High Seas Properties Private Limited, Pune V. Income-tax Officer, Ward - 11(1), Pune

ITA 1931/PUN/2017

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 0919 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-10-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2014-2015
• Appeal Filed On: 14-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: KRISHNA V GUJARATHI
• Keywords: Maximum Marginal Rate

Judgement Text

- IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH SMC, PUNE . , , BEFORE SHRI D. KARUNAKARA RAO, AM . / ITA NO.1931/PUN/2017 !' # $# / ASSESSMENT YEAR : 2014-15 HIGH SEAS PROPERTIES PRIVATE LIMITED. PARVATI CHAMBERS, SANGAM PRESS ROAD, KOTHRUD, PUNE-411 029 PAN : AACCH1041H ....... / APPELLANT %' / V/S. THE INCOME TAX OFFICER, WARD 11(1), PUNE. / RESPONDENT APPELLANT BY : SHRI KRISHNA V. GUJARATHI RESPONDENT BY : SHRI RAJESH GAWALI / DATE OF HEARING : 03.10.2018 / DATE OF PRONOUNCEMENT : 05.10.2018 & / ORDER PER D. KARUNAKARA RAO, AM THIS IS THE APPEAL FILED BY ASSESSEE AGAINST THE ORDER O F CIT(APPEAL), PUNE-1 DATED 23.06.2017 FOR THE ASSESSMENT YEAR 2014-15. 2 ITA NO.1931/PUN/2017 A.Y.2014-15 2. BRIEFLY STATED RELEVANT FACTS INCLUDE THAT THE ASSESSE E IS ENGAGED IN THE BUSINESS OF CONSTRUCTION AND DEVELOPMENT OF THE RESID ENTIAL PROPERTIES AND FILED RETURN OF INCOME ON 30.11.2014 DECLARING TOTAL INCOM E AT NIL. IN THE ASSESSMENT PROCEEDINGS MADE U/S.143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT), THE ASSESSING OFFICE R INVOKED THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT IN RESPECT OF SALARY PAID TO THE DIRECTORS. ON AD-HOC BASIS, THE ASSESSING OFFICER QUANTIFIED EXCESSIVE PAYMENT OF RS.9,20,000/- AND MADE ADDITION OF THE SAME AM OUNT TO THE TOTAL INCOME OF ASSESSEE. OTHERWISE, ASSESSEE CLAIMS THAT H E PAID REMUNERATION TO THE DIRECTORS TO THE TUNE OF RS.92 LAKHS IN THE YEA R UNDER CONSIDERATION AS AGAINST RS.9 LAKHS IN THE PREVIOUS YEAR WHICH SHOWS ABNORMAL INCREASE IN THE SALARY. 3. AGGRIEVED WITH THE ASSESSMENT ORDER, ASSESSEE FILED AP PEAL BEFORE THE CIT(A). THE CIT(A) CONFIRMED THE ADDITION AS PER DISCUS SION GIVEN IN PARA 10 OF THE APPELLATE ORDER WHICH READS AS UNDER: 10. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE AS WELL AS REPLY OF THE APPELLANT. IN THIS CASE IT IS SEEN THAT WHIL E IN THE EARLIER YEAR REMUNERATION OF RS.9,00,000/- WAS PAID TO SHRI. RAH UL MUNDADA FOR A PERIOD OF THREE MONTHS I.E. JANUARY TO MARCH, 201 3, DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2014-15, THE APPELLANT HAS PAID RS.92,00,000/- AS REMUNERATION TO FOLLOWIN G DIRECTORS: SR. NO. NAME OF THE DIRECTOR AMOUNT (RS.) 1 RAHUL MUNDADA 56,00,000/- 2 ATUL MUNDADA 12,00,000/- 3 BINOD THAKUR 12,00,000/- 4 SANTOSH THAKUR 12,00,000/- TOTAL 92,00,000/- THE APPELLANT HAS CLAIMED THAT IT WAS HAVING A HUGE PROJECT CALLED WESTERN HILL SPREAD OVER APPROX 40ACRES OF LAND F OR OVERSEEING SUCH A PROJECT. SERVICES OF DIRECTORS WERE REQUIRED . THE APPELLANT ALSO CLAIMS THAT THE DIRECTORS WERE IN THE HIGHEST TAX B RACKET AND THEREFORE, THERE WAS NO ATTEMPT TO REDUCE THE TAX L IABILITY AS THE COST OF REMUNERATION WAS DEBITED TO WIP WHILE THE APPELL ANTS DIRECTORS 3 ITA NO.1931/PUN/2017 A.Y.2014-15 PAID TAX ON THE REMUNERATION RECEIVED IN THE SAME Y EAR. THIS CONTENTION OF THE APPELLANT IS DIFFICULT TO BE ACCE PTED. THE APPELLANT HAS FILED MERELY A GENERAL EXPLANATION REGARDING WO RK DONE BY DIRECTORS. HOWEVER, IT HAS FAILED TO SATISFY WHY TH ERE IS ABNORMAL INCREASE IN THE REMUNERATION PAID TO DIRECTORS WHIL E THE WORK OF THE COMPANY AS WELL AS