Nate Nandha Nee Natarajan Nandhagopal, CHENNAI V. ACIT, CHENNAI

ITA 278/CHNY/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5189 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 05-07-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 31-01-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ASISH TRIPATHY
• Assessee Lawyers: J PRABHAKAR
• Keywords: Salary income

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . . . , . !'# ! , % !& BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NO.278/CHNY/2017 ( )( / ASSESSMENT YEAR : 2009-10 SHRI NATE NANDHA NEE NATARAJAN NANDAGOPAL, C/O SHRI J. PRABHAKAR, CHARTERED ACCOUNTANT, # 245, T.T.K. ROAD, RESIDENCY APARTMENTS, ALWARPET, CHENNAI - 600 018. PAN : AACPN 7263 L V. THE ASSISTANT COMMISSIONER OF INCOME TAX, NON-CORPORATE CIRCLE -3, CHENNAI - 600 034. (+,/ APPELLANT) (-.+,/ RESPONDENT) +, / 0 / APPELLANT BY : SHRI J. PRABHAKAR, CA -.+, / 0 / RESPONDENT BY : SHRI ASISH TRIPATHY, JCIT 1 / 2% / DATE OF HEARING : 24.05.2018 3') / 2% / DATE OF PRONOUNCEMENT : 08.06.2018 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) -4, CHENNA I, DATED 25.10.2016 AND PERTAINS TO ASSESSMENT YEAR 2009-10. 2 I.T.A. NO.278/CHNY/17 2. THERE WAS A DELAY OF 4 DAYS IN FILING THIS APPEA L BY THE ASSESSEE. THE ASSESSEE HAS FILED A PETITION FOR CO NDONATION OF DELAY. WE HAVE HEARD THE LD. REPRESENTATIVE FOR TH E ASSESSEE AND THE LD. D.R. WE FIND THAT THERE WAS SUFFICIENT CAU SE FOR NOT FILING THE APPEAL BEFORE THE STIPULATED TIME. THEREFORE, WE C ONDONE THE DELAY AND ADMIT THE APPEAL. 3. THE ONLY ISSUE ARISES FOR CONSIDERATION IS WITH REGARD TO ADDITION OF 1,09,78,005/- UNDER THE HEAD INCOME FROM SALARY. 4. SHRI J. PRABHAKAR, THE LD. REPRESENTATIVE FOR TH E ASSESSEE, SUBMITTED THAT THE ASSESSEE IS THE MANAGING DIRECTO R OF M/S MOHAN BREWERIES AND DISTILLERIES LIMITED. ACCORDING TO T HE LD. REPRESENTATIVE, THE ASSESSEE HAS DISCLOSED 27,76,011/- TOWARDS SALARY FROM M/S MOHAN BREWERIES AND DISTILLERIES LI MITED. ACCORDING TO THE LD. REPRESENTATIVE, INITIALLY, THE ASSESSEE RECEIVED A SALARY OF 1,37,50,776/- WHICH INCLUDED PERQUISITES OF 17,50,776/-. TDS WAS ALSO MADE BESIDES PF CONTRIBU TIONS. AS PER THE COMPANIES ACT, ACCORDING TO THE LD. REPRESE NTATIVE, THE SALARY OF MANAGING DIRECTOR SHALL NOT EXCEED THE CE ILING OF 5% OF THE NET PROFITS OF THE COMPANY FOR THE YEAR ENDED 31.03 .2009. ACCORDINGLY, THE COMPANY M/S MOHAN BREWERIES AND DI STILLERIES 3 I.T.A. NO.278/CHNY/17 LIMITED REVISED THE SALARY OF THE ASSESSEE AT 27,76,011/- WHICH WAS DISCLOSED TO THE DEPARTMENT BY WAY OF REVISED R ETURN. 5. SHRI J. PRABHAKAR, THE LD. REPRESENTATIVE FOR TH E ASSESSEE, FURTHER SUBMITTED THAT IN THE ORIGINAL ROUND OF LIT IGATION, THIS TRIBUNAL REMITTED BACK THE MATTER TO THE FILE OF THE ASSESSI NG OFFICER. IN THE REMAND PROCEEDING, ACCORDING TO THE LD. REPRESENTAT IVE, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE RECEIVED 1,37,52,396/- FROM THE COMPANY AND THE SALARY WAS REVISED AS PER THE COMPANY LAW ONLY AFTER THE FINANCIAL YEAR WAS COMPLETED. A CCORDING TO THE LD. REPRESENTATIVE, THE ASSESSING OFFICER ALSO FOUN D THAT AS PER FORM 26AS STATEMENT, THE RECEIPT WAS SHOWN AS 1,37,52,396/-. HENCE, THE DIFFERENCE BETWEEN 1,37,52,396/- AND THE AMOUNT OF 27,76,011/- DISCLOSED AS INCOME FROM SALARY WAS ADD ED AS INCOME OF THE ASSESSEE TOWARDS INCOME FROM SALARY. ACCORD ING TO THE LD. REPRESENTATIVE, WHAT WAS PAID TO THE ASSESSEE IS CO NTRARY TO THE PROVISIONS OF COMPANIES ACT, THEREFORE, THAT CANNOT BE CONSTRUED AS INCOME OF THE ASSESSEE. ON A QUERY FROM THE BENCH WHETHER THE COMPANY HAS INITIATED ANY RECOVERY PROCEEDING FOR E XCESS AMOUNT PAID TO THE ASSESSEE? THE LD. REPRESENTATIVE SUBMI TTED THAT THE 4 I.T.A. NO.278/CHNY/17 ASSESSEE HAS PAID LOT OF MONEY TO THE COMPANY, THER EFORE, BY WAY OF BOOK ADJUSTMENT, THE AMOUNT WAS RECOVERED. 6. ON THE CONTRARY, SHRI ASISH TRIPATHY, THE LD. DE PARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASSESSEE ADMITTE DLY RECEIVED 1,37,52,396/-. SUBSEQUENTLY, ACCORDING TO THE LD. D.R., THE ASSESSEE CLAIMED THAT THE COMPANY REVISED HIS SALAR Y IN VIEW OF THE PROVISIONS OF THE COMPANIES ACT WHICH PROHIBITS PAY MENT EXCEEDING 5% OF NET PROFITS OF THE COMPANY. ACCORDING TO THE LD. D.R., WHAT WAS PAID TO THE ASSESSEE WAS NOT RECOVERED BY THE C OMPANY AND IT WAS ALLOWED TO REMAIN WITH THE ASSESSEE. IN THE AB SENCE OF RECOVERY BY THE COMPANY, EVEN IF THE AMOUNT IS PAID CONTRARY TO THE PROVISIONS OF COMPANIES ACT, ACCORDING TO THE LD. D .R., IT HAS TO BE CONSTRUED AS INCOME OF THE ASSESSEE, THEREFORE, THE CIT(APPEALS) HAS RIGHTLY CONFIRMED THE ORDER OF THE ASSESSING OF FICER. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAD RECEIVED 1,37,50,396/- TOWARDS SALARY WHICH INCLUDED PERQUISITES OF 17,50,776/-. THE ASSESSEE NOW CLAIMS THAT DUE TO THE PROVISIONS OF COMPANIES ACT, THE COMPANY REVISED THE SALARY OF MANAGING DIRECTOR AND FIXED 5 I.T.A. NO.278/CHNY/17 27,76,011/- WHICH INCLUDED PERQUISITES OF 4,47,011/-. THE QUESTION ARISES FOR CONSIDERATION IS WHETHER THE AM OUNT PAID BY THE COMPANY IN CONTRAVENTION OF THE PROVISIONS OF THE C OMPANIES ACT AS SALARY, WOULD BE INCOME OF THE ASSESSEE UNDER THE I NCOME-TAX ACT? 8. WE HAVE CAREFULLY GONE THROUGH THE PROVISIONS OF SECTION 5 OF THE INCOME-TAX ACT, 1961, WHICH READS AS FOLLOWS :- SCOPE OF TOTAL INCOME 5. (1) SUBJECT TO THE PROVISIONS OF THIS ACT, THE T OTAL INCOME OF ANY PREVIOUS YEAR OF A PERSON WHO IS A RESIDENT INCLUDE S ALL INCOME FROM WHATEVER SOURCE DERIVED WHICH (A) IS RECEIVED OR IS DEEMED TO BE RECEIVED IN INDI A IN SUCH YEAR BY OR ON BEHALF OF SUCH PERSON ; OR (B) ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARI SE TO HIM IN INDIA DURING SUCH YEAR ; OR (C) ACCRUES OR ARISES TO HIM OUTSIDE INDIA DURING S UCH YEAR : PROVIDED THAT IN THE CASE OF A PERSON NOT ORDINARIL Y RESIDENT IN INDIA WITHIN THE MEANING OF SUB-SECTION (6) OF SECTION 6, THE INCOME WHICH ACCRUES OR ARISES TO HIM OUTSIDE INDIA SHALL NOT BE SO INCLUDED UNLESS IT IS DERIVED FROM A BUSINESS CONTROLLED IN OR A PROFESSION SET UP IN INDIA. (2) SUBJECT TO THE PROVISIONS OF THIS ACT, THE TOTA L INCOME OF ANY PREVIOUS YEAR OF A PERSON WHO IS A NON-RESIDENT INC LUDES ALL INCOME FROM WHATEVER SOURCE DERIVED WHICH (A) IS RECEIVED OR IS DEEMED TO BE RECEIVED IN INDI A IN SUCH YEAR BY OR ON BEHALF OF SUCH PERSON ; OR (B) ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARI SE TO HIM IN INDIA DURING SUCH YEAR. EXPLANATION 1. INCOME ACCRUING OR ARISING OUTSIDE INDIA SHALL NOT BE DEEMED TO BE RECEIVED IN INDIA WITHIN THE MEANIN G OF THIS SECTION BY REASON ONLY OF THE FACT THAT IT IS TAKEN INTO AC COUNT IN A BALANCE- SHEET PREPARED IN INDIA. EXPLANATION 2. FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARE D THAT INCOME WHICH HAS BEEN INCLUDED IN THE TOTAL IN COME OF A PERSON ON THE BASIS THAT IT HAS ACCRUED OR ARISEN OR IS DE EMED TO HAVE 6 I.T.A. NO.278/CHNY/17 ACCRUED OR ARISEN TO HIM SHALL NOT AGAIN BE SO INCL UDED ON THE BASIS THAT IT IS RECEIVED OR DEEMED TO BE RECEIVED BY HIM IN INDIA. 9. IN VIEW OF THE ABOVE, WHATEVER MONEY IS RECEIVED BY THE ASSESSEE FROM WHATEVER SOURCE OR ACCRUES OR ARISES SHALL FORM PART OF TOTAL INCOME OF PREVIOUS YEAR. IT IS ALSO TO BE REMEMBERED THAT ALL THE MONEY RECEIVED BY THE ASSESSEE CANNOT BE TREATE D AS INCOME. THE ASSESSEE SHOULD HAVE A LEGAL RIGHT TO RETAIN TH E MONEY RECEIVED. IN CASE THE ASSESSEE RECEIVED THE MONEY AS A TRUSTEE WITH AN OBLIGATION TO RETURN THE SAME TO SOME OTHER PERSON, THEN SUCH KIND OF MONEY RECEIVED CANNOT BE CONSTRUED AS INCOME OF THE ASSESSEE AT ALL. THEREFORE, WHEN THE ASSESSEE HAS RECEIVED SALARY OF 1,37,50,776/-, THE ASSESSEE SHOULD HAVE A LEGAL RIG HT TO RETAIN THE SAME. IN THIS CASE, WHAT WAS PAID TO THE ASSES SEE IS A SALARY IN THE CAPACITY AS MANAGING DIRECTOR OF THE COMPANY. THEREFORE, AT THE TIME OF PAYMENT, THE ASSESSEE HAD ALL THE RIGHT TO RETAIN THE MONEY. SUBSEQUENTLY, THE COMPANY REVISED THE SALAR Y ON THE BASIS OF THE PROVISIONS OF COMPANIES ACT RESTRICTING THE SALARY TO 5% OF THE NET PROFITS OF THE COMPANY. THE QUESTION ARISE S FOR CONSIDERATION IS WHETHER THE SO-CALLED EXCESS PAYME NT OF 1,09,78,005/- WOULD FORM PART OF TAXABLE INCOME OF THE ASSESSEE? 7 I.T.A. NO.278/CHNY/17 10. EVEN THOUGH THE LD. REPRESENTATIVE FOR THE ASSE SSEE CLAIMS THAT RECOVERY ADJUSTMENT WAS MADE IN THE BOOKS REGA RDING EXCESS PAYMENT, NO MATERIAL IS AVAILABLE ON RECORD SHOWING THAT THE BOOK ENTRY HAS BEEN MADE ADJUSTING THE AMOUNT IN THE COM PANY ACCOUNT. SINCE THE REQUIRED MATERIAL WAS NOT FILED EITHER BE FORE THE ASSESSING OFFICER OR BEFORE THE CIT(APPEALS) OR EVEN BEFORE T HIS TRIBUNAL, MERE ORAL CLAIM THAT THE AMOUNT WAS ADJUSTED BY WAY OF BOOK ENTRY CANNOT BE ACCEPTED AT THIS STAGE. MERELY BECAUSE T HE PAYMENT WAS CONTRARY TO THE PROVISIONS OF COMPANIES ACT, THIS T RIBUNAL IS OF THE CONSIDERED OPINION THAT THE INCOME-TAX ACT, BEING A SPECIAL PROVISION, THE COMPANIES ACT CANNOT OVERRIDE THE IN COME-TAX ACT. IN OTHER WORDS, THE INCOME-TAX ACT WILL OVERRIDE TH E COMPANIES ACT. EVEN THE ILLEGAL PAYMENT OR THE PAYMENT RECEIVED BY THE ASSESSEE CONTRARY TO THE PROVISIONS OF COMPANIES ACT BY WAY OF SALARY HAS TO BE ASSESSED AS INCOME IN THE ASSESSEES HANDS PROVI DED THE SAME WAS NOT RECOVERED BY THE COMPANY. IN THE ABSENCE O F ANY DETAILS OR MATERIAL TO SUPPORT THE CLAIM OF RECOVERY OR ADJ USTMENT IN THE BOOKS WITH REGARD TO EXCESS PAYMENT OF SALARY, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE CIT(APPEALS) HAS RI GHTLY CONFIRMED THE ORDER OF THE ASSESSING OFFICER. THEREFORE, THI S TRIBUNAL DO NOT 8 I.T.A. NO.278/CHNY/17 FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS DISMISSED. ORDER PRONOUNCED ON 8 TH JUNE, 2018 AT CHENNAI. SD/- SD/- (. !'# ! ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) % / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 5 /DATED, THE 8 TH JUNE, 2018. KRI. / -267 87)2 /COPY TO: 1. +, /APPELLANT 2. -.+, /RESPONDENT 3. 1 92 () /CIT(A)-4, CHENNAI-34 4. PRINCIPAL CIT-5, CHENNAI. 5. 7: -2 /DR 6. ;( < /GF.