Supack Industries Pvt. Ltd., RAJKOT-GUJARAT V. The Additional Commissioner of Income Tax, Range-2, RAJKOT-GUJARAT

ITA 283/RJT/2011

• Counselvise Citation: [2012] 120 COUNSELVISE.COM (IT) 0109 (ITAT-RAJKOT)
• Duration Of Justice: 1 year(s) 1 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 01-08-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 23-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: IS AGAINST
• Keywords: Fair market value

Judgement Text

, . .. . . . . . , , , , .. # , , , , & & & & ./ ITA NO. 283/RJT/2011 / ASSESSMENT YEAR:- 2008-09 SUPACK INDUSTRIES PVT. LTD. GROUND FLOOR, PATTANI BUILDING, DHEBAR ROAD, RAJKOT. PAN : AACCS9892 D ( +/ APPELLANT) THE ADDL. COMMR. OF INCOME TAX, RANGE-2 RAJKOT. ,-+/ RESPONDENT . / APPELLANT SHRI VIMAL DESAI, C.A. ,-+ 0 / BY RESPONDENT SHRI AVINASH KUMAR, D.R 0 / DATE OF HEARING 01/08/2012 0 / DATE OF PRONOUNCEMENT 03 /08/2012 / / / / ORDER PER T.K. SHARMA, J.M : THIS APPEAL BY THE ASSESSEE IS AG AINST THE ORDER DATED 18-05- 2011 OF C.I.T.(A)-III, RAJKOT CONFIRMING THE DISALLOW ANCE OF RS.9,30,000/- OUT OF TOTAL DISALLOWANCE OF RS.10,79,989/- U/S 40A(2) BEING THE REM UNERATION PAID BY THE ASSESSEE COMPANY TO ITS DIRECTORS FOR THE ASSESSMENT YEAR 2008-09. 2. BRIEFLY STATED THE FACTS ARE THAT ASSESSEE IS A COMPANY EN GAGED IN MANUFACTURING AND TRADING OF CORRUGATED BOXES SHEETS A ND ROLLS. FOR THE ASSESSMENT YEAR IN APPEAL IT FILED THE RETURNED OF INCOME DECLAR ING TOTAL INCOME OF RS.93,92,816/-. THE ASSESSING OFFICER FRAMED THE ASSESSMENT U/S143(3) WHERE IN HE DISALLOWED THE REMUNERATION AMOUNTING TO RS.10,79,989/- OUT OF TOTA L REMUNERATION PAID RS.34,80,000/-. FOR MAKING THIS DISALLOWANCE THE A.O. RELIED ON THE DE CISION OF HONBLE SUPREME COURT IN THE CASE OF NUND & SAMONT CO.(P) LTD. VS. C.I.T. 78 ITR 268 (SC). 3. ON APPEAL BEFORE LD.CIT(A) THE ASSESSEE SUBMITTED THE BREAK UP OF REMUNERATION PAID IN THE ASSESSMENT YEAR UNDER APPEAL AS WELL AS IN TH E IMMEDIATELY PRECEEDING ASSESSMENT YEAR WHICH IS AS UNDER. SR.NO. NAME A.Y.2008-09 AMOUNT (RS.) IMMEDIATELY PREDEDING YEAR, AMOUNT (RS.) 1. SHRI ASHWINBHAI SHAH 10,80,000/- 7,80,000/- 2. SHRI SAMEERBHAI SHAH 10,20,000/- 6,60,000/- 3. SHRI MITULBHAI SHAH 6,30,000/- 3,00,000/- 4. SHRI CHIRAGBHAI SHAH 7,50,000/- 4,20,000/- TOTAL 34,80,000/- 21,60,000/- ITA-283/RJT/11 2 4. BEFORE LD.CIT(A) IT WAS ALSO CONTENDED THAT REMUNERATI ON /SALARY PAID TO DIRECTORS IS REASONABLE BECAUSE OF THEIR QUALIFICATIONS. SHRI ASHWINBHAI, SAMIRBHAI, MITULBHAI AND CHIRAGBHAI ARE ASSOCIATED WITH THE ASSESSEE COMPANY SINCE 1989,1995, 2000 AND 2001 RESPECTIVELY AND HAVE QUALIFICATIONS SUCH AS B.SC., B.COM. MBA AND MBA RESPECTIVELY. IT WAS SUBMITTED THAT REMUNERATION P AID TO EACH OF THE DIRECTOR IS REASONABLE AND JUSTIFIABLE AS COMPARED TO THEIR AGE, ED UCATION, EXPERIENCE AND WORK AND IT IS WITHIN THE CEILING LIMIT AS PROVIDED IN SEC TION 40 (B) OF THE IT ACT 1961. 5. AFTER CONSIDERING THIS SUBMISSION, LD. C.I.T.(A) CONFI RMED THE ADDITION TO THE EXTEND OF RS.9,30,000/- FOR THE DETAILED REASON GIVE N IN PARA 4.1 AND PARA 4.2 OF THE IMPUGNED ORDER. AGGRIEVED WITH THE ORDER OF THE LD .CIT(A) THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 6. AT THE TIME OF HEARING BEFORE US, ON BEHALF OF ASSE SSEE SHRI VIMAL DESAI, CA APPEARED AND POINTED OUT THAT REMUNERATION PAID TO THE DIRECTORS IS DULY SUPPORTED BY BOARDS RESOLUTION PASSED UNDER THE RELEVANT PROVISION OF COMPANYS ACT 1956. THE RELIANCE WAS ALSO PLACED ON THE DECISION OF ITAT SMC BEN CH, AHMEDABD IN THE CASE OF J.K. PACKAGING (P) LTD., AHMEDABAD IN ITA NO.3414 /AHD/2010 FOR THE A.Y.2007-08 WHEREIN IT WAS HELD THAT REMUNERATION PAID TO DIRECTO RS CANNOT BE DISALLOWED U/S 40A (2) (B) UNLESS IT IS PROVED THAT THE SAME IS EXCESSIVE AND UNRE ASONABLE. HE SUBMITTED THAT IN THIS CASE NEITHER THE A.O. NOR LD.CIT(A) IN THEIR R ESPECTIVE ORDER HAS MADE DIFFERENCE WHETHER SAID REMUNERATION PAID TO THE DIRECTORS. LOOK ING THE SERVICES RENDERED BY THEM IS FAIR AND REASONABLE. THEREFORE, ON THIS GROUND ALO NE THE DISALLOWANCE TO THE EXTEND OF RS. 9,30,000/- CONFIRMED BY LD.CIT(A) BE DELETED. 7. ON THE OTHER HAND SHRI AVINASH KUMAR, D.R. APPEAR ED ON BEHALF OF THE REVENUE AND WHEMENTLY SUPPORTED THE ORDER OF LD.CIT(A). HE SUBMITTED THAT THIS YEAR THERE IS ABNORMAL INCREASE IN SALARY. THEREFORE, DISALLOWANCE W AS RIGHTLY MADE. 8. HAVING HEARD BOTH SIDES, WE HAVE CAREFULLY GONE THRO UGH THE ORDERS OF AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT THER E ARE ONLY FOUR DIRECTORS. THE TOTAL INCOME DECLARED BY ASSESSEE AFTER BEBITTING THE REMUNERA TION PAID TO THE DIRECTORS IS RS.93,92,816/-. LOOKING TO THE NATURE OF SERVICES REND ERED BY THESE TO DIRECTORS IT CANNOT BE SAID THAT SALARY PAID TO THEM IS EXCESSIVE OR UN REASONABLE. FURTHER, THE REMUNERATION PAID IS DULY SUPPORTED BY THE BOARD RESO LUTION WHICH WAS PASSED UNDER THE RELEVANT PROVISION OF THE COMPANYS ACT. THE PREVI OUS YEARS DIRECTORS REMUNERATION IN OUR OPINION IS NOT RELEVANT YARD STICK TO MEASURE TH E REASONABILITY OF CURRENT YEARS DIRECTORS REMUNERATION BECAUSE IT IS QUITE POSSIBLE THA T IN THE PREVIOUS YEAR LOWER REMUNERATION IS PAID. THEREFORE, IT DOES NOT MEAN TH AT IN SUBSEQUENT YEAR HIGHER LIMITS CAN BE PAID. THE DECISION OF HONBLE SUPREME COURT IN THE CASE IF NUND SAMOT & CO. (78 ITR 268) RELIED BY A.O. IN THE ASSESSMENT ORDER IS NOT RELEVANT IN THE PRESENT CASE ITA-283/RJT/11 3 AS IN THE SAID JUDGEMENT THE HONBLE SUPREME COURT WA S CONCERNED WITH THE PROVISION OF SECTION 40 (4A) OF 1922 AND IN WHICH DISALLOWANCE OF REMUNERATION WAS TO BE MADE IF REMUNERATION WAS NOT FOUND TO BE AS PER BUSINESS NEEDS. ON THE CONTRARY, SECTION 40A(2) LAYS EMPHASIZE ON FAIR MARKET VALUE. LOOKING TO ALL THESE FACTS, WE ARE DELETING THE DISALLOWANCE OF REMUNERATION TO THE EXTEND OF RS.9 ,30,000/- CONFIRMED BY THE C.I.T.(A) IN THE IMPUGNED ORDER. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED . 0 6 0 THIS ORDER PRONOUNCED IN OPEN COURT AS INDICATED HEREI N ABOVE. -SD- -SD- (A.K. GARODIA) (T.K. SHARMA) ( ) ( ) ACCOUNTANT MEMBER JUDICIAL MEMBER # / ORDER DATE 03 /08/2012 /RAJKOT PUJARA/- 0 00 0 , ,, ,9 9 9 9 :9 :9 :9 :9 / COPY OF ORDER FORWARDED TO:- 1. + / APPELLANT- SUPACK INDUSTRIES PVT. LTD., RAJKOT 2. ,-+ / RESPONDENT- THE ADDL. COMMR. OF INCOME TAX, RANGE -2, RAJKOT.. 3. ? / CONCERNED C.I.T-II, RAJKOT. 4. ?- / CIT (A)-III, RAJKOT. 5. 9 ,, , / DR, ITAT, RAJKOT 6. / GUARD FILE. / BY ORDER , TRUE COPY ASTT. REGISTRAR , INCOME TAX APPELLATE TRIBUNAL, RAJKOT.