M/s. Consolidated Construction Consortium Limited, CHENNAI V. Additional CIT, CHENNAI

ITA 1708/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61305 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-07-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 09-07-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 18-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIKRMADITYA
• Assessee Lawyers: S SRIDHAR
• Keywords: Retrospective amendment

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B B ENCH C HENN AI BEFORE SHRI ABRAHAM P.GEORGE ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY , JUDICIAL MEMBER .. ITA NO. 1708 /MDS./ 20 11 ASSESSMENT YEAR: 200 5 - 06 M/S.CONSOLIDATED CONSTRUCTION CONSORTIUM LTD., N O.3, 2 ND LINK STREET, CIT COLONY, MYLAPORE, CHENNAI 600 004. VS. THE ADDITIONAL COMMISSIONER OF INCOME TAX, COMPANY RANGE I, CHENNAI. PAN AAACC 4214 B (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.SRIDHAR ADVOCATE RESPONDENT BY : SHRI VIKRMADITYA JCIT DR DATE OF HEARING : 09 .0 7 .12 DATE OF PRONOUNCEMENT : 19 .0 7 .12 O R D E R PER ABRAHAM P.GEORGE ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY THE ASSESSEE, IT HAS RAISED T WO EFFECTIVE GROUNDS. FIRST ONE ASSAILS DISALLOWANCE OF ` 65,82,000/ - BEING THE PROVISION MADE BY ASSESSEE FOR REMUNERATION OF ITS WHOLE TIME DIRECTORS . THE SECOND ISSUE RELATES TO SUSTENANCE OF ITA . 1708 /MDS/ 11 2 DISAL LOWANCE OF PROVIDENT FUND REMITTANCE OF ` 7,57,500/ - ,WHICH IT APPEARS IS ON THE ABOVE MENTIONED REMUNERATION. 2. SHORT FACTS APROPOS ARE THAT ASSESSEE ENGAGED IN THE BUSINESS OF CIVIL, STRUCTURAL AND ENGINEERING CONTRACTS HAD FILED ITS RETURN FOR IMPUGNED ASSESSMENT YEAR DECLARING INCOME OF ` 12,15,99,651 / - . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTED B Y THE ASSESSING OFFICER THAT AN AMOUNT OF RS.14202391/ - WAS CLAIMED AS PAYMENT TO THE CHAIRMAN AND TWO OTHER DIRECTORS , WHEREAS IN FORM 16 ISSUED BY THE ASSESSEE, THE SUM MENTIONED WAS ` 75,55 ,140/ - ONLY. REPLY OF THE ASSESSEE WAS THAT THE REMUNERATION PAYABLE TO CHAIRMAN AND ITS TWO DIRECTORS WERE ENHANCED BY WAY OF RESOLUTION PASSED ON 2 ND JUNE, 2004, WHICH WAS SENT FOR APPROVAL OF THE CENTRAL GOVERNMENT ON 21 ST JULY, 2004 , AS REQUIRED UNDER SECTIONS 310 & 311 OF THE COMPANIES ACT, 1956. ASSESSEE POINTED OUT TO THE ASSESSING OFFICER THAT CENTRAL GOVERNMENT HAD CONVEYED ITS APPROVAL FOR SUCH ENHANCEMENT VIDE LETTER NO.1/452 - 454/2004 - CT.VII DATED 19.04.05. ASSESSEE BROUGHT TO THE NO TICE OF ASSESSING OFFICER THAT THE DIFFERENCE WAS THE EXCESS REMUNERATION PAYABLE TO THE DIRECTORS , AND WHEN PAID, TDS WAS ALSO DEDUCTED. ASSESSEE ALSO MENTIONED THAT A SUM OF ITA . 