MHATRE ENGINEERING P.LD, NAVI MUMBAI V. ITO WD 10(3)(3), MUMBAI

ITA 2187/MUM/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3538 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-08-2016
• Appeal Filed By: Assessee
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 13-04-2015
• Court: TRIBUNAL
• Department Lawyers: S K MISHRADR
• Assessee Lawyers: SUBODH RATNAPARKHI
• Section: 143(3)

Judgement Text

, - , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES SMC, MUMBAI , ! ' , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, ITA NO.2187/MUM/2015 ASSESSMENT YEAR: 2010-11 M/S MHATRE ENGINEERING PVT. LTD., R-648, TTC INDUSTRAIL AREA, MIDC, RABALE, NAVI MUMBAI-400701 / VS. INCOME TAX OFFICER, WARD-10(3)(3), R. NO.452, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020 / ASSESSEE / REVENUE P.A. NO . AABC M9483B $ % & / ASSESSEE BY SHRI SUBODH RATNAPARKHI $ % & / REVENUE BY SHRI S.K. MISHRA-DR / DATE OF HEARING 17/08/2016 & / DATE OF ORDER: 08/09/2016 ITA NO.2187/MUM/2015 MHATRE ENGINEERING PVT. LTD. 2 & / O R D E R THE ASSESSEE IS AGGRIEVED BY THE IMPUGNED ORDER DATED 15/01/2015 OF THE LD. FIRST APPELLATE AUTHORI TY, MUMBAI. THE FIRST GROUND, RAISED BY THE ASSESSEE, PERTAINS TO CONFIRMING ADDITION OF RS.3,10,00/-, MA DE U/S 40A(2)(A) OF THE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT), ON ACCOUNT OF REMUNERATION PAID TO SHRI RAMESH NANA MHATRE, THE MANAGING DIRECTOR OF THE COMPANY. 2. DURING HEARING, THE LD. COUNSEL FOR THE ASSESSEE, SHRI SUBODH RATNAPARKHI, CONTENDED THAT I T IS MERELY A TAX NEUTRAL AND IN SUBSEQUENT YEAR THE ASS ESSING OFFICER HIMSELF ACCEPTED MORE INCOME AND PLACE RELI ANCE UPON THE DECISION IN THE CASE OF CIT VS INDO SAUDI SERVICES (TRAVEL) PVT. LTD. 310 ITR 306(BOM.) AND HIVE COMMUNICATION PVT. LTD. VS CIT 353 ITR 200 (DEL.). THIS FACTUAL ASSERTION WAS NOT CONTROVERTED BY THE SHRI S.K. MISHRA, LD. DR. 2.1. I HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS , IN BRIEF, ARE THAT THE ASSESSEE, A PRIVATE LIMITED COM PANY, ENGAGED IN THE BUSINESS OF MANUFACTURING OF ENGINEE RING GOODS, DECLARED TOTAL INCOME OF RS.7,53,130/- ON 13/10/2010 IN ITS RETURN. WHILE FRAMING THE ASSESS MENT, THE LD. ASSESSING OFFICER DISALLOWED, DIRECTORS REMUNERATION, U/S 40A(2)(A) OF THE ACT PAID TO THE MANAGING DIRECTOR OF THE ASSESSEE COMPANY NAMELY SH RI ITA NO.2187/MUM/2015 MHATRE ENGINEERING PVT. LTD. 3 RAMESH NANA MHATRE, TO THE EXTENT OF RS.3,10,000/- BY HOLDING THE SAME TO BE EXCESSIVE. THE REASON OF DISALLOWANCE WAS BASED UPON, IDENTICAL DISALLOWANCE , MADE FOR ASSESSMENT YEAR 2008-09, WHICH WAS UPHELD BY THE LD. FIRST APPELLATE AUTHORITY. ON A QUERY FROM THE BENCH, IT WAS EXPLAINED BY THE LD. COUNSEL FOR THE ASSESSEE THAT SUCH DISALLOWANCE WAS CONFIRMED DUE TO NON- ATTENDANCE OF THE PROCEEDINGS BY THE ASSESSEE. IT WAS EXPLAINED THAT THE MANAGING DIRECTOR SHRI MHATRE IS A PERSON OF INTERNATIONAL REPUTE IN THE FIELD OF ENGI NEERING AND THE ENTIRE BUSINESS OF THE ASSESSEE COMPANY WAS BASED ON THE PERSONAL SKILL AND