PROJECT IS THE SAME. FURTHER, TH E YEAR OF TAXABILITY IN THE HANDS OF RECIPIENT IS HARDLY AN ISSUE. THE I MPORTANT ASPECT OF TAXATION IS TO TAX THE CORRECT INCOME OF PARTICULAR ASSESSEE AND ALL OTHER ASPECTS ARE SECONDARY IN NATURE. IN THIS CASE , IT IS CLEAR THAT THE APPELLANT HAS NOT BEEN ABLE TO JUSTIFY THE HUGE INC REASE IN REMUNERATION. THE FACT THAT THE REMUNERATION GOES T O WIP AND THEREBY TAXED IN SUBSEQUENT YEAR IS IMMATERIAL. IN MY VIEW, THE DISALLOWANCE MADE BY THE AO IS QUITE REASONABLE AND NO INTERFERE NCE IS CALLED FOR, ACCORDINGLY, THE GROUND IS DISMISSED. 4. AGGRIEVED WITH THE FINDINGS OF CIT(A), ASSESSEE FILED APPEAL BEFORE THE TRIBUNAL BY RAISING FOLLOWING GROUNDS: 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE HONOURABLE CIT(A)-1, HAS ERRED IN CONFIRMING THE DI SALLOWANCE OF RS.9,20,000/- MADE BY THE LEARNED AO BY APPLYING TH E PROVISIONS OF SECTION 40A(2)(B) OF THE INCOME TAX ACT, 1961, BEIN G 10% OF SALARY PAID TO DIRECTORS, WITHOUT APPRECIATING THE FACTS O F THE CASE IN PROPER PERSPECTIVE. THE APPELLANT HEREBY PRAYS THAT THE DI SALLOWANCE OF RS.9,20,000/- MAY PLEASE BE DELETED. 2) THE APPELLANT HEREBY RESERVES THE RIGHT TO ADD, AMEND, ALTER OR RAISE ANY ADDITIONAL GROUND OR GROUNDS OF APPEAL OR DELETE OR WITHDRAW ANY OF THE GROUND OF APPEAL/S. 5. BEFORE ME, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS IS A C ASE WHERE THE ASSESSEE FACTUALLY MADE PAYMENTS TO THE DIRE CTORS TOWARDS THE SERVICES RENDERED BY THE COMPANY. THE DIRECTORS DULY O FFERED SUCH REMUNERATION IN THEIR INDIVIDUAL RETURN AND PAID TAX AT MAX IMUM MARGINAL RATE. THE ASSESSEE ALSO DEDUCTED TDS WHILE PAYING SALARY TO THE DIRECTORS. IN THIS CIRCUMSTANCES, DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S. 40A(2)(B) OF THE ACT, IS NOT SUSTAINABLE. ACCORDING T O HIM, IT IS NOT THE CASE OF REVENUE THAT SALARY PAID TO DIRECTORS A S PER OPEN MARKET VALUE AT THE RELEVANT POINT OF TIME IS COMPARABLE OR NOT FO R DETERMINATION 4 ITA NO.1931/PUN/2017 A.Y.2014-15 OF ASSESSEES EXCESSIVE & UNREASONABILITY OF THE AMOUNT P AID TO THE DIRECTORS ON ACCOUNT OF REMUNERATION. 6. ON THE OTHER HAND, LD. DR FOR THE REVENUE PLACED RE LIANCE ON THE ORDERS OF ASSESSING OFFICER AND CIT(A). 7. BOTH SIDES ARE HEARD ON THIS LIMITED ISSUE OF INVOKING PR OVISIONS OF SECTION 40A(2)(B) OF THE ACT. I FIND, IT IS AN UNDISPUTED FACT TH AT PAYMENTS WERE MADE THROUGH BANKING CHANNELS TO THE DIRECTORS AFT ER DEDUCTING TDS AS PER RULES. THE DIRECTORS OFFER THE SAME IN THEIR INDIVIDUA L RETURN AND PAID TAX AT MAXIMUM MARGINAL RATE. CONSIDERING THE ENTIRE FA CTS OF THE CASE, I AM OF THE OPINION THAT INVOKING PROVISIONS OF SECTIO N 40A(2)(B) OF THE ACT WITHOUT BRINGING COMPARABLE CASES FOR QUANTIFYING EXCESSIVENESS AND UNREASONABLENESS, IS UNSUSTAINABLE. IT IS A TRITE LAW TH AT ASSESSING OFFICER CANNOT INVOKE ANY PROVISION WITHOUT PROPER EVIDENCE WHILE MAKING DISALLOWANCE UNDER THE SAID PROVISION. THEREFORE, I AM OF T HE OPINION THAT GROUND RAISED BY THE ASSESSEE SHOULD BE ALLOWED AND ACC ORDINGLY, I ORDER. HENCE, GROUND RAISED BY ASSESSEE IS ALLOWED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON 05 TH DAY OF OCTOBER, 2018. SD/- ( . / D. KARUNAKARA RAO ) / ACCOUNTANT MEMBER / PUNE; ! ' / DATED : 05 TH OCTOBER, 2018. SB 5 ITA NO.1931/PUN/2017 A.Y.2014-15 &'(!)*+,+$) / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT (APPEAL)-1, PUNE. 4. THE PR. CIT-1, PUNE. 5. %&' (( )* , + )* , - ,-. , / DR, ITAT, SMC BENCH, PUNE. 6. '/ 01 / GUARD FILE. // TRUE COPY // +2 / BY ORDER, ( 3 ). /PRIVATE SECRETARY + )* , / ITAT, PUNE.