1708 /MDS/ 11 3 ` 7,57,500/ - WAS PROVIDENT FUND CONTRIBUTION PAYABLE ON SUCH ENHANCED REMUNERATION . A S PER THE ASSESSEE, THE P.F WAS REMITTED BEFORE THE DATE OF FILING OF RETURN AND SHOULD BE ALLOWED UNDER SECTION.43B OF THE INCOME TAX ACT, 1961. HOWEVER, THE ASSESSING OFFICER WAS NOT IMPRESSED. ACCORDING TO HIM, THE INCREASED REMUNERATION OF THE DIRE CTORS WAS PAID ONLY IN FINANCIAL YEAR 2005 - 06 RELEVANT TO ASSESSMENT YEAR 2006 - 07. AGAINST THIS, ASSE SSEE HAD CLAIMED EXPENDITURE IN THE IMPUGNED ASSESSMENT YEAR. LD. ASSESSING OFFICER NOTED THAT SUCH CLAIM COULD NOT BE CONSIDERED AS AN ASCERTAINED LIABI LITY ON ACCOUNT OF THE FOLLOWING REASONS: - I) SECTION 314 (1 - B) OF THE COMPANIES ACT, 1956 REQUIRED PRIOR CONSENT BY CENTRAL GOVERNMENT FOR APPOINTMENT OF DIRECTOR, MANAGER ETC. WHEN THE MONTHLY REMUNERATION EXCEEDED THE SUM PRESCRIBED THEREIN. II) SECT ION 309 OF THE COMPANIES ACT, 1956 REQUIRED APPROVAL OF CENTRAL GOVERNMENT WHERE THE REMUNE RATION EXCEEDED THE LIMITS PRESCRIBED THEREIN. III) SECTION 310 OF THE COMPANIES ACT, 1956 STIPULATED THAT ANY PROVISION FOR INCREASE IN REMUNERATION OF DIRECTORS W OULD BE VOID, IF IT WA S NOT APPROVED BY THE CENTRAL GOVERNMENT. ITA . 1708 /MDS/ 11 4 IV) AS PER SECTION 198(4) OF THE COMPANIES ACT, A COMPANY SHALL NOT PAY TO ITS DIRECTORS INCLUDING ANY MANAGING OR WHOLE - TIME DIRECTOR OR MANAGER ANY REMUNERATION EXCEPT WITH THE APPROVAL OF CENTRAL GOVERNMENT. V) A PPROVA L OF THE CENTRAL GOVERNMENT WAS RECEIVED ONLY ON 19.04.05. TH US, THE CLAIM WAS DIS ALLOWED . R ELIANCE WAS PLACED ON THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF NONSUCH TEA ESTATE LTD. VS. CIT(1975) 98 ITR 189 (SC). AS PER THE A.O. , TILL AN APPROVAL WAS RECEIVED FROM THE CENTRAL GOVERNMENT, IT WAS ONLY A CONTINGENT LIABILITY . R EMUNERATION PAYABLE BEING A CONTINGENT LIABILITY, QUESTION OF ALLOWING PROVIDENT FUND THEREON DID NOT ARISE. 3 . BEFORE COMMISSIONER OF IN COME TAX(A), ARGUMENT OF ASSESSEE WAS THAT THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF NONSUCH TEA ESTATE LTD. VS. CIT(SUPRA) COU LD NOT BE RELIED ON, SINCE IT WAS ON A DIFFERENT SET OF FACTS. AS PER ASSESSEE, THIS WAS NOT AN ORIGINAL APPOINTMENT . O RIGINAL APPOINTMENT WAS MADE EARLIER AND IT HAD APPROVAL FROM THE CONCERNED MINISTRY. WHAT WAS DONE DURING THE RELEVANT PREVIOUS ITA . 1708 /MDS/ 11 5 YEAR WAS TO EFFECT AN ENHANCEMENT OF REMUNERATION AND SUCH ENHANCEMENT WAS EVENTUALLY APPROVED BY THE CENTRAL GOVERNMENT VID E ITS LETTER DATED 19.04.05. RELYING ON THE ACCOUNTING STANDARD AS - 4 OF INSTITUTE OF CHARTERED ACCOUNTANT OF INDIA , ASSESSEE SUBMITTED THAT EVENTS AFTER THE BALANCE SHEET DATE ALSO COULD BE CONSIDERED , SINCE F INALIZATION OF THE ACCOUNTS WAS DONE AFTER TH E DATE OF RECEIPT OF A PPROVAL FROM THE CENTRAL GOVERN MENT. AS PER ASSESSEE, DURING THE AUDIT PROCEDURE SUCH AMOUNTS WERE CORRECTLY QUANTIFIED AND PROVIDED FOR . HOWEVER, CIT(A) WAS NOT IMPRESSED. ACCORDING TO HIM, MINISTRY OF COMPANY AFFAIRS VIDE ITS LET TER DATED 24.03.03 HAD ACCORDED APPROVAL FOR PAYMENT OF REMUNERATION TO THREE OF THE DIRECTORS FOR TWO YEARS AND THE APPROVAL PERIOD EXPIRED ON 14.07.04, 30.06.04 AND 31.03.04 RESPECTIVELY. THUS, ACCORDING TO HIM, THE APPROVAL EXPIRED BEFORE THE END OF T HE PREVIOUS RELEVANT TO ASSESSMENT YEAR 2005 - 06. T HE SECOND APPROVAL LETTER RECEIVED ON 19.04.05, THOUGH IT WAS WITH RETROSPECTIVE EFFECT, WOULD RESULT IN CRYSTALLIZATION OF THE LIABILITY ON THAT DATE ONLY . THEREFORE, AS PER CIT(A), DECISION OF HON BLE A PEX COURT IN THE CASE OF NONSUCH TEA EST ATE LTD. VS. CIT (SUPRA) SQUARELY APPLIED . H E THEREFORE, UPHELD THE ADDITIONS MADE BY THE ASSESSING OFFICER. ITA . 1708 /MDS/ 11 6 4 . NOW BEFORE US, LD. A.R. STRONGLY ASSAILING THE ORDERS OF AUTHORITIES BELOW SUBMITTED THAT AMOUNTS SH OWN AS PAYABLE TO THE WHOLE TIME DIRECTOR S, WAS THE REMUNERATION DUE TO THEM BASED ON RESOLUTION PASSED ON 2 ND JUNE,2004 . THE APPROVAL WAS RECEIVED FROM THE CENTRAL GOVERNMENT ON 19.04.05. A C COUNTS WERE FINALIZED ONLY ON 28 .04.05. THEREFORE, IT WAS WITHI N THE POWERS OF THE COMPANY TO CONSIDER THE EVENT OCCURING AFTER THE BALANCE SHEET DATE, IN ACCORDANCE WITH AS - 4 OF ICAI. HON BLE SUPREME COURT IN THE CASE OF NONSUCH TEA ESTATE LTD. VS. CIT, WAS CONSIDERING THE AMOUNT PAYABLE ON INITIAL APPOINTMENT OF A MANAGING AGENCY AND NOT ENHANCEMENT OF REMUNERATION. AS AGAINST THIS, LD. A.R SUBMITTED THAT HERE BUSINESS LIABILITY HAD CRYSTALISED DURING THE RELEVANT PREVIOUS YEAR AND HAD TO BE ALLOWED. JUST BECAUSE QUANTIFICATION WAS DONE ONLY ON A LATER DATE, A CR YSTALISED LIABILITY OUGHT NOT HAVE BEEN DISALLOWED. CLAIM OF PF, LD.A.R. SUBMITTED WAS RELATED TO TH E REMUNERATION AND NONE OF THE AUTHORITIES HAD VERIFIED W HETHER REMITTANCE OF THE PF WAS DONE BEFORE THE DUEDATE OF FILING THE RETURN. 5 . PER CONTRA L D. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT HERE IT WAS NOT A QUESTION OF QUANTIFICATION SINCE ASSESSEE HAD ALREADY QUANTIFIED THE ITA . 1708 /MDS/ 11 7 AMOUNT EVEN BEFORE CRYSTALISATION . ON OTHER HAND, AS PER D.R ONLY ON 19.04.05, THE ENHANCED REMUNERATION CRYSTALISED . U NLE SS AND UNTILL CENTRAL GOVERNMENT GAVE AN APPROVAL , ASSESSEE COULD NOT PAY SUCH AMOUNT AND THEREFORE CANNOT CLAIM SUCH AMOUNT AS A PAYABLE UNDER THE MERCANTILE SYSTEM OF ACCOUNTING FOLLOWED BY IT . I T CAN BE CONSIDERED ONLY IN F.Y 2005 - 06 RELEVANT TO ASS ESSMENT YEAR 20 0 6 - 07. LD. D.R. SUBMITTED THAT DECISION OF HON BLE SUPREME COURT IN THE CASE OF N ONSUCH TEA ESTATE LTD. VS. CIT W OU LD SQUARELY APPLY ON FACTS HERE. 6 . WE HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND HEARD THE RIVAL CONTENTIONS. IT IS AN ADMITTED POSITION THAT THE REMUNERATION DISALLOWED FOR THE IMPUGNED ASSESSMENT YEAR WAS AN ENHANCED AMOUNT SHOWN AS PAYABLE TO THREE DIRECTORS, NAMELY SHRI S.SIVARAMAKRISHNAN, SHRI V.G.JANARTHANAM AND SHRI R.SARABESWAR. LD. CIT(A) HAS NOTED THIS IN PARA NO.4.1.1. OF HIS ORDER. A PPROVAL FOR PAYMENT OF REMUNERATION TO THESE PERSONS WERE ORIGINALLY GIVEN BY THE MINISTRY OF COMPANY AFFAIRS VIDE THEIR LETTER DATED 24.03.03 FOR A PERIOD OF TWO YEARS WITH EFFECT FROM 15.07.02, 01.07.02 AND 01.04.02. TH IS APPROVAL EXPIRED ON 14.07.04, 30.06.04 & 31.03.04 RESPECTIVELY. THE CLAIM OF ITA . 1708 /MDS/ 11 8 ENHANCED REMUNERATION MADE BY ASSESSEE FOR THE IMPUGNED ASSESSMENT YEAR AND RELATED PF CONTRIBUTION HAS BEEN SUMMARIZED BY THE ASSESSING OFFICER AT PARA 3.5 OF HIS ORDER. TH IS I S RE PRODUCED HERE UNDER FOR BREVITY. THE DETAILS OF REMUNERATION ARE AS UNDER: - NAME OF DIRECTOR AMOUNT PAID AS REMUNERATION AMOUNT SHOWN AS PAYABLE AS REMUNERATION PENDING APPROVAL DIFFERENCE R.SARABESWAR 30,00,000 63,73,000 33,73,000 S.SIVARAMAKRIS HNAN 33,00,000 49,84,000 16,84,000 V.G.JANARTHANAM 13,20,000 28,45,000 15,25,000 TOTAL 65,82,000 PF CONTRIBUTION (INCLUDED EPF) PAYABLE BY THE COMPANY RELATED TO INCREASE IN REMUNERATION NAME OF DIRECTOR AMOUNT SHOWN AS PAYABLE AS PF CONTRIBUITIO N INCL. EPF R.SARABESWAR 3,81,600 S.SIVARAMAKRISHNAN 2,19,300 V.G.JANARTHANAM 1,56,600 TOTAL 7,57,500 7. THAT THE ABOVE CLAIM WAS FOR THE ENHANCED PART OF THE REMUNERATION IS ALSO CLEAR FROM PARA 3.6 OF THE ASSESSMENT ORDER WHICH IS REPRODUCED HE REUNDER: - 3.6. IT IS CLEAR FROM THE STATEMENTS OF THE ASSESSEE AND THE RELEVANT RECORDS THAT THE INCREASE IN THE REMUNERATION OF THE DIRECTORS WERE PAID IN THE FINANCIAL YEAR 2005 - 06 RELEVANT TO THE ASSESSMENT YEAR 2006 - 07 ITA . 1708 /MDS/ 11 9 ONLY WHEREAS THE ASSESSEE HAD CLAIMED THE EXPENDITURE AS LIABILITY DURING THE CURRENT ASSESSMENT YEAR 2005 - 06. THUS IT IS CLEAR THAT WHAT WAS DISAL LOWED BY THE ASSESSING OFFICER WA S ONLY INCREASED REMUNERATION DUE TO THE DIRECTORS. IN OTHER WORDS, EVEN AFTER THE EXPIRY OF THE EARLIE R APPROVAL ON 14.07.04, 30.06.04 & 31.03.04 RESPECTIVELY, CLAIM OF REMUNERATION WAS ALLOWED AT EARLIER LEVELS . ONLY THE ENHANCED PART WAS DISALLOWED. IF THE STAND OF THE REVENUE WAS THAT EARLIER APPROVAL STOOD EXPIRED, THEN DISALLOWANCE OUGHT HAVE BEEN M ADE FOR WHOLE OF THE REMUNERATION PAID TO THE SAID PERSONS , AFTER THESE DATES AND NOT THE ENHANCED AMOUNT ONLY , BY ALLOWING THE CLAIM BUT FOR THE ENHANCED PART, T HERE IS A DEEMED ACCEPTANCE THAT REMUNERATION STOOD PAYABLE T O CONCERNED PERSONS AT LEAST A T THE EARLIER LEVEL , IF NOT AT THE INCREASED LEVEL. S O THE ONLY QUESTION THAT REMAINS IS WHETHER THE ENHANCED LEVEL OF REMUNERATION WA S JUSTIFIED? THERE IS NO FINDING BY THE REVENUE THAT REMUNERATION CLAIMED BY ASSESSEE WAS NOT COMMENSURATE WITH THE SERVI CE RENDERED BY THE SAID PERSONS. IN THE CASE OF HON BLE SUPREME COURT IN THE CASE OF NONSUCH TEA ESTATE LTD. VS. CIT , THE QUESTION WAS REGARDING ALLOWABILITY OF MANAGING AGENCY COMMISSION WHERE IT WAS THE FIRST APPOINTMENT OF MANAGING AGENCY. I T DID NOT RELATE TO ANY ENHANCED REMUNERATION AT ALL. HAVING ACCEPTED THE CLAIM ITA . 1708 /MDS/ 11 10 OF ASSESSEE , AT LEAST SO FAR AS IT RELATED TO THE LEVEL OF REMUNERAT ION PAYABLE AT THE EARLIER RATE, W E ARE OF THE OPINION THAT ENHANCED PART ALONE COULD NOT HAVE BEEN DISALLOWED . E SPE CIALLY SO SINCE ASSESSEE HAD RECEIVED THE APPROVAL FROM CENTRAL GOVERNMENT ON 19.04.05 . ADMITTEDLY ASSESSEE HAD FINALIZED ITS ACCOUNT ONLY THEREAFTER . D IRECTORS CONCERNED HAD WORKED FOR THE ASSESSEE AND REMUNERATION WAS INDEED PAYABLE AND IT BEC A ME A CRY STALLIZED LIABILITY. BEFORE FINALIZATION OF THE ACCOU NTS, ASSESSEE HAD RECEIVED APPROVAL FOR THE ENHANCED REMUNERATION. IN OUR OPINION, SINCE SUCH APPROVAL CLEARLY MENTION ED THAT IT HAD RETROSPECTIVE EFFECT VIZ. FROM THE DATE OF EXPIRY OF THE EARLIE R APPROVAL , IT WILL RELATE TO BACK TO THE DATE OF EXPIRY OF THE EARLIER APPROVAL. WE ARE OF THE OPINION THAT CLAIM OF ASSESSEE WAS ALLOWABLE. IN THE RESULT, GROUND NO.2, ASSESSEE STANDS ALLOWED. 8. WITH REGARD TO THE CLAIM OF PROVIDENT FUND, WE ARE OF THE OPINION THAT THE ISSUE REQUIRES A FRESH LOOK BY THE ASSESSING OFFICER, SINCE THE DATE ON WHICH THE AMOUNT WAS REMITTED HAS NOT BEEN VERIFIED. HENCE, WITH REGARD TO THE ISSUE OF ALLOWANCE OF CLAIM OF PF , ORDERS OF A UTHORITIES BELOW ARE SET ITA . 1708 /MDS/ 11 11 ASIDE AND R EMITTED BACK TO THE ASSESSING OFFICER FOR CONSIDERATION AFRESH IN ACCORDANCE WITH LAW. 9 . IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED FOR PROTANT O. ORDER P RONOUNCED ON THURSDAY , THE 19 TH JULY , 2012 AT CHENNAI SD/ - SD/ - ( VIKAS AWASTHY ) (ABRAHAM P.GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED 19 TH JULY , 2012 . K S SUNDARAM COPY TO: ASSESSEE / AO / CIT (A) / CIT / D.R. / GUARD FILE ITA . 1708 /MDS/ 11 12