Health Asyst Private Limited , Bangalore V. The Assistant Commissioner of Income Tax Circle-3(1)(2), Bangalore

ITA 2394/BANG/2018

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 0072 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 11 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 06-07-2021
• Assessment Year: 2015-2016
• Appeal Filed On: 16-08-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: K.S NAVEEN KUMAR
• Keywords: Set aside
• Section: 143(1); 143(2); 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI. B.R BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA 2394/BANG/2018 ASSESSMENT YEAR : 2015-16 HEALTH ASYST PVT. LTD., J 05 GROUND FLOOR, HAL AIRPORT ROAD, BENGALURU-560 008. PAN AAACH 6375 A VS. THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-3(1)(2), BENGALURU. APPELLANT RESPONDENT ASSESSEE BY : SHRI K.S NAVEEN KUMAR, ADVOCATE REVENUE BY : SHRI KANNAN NARAYANAN, JCIT(DR) DATE OF HEARING : 06-07-2021 DATE OF PRONOUNCEMENT : 22-07-2021 ORDER PER BEENA PILLAI, JUDICIAL PRESENT APPEAL HAS BEEN FILED BY ASSESSEE AGA INST ORDER DATED 15/06/2018 PASSED BY THE LD.CIT(A)-3, BANGALORE FOR ASSESSMENT YEAR 2015-16 ON FOLLOWING GROUNDS OF APP EAL: PAGE 2 OF 7 ITA NO.2394/BANG/2018 1. THE ORDER OF THE LEARNED CIT (APPEALS) IN SO FA R AS THEY ARE AGAINST THE APPELLANT IS OPPOSED TO LAW, ARBITRARY AND UNJU STIFIED. 2. THE LOWER AUTHORITIES ERRED IN ENTERING FINDINGS WHICH ARE BEYOND THE PARAMETERS OF THE ALLEGATIONS MADE IN THE PROPOSITI ON NOTICES DATED 18.07.2017 AND 29.08.2017. 3. THE CIT(APPEALS) ERRED IN UPHOLDING THE DISALLOW ANCE OF RS 3,82,10,387/- UNDER SECTION 40A(2) THOUGH THERE IS NO VIOLATION OF ANY PROVISION OF LAW NOR IS THERE ANY EVASION OF TAX WH ICH IS THE CRUX OF SECTION 40A(2) READ WITH CIRCULAR 6-P OF 1968. 4. THE LOWER AUTHORITIES ERRED BY NOT FOLLOWING THE PRINCIPLES LAID DOWN IN CIRCULAR 6-P OF 1968 WHICH IS BINDING ON THE DEP ARTMENTAL AUTHORITIES AS HELD IN VARIOUS JUDICIAL PRECEDENTS. 5. THE LOWER AUTHORITIES ERRED IN DECIDING ABOUT RE ASONABLENESS OF EXPENSES IN AN ARBITRARY MANNER WITHOUT CONSIDERING THE BUSINESS EXIGENCY, AND FURTHER ERRED IN COMPARING WITH SALAR Y OF EXECUTIVES OF CORPORATE CONGLOMERATES WHERE THE ROLES, RESPONSIBI LITIES AND BUSINESS OF THE SAID CORPORATES ARE UNCOMPARABLE WITH THAT OF T HE ASSESSEE- APPELLANT. 6. THE LOWER AUTHORITIES ERRED IN NOT APPRECIATING THE FACT THAT THE ENTIRE CASE IS REVENUE NEUTRAL IN AS MUCH AS THE EXPENSES CLAIMED BY THE APPELLANT HAVE SUFFERED TAX IN THE HANDS OF THE DIR ECTOR AT A HIGHER TAX OF 33.99% AS AGAINST THE TAX RATE OF 33.45% APPLICABLE TO THE APPELLANT. 7. THE LOWER AUTHORITIES ERRED IN NOT FOLLOWING VAR IOUS JUDICIAL PRECEDENTS WHICH HAVE HELD THAT, IF THERE IS NO EVASION OF TAX , THEN SECTION 40A (2) CANNOT BE INVOKED. 8. FOR THE ABOVE AND OTHER GROUNDS THAT MAY BE URGE D AT THE TIME OF HEARING OF THE APPEAL, THE APPELLANT HUMBLY PRAYS T HAT THESE CONCISE GROUNDS BE CONSIDERED AND THE APPEAL BE ALLOWED WIT H CONSEQUENTIAL RELIEF INCLUDING REFUND OF EXCESS TAXES PAID WITH I NTEREST BY HOLDING THAT THE DISALLOWANCE U/S.40A(2) IS UNTENABLE AND TO SET ASIDE THE IMPUGNED ORDER DATED 15.6.2018 AND THE CONSEQUENTIAL DEMAND OF TAX AND INTEREST, IN THE ENDS OF JUSTICE. BRIEF FACTS OF THE CASE ARE AS UNDER: 2. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF COMPUTER SOFTWARE SERVICES. IT FILED ITS RETURN OF INCOME FOR YEAR UNDER CONSIDERATION ON 28/11/2015 DECLARING TOTAL I NCOME OF RS.4,23,79,510/- UNDER NORMAL PROVISIONS OF THE ACT . THE RETURN WAS PROCESSED UNDER SECTION 143(1) OF THE ACT AND N OTICE UNDER SECTION 143(2) WAS ISSUED TO ASSESSEE. IN RESPONSE TO STATUTORY PAGE 3 OF 7 ITA NO.2394/BANG/2018 NOTICES, REPRESENTATIVE OF ASSESSEE APPEARED BEFORE THE LD.AO AND FILED REQUISITE DETAILS AS CALLED FOR. 2.1 THE LD.AO ON PERUSAL OF RECORDS NOTED THAT, ASS ESSEE PAID TO DIRECTORS OF THE COMPANY IN THE FORM OF SALARY A ND COMMISSION, WHICH WAS MORE THAN WHAT WAS REMUNERATE D IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. THE LD.AO NO TED THAT THE TURNOVER DROPPED DURING THE YEAR UNDER CONSIDE RATION AND THE PROFIT WAS ALSO LESS AS COMPARED TO THE PREVIOU S YEARS. HOWEVER, THE LD.AO NOTED THAT THE AMOUNT PAID TO T HE DIRECTOR WAS DOUBLE WITHOUT ANY BASIS. THE LD.AO CONSIDERED IT TO BE UNREASONABLY HIGH AND EXCESSIVE BEING PAYMENT TO TH E RELATED PARTY. 2.2 IN RESPONSE TO THE NOTICE, THE ASSESSEE SUBMITT ED THAT, INVOKING SECTION 40A(2) AMOUNTS TO DOUBLE TAXATION FOR THE SAME TRANSACTION, AS THE DIRECTOR PAID TAXES AT THE SAME RATE AT WHICH THE ASSESSEE PAID ITS TAXES. THE LD.AO REJECTED THE SUBMISSIONS OF ASSESSEE AND DISALLOWED THE PAYMENT MADE TO THE DIRECTOR UNDER SECTION 40A(2) OF THE ACT. 3. AGGRIEVED BY THE ORDER OF THE LD.AO, THE ASSESSE E PREFERRED APPEAL BEFORE THE LD.CIT(A). 3.1 BEFORE THE LD.CIT(A), THE ASSESSEE SUBMITTED T HAT PAYMENT MADE TO DIRECTOR, MR.UMESH BAJAJ INCLUDED SALARY OF RS.1,41,93,809/- AND THE BALANCE AMOUNT OF RS.6,00, 00,000/- INCENTIVE. IT WAS SUBMITTED THAT, THE INCENTIVE WAS PAID IN THE MONTH OF FEBRUARY AND MARCH 2015. EFFORTS TO BRING SEVERAL NEW CONTRACT DURING THE YEAR AND THAT HELPED THE ASSESS EE TO ACHIEVE TURNOVER OF 32.74 CRORES. ASSESSEE SUBMITTED THAT T HE INCENTIVE WAS GIVEN TO THE DIRECTOR FOR HIS RELENTLESS OF EFF ORTS MADE DURING PAGE 4 OF 7 ITA NO.2394/BANG/2018 THE YEAR TO ATTAIN THE TURNOVER WHICH OTHERWISE WO ULD NOT HAVE HAPPENED SINCE THE ASSESSEE WAS TOWARDS THE CLOSUR E. 3.2 THE ASSESSEE SUBMITTED THAT THE AMOUNT PAID TO THE DIRECTOR HAS SUFFERED TAX AT THE RATE OF 33.45% IN THE HANDS OF THE DIRECTOR, WHICH IS ALSO THE TAX PAYABLE IN THE HAND S OF ASSESSEE. ASSESSEE RELIED ON THE CBDT CIRCULAR NO.6P DATED 06 /07/1968, TO SUPPORT ITS CONTENTION AND ARGUED THAT, SECTION 40A(2) COULD BE INVOKED ONLY IN CASES WHERE THE PAYMENT IS MADE TO EVADE TAX. 3.3 THE LD.CIT(A) REJECTED CONTENTIONS OF THE ASSE SSEE AND UPHELD THE ADDITION MADE BY LD.AO. 3.4 AGGRIEVED BY THE ORDER OF THE LD. CIT (A), THE ASSESSEE IS IN APPEAL BEFORE US NOW. 4. WE HAVE PERUSED THE SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. 4.1 THE ONLY ISSUE ALLEGED BEFORE US IS REGARDING D ISALLOWANCE UPHELD BY THE AUTHORITIES BELOW OF ALLEGED EXCESSIV E PAYMENT MADE TO ITS DIRECTOR UNDER SECTION 40(A)(2) OF THE ACT. 4.2 CBDT CIRCULAR NO.6P DATED 06/07/1968, EXPLAINS THE PROVISION OF SECTION 40 (A) (2) OF THE ACT. THE CIR CULAR EXPLAINS THAT, THE LD.AO IS EXPECTED TO EXERCISE HIS JURISDI CTION IN A REASONABLE AND FAIR MANNER AND THAT, THE PROVISION IS MEANT TO CHECK EVASION OF TAX TO EXCESSIVE OR UNREASONABLE P AYMENTS THROUGH A RELATIVE OR ASSOCIATE CONCERNS. THE CIRC ULAR ALSO SPECIFIED THAT THE PROVISIONS SHOULD NOT BE APPLI ED IN A MANNER WHICH WOULD CAUSE HARDSHIP IN BONA FIDES CASES. IN THE PRESENT FACTS OF THE CASE, IT HAS BEEN SUBMITTED THAT, THE DIRECTOR WAS RECEIVED THE PAYMENT IS IN THE HIGHEST TAX BRACKET AND THAT IT IS NOT A CASE OF TAX EVASION. PAGE 5 OF 7 ITA NO.2394/BANG/2018 4.3 THE LD.AR PLACED RELIANCE ON HONBLE GUJARAT HIGH COURT IN CASE OF DCIT VS GUJARAT GAS FINANCIAL SERVICES LTD. REPORTED IN 2015-TIOL-1621-HC-AHM-IT HAD AN OCCASION TO CONSIDER THE ALLOWABILITY OF EXCESSIVE AND UNREASONABLE EXPENDIT URE BEING A TRANSACTION BETWEEN PARENT COMPANY AND THE ASSESSEE THEREIN BEING COVERED UNDER SECTION 40(A)(2) OF THE ACT. HONBLE COURT HELD THAT, TRANSACTION BETWEEN THE RELATIVES AND AS SOCIATE WOULD BE TREATED AS BONA FIDE CASE UNLESS THE OFFICER FINDS THAT ONE OF THEM IS TRYING TO EVADE PAYMENT OF TAX. HE ALSO REL IED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN CASE OF CIT VS INDO SAUDI SERVICES (TRAVEL) PVT. LTD., REPORTED IN 310 ITR 306 WHERE ASSESSEE WAS A GENERAL SALES AGENT OF A FOREIGN AIR LINE AND THAT, THE LD.AO FOUND THEREIN THAT INCENTIVE COMMISSION P AID BY THAT ASSESSEE TO ITS SISTER CONCERN WAS HALF PERCENT MOR E THAN THAT PAID TO OTHER SUBAGENTS. RELYING ON THE PROVISIONS OF SECTION 40(A)(2) OF THE ACT, THE LD.AO THEREIN DISALLOWED EXCESS COMMISSION PAID TO THE SISTER CONCERN AT THE RATE O F HALF PERCENT. HONBLE BOMBAY HIGH COURT WHILE ANALYSING THE ISSUE ALLEGED BY THE REVENUE, HELD THAT REVENUE WAS NOT IN A POSITIO N TO POINT OUT HOW ASSESSEE EVADED PAYMENT OF TAX BY THE ALLEGED PAYMENT OF HIGHER COMMISSION TO ITS SISTER CONCERN AS THE SIST ER CONCERN WAS ALSO PAYING TAX AT A HIGHER RATE AND COPIES OF THE ASSESSMENT ORDER OF SISTER CONCERN WERE TAKEN ON RECORD BY THE TRIBUNAL. 4.4 IN THE PRESENT FACTS OF THE CASE, ASSESSEE PAI D TO ITS DIRECTOR SALARY AND COMMISSION BEING PERCENTAGE OF THE PROFI TS EARNED. WE FIND THAT EXPENDITURE WAS CLAIMED BY ASSESSEE ON AC COUNT OF PAYMENT OF SALARY AND COMMISSION TO THE DIRECTOR WH ICH IS NOT IN VIOLATION OF ANY PREVAILING PROVISIONS OF THE ACT. FURTHER, IT IS ALSO PAGE 6 OF 7 ITA NO.2394/BANG/2018 STATED THAT THE DIRECTOR TO WHOM THE PAYMENT WAS MA DE BY ASSESSEE IS ALSO PAYING TAXES BEING IN THE HIGHEST TAX BRACKET. FACTS BEFORE US ARE SIMILAR TO DECISION RELIED BY T HE LD.AR WHICH HAS NOT BEEN REFUTED BY THE REVENUE. IN THE PRESEN T FACT, REVENUE HAS NOT MADE OUT ANY CASES OF TAX EVASION. HOWEVER IN THE INTEREST OF JUSTICE WE REMAND THIS ISSUE BACK T O THE LD. AO ONLY TO VERIFY THE RATE OF TAX APPLICABLE TO THE DI RECTOR DURING THE YEAR UNDER CONSIDERATION AND TO CONSIDER THE CLAIM OF ASSESSEE IN ACCORDANCE WITH THE VARIOUS RATIOS LAID DOWN AND RE LIED UPON HEREINABOVE. ACCORDINGLY THE GROUNDS RAISED BY ASSESSEE STANDS A LLOWED. IN THE RESULT APPEAL FILED BY ASSESSEE STANDS ALLOW ED. ORDER PRONOUNCED IN OPEN COURT ON 22 ND JULY, 2021. SD/- SD/- (B.R BASKARAN) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL MEM BER BANGALORE, DATED, THE 22 ND JULY, 2021. /VMS/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE PAGE 7 OF 7 ITA NO.2394/BANG/2018 DATE INITIAL 1. DRAFT DICTATED ON ON DRAGON SR.PS 2. DRAFT PLACED BEFORE AUTHOR -7-2021 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER -7-2021 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. -7-2021 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS -7-2021 SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON -7-2021 SR.PS 7. DATE OF UPLOADING THE ORDER ON WEBSITE -7-2021 SR.PS 8. IF NOT UPLOADED, FURNISH THE REASON -- SR.PS 9. FILE SENT TO THE BENCH CLERK -7-2021 SR.PS 10. DATE ON WHICH FILE GOES TO THE AR 11. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 12. DATE OF DISPATCH OF ORDER. 13. DRAFT DICTATION SHEETS ARE ATTACHED NO SR.PS