M/s Prashant Motors Pvt ltd., V. DCIT,

ITA 166/PAT/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1181 (ITAT-PATNA)
• Duration Of Justice: 2 year(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 23-09-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R K MISHRA
• Assessee Lawyers: ASHISH AGRAWAL; S K RASTOGI RAKESH KUMAR
• Keywords: Business expenditure; Fair market value; Commercial expediency
• Section: 143(3)

Judgement Text

1 ITA NO. 166/PAT/2014. IN THE INCOME TAX APPELLATE TRIBUNAL, PATNA BENCH, PATNA. BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. (S.M.C.) I.T.A. NO. 166/PAT/2014. ASSESSMENT YEAR : 20 10 - 11. M/S PRASHANT MOTERS PVT. LTD., DY. COMMISSIONER OF INCOME - TAX, LENIN CHAWK, MUZAFFARPUR . VS. CIRCLE - 2, MUZAFFARPUR. APPELLANT. RESPONDENT. APPELLANT BY : S/ SHRI S.K. RASTOGI, RAKESH KUMAR & AS HISH AGRAWAL. RESPONDENT BY : SHRI R.K. MISHRA. DATE OF HEARING : 03 - 08 - 2016 DATE OF PRONOUNCEMENT : 2 6 T H EPT., 2016 O R D E R THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(APPEALS) - I, PATNA DATED 07 - 07 - 2014 AND PERTAINS TO ASSESSMENT YEAR 20 10 - 11 . THE GROUNDS OF APPEAL READ AS UNDER : 1. FOR THAT THE ORDER OF ASSESSMENT PASSED BY THE LEARNED ASSISTANT CO MMISSIONER OF INCOME TAX, CIRCLE - 2, MUZAFFARPUR AS WELL AS THE APPELLATE ORDER PASSED BY THE LEARNED CIT(APPEALS) - 1, PATNA MAINTAINING SOME ADDITIONS ARE BAD IN LAW AND FACT. 2. FOR THAT ONLY BASIS OF THE EXPENDITURE SHOWN FOR THE CONSTRUCTION OF THE BUILDING TREATING IT IMPROPER, THE REJECTION OF BOOKS OF ACCOUNT UNDER SECTION 143(3) OF THE ACT IS ARBITRARY AND UNJUSTIFIED. 3. FOR THAT THE LEARNED CIT(APPEALS) - 1, PATNA HAS ERRED IN MAINTAINING THE DISALLOWANCE OF 50% WOMENS DIRECTORS REMUNERATION INVOKING THE PROVISIONS OF SECTION 40A(2) OF THE I.T. ACT IRRESPECTIVE OF THE FACT THAT ALL THE CASE LAWS CITED BY THE APPELLANT ARE FULLY RELEVANT TO THIS CASE. IT IS FURTHER STATED THAT DR. MOTI SINHA IS DOING THE WORK AS DIRECTOR FINANCE AND DR. NIBHA KUMARI IS DO ING THE WORK AS DIRECTOR SALES & 2 ITA NO. 166/PAT/2014. SERVICE. WITHOUT ACCEPTING THE FACT TREATING IT AS THE REMUNERATION PAID IS EXCESSIVE AND ESTIMATING IT THAT THE 50% REMUNERATION PAID TO THE WOMEN DIRECTOR, IS ARBITRARY AND UNJUSTIFIED. 4. FOR THAT THE LEARNED CIT(APPEALS) - 1, PATNA HAS ERRED IN NOT CONSIDERING THE ALLOWANCE OF THE TRANSIT DAMAGES OF RS.7,945/ - WHICH OUGHT TO BE ALLOWABLE UNDER BUSINESS EXPENDITURE. 5. FOR THAT THE LEARNED CIT(APPEALS) - 1, PATNA HAS ERRED IN NOT CONSIDERING THE ALLOWANCE OF LATE FEE OF RS.5,168/ - WHICH OUGHT TO BE ALLOWABLE UNDER BUSINESS EXPENDITURE. 2. AT THE OUTSET IN THIS CASE THE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT HE SHALL NOT BE PRESSING GROUND NOS. 1,2,4 AND 5. ACCORDINGLY THESE GROUNDS ARE DISMISSED AS NOT PRESSED. 3. APROPOS GROUND NO. 3: `ON THIS ISSUE THE AO MADE THE DISALLOWANCE POSING AS UNDER : THE PERUSAL OF PAPERS SUBMITTED BY THE ASSESSEE, IT HAS BEEN FOUND THAT DR. NIBHA KUMARI IS AN EMPLOYEE OF GOVERNMENT OF BIHAR AND SHE WAS POSTED AS MEDICAL OFFICER AT MARBAN P.H.C. DURING THE CONCERNED PERIOD. MARBAN IS FAR AWAY FROM THE MUZAFFARPUR. EXCEPT IT, SHE DOES PRIVATE PRACTICE AND HAS INCOME FROM PROFESSION TOO. IN SUCH CIRCUMSTANCES, IT IS HUMANLY NOT POSSIBLE FOR HER TO SPARE TIME. WITH THE ABOVE FINDIN GS, ASSESSEE WAS REQUESTED TO FILE HIS SUBMISSION REGARDING THE TIME DEVOTED BY DR. NIBHA KUMARI TO THE COMPANY AND NATURE OF WORK DONE BY HER. BUT, THE ASSESSEE FAILED TO GIVE ANY PLAUSIBLE EXPLANATION RATHER HE REMAINED SILENT ON THE ISSUE. IT IS QUITE C LEAR THAT SHE IS BEING PAID WITHOUT ANY WORK DONE FOR THE COMPANY. IN VIEW OF THE ABOVE FACTS, ENTIRE REMUNERATION PAID TO DR. NIBHA KUMARI IS DISALLOWED U/S 40A(2) OF THE ACT. FURTHER, DR. MOTI SINHA IS ALSO RENOWNED GYNECOLOGIST AND FOUNDER OF PRASHANT M EMORIAL CHARITABLE HOSPITAL. SHE IS ACTIVELY INVOLVED IN DAY TO DAY FUNCTIONING OF PRASHANT HOSPITAL IN THE CAPACITY OF H.O.D. OF ODS AND GYN DEPTT. DURING THE COURSE OF HEARING, ASSESSEE COULD NOT JUSTIFY THE PAYMENT MADE TO HER. THE EVIDENCE FOR THE WORK DONE BY HER FOR THE COMPANY WAS NOT FURNISHED. IT IS QUITE CLEAR THAT SHE IS BEING PAID WITHOUT ANY WORK FOR THE COMPANY. IN VIEW OF THE ABOVE FACTS, REMUNERATION PAID TO DR. MOI SINHA IS ALSO DISALLOWED U/S 40A(2) OF THE ACT. 3 ITA NO. 166/PAT/2014. 4. UPON ASSESSEES APPEAL THE LEARNED CIT(APPEALS) NOTED THE ASSESSEES SUBMISSION AS UNDER : THE APPELLANT HAS SUBMITTED THAT DR. MOTI SINHA AND DR. NIBHA KUMARI HAD BEEN ASSOCIATED WITH PRASHANT MOTOR PVT. LTD. RIGHT FROM IS VERY INCEPTION AND ARE INVOLVED IN VARIOUS MATTERS RELATED TO THE DAY TO DAY FUNCTIONING OF THE COMPANY. NO EVIDENCE HAS BEEN BROUGHT NON RECOD TO SHOW THAT DR. MOTI SINHA HAD NOT WORKED IN THE COMPANY. SIMILARLY, DR. NIBHA KUMARI HAS ALSO BEEN ASSOCIATED WITH THE DAY TO DAY ACTIVITIES OF COMPANY RELATING TO SALES AND SUPERVISORY MATTERS OF WORKSHOP. IT WAS FURTHER SUBMITTED THAT THERE IS NO BAR IN HER CONTINUING WITH HER MEDICAL PROFESSION WHILE ALSO NOT BEING ASSOCIATED WITH THE DAY TO DAY AFFAIR S OF THE COMPANY. THE APPELLANT ALSO PLACED RELIANCE ON WALC HAND AND CO PRIVATE LIMITED (1967) 65 ITR 381 (SC) IN WHICH THE HONBLE SUPREME COURT OBSERVED AND HELD THAT WHERE WITHOUT ASSIGNING REASONS THE TRIBUNAL ALLOWED THE DEDUCTION OF ONLY A PART OF THE INCREASE IN THE REMUNERATION OF THE EXECUTIVE OFFICERS OF THE RESPONDENT, THE ORDER OF THE TRIBUNAL DISALLOWING THE CLAIM WAS NOT SUPPORTED BY ANY EVIDENCE AND COULD NOT BE SUSTAINED. IN THE CASE OF CIT VS. SHRIRAM PISTON & RINGS LTD. 181 ITR 230 (DELHI) IN WHICH THE FACT OF THE CASE IS THAT ONE D WAS SON OF A DIRECTOR OF THE ASSESSEE COMPANY AND WAS THE PAID REMUNERATION WHICH WAS APPROVED BY THE COMPANY LAW BOARD. THE ITO PASSED THE ORDER THAT THE REMUNERATION WHICH WAS PAID TO D WAS EXCESSIVE AND DISALLOWED IT U/S 40A(2). ON APPEAL THE COMMISSIONER (APPEALS) HELD THAT THE PROPER PROVISION WAS SECTION 40A(5) AND THE CASE DID NOT FALL U/S 40A(2). HE DELETED THE ENTIRE DISALLOWANCE. ON SECOND APPEAL THE TRIBUNAL HELD THAT THE PROVISION OF SECTION 40A(2) WAS NOT APPLICABLE AND THEN ON REFERENCE APPLICATION BEFORE THE HIGH COURT, MADE BY THE DEPARTMENT U/S 256 WAS REJECTED AND HENCE THE PETITION ACCORDINGLY DISMISSED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. IN THE CASE OF DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 9(1), NEW DELHI VS. SPARK HOTELS PVT. LTD. (2012) 22 TAXMAN COM. 257 (DELHI) IN WHICH THE FACT IS THAT THE REMUNERATION PAID TO DIRECTOR @ 3 LACS PER MONTH WAS HELD BY THE ASSESSISNG OFFICER THAT THE REMUNERATION PAID IS EXDESSIVE AND DISALLOWED THE AMOUNT OF RS.30 LACS, INVOKING THE PROVISION OF SECTION 40A(2)(A) CONSIDERING THE SALARY OF RS.50,000/ - PER MONTH AS REASONABLE. ON APPEAL THE COMMISSIONER (APPEAL) DELETED THE DISALLOWANCE. ON APPEALS BY THE REVENUE, THE HONBLE TRIBUNAL HELD THAT WHERE THERE WAS NOTHING O SUGGEST THAT PAYMENT OF REMUN ERATION TO 4 ITA NO. 166/PAT/2014. DIRECTOR WAS EXCESSIVE HAVING REGARD TO EITHER (A) FAIR MARKET VALUE OF SERVICE OR FACILITIES OR (B) LEGITIMATE NEED OF BUSINESS OF ASSESSEE OR (C) BENEFITS DERIVED BY OR ACCRUING TO ASSESSEE ON RECEIPT OF SUCH SERVICE OR FACILITIES, NO DISALLO WANCE COULD BE MADE U/S 40A(2) OF IT ACT 1961. THE TRIBUNAL HELD IN FAVOUR OF THE ASSESSEE AND AGAINST TO THE REVENUE. IN THE INSTANT CASE THE ASSESSING OFFICER DISALLOWED THE REMUNERATION WITHOUT ANY EVIDENCE AND DISALLOWED U/S 40A(2) OF THE I.T. ACT WHI CH CANNOT BE JUSTIFIED IN VIEW OF THE JUDGMENT GIVEN ABOVE. HENCE THE REMUNERATION GIVEN TO THE WOMEN DIRECTORS OUGHT TO BE ALLOWED. HOWEVER, THE LEARNED CIT(APPEALS) WAS NOT CO NVINCED . HE PASSED RATHER LACONIC ORDER UPHOLDING THE AOS ACTION PARTLY AS UNDER : THE SUBMISSIONS OF THE APPELLANT AND CASE LAWS CITED HAVE BEEN CONSIDERED. AS THE FACTS OF THE APPELLANTS CASE ARE DIFFERENT FROM THOSE IN THE CASE LAWS CITED, THE APPELLANT WOULD NOT BENEFIT FROM THE DECISIONS IN THE CASE LAWS. THE REASONABLEN ESS OF PAYMENTS TO RELATIVES HAS TO BE PROVED BY THE ASSESSEE AND NOT BY THE DEPARTMENT. THE REQUIREMENTS OF SEC. 40A(2) ARE THAT THE EXPENDITURE SHOULD BE CONSIDERED WITH REFERENCE TO: (A) FAIR MARKET VALUE OF SERVICE OR FACILITIES, OR (B)LEGITIMATE NEED OF BUSINESS OF ASSESSEE, OR (C) BENEFITS DERIVED BY OR ACCRUING TO ASSESSEE ON RECEIPT OF SUCH SERVICE FACILITIES. IN THE INSTANT CASE THE ASSESSING OFFICER HAS CLEARLY INDICATED THAT DUE TO THEIR OTHER PRE - OCCUPATION DR. MOTI SINHA AND DR. NIBHA KUMAR I WOULD NOT HAVE THE TIME AVAILABLE TO ATTEND TO THE NORMAL DAY TO DAY ACTIVITIES SOF THE APPELLANTS BUSINESS. FURTHER THEY DID NOT HAVE ANY REQUISITE QUALIFICATIONS WHICH WOULD ENABLE THEM TO CARRY OUT THE FUNCTIONS WHICH HAS BEEN CLAIMED TO HAVE BEEN PE RFORMED BY THEM. AT THE SAME TIME IT HAS NOT BEEN ENTIRELY DISPROVED THAT DR. MOTI SINHA AND DR. NIBHA KUMARI WERE NOT CONCERNED WITH THE ACTIVITIES OF THE APPELLANT COMPANY. UNDER THESE CIRCUMSTANCES THE DEBT OF COMMERCIAL EXPEDIENCY IS NOT CONSIDERED TO HAVE BEEN FULLY SATISFIED. THE ENDS OF JUSTICE WOULD BE MET IF THE REMUNERATION PAID TO DR. MOTI SINHA AND DR. NIBHA KUMARI IS RESTRICTED TO 50% OF THE CLAIM. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS ACCORDINGLY RESTRICTED TO 50%. 5. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APPEAL BEFORE THE ITAT. 5 ITA NO. 166/PAT/2014. 6. I HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. UPON CAREFUL CONSIDERATION I FIND THAT LADY DIRECTORS ARE WELL QUALIFIED PERSONS. THE AUTHORITIES BELOW HAVE DRAWN ADVERSE INFERENCE THAT SINCE THEY ARE OCCUPIED IN OTHER ENGAGEMENTS ALSO THEY CANNOT G IVE TIME TO THIS COMPANY. I FIND T HAT THIS IS A TOTALLY UNTENABLE SURMISE AND CONJECTURE DEVOID OF ANY COGENCY. IF THE PROPOSITION ADVANCED BY THE REVENUE IS ACCEPTED THEN NO PERSON CAN BE ALLOWED TO BE ENGAGED AS DIRECTORS OR OTHERWISE GAINFULLY ENGAGED I N MORE THAN ONE CONCERN. THE AUTHORITIES BELOW HAVE TOTALLY IGNORED SUBMISSIONS THAT THESE LADY DIRECTORS HAVE BEEN ENGAGED IN THE FUNCTIONING OF THE COMPANY SINCE THE INCEPTION. THERE IS NO PRESUMPTION THAT LADIES ENGAGED IN MEDICAL PROFESSION CANNOT BE ENGAGED AS DIRECTORS IN COMPANY . MOREOVER ON WHAT BASIS LEARNED CIT(APPEALS) HAS HELD THAT THEY B E PAID FOR ONLY 50% OF THE SALARY IS ALSO NOT COMPREHENDIBLE. IT IS NOT THE CASE THAT THE LEARNED CIT(APPEALS) HAS COMPARED THE SERVICES RENDERED WITH PREVAILING MARKET PRICE. DEHORSE ANY COGENT BASIS, IT IS AN ARBITRARY ORDER, WHICH IS NOT SUSTAINABLE. THE CASE LAWS REFERRED BY THE ASSESSEE BEFORE THE CIT(APPEALS) HAVE BEEN DISTINGUISHED WITHOUT ANY COGENT REASON. 7. IN MY CONS IDERED OPINION, AS ALREADY EXPOUNDED BY THE HONBLE APEX COURT, THE REVENUE SHOULD NOT TRY TO SIT INTO THE SHOES OF A BUSINESSMAN AND DECIDE HOW TO CONDUCT THE BUSINESS. 8. ACCORDINGLY I FIND THAT THE LADY DIRECTORS BEING WELL QUALIFIED PERSONS AND ASSOCI ATED WITH THE COMPANY SINCE EARLIER PERIOD CANNOT BE DISALLOWED THE REMUNERATION OF 50% AS HELD BY THE LEARNED CIT(APPEALS). ACCORDINGLY I SET ASIDE THE ORDER OF LEARNED CIT(APPEALS) ON THIS ISSUE AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 6 ITA NO. 166/PAT/2014. 9. IN TH E RESULT, THE APPEAL BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 2 6 T H DAY OF SEPT., 2016. S D / - ( SHAMIM YAHYA) ACCOUNTANT MEMBER. DATED: 2 6 T H SEPT., 2016. COPY FORWARDED TO : 1. M/S PRASHANT MOTORS PVT. LTD., LENIN CHAWK, MUZAFFARPUR. 2. D.C.I.T., CIRCLE - 2, MUZAFFARPUR. 3. C.I.T. - PATNA. 4. CIT(APPEALS) - I, PATNA. 5. D.R., ITAT, PATNA. 6. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, PATNA BENCH, PATNA. WAKODE.