TECHNICAL COMPETENC Y OF THE MANAGING DIRECTOR AS VARIOUS AWARDS WERE PRESEN TED TO HIM, THE DETAILS OF WHICH ARE AVAILABLE AT PAGE- 2 OF THE PAPER BOOK. THE DETAILS OF THE PAYMENTS ARE SUMMARI ZED HEREUNDER:- PARTICULARS A.Y. 2008-09 A.Y. 2010-11 A.Y. 2011-12 TURNOVER 9,32,13,986/- 7,61,82,887/- 8,27,51,771/- SALARY TO M. DIRECTOR 8,40,000/- 8,40,000/- 12,00,000/- INCENTIVE 27,42,186/- 6,20,000/- 16,50,000/- DISALLOWANCE BY ASSESSING OFFICER 27,42,186/- 3,10,000/- ----- 2.2. IF THE AFORESAID FIGURES ARE ANALYZED, IT IS NOTED THAT FOR ASSESSMENT YEAR 2011-12, NO DISALLOWANCE W AS MADE BY THE LD. ASSESSING OFFICER HIMSELF WITH RESP ECT TO THE SALARY/INCENTIVES PAID TO THE MANAGING DIRECTOR , THEREFORE, UNLESS AND UNTIL CONTRARY FACTS ARE BROU GHT ON RECORD SUCH A DISALLOWANCE CANNOT BE SAID TO BE JUS TIFIED. ITA NO.2187/MUM/2015 MHATRE ENGINEERING PVT. LTD. 4 MORE SPECIFICALLY WHEN THE REMUNERATION (SALARY AND INCENTING) TO THE MANAGING DIRECTOR, INCREASED FRO M RS.14,60,000/- TO 28,50,000/- AND THE ASSESSMENT WA S FRAMED U/S 143(3) ON 17/02/2014 BY THE DCIT FOR ASSESSMENT YEAR 2011-12, THEREFORE, THE REMUNERATIO N FOR THE PRESENT ASSESSMENT YEAR CANNOT BE SAID TO BE EXCESSIVE. THE RATIO LAID DOWN IN HIVE COMMUNICATI ON PVT. LTD. VS CIT 353 ITR 200 (DEL.) AND DCIT VS SPA RK HOTELS PVT. LTD. 52 SOT 395 (DEL.), HON'BLE JURISDI CTIONAL HIGH COURT IN CIT VS INDO SAUDI SERVICES (TRAVEL) P VT. LTD. 310 ITR 306 SUPPORTS MY VIEW. THE HON'BLE HIGH COUR T HELD THAT WHERE THE SISTER CONCERN WAS ALSO ASSESSE D AT HIGHER RATE AND THERE WAS NO ATTEMPT TO EVADE TAX, NO DISALLOWANCE U/S 40A(2) CAN BE SAID TO BE JUSTIFIED . IF THE RATIO LAID DOWN BY HON'BLE HIGH COURT IS KEPT IN JUXTAPOSITION WITH THE FACTS OF THE PRESENT APPEAL, IT IS NOTED THAT IN THE CASE OF THE ASSESSEE COMPANY, THE TOTAL INCOME IS RS.7,53,134/-, WHEREAS, IN THE CASE OF TH E MANAGING DIRECTOR, IT IS RS.1,41,26,411/-. THE TOTA L TAX PAID BY THE ASSESSEE COMPANY IS RS.2,32,717/-, WHER EAS, THE MEANING DIRECTOR PAID RS.42,66,181/-. THE DISPU TED EXPENDITURE IN THE CASE OF THE ASSESSEE COMPANY IS RS.3,10,000/- AND IF THE SAME AMOUNT IS DISALLOWED IN THE CASE OF THE MANAGING DIRECTOR, THE REVISED INCOME I N THE CASE OF ASSESSEE COMPANY WILL BE RS.10,63,130/- AND IN THE CASE OF MANAGING DIRECTOR, IT WILL BE RS.1,38,1 6,410/-. THE TAX PAYABLE (IF ANY), ON THE REVISED INCOME IN THE CASE OF THE ASSESSEE COMPANY WILL BE RS.3,28,507/- AND I N THE ITA NO.2187/MUM/2015 MHATRE ENGINEERING PVT. LTD. 5 CASE OF THE MANAGING DIRECTOR, IT WILL BE RS.41,70, 391/-. THE DIFFERENCE OF BOTH WILL BE RS.95,790/-, MEANING THEREBY, IT IS MERELY A TAX NEUTRAL. IT CAN BE CONC LUDED THAT THERE IS NO LOSS TO THE REVENUE. THUS, FROM TH IS ANGLE ALSO, THE ASSESSEE IS HAVING A GOOD CASE IN ITS FAV OUR. 2.3. EVEN OTHERWISE, THE MATTER HAS BEEN CLARIFIED BY CBDT CIRCULAR NO.6-P DATED 06/07/1968 STATING THAT NO DISALLOWANCE IS TO BE MADE U/S 40A(2) IN RESPECT OF PAYMENTS MADE TO RELATIVES AND SISTER CONCERN, WHER E THERE IS NO ATTEMPT TO EVADE TAX. THE REVENUE HAS N OT ESTABLISHED THAT HIGHER REMUNERATION WAS PAID BY TH E ASSESSEE COMPANY TO THE MANAGING DIRECTOR, WHICH CA N BE ASSESSED AT HIGHER RATE, RESULTING IN TAX EVASION, THEREFORE, THE STAND OF THE DEPARTMENT CANNOT BE SAID TO BE JU STIFIED. 