N J Devani Builders Pvt. Ltd., Ahmedabad V. The Dy.CIT, Circle-3(1)(1), Ahmedabad

ITA 2732/AHD/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5794 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 5 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 28-09-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Principle of natural justice; Fair market value

Judgement Text

, *CK *CK*CK *CKH HH H* ** * IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD IZEKSN DQEKJ IZEKSN DQEKJ IZEKSN DQEKJ IZEKSN DQEKJ BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI MAHAVIR PRASAD, JUDICIAL MEMBER I.T.A. NO.2732/AHD/2015 ( / ASSESSMENT YEAR : 2012-13) N. J. DEVANI BUILDERS PVT. LTD., B/H ISHWAR BHUVAN, NAVRANPURA, AHMEDABAD 380 009 VS. DCIT, CIRCLE 3(1)(1), AHMEDABAD. ! PAN/GIR NO. : AAACN 4952 D ( ' / APPELLANT ) .. ( #' RESPONDENT ) '$ APPELLANT BY : SHRI BANDISH SOPARKAR, A.R. #'%$ / RESPONDENT BY : SHRI MUDIT NAGPAL, SR.D.R. & ' (%) * / DATE OF HEARING 22/03/2018 +,-. %) * / DATE OF PRONOUNCEMENT 27/03/2018 / O R D E R PER MAHAVIR PRASAD, JUDICIAL MEMBER : THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE ASSESSEE AGAINST THE APPELLATE ORDER OF THE COMMISS IONER OF INCOME TAX(APPEALS)-9, AHMEDABAD [CIT(A) IN SHORT] VIDE APPEAL NO.CIT(A)-9/562/DCIT.CIR-3(1)(1)/14-15 DATED 05/08/ 2015 ARISING IN THE ASSESSMENT ORDER PASSED UNDER S.143(3) OF T HE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'THE ACT') D ATED 16/02/2015 RELEVANT TO ASSESSMENT YEAR (AY) 2012-13. ITA NO.2732/AHD /2015 N.J. DEVANI BUILDERS PVT. LTD. VS. DCIT ASST.YEAR 2012-13 - 2 - 2. FOLLOWING GROUNDS HAVE TAKEN BY THE ASSESSEE: 1. THE LD.CIT(A) HAS ERRED BOTH IN LAW AND ON FACT S OF THE CASE IN CONFIRMING THE ACTION OF AO IN DISALLOWING ENTIRE R EMUNERATION PAID TO TWO OF THE DIRECTORS TOTALING TO RS.16,80,0 00/- U/S.40A(2)(B) OF THE ACT. 2. IN ANY CASE LD. CIT(A) HAS ERRED IN LAW AND ON F ACTS IN NOT APPRECIATING THAT ONLY EXCESSIVE REMUNERATION IF AT ALL ANY, CAN BE DISALLOWED U/S.40A(2)(B) OF THE ACT AND NOT THE ENTIRE REMUNERATION PAID TO DIRECTORS. 3. BOTH THE LOWER AUTHORITIES HAVE PASSED THE ORDER S WITHOUT PROPERLY APPRECIATING THE FACT AND THAT THEY FURTHE R ERRED IN GROSSLY IGNORING VARIOUS SUBMISSIONS, EXPLANATIONS AND INFORMATION SUBMITTED BY THE APPELLANT FROM TIME TO TIME WHICH OUGHT TO HAVE BEEN CONSIDERED BEFORE PASSING THE IM PUGNED ORDER. THIS ACTION OF THE LOWER AUTHORITIES IS IN C LEAR BREACH OF LAW AND PRINCIPLES OF NATURAL JUSTICE AND THEREFORE DESERVES TO BE QUASHED. 4. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS OF T HE CASE IN CONFIRMING ACTION OF THE LD. AO IN CHARGING INTERES T U/S.234A/B/C/D OF THE ACT. 5. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN CONFIRMING ACTION OF THE LD. AO IN INITIATING PENAL TY U/S.271(1)(C) OF THE ACT. 3. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERI ALS ON RECORD ARE AS UNDER:- IN THIS CASE, THE ASSESSEE COMPANY PAID REMUNERATIO N OF RS.9,00,000/- AND RS.7,80,000/- TO TWO DIRECTORS, S MT. LILA N. DEVANI AND SMT. PRITI A. DEVANI RESPECTIVELY. DURING THE C OURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS REQUIRED TO EXPLAIN T HE SERVICES/CONTRIBUTION MADE BY THEM IN THE BUSINESS ACTIVITY OF THE ASSESSEE AND ALSO TO EXPLAIN THE ALLOWABILITY OF TH E SAID EXPENDITURE IN THE LIGHT OF PROVISIONS OF SECTION 40A2(A) OF THE ACT. THE ASSESSEE VIDE ITS ITA NO.2732/AHD /2015 N.J. DEVANI BUILDERS PVT. LTD. VS. DCIT ASST.YEAR 2012-13 - 3 - LETTER DATED 13/11/2014 SUBMITTED THAT, THESE DIREC TORS ARE APPOINTED BY SHARE HOLDERS OF THE COMPANY IN THEIR ANNUAL GENERA L MEETING AND THEIR REMUNERATIONS ARE ALSO FIXED ACCORDING TO THE RESOL UTION OF THE GENERAL BODY MEETING OF THE SHARE HOLDERS. IT IS FURTHER ST ATED THAT THESE DIRECTORS ARE MANAGERIAL IN NATURE. SALARY PAID TO DIRECTORS ARE VERY REASONABLE LOOKING TO THE QUALIFICATIONS, EXPERIENCE AND SERVI CES RENDERED TO THE COMPANY. THEY LOOK AFTER THE HEAD OFFICE, ITS ADMIN ISTRATIVE WORK, RESPONDING TO VISITORS, ATTENDING TELEPHONE CALLS A ND ANY OTHER MATTER ARISING AT THE HEAD OFFICE. THEY LOOK AFTER THE WEL FARE OF STAFF MEMBERS AND THEIR FAMILIES. 4. BUT LD. AO REJECTED THE CONTENTION OF THE ASSESS EE BY SAYING THAT ASSESSEE HAS NOT PROVIDED ANY EVIDENCE TO JUSTIFY T HE PAYMENT MADE TO THESE DIRECTORS. THE REASONABLENESS OF THESE PAYMEN TS HAVE NOT BEEN DEMONSTRATED BY THE ASSESSEE. HENCE, LD. AO MADE AD DITION OF RS.16,80,000/-. 5. AGAINST THE SAID ORDER ASSESSEE PREFERRED FIRST STATUTORY APPEAL BEFORE THE LD. CIT(A) WHO PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 6. NOW ASSESSEES APPEAL IS BEFORE US. 7. WE HAVE GONE THROUGH THE RELEVANT RECORD AND IMP UGNED ORDER. IT IS FACT THAT THESE TWO DIRECTORS HAVE BEEN APPOINTE D IN PURSUANCE TO THE ITA NO.2732/AHD /2015 N.J. DEVANI BUILDERS PVT. LTD. VS. DCIT ASST.YEAR 2012-13 - 4 - RESOLUTION OF ANNUAL GENERAL MEETING OF THE COMPANY AND AGM HAS FIXED THE REMUNERATION OF THE DIRECTORS, AFTER SEEI NG THEIR QUALIFICATION, EXPERIENCE AND SERVICES RENDERED TO THE COMPANY. IN SUPPORT OF ITS CONTENTION, LD. AR CITED AN ORDER OF CO-ORDINATE BE NCH IN ITA NOS.1387 AND 2126/AHD/2012, IN THIS ORDER, IT HAS BEEN HELD AS UNDER: 5. WE COME TO THE LATTER ASPECT OF UNREASONABLENES S IN ASSESSEE'S PAYMENT MADE TO ITS DIRECTORS AS DISALLOWED U/S.40A (2)(B) OF THE ACT. THIS STATUTORY PROVISION STIPULATES THE DISALL OWANCE IN QUESTION IF ANY SUCH REMUNERATION IS FOUND TO BE EX CESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE SERVICES IN QUESTION. THIS EXCESSIVE ELEMENT HAS TO BE EMBEDDED IN THE IMPUGNED PAYMENT IN COMPARISON TO F AIR MARKET VALUE OF SERVICES IN QUESTION. A CO-ORDINATE BENCH OF THE TRIBUNAL IN DCIT VS. RAVI CERAMICS (2013) 29 TAXAMNAN.COM 2 2 (AND) ALSO PROPOUNDS THE VERY PROPOSITION. IT IS TO BE S EEN THAT THERE IS NO SUCH EXCESSIVENESS OR UNREASONABLENESS ELEMENT F INDINGS IN ASSESSMENT ORDER OR IN THE ADJUDICATIONS OF THE PRE CEDING ASSESSMENT YEARS (SUPRA). WE ACCORDINGLY AGREE WITH , ASSESSEE'S SUBMISSIONS ITSELF AND REJECT REVENUE'S ARGUMENTS S UPPORTING THE IMPUGNED DISALLOWANCE. THE ASSESSEE'S CORRESPON DING GROUNDS IN BOTH THESE APPEALS CHALLENGING SECTION 4 0A(2)(B) OF RS.15,48,000/- AND RS.13,20,000/- IN THE TWO IMPUGN ED ASSESSMENT YEARS ARE ACCEPTED. 8. AS WE CAN SEE NO SUSTAINABLE REASONS HAVE BEEN G IVEN FOR DISALLOWING THE AMOUNT OF RS.16,80,000/- U/S.40A(2) (B) OF THE ACT BY THE AUTHORITIES BELOW AND RESPECTFULLY FOLLOWING THE AF ORESAID CO-ORDINATE BENCHS ORDER, WE ALLOW THIS APPEAL OF THE APPELLAN T. ITA NO.2732/AHD /2015 N.J. DEVANI BUILDERS PVT. LTD. VS. DCIT ASST.YEAR 2012-13 - 5 - 9. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS A LLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 27/03/2018 SD/- SD/- IZEKSN DQEKJ IZEKSN DQEKJ IZEKSN DQEKJ IZEKSN DQEKJ EGKOHJ IZLKN EGKOHJ IZLKN EGKOHJ IZLKN EGKOHJ IZLKN YKS[KK LN YKS[KK LN YKS[KK LN YKS[KK LNL; L; L; L; U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; (PRAMOD KUMAR) ( MAHAVIR PRASAD ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 27/03/2018 PRITI YADAV, SR.PS !'# $#! COPY OF THE ORDER FORWARDED TO : 1. ' / THE APPELLANT 2. #' / THE RESPONDENT. 3. 012) & 3) / CONCERNED CIT 4. & 3) 45 / THE CIT(A)- 9, AHMEDABAD. 5. 67 8)'12 *12. 0 / DR, ITAT, AHMEDABAD 6. 8 9: ( GUARD FILE. % & / BY ORDER, # 6)) //TRUE COPY// '/ & () ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION 23/03/2018(DICTATION-PAD 3 PAGES ATTACHED AT THE END OF THIS FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 26/03/2018 3. OTHER MEMBER... 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S. 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER