DCIT Circle-8 (1), V. Sigma Corporation India Ltd, New Delhi

ITA 2616/DEL/2008

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 5737 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 7 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 03-03-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 04-08-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: BALJIT SINGH
• Keywords: Depreciation; Proportionate interest; Wholly owned subsidiary; Fair market value; Revenue expenditure; Capital expenditure

Judgement Text

I.T.A. NO4052,4058/DEL/2009 2616 & 2558/DEL/2008 1/16 IN THE INCOME TAX APPELLATE TRIBUNAL, NEW DELHI, BENCH G BEFORE SHRI A. K. GARODIA ACCOUTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER ITA NO. 4052 /DEL/2009, I.T.A. NO. 2558/DEL/2008 (ASSESSMENT YEAR 2006-07, 2005-06 RESPECTIVELY) SIGMA CORPORATION INDIA LTD., VS. DCIT, CIRCLE 8(1) , R-561, SHANKAR ROAD, NEW DELHI. NEW RAJINDER NAGAR, NEW DELHI-110060 I.T.A. NO. 4058/DEL/2009, 2616/DEL/2008 (ASSESSMENT YEAR 2006-07, 2005-06 RESPECTIVELY) DCIT, CIRCLE 8(1), VS. SIGMA CORPORAITON INDIA LTD ., NEW DELHI R-561, SHANKAR ROAD, NEW RAJINDER NAGAR, NEW DELHI-110 060 (APPELLANTS) (RESPONDENTS) PAN / GIR NO. AABCS8026L APPELLANT BY: SHRI BALJIT SINGH, CA RESPONDENT BY: SHRI SURABHI AHLUWALIA, SHRI J P JANGID, SR. DR ORDER PER GEORGE MATHAN, JM: 1. I.T.A. NO. 4052/DEL/2009 IS AN APPEAL PREFERRED BY THE ASSESSEE AND I.T.A. NO. 4058/DEL/2009 IS AN APPEAL BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A) XI, NEW I.T.A. NO4052,4058/DEL/2009 2616 & 2558/DEL/2008 2/16 DELHI IN APPEAL NO. 195/2008-09 DATED 31.07.2009 FO R THE ASSESSMENT YEAR 2006-07. I.T.A. NO. 2558/DEL/2008 IS AN APPEAL FILED BY THE ASSESSEE AN D I.T.A. NO. 2616/DEL/2008 IS AN APPEAL PREFERRED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A) XI, NEW DEL HI IN APPEAL NO.158/2007-08 DATED 29.05.2008 FOR THE ASSESSMENT YEAR 2005-06. AS ALL THE FOUR APPEALS RELATE TO THE SAME ASSESSEE AND CONTAIN SUBSTANTIAL LY IDENTICAL ISSUES, ALL THESE FOUR APPEALS ARE BEING DISPOSED OF BY THIS COMMON ORDER. SHRI BALJIT SING H, FCA REPRESENTED ON BEHALF OF THE ASSESSEE AND MS. SURABHI AHLUWALIA AND SHRI J P TANGID, SR. DR REPRESENTED ON BEHALF OF THE REVENUE. 2. I.T.A. NO. 2616/DEL/2008: IN THIS APPEAL THE REVENUE HAS CHALLENGED THE ACTION OF LD. CIT(A) IN DELETING THE DISALLOWANCE MADE BY THE A.O. BY INVOKING THE PROVISIONS OF SECTION 40A(2) OF THE ACT BEING 50% O F THE RENT PAID TO THE DIRECTORS. AT THE TIME OF HEA RING, IT WAS FAIRLY AGREED BY BOTH THE SIDES THAT THE ISSUE IN THIS APPEAL WAS SQUARELY COVERED BY THE DECISION OF COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF TH E ASSESSEE IN I.T.A. NO. 2148 & 58/DEL/2009 DATED 30.10.2009 FOR THE ASSESSMENT YEAR 2004-05 AND 2003 - 04 WHEREIN IT HAS BEEN HELD AS FOLLOWS: I.T.A. NO4052,4058/DEL/2009 2616 & 2558/DEL/2008 3/16 WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND GONE THROUGH THE RECORD CAREFULLY. AS FAR AS THE FACTS NOTICED BY US, THERE IS NO DISPUTE. THE PERSO NS TO WHOM RENT WAS PAID COME WITHIN THE AMBIT OF SEC. 40A(2). SECTION 40A(2) HAS A DIRECT BEARING ON THE CONTROVERSY IN HAND, THEREFORE, IT IS SALUTARY UPON US TO TAKE NOTE OF THIS SECTION. IT READS AS UNDER: SECTION 40A(2) READS AS UNDER: (2)(A) WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT HAS BEEN OR IS TO BE MADE TO ANY PERSON REFERRED TO IN CLAUSE (B) OF THIS SUB - SECTION, AND THE [ASSESSING] OFFICER IS OF OPINION THAT SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE OR THE LEGITIMATE NEEDS OF THE BUSINESS OR PROFESSION OF THE ASSESSEE OR THE BENEFIT DERIVED B Y OR ACCRUING TO HIM THEREFROM SO MUCH OF THE EXPENDITURE AS IS SO CONSIDERED BY HIM TO BE EXCESSIVE OR UNREASONABLE SHALL NOT BE ALLOWED AS A DEDUCTION. 10. ON BARE PERUSAL OF THIS CLAUSE, IT WOULD INDICATE THAT THE OPINION OF THE ASSESSING OFFICER AS TO WHETHER ANY EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAS TO BE IN COMPARISON TO THE FAIR MARKET VALUE OF THE GOODS OR FACILITY. IN OTHER WORDS, ASSESSING OFFICER HAS TO ESTABLISH WHETHER SUCH SERVICES, GOODS, OR FACILITY CAN BE AVAILED BY AN ASSESSEE FROM THE OPEN MARKET ON A LOWER RATE. IN CASE, THE ASSESSING OFFICER IS ABLE TO DEMONSTRATE THAT SUCH FACILITIES ARE AVAILABLE AT A LESSER PRICE IN THE OPEN MARKET THEN HE WOULD BE ABLE TO ARGUE THAT PRICE PAID BY THE ASSESSEE IS EXCESSIVE OR UNREASONABLE. THE ASSESSING OFFICER THUS WAS REQUIRED TO MAKE SOME INQUIRY OR I.T.A. NO4052,4058/DEL/2009 2616 & 2558/DEL/2008 4/16 INVESTIGATE THE ISSUE. ON PERUSAL OF THE ASSESSMENT ORDER, IT REVEALS THAT ASSESSING OFFICER HAS NOWHER E CONDUCTED SUCH INQUIRY. HE ONLY MADE COMPARISON OF THE RENT PAID BY THE ASSESSEE IN EARLIER YEARS V IS- -VIS THESE ASSESSMENT YEARS. THE CIRCUMSTANCES POINTED OUT BY THE ASSESSEE HAVE TOTALLY BEEN OVERLOOKED. IT WAS CONTENDED BY THE ASSESSEE THAT ADDITIONAL SPACE HAS BEEN TAKEN ON RENT AT VASANT VIHAR. THE RATE OF RENT WAS LOWER IN THE EARLIER YEARS BECAUSE CONSTRUCTION COST WAS BORN BY THE COMPANY AND SUCH AMOUNTS HAVE BEEN CONSIDERED AS A DEPOSIT MADE BY THE TENANT TO THE LANDLORD. TH E MOMENT LANDLORD HAS REPAID SUCH DEPOSIT OR REIMBURSED THE COST OF CONSTRUCTION THEN RENT WAS REQUIRED TO BE CHARGED BY THE LANDLORD AT MARKET RATE. THE ASSESSEE HAS NOT TAKEN THE BUILDING ON ASSETS SIDE IN THE COMPANYS ACCOUNT. SIMILARLY, IT HAS NOT CLAIMED DEPRECIATION ON THE BUILDING. WITHOUT LOOKING TO ALL THESE FACTS, ASSESSING OFFIC ER HAS MADE THE DISALLOWANCE. TAKING INTO CONSIDERATION ALL THESE FACTS AND CIRCUMSTANCES AND THE DETAILED DISCUSSION MADE BY THE LEARNED CIT(APPEALS), WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF THE LEARNED FIRST APPELLA TE AUTHORITY. THE APPEALS OF THE REVENUE ARE DISMISSED. 2.1 IN THESE CIRCUMSTANCES RESPECTFULLY FOLLOWING T HE DECISION OF COORDINATE BENCH OF THIS TRIBUNAL IN TH E ASSESSEES OWN CASE REFERRED TO SUPRA, THE FINDINGS OF LD. CIT(A) ON THIS ISSUE STAND CONFIRMED. 2.2 IN GROUND NO.2, THE REVENUE HAS CHALLENGED THE ACTI ON OF LD. CIT(A) IN DELETING THE DISALLOWANCE OF INTER ESTS I.T.A. NO4052,4058/DEL/2009 2616 & 2558/DEL/2008 5/16 IN RESPECT OF THE LOAN TO THE SUBSIDIARY COMPANY. IT WAS THE SUBMISSION BY THE LD. D.R. THATS THE LD. CIT(A ) HAS FOLLOWED THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF S A BUILDERS AND COMPANY REPORTED IN 28 8 ITR 01 (S.C.). IT WAS THE FURTHER SUBMISSION THAT BEFORE THE CIT(A) THE ASSESSEE HAD PRODUCED VARIOUS EVIDEN CES IN THE FORM OF A CHART SHOWING THE SUMMARY OF THE B ANK BORROWINGS AND UTILIZATION THEREOF. IT WAS THE SUBMISSION THAT THESE EVIDENCES HAD NOT BEEN PRODUC ED BEFORE THE A.O. IT WAS THE SUBMISSION THAT THE CIT (A) HAD ALSO NOT SENT THE DETAIL TO THE A.O. FOR VERIFI CATION. IT WAS THE SUBMISSION THAT THIS ISSUE NEEDS TO BE R ESTORED TO THE FILE OF THE A.O. FOR RE-ADJUDICATION. 2.2.1 IN REPLY, THE LD. A.R. SUBMITTED THAT NO DETAILS HA D BEEN CALLED FOR BY THE A.O. AND THE A.O. HAD ONLY REFERR ED CASE LAWS TO MAKE THE DISALLOWANCE. IT WAS THE SUBMISSION THAT THE ORDER OF CIT(A) ON THIS ISSUE W AS LIABLE TO BE UPHELD AS IT WAS SQUARELY COVERED BY T HE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF S A BUILDERS REFERRED TO SUPRA. 2.2.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IT IS FOU ND THAT THE ASSESSEE HAS PRODUCED VARIOUS EVIDENCES BE FORE THE CIT(A). IT IS ALSO NOTICED THAT SUCH EVIDENCES WERE NOT BEFORE THE A.O. IT IS UNDISPUTED THAT THE A.O. HAS RAISED THE ISSUE OF INTEREST FREE LOAN BEING GIVEN TO THE I.T.A. NO4052,4058/DEL/2009 2616 & 2558/DEL/2008 6/16 SUBSIDIARY COMPANY. IN SUCH A SITUATION, IT IS OBV IOUSLY THE DUTY OF THE ASSESSEE TO PRODUCE ALL SUCH EVIDEN CES TO SUBSTANTIATE ITS CASE BEFORE THE A.O. IT WAS NOT INCUMBENT UPON THE A.O. TO DEMAND THE ASSESSEE TO PRODUCE ALL SUCH EVIDENCES AS IS FAVORABLE TO THE ASSESSEE. THE A.O. NORMALLY RAISES THE ISSUE WHERE HE SUSPECTS THAT CERTAIN DISALLOWANCES IS CALLED FOR O R THE INCOME IS LIABLE TO BE ASSESSED. IT IS THE DUTY OF THE ASSESSEE TO PRODUCE THE EVIDENCES TO SUBSTANTIATE I TS CASE. AS IT IS NOTICED THAT THE EVIDENCES HAVE BEE N PRODUCED BEFORE THE CIT(A) THOUGH IN THE FORM OF A CHART AND THE SAME HAS NOT BEEN PRODUCED BEFORE THE A.O., WE ARE OF THE VIEW THAT THIS ISSUE SHOULD BE RESTORED TO THE FILE OF THE A.O. FOR RE-ADJUDICATIO N. IT IS ALSO DIRECTED THAT IF THE ASSESSEE IS ABLE TO SHOW THAT THE ASSESSEES CASE DOES FALL WITHIN THE PARAMETERS AS LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF S A BUILDERS REFERRED TO SUPRA, NO DISALLOWANCE OF INTE REST SHALL BE MADE BY THE A.O. IN THESE CIRCUMSTANCES, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATIST ICAL PURPOSES. 3. I.T.A. NO. 2558/DEL/2008: 3.1 IN THIS APPEAL, THE ASSESSEE HAS CHALLENGED THE ACTION OF LD. CIT(A) IN TREATING THE REVENUE EXPENDITURE ON ACCOUNT OF REPAIRING OF MOULDS AND DIES AS CAPITAL I.T.A. NO4052,4058/DEL/2009 2616 & 2558/DEL/2008 7/16 EXPENDITURE. THE ASSESSEE HAS ALSO RAISED THE ALTE RNATE CLAIM THAT IF THE SAME IS TREATED AS CAPITAL EXPEND ITURE, DEPRECIATION WAS LIABLE TO BE ALLOWED. IT WAS THE SUBMISSION BY THE LD. A.R. THAT THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING ENGINE BLOCKS. IT WAS TH E SUBMISSION THAT THE ASSESSEE HAD DURING THE RELEVAN T ASSESSMENT YEAR INCURRED AN EXPENDITURE OF RS.14,37,277/- ON ACCOUNT OF RENOVATION & REPAIR TO THE MOULDS OF THE ASSESSEE. IT WAS THE SUBMISSION THAT IN THE EARLIER YEAR AND IN THE SUBSEQUENT YEAR THE ASS ESSEE HAD PURCHASED MOULDS AND ON THE MOULDS THE ASSESSEE HAD CLAIMED DEPRECIATION @ 40% AND THE SAME WAS ALS O ALLOWED. IT WAS THE SUBMISSION THAT DURING THE YEA R THE ASSESSEE HAD ONLY DONE REPAIR & RENOVATION OF PORTI ONS OF MOULDS AND EVEN THOUGH THE ASSESSEE DID GET THE ENDURING BENEFIT FROM THE RENOVATION OF THE MOULDS AS THE MOULDS ARE ALREADY AVAILABLE WITH THE ASSESSEE THE RENOVATION WAS IN THE NATURE OF REPAIRS & CONSEQUEN TLY THE SAME WAS LIABLE TO BE ALLOWED AS REVENUE EXPENDITURE. IT WAS THE ALTERNATE SUBMISSION THAT IF THE EXPENDITURE IS TREATED AS CAPITAL EXPENDITURE, THE A.O. SHOULD BE DIRECTED TO GRANT DEPRECIATION APPLICABLE TO DIES AND MOULDS I.E. @ 40% AS THE A.O. ONLY GRANTED DEPRECIATION @ 25%. I.T.A. NO4052,4058/DEL/2009 2616 & 2558/DEL/2008 8/16 3.1.1 IN REPLY THE LD. D.R. VEHEMENTLY SUPPORTED THE ORDE R OF THE A.O. AND THE CIT(A). IT WAS THE SUBMISSION THA T THE RENOVATION OF MOULDS AND THE REPAIR WAS ON ACCOUNT OF RUBBER PORTION, WHICH HAD BECOME OUTDATED DUE TO CHANGE IN THE DESIGN OF THE COMPANYS PRODUCT. IT WAS THE SUBMISSION THAT IF THERE IS A CHANGE IN THE DES IGN OF THE COMPANYS PRODUCT THEN OBVIOUSLY ANY MODIFICATI ON DONE TO THE MOULDS WOULD RESULT INTO NEW MOULDS. I T WAS THUS A SUBMISSION THAT THE BILLS FOR THE MOULDS , WHICH WERE ALSO FOUND IN THE PAPER BOOK WERE IN RESPECT OF THE PURCHASING OF VARIOUS PARTS AND THE SAME WERE ALSO MARKED AS DIES & MOLDING DIES. IT WAS TH US A SUBMISSION THAT THESE BEING NEW DIES AND MOULDS, WHICH HAD BEEN PURCHASED BY THE ASSESSEE, THE SAME ARE LIABLE TO BE TREATED AS CAPITAL EXPENDITURE. IN RE SPECT OF THE DEPRECIATION, IT WAS THE SUBMISSION THAT THE DEPRECIATION AS APPLICABLE TO MOULDS AND DIES COULD BE GRANTED TO THE ASSESSEE. 3.1.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE HAVE ALSO PERUSED THE ORDERS OF AUTHORITIES BELOW AS ALS O THE PAPER BOOK AS FILED BY THE ASSESSEE. IT IS NOTICED FROM THE PAPER BOOK WHERE BILLS FOR THE DIES HAVE BEEN SHOWN, SHOWS THAT THE BILLS ARE FOR THE MAKE OF VAR IOUS TYPES OF DIES AND MOULDS. WHAT HAS BEEN PURCHASED BY THE ASSESSEE IS VARIOUS SETS OF DIES AND MOULDS. N ONE OF I.T.A. NO4052,4058/DEL/2009 2616 & 2558/DEL/2008 9/16 THE BILLS SHOW ANY EXPENDITURE HAVING BEEN INCURRED FOR REPAIRING OF ANY MOULD. IN THESE CIRCUMSTANCES, IT WOULD HAVE TO BE ACCEPTED THAT THE MOULDS AND DIES WHICH HAVE BEEN SAID TO HAVE BEEN REPAIRED WERE IN FACT THE PURCHASES OF FRESH DIES AND MOULDS. EVEN THOUG H THE ASSESSEE HAS SHOWN VARIOUS PARTS OF THE DIES & MOULDS WHICH HAVE BEEN PURCHASED BY THE ASSESSEE, I T DOES NOT COME OUT ASS TO WHAT HAS BEEN PURCHASED BY THE ASSESSEE IS IN FACT THE REPAIR OF DIES AND MOUL DS. IN THESE CIRCUMSTANCES, THE FINDING OF THE A.O. AND TH E CIT(A) ON THIS ISSUE IS ON A RIGHT FOOTING AND THE SAME IS UPHELD. HOWEVER, IT IS ALSO NOTICED THAT THE DEPRECIATION ON DIES AND MOULDS @ 40% AND THE A.O. HAS GRANTED DEPRECIATION ONLY @ 25%. IN THESE CIRCUMSTANCES, THE A.O. IS DIRECTED TO GRANT THE AS SESSEE THE DEPRECIATION ON THE DIES AND MOULDS @ 40%. IN THESE CIRCUMSTANCES, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 4. I.T.A. NO. 4052/DEL/2009: IN THIS APPEAL THE ASSESSEE HAS RAISED THREE GROUNDS: 4.1 IN THE 1 ST GROUND, THE ASSESSEE HAS CHALLENGED THE ACTION OF CIT(A) IN CONFIRMING THE DISALLOWANCE AS MADE BY THE A.O. ON 50% OF THE COMMISSION PAID TO THE WHOLL Y OWNED SUBSIDIARY OF THE ASSESSEE BY INVOKING THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. IT WAS THE I.T.A. NO4052,4058/DEL/2009 2616 & 2558/DEL/2008 10/16 SUBMISSION BY THE LD. A.R. THAT THE ASSESSEE HAD PA ID COMMISSION TO M/S. SIGMA GLOBAL INCORPORATE A 100% SUBSIDIARY LOCATED AT CLEVLAND USA. IT WAS THE SUBMISSION THAT THE PAYMENT OF COMMISSION WAS WELL WITHIN 7% PERMITTED BY THE RBI. IT WAS THE SUBMISS ION THAT IN FACT THE COMMISSION PAID WAS AROUND 2%, BE ING FAR LOWER THEN THE COMMISSION PAYMENT PERMITTED BY RBI. IT WAS THE FURTHER SUBMISSION THAT THE A.O. H AD INVOKED THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT AND HAD NOT SHOWN ANY COMPARABLE CASE ON THE BASIS OF WHICH IT CAN BE ASSUMED THAT THE ASSESSEE HAD PAID EXCESS COMMISSION TO A RELATED PERSON. IT WAS THE SUBMISSION THAT THE LD. CIT(A) HAD ALSO WITHOUT APPRECIATING THESE FACTS, CONFIRMED THE DISALLOWANC E. 4.1.1 IN REPLY THE LD. D.R. SUBMITTED THAT NO DETAILS OR EXPLANATION OR ANY SUPPORTING DOCUMENTARY EVIDENCES HAD BEEN PRODUCED BEFORE THE A.O. IN REGARD TO THE NATURE OF SERVICES PROVIDED TO THE ASSESSEE COMPANY BY RECIPIENT COMPANY. IT WAS THE SUBMISSION THAT THE REQUIREMENT OF PAYMENT OF COMMISSION ITSELF WAS DISPUTED. HE VEHEMENTLY SUPPORTED THE ORDER OF THE A.O. AND THE CIT(A). 4.1.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IN REPLY TO A QUERY FROM THE BENCH AS TO THE COPY OF THE AGREEMEN T BETWEEN THE ASSESSEE AND THE SUBSIDIARY COMPANY TO I.T.A. NO4052,4058/DEL/2009 2616 & 2558/DEL/2008 11/16 WHOM THE COMMISSION HAD BEEN PAID IT WAS SUBMITTED THAT THE AGREEMENT THOUGH WERE ENTERED INTO HAD NOT BEEN PRODUCED BEFORE ANY OF THE AUTHORITIES BELOW. IT WAS THE FURTHER SUBMISSION THAT HE HAD NO OBJECTION IF THIS ISSUE IS RESTORED TO THE FILE OF THE A.O. FOR FRESH ADJUDICATION SUBJECT TO THE CONDITION THAT THE ASSE SSEE MAY BE GRANTED ADEQUATE OPPORTUNITY TO PRODUCE ALL EVIDENCES INCLUDING THE AGREEMENT ENTERED INTO WITH THE SUBSIDIARY COMPANY FOR PAYMENT OF THE COMMISSION. I T WAS ALSO THE PRAYER THAT THE A.O. MAY BE DIRECTED T HAT IF THE COMMISSION WAS WITHIN THE LIMIT PRESCRIBED BY R BI AND THE ASSESSEE WAS ABLE TO SHOW THE RENDERING OF SERVICES, NO DISALLOWANCE MAY BE DIRECTED. IN THES E CIRCUMSTANCES, WE ARE OF THE VIEW THAT THIS ISSUE S HOULD BE RESTORED TO THE FILE OF THE A.O. FOR FRESH ADJUD ICATION AND WE DO SO. THE ASSESSEE IS AT LIBERTY TO PRODUC E ALL SUCH EVIDENCES IN SUPPORT OF ITS CLAIM BEFORE THE A .O. IF THE ASSESSEE IS ABLE TO SUBSTANTIATE ITS CASE FO R THE PAYMENT OF COMMISSION AND IF THE PAYMENT OF COMMISSION IS WITHIN THE PERMITTED RANGE AS PERMITT ED BY THE RBI AND THE ASSESSEE IS ABLE TO PROVE THE RENDERING OF SERVICES BY THE RECIPIENT THEN THE A.O . SHALL ALLOW THE CLAIM OF THE PAYMENT OF COMMISSION PAID BY THE ASSESSEE. I.T.A. NO4052,4058/DEL/2009 2616 & 2558/DEL/2008 12/16 4.2 IN THE 2 ND GROUND, THE ASSESSEE HAS CHALLENGED THE ACTION OF THE CIT(A) IN SUSTAINING THE ADDITION MADE BY TH E A.O. IN MAKING THE DISALLOWANCE OF PROPORTIONATE INTEREST ON THE INTEREST FREE ADVANCES TO THE WHOLL Y OWNED SUBSIDIARY. IT WAS FAIRLY AGREED THAT THIS I SSUE WAS IDENTICAL TO THE ISSUE IN THE REVENUES APPEAL IN GROUND NO.2 OF THE REVENUES APPEAL IN I.T.A. NO. 2616/DEL/2008. 4.2.1 WE HAVE CONSIDERED THE SUBMISSION. AS WE HAVE RESTORED THE ISSUE IN THE GROUND NO.2 IN THE REVENU ES APPEAL IN I.T.A. NO. 2616/DEL/2008 AND AS IT IS FOU ND THAT THE ISSUE HERE IS IDENTICAL, THIS ISSUE IS ALS O RESTORED TO THE FILE OF THE A.O. FOR FRESH ADJUDICATION IN L INE WITH THE DECISION IN RESPECT OF THE GROUND NO.2 IN I.T.A . NO. 2616/DEL/2008 SUPRA. 4.3 IN GROUND NO.3, THE ASSESSEE HAS CHALLENGED THE ACTION OF CIT(A) IN SUSTAINING THE DISALLOWANCE MADE BY TH E A.O. OF THE SALARY PAID TO TWO DIRECTORS BY INVOKIN G THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. IT WAS THE SUBMISSION BY THE LD. A.R. THAT NO COMPARATIVE CASE HAD BEEN SHOWN BY THE A.O. IT WAS THE SUBMISSION T HAT THE A.O. HAS TRIED TO DRAW AN INFERENCE THAT THE SA LARY OF ANOTHER EMPLOYEE WHO WAS AN EMPLOYEE DIRECTOR IN TH E ASSESSEE COMPANY HAD NOT INCREASED AT THE SAME RATE AS THAT OF TWO DIRECTORS OF THE ASSESSEE COMPANY WHO W ERE I.T.A. NO4052,4058/DEL/2009 2616 & 2558/DEL/2008 13/16 FAMILY MEMBERS AND WHO WERE SUBSTANTIAL SHAREHOLDER S IN THE ASSESSEE COMPANY. IT WAS THE SUBMISSION THAT THAT SUCH A COMPARISON COULD NOT BE DONE AS THE WORK OF EACH EMPLOYEE IS DIFFERENT AND THE RATE OF INCREASE IN SALARY OF EACH EMPLOYEE WOULD NOT BE IDENTICAL. IT WAS THE FURTHER SUBMISSION THAT THE PROVISIONS OF SECTI ON 40A(2)(B) SPECIFICALLY REQUIRES THE A.O. TO MAKE TH E DISALLOWANCE ONLY IF HE IS OF THE OPINION THAT THE EXPENDITURE WAS EXCESSIVE AND UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS SERVIC ES AND FACILITIES FOR THE PAYMENT IS MADE. IT WAS THE SUBMISSION THAT THE A.O. HAS NOT SHOWN ANY COMPARATIVE FAIR MARKET VALUE AND CONSEQUENTLY NO DISALLOWANCE COULD BE MADE. 4.3.1 IN REPLY, THE LD. D.R. VEHEMENTLY SUPPORTED THE ORD ER OF THE A.O. AND THE CIT(A). THE LD. D.R. REITERATE D THE STAND OF THE A.O. IN THE ASSESSMENT ORDER. IT WAS THE SUBMISSION THAT THE SALARY OF TWO OF THE DIRECTORS WHO WERE FAMILY MEMBERS HAVE BEEN INCREASED SUBSTANTIAL LY WHEREAS THE SALARY OF A DIRECTOR, WHO WAS NOT A FAM ILY MEMBER, DID NOT INCREASE AT THE SAME RATE. IT WAS THE SUBMISSION THAT THE ORDER OF THE A.O. AND THE CIT(A ) WAS LIABLE TO BE UPHELD. 4.3.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PERUSAL OF THE PROVISIONS OF SECTION 40A(2) CLEARLY SHOWS THAT IT IS I.T.A. NO4052,4058/DEL/2009 2616 & 2558/DEL/2008 14/16 ONLY IF THE A.O. IS OF THE OPINION THAT THE PAYMENT CONCERNED IS EXCESSIVE AND UNREASONABLE WHEN COMPARED WITH THE FAIR MARKET VALUE OF THE SERVICES AND GOODS THE A.O. CAN MAKE THE DISALLOWANCE. THUS WHA T IS PRIMA FACIE REQUIRED IS A COMPARISON WITH ANOTHE R CASE TO SHOW THE FAIR MARKET VALUE. JUT BECAUSE TW O DIRECTORS WHO MAY BE FAMILY MEMBERS ARE GIVEN HIGHE R INCREASE IN SALARY WHEN COMPARED TO ANOTHER DIRECTO R WHO IS NOT A FAMILY MEMBER, IT CANNOT BE SAID THAT THE FAIR MARKETS VALUE OF THE SERVICES SHOULD BE THAT A S PAID TO THE DIRECTOR WHO HAS RECEIVED THE LOWER INCREASE IN THE SALARY. WHEN A CONCERN IS RUN BY FAMILY MEMBER, THE RESPONSIBILITY ON THE DIRECTORS WHO ARE FAMILY MEMBERS WILL OBVIOUSLY BE MUCH HIGHER WITH THAT AS THE COMPANY ITSELF IS THE SOURCE OF EARNING FOR THE DIR ECTOR. A DIRECTOR WHO IS FAMILY MEMBER WHO HAS CONTROL OVE R THE COMPANY, IF THE COMPANY FAILS, WOULD NORMALLY N OT GET EMPLOYMENT EASILY AS IT WOULD BE A BLACK MARK I N HIS RESUME THAT HE WAS UNABLE TO RUN THE COMPANY WHICH WAS DOING WELL. BUT AN EMPLOYEE DIRECTOR CAN AT ANY POINT OF TIME RESIGNS FROM THE COMPANY AND WALK AWAY. FURTHER THE NATURE OF WORK OF EACH DIRECTOR WOULD BE DIFFERENT IN SO FAR AS ONE MAY BE IN CHARG E OF SALES, ANOTHER IN CHARGE OF MANUFACTURING AND ANOTH ER IN CHARGE OF HUMAN RESOURCES. THE SALARY OF ALL WILL NOT BE I.T.A. NO4052,4058/DEL/2009 2616 & 2558/DEL/2008 15/16 THE SAME. THE COMPARISON IF MADE SHOULD BE OF IDENTICAL OR NEAR IDENTICAL AT LEAST IN THE NATURE OF WORK AND OF AN OUTSIDER. IN THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE COMPARISON AS MADE BY THE A.O. OF AN EMPLOYEE DIRECTOR DOES NOT GIVE A FAIR MARKET VALUE THE SERVICES RENDERED BY THE OTHER TWO DIRECTORS WHOSE SALARY HAS BEEN DISALLOWED BY INVOKING THE PROVISIO NS OF SECTION 40A(2)(B) OF THE ACT. IN THESE CIRCUMSTANCES, THE DISALLOWANCE AS CONFIRMED BY THE CIT(A) ON THIS ISSUE STAND DELETED AND THE APPEAL O F THE ASSESSEE IN I.T.A. NO. 4052/DEL/2009 IS PARTLY ALLO WED FOR STATISTICAL PURPOSE. 5. I.T.A. NO. 4058/DEL/2009: THE REVENUE HAS CHALLENGED THE ACTION OF THE CIT(A) IN DELETING THE ADDITION M ADE BY THE A.O. BY INVOKING THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT ON ACCOUNT OF THE PAYMENT OF R ENT TO THE DIRECTORS. IT WAS FAIRLY AGREED BY BOTH THE SIDES THAT THIS ISSUE WAS SQUARELY COVERED BY THE DECISIO N OF COORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2004-05 AND 2003-04 REFERRED TO SUPRA. IN THESE CIRCUMSTANCES, RESPECT FULLY FOLLOWING THE DECISION OF COORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSM ENT YEAR 2004-05 AND 2003-04 REFERRED TO SUPRA, THE FINDINGS OF WHICH HAVE BEEN EXTRACTED SUPRA, THE I.T.A. NO4052,4058/DEL/2009 2616 & 2558/DEL/2008 16/16 FINDINGS OF LD. CIT(A) ON THIS ISSUE STAND CONFIRME D. IN THE RESULT THE APPEAL OF THE REVENUE IN I.T.A. N O. 4058/DEL/2009 IS DISMISSED. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN I.T .A. NO. 2558/DEL/2008 IS PARTLY ALLOWED, APPEAL OF THE REVE NUE IN I.T.A. NO. 4058/DEL/2009 IS DISMISSED, APPEAL OF THE REVENUE IN I.T.A. NO. 2616/DEL/2008 AND THE APPEAL OF THE ASSESSEE IN I.T.A. NO. 4052/DEL/2009 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. 7. THIS DECISION WAS PRONOUNCED IN THE OPEN COURT O N 26 TH MAR., 2010. SD./- SD./- (A.K. GARODIA) (GEORGE MATHAN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED:26 TH FEB., 2009 SP. COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT TRUE COPY: BY ORDER 4. CIT(A) 5. DR DY. REGISTRAR, ITAT, NEW DELHI