BOOTS PIRAMAL HEALTHCARE P. LTD ( NOW MERGED PIRMAL HEALTHCARE LTD), MUMBAI V. ASST CIT 6(1), MUMBAI

ITA 165/MUM/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4082 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 04-03-2015
• Assessment Year: 2000-2001
• Appeal Filed On: 07-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RONAK G DOSHI
• Keywords: Depreciation

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.165/MUM/2011 ASSESSMENT YEAR: 2000-01 M/S BOOTS PIRAMAL HELATHCARE PVT LTD.(NOW MERGED PIRAMAL HEALTHCARE LTD.), PIRAMAL TOWER ANNEXE, GANPATRAO KADAM MARG, LOWER PAREL, MUMBAI-400013 / VS. ACIT-6(1), MUMBAI ( ! /ASSESSEE) ( ' / REVENUE) PAN. NO . AAACB5803B ! / ASSESSEE BY SHRI RONAK G. DOSHI ' / REVENUE BY SHRI M.V.RAJGURU # '$ % ! & / DATE OF HEARING : 25/04/2016 % ! & / DATE OF ORDER: 25/04/2016 ITA NO.165/MUM/2011 M/S BOOTS PIRAMAL HEALTHCARE PVT LTD. 2 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE ASSESSEE IS AGGRIEVED BY THE IMPUGNED ORDER DAT ED 29/09/2010 OF THE FIRST APPELLATE AUTHORITY, MUMBAI , THE ONLY GROUND AGITATED BY THE ASSESSEE IS WITH RESPEC T TO LEVY OF PENALTY OF RS.20,44,735/- U/S 271(1)(C) OF THE INCO ME TAX ACT, 1961 (HEREINAFTER THE ACT). 2. DURING HEARING, THE LD. COUNSEL FOR THE ASSESSE E, SHRI RONAK G. DOSHI, AT THE OUTSET, CLAIMED THAT ON IDENTICAL FACTS, FOR ASSESSMENT YEAR 1999-2000 AND 2001-02 VI DE ORDER DATED 07/01/2011, THE PENALTY LEVIED U/S 271(1)(C) WAS DELETED BY THE TRIBUNAL IN ITA NO. 4128/MUM/2008 AN D ITA NO.3154/MUM/2007. THIS FACTUAL MATRIX WAS CONSENTED TO BE CORRECT THE LD. DR, SHRI M. V. RAJGURU. NO CONTRAR Y FACTS WERE BROUGHT TO OUR NOTICE BY EITHER SIDE. 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN VIEW O F THE ABOVE, WE ARE REPRODUCING HEREUNDER THE RELEVANT PORTION F ROM THE ORDER OF THE TRIBUNAL DATED 07/01/2011 FOR READY RE FERENCE:- IN BOTH THESE APPEALS THE ORDERS OF THE LD. CIT(A) H AVE BEEN CHALLENGED FOR CONFIRMING THE LEVY OF PENALTY U/S.271 [1][C] AMOUNTING TO RS.4,84,167/- AND RS.5 LAKHS FOR A.YRS. 1999-2000 AND 2001-02. 2. IN THE GROUNDS OF APPEAL FOR A.Y 1999-2000 THE AMO UNT OF PENALTY HAS BEEN SHOWN AT RS.6,20,064/- BUT THE LD. COUNSEL OF THE ASSESSEE POINTED OUT THAT THIS AMOUNT WAS ACTUALLY RS.4,84,1 67/- BECAUSE ITA NO.165/MUM/2011 M/S BOOTS PIRAMAL HEALTHCARE PVT LTD. 3 PENALTY IN RESPECT OF DEPRECIATION ON VEHICLE WAS DEL ETED BY THE CIT(A) HIMSELF, WHEREAS THE TOTAL AMOUNT WAS MENTION ED IN THE GROUND IS RS.6,20,064/-. IN THIS REGARD HE HAS ALSO FI LED A LETTER THAT THIS AMOUNT SHOULD BE TAKEN AT RS.4,84,167/- AND, T HEREFORE, FOR ADJUDICATION OF THE APPEAL FOR A.Y 1999-2000 WE ARE C ONSIDERING THE AMOUNT OF RS.4,84,167/- ONLY. 3. IN BOTH THESE CASES DURING ASSESSMENT PROCEEDINGS THE SALARY PAID TO THE MANAGING DIRECTOR WAS DISALLOWED MAINLY ON THE BASIS THAT ASSESSEE COMPANY WAS NOT RESPONSIBLE TO MAKE SUCH PA YMENTS IN TERMS OF SHAREHOLDERS AGREEMENT. THE ADDITIONS WERE CONF IRMED BY THE CIT(A) AND, ACCORDINGLY, AO INVOKED EXPLANATION 1 TO SECTION 271[1][C] AND LEVIED PENALTY @ 100%. 4. THE ACTION OF THE AO HAS BEEN CONFIRMED BY THE LD . CIT(A). 5. BEFORE US LD. COUNSEL OF THE ASSESSEE REFERRED TO PA GE-54 OF THE PAPER BOOK, WHICH IS A COPY OF THE SHAREHOLDERS AGREEME NT BETWEEN THE ASSESSEE COMPANY AND BOOTS COMPANY, PLC WHO WAS A FOREIGN PARTNER IN THE JOINT VENTURE. HE INVITED OUR ATTENTION TO CLAUSE 9.13 THROUGH WHICH IT WAS AGREED THAT BOOTS COMPANY, PLC I .E. JOINT VENTURE PARTNERSHIP WAS RESPONSIBLE FOR PAYMENT OF SALA RIES AND OTHER EXPENSES IN RELATION TO THE MANAGING DIRECTOR. HE SUBMITTED THAT, IN FACT, THE MANAGING DIRECTOR WAS TO BE APPOIN TED BY BOOTS COMPANY, PLC BECAUSE THE JOINT VENTURE PARTNERS WANTE D ITS OWN REPRESENTATIVE AS THEY WERE 51% SHAREHOLDERS IN THE JOI NT VENTURE OF THE ASSESSEE COMPANY. HOWEVER, LATER ON THEIR REPRESENT ATIVE MR. KHOO SENG CHEE JOSEPH RESIGNED AND, THEREFORE, ASSESSE E COMPANY PROPOSED THE NAME OF MR. TARUN PASRICHA TO BE APPOINTED AS THE MANAGING DIRECTOR AND THIS PROPOSAL WAS ACCEPTED BY TH E FOREIGN PARTNER. IN THIS REGARD HE REFERRED TO PAGES 55 TO 57 OF THE PAPER BOOK WHICH IS A COPY OF THE BOARDS RESOLUTION ACCEP TING THE RESIGNATION OF MR. KHOO SENG CHEE JOSEPH AND APPOINT MENT OF MR. TARUN PASRICHA. SINCE THE REPRESENTATIVE OF THE ASSESSE E COMPANY WAS APPOINTED AS THE MANAGING DIRECTOR, ASSESSEE ALS O VERBALLY AGREED TO PAY THE REMUNERATION WHICH WAS IN EXCESS OF THE LIMITS PRESCRIBED UNDER SECTIONS 198/349 OF THE COMPANIES AC T AND IN THIS REGARD HE REFERRED TO PAGE-21 OF THE PAPER BOOK, WHICH IS A COPY OF ITA NO.165/MUM/2011 M/S BOOTS PIRAMAL HEALTHCARE PVT LTD. 4 NOTES TO THE FINANCIAL STATEMENT SHOWING THE CALCUL ATION OF THE REMUNERATION. AS THE REMUNERATION WAS IN EXCESS OF THE LIMITS PRESCRIBED UNDER THE COMPANIES ACT, ASSESSEE COMPANY F URTHER APPLIED TO THE GOVERNMENT OF INDIA FOR APPROVAL OF REMU NERATION AND THE GOVERNMENT OF INDIA APPROVED THE SAME ON 8-6- 2001 AND IN THIS REGARD HE FILED THE COPY OF THE APPROVAL LETTER. H E ARGUED THAT MERE DISALLOWANCE OF EXPENDITURE CANNOT LEAD TO AUTOM ATIC LEVY OF PENALTY. IN THE CASE BEFORE US GENUINENESS OF REMUNERA TION FOR RENDERING OF SERVICES BY THE MANAGING DIRECTOR HAS NOT B EEN DOUBTED BY THE DEPARTMENT. THE SHAREHOLDERS AGREEMENT W AS NOT CHANGED BECAUSE IT REQUIRED LOTS OF FORMALITIES AND C OULD HAVE TAKEN MANY MONTHS BECAUSE CERTAIN APPROVALS WERE ALSO REQUIRED . 6. ON THE OTHER HAND, LD.DR STRONGLY SUPPORTED THE ORD ER OF THE CIT(A) AND POINTED OUT THAT IT WAS CLEARLY FOUND BY THE AO THAT AS PER SHAREHOLDERS AGREEMENT THE OTHER PARTNER OF THE JOINT VENTURE I.E. M/S. BOOTS COMPANY, PLC WAS REQUIRED TO PAY THE REMUNERATION AND, THEREFORE, THERE WAS NO JUSTIFICATION FOR CLAIMIN G THIS EXPENDITURE WHEN ASSESSEE WAS NOT AT ALL RESPONSIBLE FOR MAKING SUCH PAYMENTS. HE STRONGLY RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF DHARMENDRA TEXTILE PROCESSO RS 212 CTR (SC) 432 AND THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF THIRUPATHY KUMAR KHEMKA & ANOTHER VS. CIT [291 ITR 122]. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFULLY AND FIND THAT, ADMITTEDLY, THE MANAGING DIRECTOR WAS TO BE APPOINTED BY M/S. BOOTS COMPANY, PLC AS PER THE SHAREHOLDERS AGREEMENT AN D, IN FACT, THE APPOINTMENT WAS MADE ACCORDINGLY. HOWEVER, THE REPRESENTATIVE OF M/S. BOOTS COMPANY, PLC, MR. KHOO SE NG CHEE JOSEPH RESIGNED AND LATER ON THE REPRESENTATIVE OF THE ASSESSEE COMPANY MR. TARUN PASRICHA WAS APPOINTED AS THE MANAG ING DIRECTOR. HIS APPOINTMENT AS WELL AS THE FACT OF RESI GNATION OF MR. KHOO SENG CHEE JOSEPH HAS BEEN DULY REPORTED IN THE D IRECTORS REPORT. THE FACT OF APPOINTMENT OF MR. TARUN PASRICHA H AS NOT BEEN DOUBTED. FURTHER, WE FIND THAT REMUNERATION PAID TO M R. TARUN PASRICHA CAME TO RS.13,83,3336/-, WHEREAS HE COULD HA VE BEEN PAID ONLY A SUM OF RS.10,14,343/- [SEE PAGE 21 OF THE CA LCULATION OF THE ITA NO.165/MUM/2011 M/S BOOTS PIRAMAL HEALTHCARE PVT LTD. 5 MANAGERIAL REMUNERATION] IN TERMS OF SEC.349 OF COMPAN IES ACT AND, ACCORDINGLY, EVEN APPROVAL OF THE GOVERNMENT OF I NDIA FOR SUCH EXCESS PAYMENT WAS SOUGHT AND THE SAME WAS APPROVED VIDE LETTER DATED 8-6-2001 BY MINISTRY OF LAW & JUSTICE AND COMP ANY AFFAIRS, DEPARTMENT OF COMPANY AFFAIRS, GOVERNMENT OF INDIA. TH EREFORE, IT IS CLEAR THAT SALARY WAS DEFINITELY PAID TO MR. TARUN P ASRICHA WHICH WAS DULY APPROVED BY THE GOVERNMENT AND EVEN HIS SERVI CES HAVE NOT BEEN DOUBTED. MERELY, BECAUSE A FOREIGNER WHO WAS EARLIER THE MANAGING DIRECTOR RESIGNED AND THEN A NOMINEE OF THE I NDIAN COMPANY WAS APPOINTED, THEN IT IS NOT NECESSARY FOR T HE JOINT VENTURE PARTNER TO AMEND THE SHAREHOLDERS AGREEMENT WHICH INVOLVES LOTS OF TIME AND EXPENDITURE WHICH MAY NOT HAVE BEEN FEASIBLE BECAUSE OF THE SMALLNESS OF THE ITEM OF TH E EXPENDITURE. WE FURTHER FIND THAT IN THE CASE OF DHARMENDRA TEXTILES PRO CESSORS [SUPRA], THE MAIN ISSUE WAS WHETHER MENS REA IS REQUIRED FOR LEVY OF PENALTY OR NOT AND THE HONBLE COURT HELD THAT WHILE DEALING WITH THE CIVIL PENALTY STATUTORY PROVISIONS ARE ENOUGH AND NO M ENS REA IS REQUIRED. BUT IT DOES NOT MEAN THAT IN ALL CASES WHERE ADDITION HAS BEEN MADE PENALTY HAS TO BE LEVIED. SIMILARLY, IN TH E CASE OF THIRUPATHY KUMAR KHEMKA & ANOTHER VS. CIT [SUPRA], THE ASSESSEE HAD NOT DISCLOSED THE AMOUNT OF INTEREST U/S.244A REC EIVED ON THE REFUND OF INCOME TAX IN HIS INCOME. FURTHER SOME CREDIT S WERE ALSO NOT EXPLAINED AND THAT IS WHY LEVY OF PENALTY WAS C ONFIRMED BY THE HONBLE HIGH COURT. WHEREAS IN THE CASE BEFORE US, THE GENUINENESS OF THE EXPENDITURE IS NOT DOUBTED. THE ONLY PROBLEM I S THAT ORIGINALLY THE ASSESSEE WAS NOT TO BEAR THIS EXPENDITURE. HOWEV ER, BECAUSE OF BUSINESS NECESSITY OR LEGAL COMPLICATIONS TO CHANGE THE TERMS OF SHAREHOLDERS AGREEMENT, ASSESSEE CHOSE TO MAKE THE PAY MENT OF THE MANAGING DIRECTOR, IT CANNOT BE SAID THAT ASSESS EE HAS FILED ANY INACCURATE PARTICULARS OR CONCEALED ANY INCOME. IF A LE GITIMATE CLAIM HAS BEEN MADE, THEN DISALLOWANCE OF THE SAME WOULD NOT LEAD TO THE PENAL CONSEQUENCE AND AS POINTED OUT BY THE LD. COUNSEL OF THE ASSESSEE EVEN THE HONBLE SUPREME COURT HAS HELD ACCO RDINGLY IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS PVT. LTD. 322 ITR 158. IN THESE CIRCUMSTANCES, WE ARE OF THE VIEW, THAT THIS IS NOT A FIT CASE FOR LEVY OF PENALTY AND, ACCORDINGLY, WE DELETE THE SAME. ITA NO.165/MUM/2011 M/S BOOTS PIRAMAL HEALTHCARE PVT LTD. 6 8. IN THE RESULT, APPEALS OF THE ASSESSEE ARE ALLOWED . CONSIDERING THE AFORESAID ORDER DATED 07/01/2011 AN D THE DECISION FROM HONBLE APEX COURT IN CIT VS RELIANCE PETRO PRODUCTS PVT. LTD. (2010) 322 ITR 158 (SC), WHEREIN , ON THE ISSUE WHETHER MERELY BECAUSE, THE ASSESSEE HAS CLAI MED EXPENDITURE, WHICH WAS NOT ACCEPTED OR WAS NOT ACCE PTABLE TO THE REVENUE THAT BY ITSELF WOULD NOT ATTRACT PENALT Y, CLEARLY FAVOURS THE CLAIM OF THE ASSESSEE. RESPECTFULLY FOL LOWING THE ORDER FROM THE COORDINATE BENCH AND THE BINDING DEC ISION FROM HONBLE APEX COURT AND FURTHER UNCONTROVERTED FACTUAL MATRIX CONTAINED IN THE ORDER OF THE TRIBUNAL ON TH E SAME ISSUE, WE DIRECT THE LD. ASSESSING OFFICER TO DELET E THE PENALTY. FINALLY, THE APPEAL OF THE ASSESSEE IS ALLOWED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVE FROM BOTH SIDES AT T HE CONCLUSION OF THE HEARING ON 25/04/2016. SD/- SD/- ( ASHWANI TANEJA ) (JOGINDER SINGH) '# / ACCOUNTANT MEMBER $# / JUDICIAL MEMBER # $ MUMBAI; ' DATED : 25/04/2016 F{X~{T? P.S/. . . !%$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. )*+, / THE APPELLANT 2. -.+, / THE RESPONDENT. 3. / / # 0! ( )* ) / THE CIT, MUMBAI. 4. / / # 0! / CIT(A)- , MUMBAI ITA NO.165/MUM/2011 M/S BOOTS PIRAMAL HEALTHCARE PVT LTD. 7 5. 2'3-! , / )*&) 4 , # / DR, ITAT, MUMBAI 6. 56 / GUARD FILE. ! / BY ORDER, .2*!-! //TRUE COPY// / (DY./ASSTT. REGISTRAR) , # / ITAT, MUMBAI