANTS PVT. LTD. VS. DCIT (2017) 83 TAXMANN.COM 27 (MUMBAI TRIB.) HAS OBSERVED AS UNDER: [ITA NO.152/IND/2019] [M/S. VIRAJE CARGO CARE PRIVATE LIMITED, INDORE] 16 7. IN THE PRESENT CASE ALSO, THE A.O. HAS NOT BROUGHT ANY MATERIAL SUGGESTING THAT FAIR MARKET VALUE OF THE REMUNERATION PAID TO THE DIRECTORS IS LOWER THAN WHAT I S [ITA NO.152/IND/2019] [M/S. VIRAJE CARGO CARE PRIVATE LIMITED, INDORE] 17 PAID BY THE ASSESSEE. IN THE ABSENCE OF SUCH FINDING, THE DISALLOWANCE MADE CANNOT BE SUSTAINED AND THE A.O. IS DIRECTED TO DELETE DISALLOWANCE. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ITA NO.152/IND/2019 FOR THE A.Y. 2015-16 IS ALLOWED. ORDER WAS PRONOUNCED IN THE OPEN COURT ON 28 . 01.2020. SD/- (KUL BHARAT) JUDICIAL MEMBER INDORE; DATED : 28/01/2020 VG/SPS COPY TO: ASSESSEE/AO/PR. CIT/ CIT (A)/ITAT (DR)/GUAR D FILE. BY ORDER ASSISTANT REGISTRAR, INDORE