2.4. SO FAR AS, LEGITIMATE BUSINESS NEEDS OF THE ASSESSEE OR THE BENEFIT DERIVED BY OR ACCRUING TO T HE ASSESSEE, ARE CONCERNED, THESE ARE NOT TO BE JUDGED FROM THE VIEW POINT OF THE ASSESSING OFFICER BUT FROM TH E VIEW POINT OF A BUSINESSMAN (VOLTAMP TRANSFORMERS P. LTD . VS CIT (129 ITR 105, 113)(GUJ.). IN JUDGING THE UNREASONABLENESS OR EXCESSIVENESS OF A PARTICULAR PAYMENT FOR THE PURPOSES OF SECTION 40A(2)(A), IT I S ESSENTIAL THAT ONE SHOULD KEEP IN MIND THE RELEVANT CONSIDERATION. THE RATIO LAID DOWN IN CIT VS SKYLIN E INDUSTRIES PVT. LTD. (1985) 154 ITR 373 (MP), KUMAR ENGINEERS VS CIT 223 ITR 18, 22 (P &H), K.R. MOTILA L VS CIT 240 ITR 810 (MAD.), UNITED EXPORTS VS ACIT (201 1) ITA NO.2187/MUM/2015 MHATRE ENGINEERING PVT. LTD. 6 330 ITR 549 (DEL.), CIT VS JYOTI INDUSTRIES (2011) 330 ITR 573 (P &H). IN THE PRESENT APPEAL, SINCE THE ASSESS ING OFFICER HIMSELF ALLOWED MORE REMUNERATION IN ASSESS MENT YEAR 2011-12, THEREFORE, THERE IS NO JUSTIFICATION TO MAKE THE DISALLOWANCE. THIS GROUND OF THE ASSESSEE IS AL LOWED. 3. THE NEXT GROUND RAISED BY THE ASSESSEE PERTAINS TO AD-HOC ADDITION OF RS.5 LAKH, MADE BY THE ASSESS ING OFFICER FOR THE REASON THAT DAY TO DAY STOCK REGIST ER WAS NOT MAINTAINED BY THE ASSESSEE. THE STAND OF THE AS SESSEE BEFORE ME IS THAT NECESSARY STOCK REGISTER, FOR EXC ISE PURPOSES WAS DULY MAINTAINED BY THE ASSESSEE AND NECESSARY DETAILS WERE FURNISHED BEFORE THE ASSESSI NG OFFICER. THE LD. DR DISPUTED THE CLAIM OF THE ASSE SSEE BY EXPLAINING THAT THE NECESSARY DETAILS WERE NOT FURN ISHED, FOR WHICH OUR ATTENTION WAS INVITED TO THE FACTUAL MATRIX RECORDED IN THE ASSESSMENT ORDER. 3.1. I HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON A QUESTIONING FROM THE BENCH, BOTH PARTIES FAIRLY AGR EED THAT THE AD-HOC ADDITION MAY BE REDUCED TO 50% OF T HE ADDITION SUSTAINED BY THE LD. COMMISSIONER OF INCOM E TAX (APPEAL). CONSIDERING THE TOTALITY OF FACTS AND THE AGREEMENT FROM BOTH SIDES, THE AD-HOC ADDITION IS R EDUCED TO RS.2,50,000/- AGAINST RS.5 LAKH SUSTAINED BY THE LD. COMMISSIONER OF INCOME TAX (APPEAL), THUS, THIS GRO UND IS PARTLY ALLOWED. ITA NO.2187/MUM/2015 MHATRE ENGINEERING PVT. LTD. 7 FINALLY, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOW ED. THIS ORDER WAS PRONOUNCED IN THE OPEN IN TH E PRESENCE OF LD. REPRESENTATIVE FROM BOTH SIDES AT T HE CONCLUSION OF THE HEARING ON 17/08/2016. SD/- (JOGINDER SINGH) ! ' / JUDICIAL MEMBER MUMBAI; DATED : 08/09/2016 F{X~{T? P.S / ! & $ )!*+ ,&+-* / COPY OF THE ORDER FORWARDED TO : 1. '#$%& / THE APPELLANT 2. '(%& / THE RESPONDENT. 3. ) ) * / THE CIT, MUMBAI. 4. ) ) * / CIT- , MUMBAI 5. +,- ' , ) '#$ ' / , / DR, ITAT, MUMBAI 6. -0 1$ / GUARD FILE. & / BY ORDER, (+# ' //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI