OIL FIELD INSTRUMENTATION (INDIA) PVT. LTD., MUMBAI V. ADDL. CIT RG. 1(2) & CIT (OSD), MUMBAI

ITA 2233/MUM/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0027 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 06-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR K SHIVARAM; ADITYA AJGAONKAR AR ITA NO
• Assessee Lawyers: M C OMI NINGSHEN
• Keywords: Depreciation; Maximum Marginal Rate; Additional depreciation; Commercial expediency
• Section: 143(3); 14A; 37(1)

Judgement Text

IN THE INC OME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE SHRI R. C. SHARMA , AM & SHRI SANDEEP GOSAIN, JM ./ I.T.A. NO. 2233/MUM/2016 ( / ASSESSMENT YEAR: 2011 - 12 ) OIL FIELD INSTRUMENTATION (I) PVT. LTD. 3 RD FLOOR, LIBERTY BLDG, SIR VITHALDAS THACKERSEY MARG, NEW MARINE LINE, MUMBAI - 400020. / VS. ACIT RG. 1(2)& CIT (OSD), MUMBAI, PIN - & ./ I.T.A. NO . 3167/MUM/2016 ( / ASSESSMENT YEAR: 2011 - 12 ) A CIT 1(2 ) (2) ROOM NO. 535 , 5 TH FLOOR AAYAKAR BHAVAN, M. K. ROAD, MUMBAI - 400020 . / VS. OIL FIELD INSTRUMENTATION (I) PVT. LTD. 3 RD FLOOR, LIBERTY BLDG, SIR VITHALDAS THACKERSEY MARG, NEW MARINE LINE, MUMBAI - 400020 . ./ ./ PAN/GIR NO. A A ACO4870H / APPELLANT BY : SH. M. C. OMI NINGSHEN, DR / RESPONDENTBY : DR. K. SHIVARA M & SHRI ADITYA AJGAONKAR, AR 2 ITA NO, 2233 & 3167/M UM/201 6 OIL FIELD INSTRUMENTATION (I) PVT. LTD. / DATE OF HEARING : 06/02 /2018 / DATE OF PRONOUNCEMENT : 28/02/2018 / O R D E R PER SHRI SANDEEP GOSAIN, JUDICIAL MEMBER : THE SE TWO A PPE AL S FILED BY THE REVENUE AS WELL AS ASSESSEE ARE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) 2, MUMBAI DATED 23.02.16 FOR AY 2011 - 12 . 2. SINCE ALL THE ISSUES INVOLVED IN THESE TWO APPEALS ARE COMMON, THEREFORE, THEY HAVE BEEN CLUBBED , HEARD TOGETHER AND A CONSOLIDATED ORDER IS BEING PASSED FOR THE SAKE OF CONVENIENCE AND BREVITY. I TA NO. 2233 /MUM/2016 (AY 20 11 - 12 ) 3 . FIRST OF ALL WE TAKE UP ASSESSEE S APPEAL IN ITA NO. 2233 /MUM/2016 FOR ASSESSMENT YEAR 2011 - 12 AS LEAD CASE . THE GROUND OF APPEAL ARE MENTIONED HEREIN BELOW: - 3 ITA NO, 2233 & 3167/M UM/201 6 OIL FIELD INSTRUMENTATION (I) PVT. LTD. 1. 'WHETHER ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) FAILED TO APPRECIATE THAT THE ASSESSEE WAS A MANUFACTURER ENGAGED IN THE BUSI NESS OF MANUFACTURING MUD - LOGGING UNITS WHICH WAS A TANGIBLE ARTICLE /THING AND HENCE WAS ENTITLED TO CLAIM ADDITIONAL DEPRECIATION U/S 32(1)(IIA) OF THE ACT. 2. WITHOUT PREJUDICE TO THE ABOVE, THE LD. CIT(A) FAILED TO APPRECIATE THAT THE ACTIVITY OF DATA PROCESSING THROUGH THE USE OF COMPUTERS ALSO AMOUNTS TO MANUFACTURE AND HENCE THE ASSESSEE WAS A MANUFACTURER ENTITLED TO ADDITIONAL DEPRECIATION. 3. THE APPELLANT CRAVAES LEAVE TO ADD, AMEND, ALTER OR DELETE ANY OF THE GROUNDS OF APPEAL. 4 . AS PER TH E FACTS OF THE PRESENT CASE, THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF MUD LOGGING UNITS (MLUS), DATA ACQUISITION SYSTEMS, GAS CHROMATOGRAPHS AND RELATED SOFTWARE. THE ASSESSEE E - FILED ITS RETURN OF INCOME ON 26.09.2011 FOR A.Y.2011 - 12 DECLARING TOTAL INCOME OF RS.16,68,27,696/ - . AN ASSESSMENT ORDER U/S. 143(3) OF THE INCOME - TAX ACT, 1961 WAS PASSED ON 24.03.2014 AND TOTAL 4 ITA NO, 2233 & 3167/M UM/201 6 OIL FIELD INSTRUMENTATION (I) PVT. LTD. INCOME WAS DETERMINED AT RS. 18,26,30,074/ - . IN THE ASSESSMENT ORDER, AO MADE D ISALLOWANCE U/S 40A(2) (A) OF RS. 55,00,000 , D ISALLOWANCE OF CLAIM OF ADDITIONAL DEPRECIATION OF RS. 58,01,774 , D ISALLOWANCE U/S 14A OF RS. 603 AND D ISALLOWANCE OF PAYMENT OF RETAINER FEE OF RS. 1,00,00,000 / - . AGGRIEVED BY THE ORDER OF AO, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A) AND LD. CIT(A) AFTER CONSIDERING THE CASE OF BOTH THE PARTIES PARTLY ALL OWED THE APPEAL OF THE ASSESSEE BY UPHOLDING THE DISALLOWANCE ON ACCOUNT OF ADDITIONAL DEPRECIATION U/S 32(1) (IIA). AGGRIEVED BY THE O RDER OF LD. CIT(A), BOTH I.E. ASSESSEE AS WELL AS THE REVENUE HAVE FILED THE IR RESPECTIVE APPEAL S BEFORE US. HOWEVER AT PRESENT WE ARE DEALING WITH THE APPEAL FILED BY THE ASSESSEE ON THE GROUND S MENTIONED HEREIN ABOVE . GROUND NO. 1 & 2 5 . THESE GROU ND GROUNDS RAISED BY THE ASSESSEE ARE INTER - CONNECTED AND INTER - RELATED AND RELATES TO CHALLENGING THE ORDER OF LD. CIT(A) IN UPHOLDING THE ORDER OF AO IN DISALLOWING THE CLAIM OF ASSESSEE FOR ADDITIONAL DEPRECIATION U/S 32(1) (IIA) OF THE 5 ITA NO, 2233 & 3167/M UM/201 6 OIL FIELD INSTRUMENTATION (I) PVT. LTD. I.T. ACT , THEREFORE WE THOUGHT IT FIT TO DISPOSE OF BY THIS COMMON ORDER. 6 . LD. AR APPEARING ON BEHALF OF THE ASSESSEE REITERATED THE SAME ARGUMENTS AS WERE RAISED BY THE ASSESSEE BEFORE LD. CIT(A) . THE LD. AR FURTHER SUBMITTED THAT THE ASSESSEE BEING A PRIVATE LIMITED COMPANY IS PROFESSIONALLY RUN, FAMILY OWNED AND MANAGED BUSINESS ENTERPRISES WITH OVER SIX DECADES OF STEADFAST GROWTH. LD. AR ALSO SUBMITTED THAT ASSESSEE PROVIDES MUD LOGGING SERVICES TO CORPORATE ESTABLISHMENTS WHICH ARE ENGAGED IN OI L WELL DRILLING, EXPLORATION AND DEVELOPMENT INCLUDING DEEP WATERS AND COAL BED METHANE (CB M). THE ASSESSEE MANUFACTURES ITS OWN MUD LOGGING UNITS (MLUS) AND ALSO PROVIDES RIG INSTRUMENTATION SERVICES FOR ACCURATE, RELIABLE AND GLOBAL A CCESSIBLE ONLINE REA L TIME DRILLING DATA USING PRESSURE INDICATORS, DIAPHRAGMS, DRILLERS CONSOLE, RECOR DER, ETC. AND ASSESSEE ALSO PROVIDES REAL TIME GAS EVALU ATION SYSTEMS CONSISTING OF FID/ TCD GAS CHROMATOGRAPH (GC) WITH SENSITIVITY IN PPM. 6 ITA NO, 2233 & 3167/M UM/201 6 OIL FIELD INSTRUMENTATION (I) PVT. LTD. LD. AR FURTHER SUBMITTED THAT ASSESSEE HAS A FACTORY IN NAVI MUMBAI FROM WHERE IT MANUFACTURES MUD LOGGING UNITS (MLUS). IT ALSO MANUFACTURES DATA ACQUISITION SYSTEMS, GAS CHROMATOGRAPHS AND RELATED SOFTWARE. THE MANUFACTURING ACTIVITY CARRIED ON BY IT CONSTITUTES A SEPARATE BUSINESS D ISTINCT FROM ITS SERVICE BUSINESS F OR WHICH THE ASSESSEE EVEN HAS A FACTORY LICENSE AND T HIS ACTIVITY SATISFIES ALL THE PREREQUISITES SO AS TO C ONSTITUTE A SEPARATE BUSINESS. IT WAS SUBMITTED BY LD. AR THAT T HESE ACTIVITI ES ARE ALSO SPECIFIED IN THE ROI OF THE ASSESSEE AND HAVE NOT BEEN CONTROVERTED BY THE AO AND ALSO CERTIFIED BY THE TAX AUDITORS IN T HEIR AUDIT REPORT. THE ASSESSEE IS ALSO ASSESSED TO EXCISE DUT Y ON ITS MANUFACTURING ACTIVITY AND THIS FACT IPSO FACTO, REVEALS THAT THE APPELLANT IS A MANUFA CTURER OF MLUS AND HAVE ALSO SOLD THE MLUS MANUFACTURED BY IT IN SUBSEQUENT YEARS. IT WAS FURTHER SUBMITTED BY LD. AR THAT D URING TH E F. Y. 2010 - 2011, THE ASSESSEE ACQUIRED AND INSTALLED PLANT AND MACHINERY WORTH RS. 4,18,14,726/ - . ON THIS AMOUNT, THE ASS ESSEE CLAIMED ADDITIONAL DEPRECIATION OF RS. 58,01,774/ - UNDER SECTION3 2( 1)(IIA) OF THE ACT. 7 ITA NO, 2233 & 3167/M UM/201 6 OIL FIELD INSTRUMENTATION (I) PVT. LTD. 7. ON THE OTHER HAND, LD. DR RELIED UPON THE ORDERS PASSED BY REVENUE AUTHORITIES. 8. WE HAVE HEARD COUNSELS FOR BOTH THE PARTIES AT LENGTH AND WE HAVE ALSO PER USED THE MATERIAL PLACED ON RECORD AS WELL AS THE ORDERS PASSED BY REVENUE AUTHORITIES. WE FIND THAT THE AO HAS DISALLOWED THE CLAIM OF ADDITIONAL DEPRECIATION ON THE GROUND THAT ASSESSEE IS NOT A MANUFACTUR ER OR PRODUCTION OF ANY ARTICLE OR THING AND THE MUD LOGGING UNITS MANUFACTURED BY THE ASSESSEE ARE FOR CAPTIVE USE AND NOT FOR SALE IN THE OPEN MARKET. WE HAVE ALSO GONE THROUGH THE LEGAL PROPOSITION IN THE CASE OF CIT VRS. HLS INDIA LTD. (2011) 335 ITR 292 (DELHI) WHEREIN ON IDENTICAL FACTS, IT WAS HELD THAT THE PRODUCTION OF MUD LOGGING REPORTS AND ANALYSIS GIVEN THE PROCESS INVOLVED TANTAMOUNT S TO 'MANUFACTURE OR PRODUCTION OF ARTICLE OR THING' AS HELD BY THE HIGH COURT OF DELHI OBSERVED AS UNDER : - HA VING ANALYZED THE SUBMISSIONS OF/EARNED COUNSEL OF BOTH THE PARTIE S AND THE MATERIAL AVAILABLE FOR OUR PERUSAL AND THE CITED CASE LAW, WE FIND FORCE IN THE SUBMISSIONS OF MR. VOHRA, LEARNED COUNSEL FOR THE ASSESSEE. NO DOUBT, THE RAW MATERIAL I.E., THE PRI MARY 8 ITA NO, 2233 & 3167/M UM/201 6 OIL FIELD INSTRUMENTATION (I) PVT. LTD. INPUT IN THE IMPUGNED ACTIVITY IS THE 'INFOR MATION' BUT CAN WE EQUATE THIS 'INFORMATION' WITH SOMETHING WHICH IS BEING COPIED FROM THERE IN TOW. WHETHER THE CHARACTERISTICS REGARDING WHICH THE INFORMATION IS BEING SENT BACK TO COMPUTERS ON SURFACE FRO M LOGGING TOOLS WORKING INSIDE THE DOWN HOLE CAN HE COMPARED TO A CHARACTERISTIC WHICH IS AVAILABLE AND READABLE WITHOUT CONDUCTING HIGHLY TECHNICAL SCIENTIFIC TESTS AND CALCULATIONS CLOWN INSIDE THE BOREHOLE. EVEN AFTER THE GEOPHYSICAL AND PETRO - CHEMICAL PROPERTIES OF THE ROCKS HAVE BEEN MEASURED, FURTHER SCIENTIFIC PROCESSING IS REQUIRED TO BE DONE BY DEDICATED SOFTWARE ON THE COMPUTERS. IT IS ONLY AFTER THE ABOVE SAI D PROC ESS, THE READABLE AND USABLE DATA IN THE FORM OF LOGS IS PROVIDED TO TECHNICAL EXPE RTS TO DETERMINE THE POTENTIALITY AND OTHER TECHNICAL AND COMMERCIAL CHARACTERISTICS OF THE OIL WEL L IN WE SAY. WHEN CI LATENT PHYSICAL PROPERTY OF THE ROCKS, WHICH WAS OTHERWISE UNREADABLE AND THUS UNUSABLE, HAS BEEN CHANGED BY WAY OF SOPHISTICATED SCIENT IFIC TESTS AND CALCULATIONS INTO SCIENTIFIC DATA WHICH SUBSEQUENTLY HAS BEEN FURTHER CHANGED INTO LOGS P/IN/ED ON THE PAPERS OR RECORDED ON THE MAGNETIC TAPES, THAT THE CHARACTER ANDIDENTITY OF END PRODUCT AND FINAL PRODUCT IS NOT DISTINCT. WE ARE UNABLE T O UPHOLD SUCH A PROPOSITION. IT IS A CLEAR CASE WHERE THE LEGAL PROPOSITION THAT 'IF AN 9 ITA NO, 2233 & 3167/M UM/201 6 OIL FIELD INSTRUMENTATION (I) PVT. LTD. OPERATION/PROCESS RENDERS A COMMODITY OR ARTICLE FIT FOR USE FOR WHICH IT IS OTHERWISE NOT FIT, THE OPERATION/PRO CESS FALLS WITHIN THE MEANING OF THE WORD 'MANUFACTURE' APPLIES.' 'EVEN FR OM ANOTHER PERSPECTIVE, WHICH FORMS THE SECOND LIMB OF THE ASSESSEE 'S ARGUMENT, THE CASE TILTS IN THE FAVOUR OF ASSESSEE. MR. VOHRA HAS TRIED TO DRAW AN ANALOGY BETWEEN THE PRODUCTION OF LOGS BY USING WIRELINE LOG GING EQUIPMENTS ON THE ONE HAND AND THE PRODUCTION OFX - RAY AND ULTRASOUND REPORT SHEETS USING X - RAY AND ULTRASOUND MACHINES ON THE OTHER HAND WHICH HAVE BEEN HELD TO BE ELIGIBLE FOR INVESTMENT ALLOWANCE UNDER SECTION 32A IN VARIOUS JUDICIAL PRONOU NCEMENTS. VARIOUS HIGH COURTS OF INDIA HAVE HELD THAT X - RAY MACHINE IS QUALIFIED FOR INVESTMENT ALLOWANCE UNDER SECTION THE HON'BLE DELHI HIGH COURT RELIED UPON THE CASE OF CIT V. DR. S. SURENDER REDDY [2000] 243 ITR 110 (AP)(HC),GAUHATI HIGH COURT IN UT V. DOWN TOW N HOSPITAL (P.) LTD. [2004] 267 ITR 439 AND KERALA HIGH COURT IN CIT V. UPASANA HOSPITAL [19971 225 ITR 845. CONSIDERING THESE JUDGEMENTS, THE HON'BLE COURT HELD THAT 'THE ISSUE, WHICH WE ARE CONCERNED WITH, IS A FISCAL ISSUE WHICH IS CONCERNED WITH A CENT RAL STATUTE. IT IS DESIRABLE THAT IN SUCH A MATTER THERE 10 ITA NO, 2233 & 3167/M UM/201 6 OIL FIELD INSTRUMENTATION (I) PVT. LTD. SHOULD BE UNIFORMITY OF THE JUDICIAL OPINION. EVEN ON MERITS, THE ANALOGY HAS SOME SUBSTANCE. WE, THER E FORE, IN THE LIGHT OF AF O RESTATED, DECIDE THIS ISSUE IN THE FAVOUR OF THE ASSESSEE AND AGAINST T HE REVENUE.' 9. ON THE ABOVE PROPOSITION, WE HAVE ALSO CONSIDERED THE ORDERS PASSED BY THE COORDINATE DELHI BENCH OF HONBLE ITAT IN THE CASE OF TRIVENI SPERRY SUN LTD. VRS. ACIT WHEREIN IT HAS BEEN HELD THAT THE ACTIVITY OF THE ASSESSEE NAMELY, PRODUCTION OF THE MUD - LOGGING REPORTS, AFTER PROCESSING OF THE DATA COLLECTED BY THE MUD LOGGING UNITS, CONSTITUTED ARTICLE OR THING AS PER THE STATUTORY REQUIREMENT FOR GRANT OF DEDUCTION U/S 80 - I. 10. WE HAVE ALSO CONSIDERED THE JUDGMENT CITED BY LD. DR IN THE CASE OF SHIVA CARGO MOVERS LTD. VRS. DCIT (2012) 82 DTR 246 (CHENNAI TRIB) AND CLOVER DEVELOPERS PVT. LTD. VRS. ACIT (ITA N O. 6422/MUM/2011) (ITAT MUMBAI). HOWEVER , THE FACTS CONTAINED IN BOTH THE JUDGMENTS ARE DIFFERENT FROM THE FACTS CONTAINED IN THE PRESENT CASE . IN THE CASE OF SHIVA CARGO MOVERS LTD , WHEREIN THE ASSESSEE WAS ENGAGED IN THE 11 ITA NO, 2233 & 3167/M UM/201 6 OIL FIELD INSTRUMENTATION (I) PVT. LTD. BUSINESS OF TRANSPORT OF SPIRIT AND MOLASSES AND IT ACQUIRED A NEW WINDMIL L IN THE YEAR AND HAD CLAIMED ADDITIONAL DEPRECIATION. SO FAR AS THE CASE CLOVER DEVELOPERS PVT. LTD IS CONCE RNED, WHEREIN, THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF CONSTRUCTION. HENCE, IN BOTH CASE, ASSESSEE WAS NOT ENGAGED IN THE BUSINESS OF MANUFACT URE OR PRODUCTION AND HAD SET A NEW LINES OF MANUFACTURING /PRODUCTION. HOWEVER, IN THE PRESENT CASE, ASSESSEE WAS ALREADY IN THE LINE OF PRODUCING MUD LOGGING FOR THE PURPOSE OF OIL EXPLORATION. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, DISCUSSIONS AS WELL AS JUDGMENTS CITED ABOVE, WE HOLD THAT THE ACTIVITIES OF THE ASSESSEE IS MAINLY PRODUCTION OF MUD LOGGING REPORTS AFTER PROCESSING OF THE DATA COLLECTED BY THE MUD LOGGING UNITS AND THUS CONSTITUTES AN ARTICLE OR THING AS PER THE STA TUTORY REQUIREMENT FOR GRANT OF DEDUCTION U/S 80 - I OF THE I.T. ACT. AS PER THE FACTS OF THE PRESENT CASE, T HE ASSESSEE HAS PROCESSED THE DATA COLLECTED AND THE REPORT PREP ARED BY THE TECHNICAL PERSONNEL AMOUNTS TO PRODUCTION OF AN ARTICLE OR THING . WE FORTIFY OUR CONCLUSION ON THE BASIS OF DECISION RENDERED BY THE COORDINATE DELHI BENCH OF HONBLE TRIBUNAL IN THE CASE OF 12 ITA NO, 2233 & 3167/M UM/201 6 OIL FIELD INSTRUMENTATION (I) PVT. LTD. CIT VRS. HLS INDIA LTD. (2011) 335 ITR 292 (DELHI), WHEREIN ON IDENTICAL FACTS, THE SIMILAR FINDINGS HAVE BEEN RECORDED BY THE TRIBUNA L. HENCE WE DIRECT THE AO TO ALLOW ADDITIONAL DEPRECIATION TO THE ASSESSEE. RESULTANTLY, THESE GROUND RAISED BY THE ASSESSEE STANDS ALLOWED . ITA NO. 3167/MUM/2016 FOR AY 2011 - 12 . 11 . NOW WE TAKE UP REVENUE S APPEAL FILED IN ITA NO. 3167/MUM/2016 FOR AY 2011 - 12 ON THE GROUNDS MENTIONED HEREIN BELOW: - 1. 'WHETHER ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RETAINERSHIP FEES OF RS. 1,00,00,000/ - MADE BY THE ASSESSING OFFICER, WITHOUT APPRECIA TION THE FACT THAT THERE IS NOTHING ON RECORD TO SHOW THAT THE DIRECTOR IN QUESTION HAS PROVIDED AN SPECIAL SERVICE DURING F. Y. 2010 - 11 THAT COULD JUSTIFY SUCH A HIGH EXPENSE SUDDENLY, AS THERE WAS NO SUCH EXPENDITURE IN THE PREVIOUS YEARS?' FURTHER, THE SERVICES ATTRIBUTED TO THE DIRECTOR BY THE ASSESSEE WERE BEING PROVIDED FOR OVER A DECADE BUT THE FEES HAD BEEN PROVIDED AS EXPENDITURE ONLY THIS YEAR, 13 ITA NO, 2233 & 3167/M UM/201 6 OIL FIELD INSTRUMENTATION (I) PVT. LTD. HENCE THE ASSESSING OFFICER RIGHTLY MADE THE DISALLOWANCE.' 2. 'WITHOUT PREJUDICE TO THE ABOVE, THE LD. CIT(A) HAS ERRED IN NOT UPHOLDING THE DISALLOWANCE U/S. 40A(2)(B) OF THE ACT OF RS. 55 LACS.' GROUND NO. 1 & 2 12 . THESE GROUND GROUNDS RAISED BY THE REVENUE ARE INTER - CONNECTED AND INTER - RELATED AND RELATES TO CHALLENGING THE ORDER OF LD. CIT(A) IN DELETING THE DISALLOWANCE OF RETAINERSHIP FEES OF RS. 1,00,00,000/ - MADE BY THE ASSESSING OFFICER AND RS. 55 LAKHS U/S. 40A(2)(B) OF THE ACT , THEREFORE WE THOUGHT IT FIT TO DISPOSE OF BY THIS COMMON ORDER. 13 . WE HAVE HEARD COUNSELS FOR BOTH THE PARTIES AT LENGTH AND WE HAVE ALSO PERUSED THE MATERIAL PLACED ON RECORD AS WELL AS THE ORDERS PASSED BY REVENUE AUTHORITIES. BEFORE WE DECIDE THE MERITS OF THE CASE, IT IS NECESSARY TO EVALUATE THE ORDERS PASSED BY LD. CIT(A). THE LD. CIT(A) HAS DEALT WITH THE ABOVE GROUNDS RAISED BY THE REVENUE IN PARA NO. 6 14 ITA NO, 2233 & 3167/M UM/201 6 OIL FIELD INSTRUMENTATION (I) PVT. LTD. OF ITS ORDER. THE OPERATIVE PORTION OF THE ORDER OF LD. CIT(A) IS CONTAINED IN PARA NO. 6.1 & 6.2 OF ITS ORDER AND THE SAME IS REPRODUCED BELOW: - 6.1 THE AO IS O F THE OPINION THAT PAYMENT OF RS.1 CRORE AS RETAINERSHIP FEES PAD TO PROMOTER DIRECTOR VIZ SHRI F. D. NETERWALA IS NOT JUSTIFIABLE AS HE IS HELD AS A DIRECTOR IN 11 COMPANIES AND FURTHER IF THE RETAINERSHIP FEES ALLOWED BY THE APPELLATE AUTHORITY, THE AO H AS ALSO GIVEN A FINDING THAT UNDER THE PROVISION OF SECTION 40A(2)(A) AN APPROPRIATE DISALLOWANCE SHOULD BE MADE OF RS.55,00,000/AS AGAINST THIS, THE AR OF THE APPELLANT COMPANY ARGUES THAT MR. NETERWALA IS ONLY PREPARING BUDGET OUT OF SIX DIRECTORS OF THE COMPANY AND HE IS THE ONLY DIRECTOR REGULARLY ATTENDING BOARD MEETING AND WITH HIS WIDE CONTACTS, THE COMPANY USED TO GET LIQUIDITY FROM VARIOUS QUARTERS AND WITH HIS CALIBER HE IS ABLE TO CONTACT DIRECTORS OF THE COMPANY FOR DAY TO DAY AFFAIRS AND ACCORD INGLY THE ROLE OF MR. NETERWALA IS ALSO IMPORTANT AND HELPFUL TO RUN THE COMPANY IN DAY TO DAY MANNER AND FURTHER THE AR OF THE COMPANY ALSO ARGUES THAT AO WAS NOT JUSTIFIED IN STEPPING INTO THE SHOES OF THE APPELLANT AND FURTHER ERRED IN SITTING IN JUDGEM ENT AS TO WHETHER THE PAYMENT OF RS. 1 CRORE TO, MR. 15 ITA NO, 2233 & 3167/M UM/201 6 OIL FIELD INSTRUMENTATION (I) PVT. LTD. FEROZE D. NETERWALA WAS JUSTIFIED, WITHOUT APPRECIATING THAT COMMERCIAL EXPEDIENCY IS TO BE LOOKED AT FROM THE POINT OF VIEW OF THE APPELLANT AND NOT THE DEPARTMENT. 6.2. FURTHER, IT IS SEEN THAT MR. F. D. NETERWALA IS ASSESSED TO TAX AT THE MAXIMUM MARGINAL RATE OF 30%. ACCORDINGLY, THERE IS NO REVENUE LOSS. HENCE, CONSIDERING THE ABOVE FACT ON RECORD, I AM IN AGREEMENT WITH THE AR OF THE APPELLANT COMPANY THAT THE AO CANNOT RESTRICT THE RETAINERSHIP FEE S PAID TO ANY DIRECTORS AND FURTHER THE RETAINERSHIP FEES RECEIVED BY THE PROMOTER DIRECTOR SHRI F.D. NETERWALA IS FOUND TO BE ASSESSED TO TAX AT THE MAXIMUM MARGINAL RATE OF 30% AND THEREFORE IT CAN BE CONCLUDED THAT THERE IS NO REVENUE LOSS TO THE DEPART MENT. HENCE, I DIRECT THE AOTO ALLOW THE RETAINERSHIP FEES OF RS.1,00,00,000/ - . ACCORDINGLY, APPEAL IS ALLOWED. AFTER HAVING GONE THROUGH THE FACTS OF THE PRESENT CASE AS WELL AS CONSIDERING THE ORDERS PASSED BY REVENUE AUTHORITIES AND SUBMISSIONS MADE BY BOTH THE PARTIES, WE FIND FROM THE FACTS OF THE PRESENT CASE THAT D URING THE FINANCI AL YEAR 2010 - 2011, THE ASSESSEE PAID A SUM OF RS. 1 CRORE TO MR. FEROZE D. NETERWALA (FDN), A DIRECTOR OF THE ASSESSEE - COMPANY AND T HIS PAYMENT WAS 16 ITA NO, 2233 & 3167/M UM/201 6 OIL FIELD INSTRUMENTATION (I) PVT. LTD. TO BE PAID AS RETAINER SHIP FEE. AS PER THE ASSESSEE, THIS AMOUNT WAS EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ASSESSEE 'S BUSINESS AND W ITH FDN'S EFFORTS, THE ASSESSEE WAS ABLE TO SUCCESSFULLY ENTER THE OIL AND GAS SECTOR. IN THE CASE OF CIT VRS. CHANDRI & CO. PVT. LT D. (1995) 212 ITR 63 , IT IS HELD THAT THE EXPRESSION WHOLLY AND EXCLUSIVELY USED IN SECTION 37(1) DOES NOT MEAN NECESSARILY. SO LONG AS THERE IS A REASONABLE NEXUS BETWEEN THE EXPENDITURE AND THE BUSINESS, THE EXPENDITURE WILL BE REGARDED AS HAVING BEE N INCURRED FOR THE PURPOSE OF THE BUSINESS. IN THE CASE OF CASE J. K. WOLLEN MANUFACTURERS VRS. CIT (1972) 72 ITR 612 (SC), IT IS HELD THAT COMMERCIAL EXPEDIENCY SHOULD BE SEEN FROM THE BUSINESSMANS POINT OF VIEW AND IN THE CASE OF CIT VRS. SALES MAGNES ITE (P) LTD. (1995) 214 ITR 1 (BOM HC), IT IS HELD THAT WHERE THE DIRECTOR WAS ASSESSED TO TAX AT THE MAXIMUM MARGINAL RATE AND THERE IS NO EVASION OF TAX BY THE ASSESSEE, THEN THERE IS NO REASON FOR DISALLOWANCE. AS PER THE FACTS OF THE PRESENT CASE, THE LD. CIT(A) HAS OBSERVED THAT MR. F. D. NETRAWALA TO WHOM THE RETAINERSHIP FEE 17 ITA NO, 2233 & 3167/M UM/201 6 OIL FIELD INSTRUMENTATION (I) PVT. LTD. HAS PAID, IS ASSESSED TO TAX AT THE MAXIMUM MARGINAL RATE, HENCE THERE WAS NO REVENUE LOSS. MOREOVER, N O NEW FACTS OR CONTRARY JUDGMENTS HAVE BEEN BROUGHT ON RECORD BEFORE US I N ORDER TO CONTROVERT OR REBUT THE FINDINGS SO RECORDED BY LD CIT(A). THEREFORE, THERE ARE NO REASON S FOR US TO INTERFERE INTO OR DEVIATE FROM THE FINDINGS RECORDED BY THE LD.CIT(A). HENCE , WE ARE OF THE CONSIDERED VIEW THAT THE FINDINGS SO RECORDED BY THE LD. CIT (A) ARE JUDICIOUS AND ARE WE LL REASONED. RESULTANTLY, THESE GROUND S RAISED BY THE REVENUE STANDS DISMISSED . 14 . IN THE NET RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS ALLOWED AND THE APPEAL FILED BY THE REVENUE STA NDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH FEB. 2018. SD/ - SD/ - (R. C. SHARMA ) (SANDEEP GOSAIN) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 28 .02 .201 8 SR.PS . DHANANJAY 18 ITA NO, 2233 & 3167/M UM/201 6 OIL FIELD INSTRUMENTATION (I) PVT. LTD. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F I LE / BY ORDER, . / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI