Chennai Civil Tech Research Foundation Pvt. Ltd., CHENNAI V. ITO Corporate Ward 1(3), CHENNAI

ITA 2974/CHNY/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 7474 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-07-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 04-12-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B SAGADEVAN
• Assessee Lawyers: R SIVARAMAN
• Keywords: Fair market value

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A (SMC) BENCH: CHENNAI . , BEFORE SHRI ABRAHAM P.GEORGE, ACCOUNTANT MEMBER ./ ITA NO.2974/CHNY/2017 /ASSESSMENT YEAR: 2013-14 M/S.CHENNAI CIVIL TECH RESEARCH, FOUNDATION PVT. LTD., NO.264, NEHRU NAGAR, 2 ND MAIN ROAD OFF OMR, NEAR KANDHANCHAVADI, KOTTIVAKKAM, CHENNAI-600 096. VS. THE INCOME TAX OFFICER, CORPORATE WARD-1(3), CHENNAI. [PAN: AADCC 0887 H ] ( $ /APPELLANT) ( %&$ /RESPONDENT) $ ' / APPELLANT BY : MR.R.SIVARAMAN, ADV. %&$ ' /RESPONDENT BY : MR.B.SAGADEVAN, JCIT ' /DATE OF HEARING : 02.07.2018 ' /DATE OF PRONOUNCEMENT : 04.07.2018 / O R D E R PER ABRAHAM P.GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY THE ASSESSEE, WHICH IS DIR ECTED AGAINST AN ORDER DATED 27.09.2017 OF COMMISSIONER OF INCOME TA X(APPEALS)-1, CHENNAI, IT IS AGGRIEVED ON A DISALLOWANCE MADE U/S .40A(2) OF THE ACT. 2. FACTS APROPOS ARE THAT ASSESSEE A DOMESTIC COMPA NY ENGAGED IN TESTING AND CERTIFICATION OF BUILDING MATERIAL, HAD FILED ITS RETURN FOR THE IMPUGNED ASSESSMENT YEAR DECLARING AN INCOME OF RS. 2,51,393/-. DURING ITA NO.2974/CHNY/2017 :- 2 -: THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAD PAID SALARY TO THE FOLLOWING RELATED PARTIES: S.NO. NAME OF THE PERSON RELATIONSHIP AMOUNT 1 MRS.G.SAROJA W/O SHRI A.V.BALACHANDRA, DIRECTOR 4 ,20,000 2 MRS.RENUKA SREENATH W/O SHRI H.G.SREENATH, DIRECT OR 1,20,000 3 MRS.YASMIN HANIF W/O SHRI MOHAMMED HANIF, DIRECTO R 6,42,000 4 MRS.L.PARVEEN NIYAZ W/O SHRI R.LATHEEF, DIRECTOR 3,60,000 TOTAL 15,42,000 3. AO REQUIRED THE ASSESSEE TO EXPLAIN THE NATURE O F SERVICES RENDERED BY THE ABOVE PERSONS. IT WAS EXPLAINED BY THE ASSE SSEE THAT THESE PERSONS WERE WORKING SINCE 01.05.2007 AND DISCHARGI NG FUNCTIONS ASSOCIATED WITH THEIR RESPECTIVE DESIGNATIONS. DET AILS GIVEN BY THE ASSESSEE READ AS UNDER: S. NO. NAME OF THE STAFF W/O DESIGNATION AMOUNT PAID 1 MRS.G.SAROJA MR.A.V.BALACHANDRA MANAGER (FINANCE) 4,20,000 2 MRS.RENUKA SREENATH MR.H.G.SREENATH MANAGER (ADMN) 1,20,000 3 MRS.YASMIN HANIF MR.MOHAMMED HANIF MARKETING MANAGER 6,42,000 4 MRS.L.PARVEEN NIYAZ MR.R.LATHEEF ACCOUNTS MANAGER 3,60,000 4. AO ISSUED SUMMONS U/S.131 OF THE ACT TO THE ABOV E PERSONS. IN RESPONSE TO THESE SUMMONS, ALL THE PERSONS EXCEPT S MT. G.SAROJA APPEARED, AND STATEMENTS WERE RECORDED FROM THEM. LD.AO MADE AN ANALYSIS OF THE REPLIES GIVEN BY THEM TO THE VARIOU S QUESTIONS POSED BY HIM AND CAME TO A CONCLUSION THAT THEY WERE NOT DOI NG ANY SIGNIFICANT WORK FOR THE ASSESSEE. LD.AO WAS OF THE OPINION THA T THE ASSESSEE HAD PAID SALARY WHICH WAS EXCESSIVE OR UNREASONABLE HAV ING REGARD TO THE FAIR MARKET VALUE OF THE SERVICES RENDERED BY THESE PERS ONS. THOUGH THE ITA NO.2974/CHNY/2017 :- 3 -: ASSESSEE STATED THAT THESE PERSONS WORKED BEYOND TH EIR ASSIGNED ROLES AND RESPONSIBILITIES AND WAS INSTRUMENTAL IN DEVELO PING THE COMPANY, THE AO WAS NOT IMPRESSED. HE HELD THAT THE PAYMENTS MA DE TO THESE PERSONS AS SALARY CALLED FOR DISALLOWANCE U/S.40A(2)(B) OF THE ACT. AGGREGATE DISALLOWANCE MADE CAME TO RS.15,42,000/-. 5. AGGRIEVED, ASSESSEE MOVED IN APPEAL BEFORE THE L D.CIT(A). RELYING ON THE JUDGMENT OF THE HONBLE APEX COURT IN THE CA SE OF UPPER INDIA PUBLISHING HOUSE (P) VS. COMMISSIONER OF INCOME TAX , REPORTED IN 117 ITR 569, IT WAS ARGUED BY THE ASSESSEE THAT THE EXP ENDITURE WHETHER EXCESSIVE OR UNREASONABLE WAS A QUESTION OF FACT AN D CONSIDERING THE NATURE OF SERVICES RENDERED BY THE FOUR PERSONS, SA LARIES PAID WERE NEITHER EXCESSIVE NOR UNREASONABLE. HOWEVER, THE LD.CIT(A) WAS NOT IMPRESSED BY THE ABOVE ARGUMENT. ACCORDING TO HIM, AVERAGE S ALARY PAID BY THE ASSESSEE FOR ITS ALL OTHER EMPLOYEES CAME ONLY TO R S.1,06,000/- PER ANNUM. HE HELD THAT THE THREE PERSONS WHO HAD APPE ARED BEFORE THE LD.AO, EVEN IF THEY HAD RENDERED ANY SERVICES TO TH E ASSESSEE COMPANY, OUGHT NOT HAVE BEEN PAID MORE THAN RS.1,06,000/-. HOWEVER, SMT. G.SAROJA, AS PER THE LD.CIT(A) HAD NOT APPEARED BEF ORE THE AO AND HENCE THE CLAIM OF ANY SALARY TO HER COULD NOT BE ACCEPTE D. THUS, HE HELD THE JUSTIFIABLE SALARY TO BE ONLY RS.3,18,000/-. BALANC E OF THE DISALLOWANCE WAS CONFIRMED. ITA NO.2974/CHNY/2017 :- 4 -: 6. NOW, BEFORE US, THE LD.AR STRONGLY ASSAILING THE ORDERS OF THE BELOW AUTHORITIES SUBMITTED THAT, THREE OF THE PERSONS NA MELY SMT. YASMIN HANIF, SMT. RENUKA SREENATH, SMT. L.PARVEEN NIYAZ H AD APPEARED BEFORE THE AO AND CONFIRMED THAT THEY WERE RENDERING SERVI CES TO THE ASSESSEE COMPANY. SMT. G.SAROJA, AS PER THE LD.AR, THOUGH, SHE HAD NOT APPEARED BEFORE THE AO, SHE HAD DONE IMPORTANT WORK IN HER R OLE AS MANAGER (FINANCE) AND DISALLOWANCE OF HER SALARY WAS NOT WA RRANTED. RELYING ON THE SEC.40A(2) OF THE ACT, LD.AR SUBMITTED THAT DIS ALLOWANCE UNDER THE SAID SECTION COULD BE MADE ONLY WHERE EXPENDITURE W AS FOUND TO BE EXCESSIVE OR UNREASONABLE WHEN COMPARED TO THE FAIR MARKET VALUE OF THE SERVICES RENDERED. AS PER THE LD.AR, NO COMPARABLE CASES WERE BROUGHT IN BY THE AO BEFORE MAKING THE DISALLOWANCE. THUS, ACCORDING TO HIM, A DISALLOWANCE U/S.40A(2) OF THE ACT WAS NOT WARRANTE D. 7. PER CONTRA, THE LD.DR SUBMITTED THAT ONE OF THE FOUR PERSONS, NAMELY SMT. G.SAROJA DID NOT APPEAR ON SUMMONS AND NO EVIDENCE WHATSOEVER WAS PRODUCED IN SUPPORT OF THE CONTENTIO N THAT SHE WAS DOING ANY WORK AS MANAGER (FINANCE). FURTHER, AS PER THE LD.AR, OTHER THREE PERSONS IN THEIR STATEMENTS GIVEN TO THE AO HAD CLE ARLY MENTIONED THAT THEY WERE EITHER NOT ATTENDING THE OFFICE REGULARLY OR WAS NOT AUTHORIZED TO SIGN ANY DOCUMENTS MAINTAINED BY THE ASSESSEE CO MPANY NOR AWARE ABOUT THE TYPE OF ACCOUNTING SOFTWARE USED. THUS, ACCORDING TO HIM, NONE OF THESE PERSONS WERE RENDERING ANY SERVICE AND DIS ALLOWANCE U/S.40A(2) OF THE ACT WAS RIGHTLY DONE BY THE AO. ITA NO.2974/CHNY/2017 :- 5 -: 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL PLACED ON RECORD. WHAT WAS STATED BY SMT. RENUKA SREENATH WHEN SHE WAS SUMMONED BY THE AO IS REPRODUCED HERE UNDER: Q.NO. 7: WHAT IS YOUR ROLE & RESPONSIBILITIES IN T HE COMPANY? ANS: I AM LOOKING AFTER ADMINISTRATION WORK. I AM A SSISTING MY HUSBAND MR.SREENATH, WHO IS THE TECHNICAL DIRECTOR Q.NO.17: TELL ME ABOUT YOUR DAY TO DAY WORK? ANS: I CHECK THE ATTENDANCE OF THE EMPLOYEES. I OVE R ALL CHECK THE WORKING CONDITIONS OF THE MACHINERIES. IF ANY REPAIR WORK T O BE CARRIED OUT I WILL INFORM THE CONCERNED PERSON. Q.NO.22: IS THERE ANY ATTENDANCE REGISTER FOR YOU? HOW WILL YOU MARK YOUR ATTENDANCE? ANS: THERE IS NO ATTENDANCE REGISTER FOR ME. OTHER STAFF ARE SIGNING. Q.NO.23: ON 29.12.2015, MR.SARAVANAN ITI OF THIS OF FICE VISITED YOUR OFFICE YOU WERE NOT THERE. PLEASE EXPLAIN? ANS: I DID NOT GO TO OFFICE ON THAT DAY AS MY HUSBA ND HAD TO GO TO BANGALORE. Q.NO.24: WHEN DID YOU ATTEND OFFICE LAST? ANS: ONLY WHEN REQUIRED I GO TO OFFICE. WHAT WAS STATED BY SMT. YASMIN HANIF WHEN SHE WAS SUMMONED BY THE AO IS REPRODUCED HERE UNDER: Q.NO. 7: BEFORE JOINING COMPANY DID YOU WORK ANYWH ERE? ANS: NO Q.NO.11: WHAT IS YOUR ROLE & RESPONSIBILITY IN THE COMPANY? ANS: I DO THE MARKETING WORK FOR TESTING. I INVITE CUSTOMERS TO OUR OFFICE ALSO I GO OUT FOR MEETING THE CLIENTS AND TALK ABOUT OUR SERV ICES DONE. Q.NO.19: TELL ME ABOUT YOUR DAY TO DAY ACTIVITIES? ANS: I AM ASSISTING MY HUSBAND (HANIF) I CHECK THE MAILS AND GIVE REPLIES ITA NO.2974/CHNY/2017 :- 6 -: Q.NO.20: WHO IS YOUR IMMEDIATE SUPERIOR? ANS; MY HUSBAND Q.NO.21: HOW MANY PEOPLE ARE WORKING UNDER YOU? ANS: NO ONE. Q.NO.26: ARE YOU COMPETENT & AUTHORIZED TO SIGN ANY DOCUMENT OR COMMUNICATION ON BEHALF OF THE COMPANY? ANS: NO Q.NO.27: IF YOU IMMEDIATE SUPERIOR IS NOT THERE, WI LL YOU TAKE DECISION INDEPENDENTLY? ANS: NO THERE ARE OTHER 3 PARTNERS WHO WILL DO THE NEEDFUL. Q.NO.28: YOU HAVE JOINED AS A MARKETING EXECUTIVE A ND IN FORM 16 YOUR DESIGNATION IS MENTIONED AS MANAGER (TECHNICAL)? WH EN DID YOU GET YOUR PROMOTION? ANS: I DONT REMEMBER. Q,NO.33: HAVE YOU FLIED YOUR RETURN OF INCOME FOR A .Y.2013-14? ANS: I DONT KNOW. MY HUSBAND TAKES CARE WHAT WAS STATED BY SMT. L.PARVEEN NIYAZ WHEN SHE W AS SUMMONED BY THE AO IS REPRODUCED HERE UNDER: Q.NO.10: WHAT IS YOUR ROLE & RESPONSIBILITIES IN T HE COMPANY? ANS: I AM ASSISTING MY HUSBAND. WHATEVER CASH RECEI VED DURING THE DAY I DEPOSIT THE CASH IN THE BANK. I WILL FILL UP THE CHALLAN & SEND IT THROUGH OFFICE BOY FOR DEPOSITING IN THE BANK Q.NO.11: ARE YOU IN CHARGE OF THE ACCOUNTS OF THE C OMPANY? ANS; NO. ONE SENIOR ACCOUNTANT MRS. VIAYALAKSHMI IS IN CHARGE OF ACCOUNTS. Q.NO.12: WHAT IS THE SOFTWARE USED FOR ACCOUNTING? ANS: I DONT KNOW. ONLY ACCOUNTANT WILL BE KNOWING. Q.NO.13: WHO IS YOUR IMMEDIATE SUPERIOR? ANS: MY HUSBAND R.LATHEEF Q.NO.14: DID YOU FILE YOUR RETURN OF INCOME? ANS: I DONT KNOW. ONLY MY HUSBAND KNOWS. Q.NO.17: PLEASE TELL ME ABOUT YOUR DAY TO DAY AFFAI RS? ITA NO.2974/CHNY/2017 :- 7 -: ANS: I CHECK THE MAILS, NOTE DOWN TELEPHONE CALLS, AND INFORM MY HUSBAND Q.NO. 18: DO YOU PERFORM ANY WORK RELATING TO THE A CCOUNTS OF YOUR COMPANY? ANS: NO. Q.NO.21: ARE YOU COMPETENT OR AUTHORIZED TO SIGN AN Y DOCUMENT OR COMMUNICATION ON BEHALF OF THE COMPANY? ANS: NO. Q.NO.23: ON 29.12.2015 MR.SARAVANAN ITI OF THIS OFF ICE VISITED YOUR OFFICE. YOU WERE NOT THERE. PLEASE EXPLAIN. ANS: TO TAKE CARE OF MY CHILDREN I WAS AT HOME. MY HUSBAND CAME TO MY HOUSE AND BROUGHT ME TO RECEIVE THE SUMMON. Q.NO.26: DO YOU HAVE ANY ATTENDANCE REGISTER TO SIG N? ANS: NO, THERE IS NO SUCH ATTENDANCE REGISTER FOR M E. ATTENDANCE REGISTER IS ONLY FOR OTHER EMPLOYEES. 9. SMT. RENUKA SREENATH, CLEARLY MENTIONED THAT SHE ATTENDED THE OFFICE ONLY WHEN IT WAS REQUIRED AND THERE WAS NO A TTENDANCE REGISTER, WHEREIN, SHE WAS SIGNING. SMT. YASMIN HANIF SAID T HAT NOBODY WORKED UNDER HER. SMT. L.PARVEEN NIYAZ, STATED THAT SHE W AS ONLY DEPOSITING CASH IN THE BANK, FILLING UP THE CHALLAN AND WAS NO T AWARE OF THE TYPE OF SOFTWARE MAINTAINED BY THE ASSESSEE COMPANY FOR ITS ACCOUNTING PURPOSES. SMT. RENUKA SREENATH WAS ASSIGNED AS MAN AGER(ADMN.), SMT. YASMIN HANIF AS MANAGER (MARKETING) AND SMT. L.PARV EEN NIYAZ AS MANAGER(ACCOUNTS), WHICH ARE ALL APPARENTLY VERY SE NIOR POSITIONS IN MANAGEMENT. IN MY OPINION THERE IS MUCH STRENGTH I N THE ARGUMENT OF THE LD.DR, THAT THESE PERSONS WERE NOT HAVING NECES SARY QUALIFICATION AND COULD HAVE NEVER RENDERED SERVICES COMMENSURATE WIT H THE POSTS HELD BY THEM. AS FOR SMT.G.SAROJA, SHE DID NOT APPEAR BEFO RE THE AO. LD.CIT(A) ITA NO.2974/CHNY/2017 :- 8 -: HAD ANALYZED THE SALARY PAID BY THE ASSESSEE TO ITS OTHER EMPLOYEES AS UNDER: S.NO. NAME OF EMPLOYEE DESIGNATION QUALIFICATION EXPERIENCE IN YEARS SALARY PAID 1 ANBAZHAGAN SR.LAB TECHNICIAN SSLC 25 1,70,300.00 2 HABIBULLAH OFFICE ASST. SSLC 5 1,56,000.00 3 KRITHIKA A/C. EXECUTIVE ASST. B.COM 5 1,48,529.00 4 MOHAMMED SIDDIQUE TECHNICAL OFFICER BE 4 34,016.00 5 PRIYA MALINI A/C. RECEPTIONIST B.SC 9 1,42,717.00 6 RAFIQ JR.CHEMIST B.SC. 8 1,56,000.00 7 RAJA A/C. LAB TECHNICIAN SSLC 4 1,13,656.00 8 RAJESH A/C. LAB TECHNICIAN PLUS TWO 2 62,368.00 9 RAMESH RAJA TECHNICAL OFFICER BE 7 1,52,698.00 10 RAMKUMAR A/C. LAB TECHNICIAN SSLC 6 88,100.00 11 SANKAR.S TECHNICAL OFFICER BE 6 34,016.00 12 SANTHI.D (SERVANT MAID) SERVANT MAID 5 TH 0 17,950.00 13 SANTOSH KUMAR.V LAB TECHNICIAN SSLC 4 77,434.00 14 SELVARAJ A/C. LAB TECHNICIAN SSLC 4 8,390.00 15 SRINIVASAN A.M. CHEMIST B.SC. 7 1,42,985.00 16 THANGAKUMAR A/C. TECHNICAL OFFICER BE 6 1,62,347.00 17 VENKATESH A/C. LAB TECHNICIAN SSLC 8 1,84,500.00 18 VIGNESHWARAN LAB TECHNICIAN PLUS TWO 1 10,268.00 19 VIJAYALAKSHMI A/C. ACCOUNTANT B.SC. 15 1,90,704.00 20 VINOTH KUMAR LAB TECHNICIAN SSLC 2 81,906.00 TOTAL-B 21,34,884.00 LD.CIT(A) HAD AVERAGED THE SALARY OF THE ABOVE PERS ONS AND CAME TO THE FIGURE OF RS.1,06,000/-. HE CONSIDERED IT TO BE TH E FAIR SALARY THAT COULD BE ALLOWED TO THE THREE LADIES WHO WERE WIVES OF TH E DIRECTORS OF THE ASSESSEE AND WHO HAD APPEARED BEFORE THE LD.AO. A LOOK AT THE TABLE ITA NO.2974/CHNY/2017 :- 9 -: ABOVE, CLEARLY INDICATE THAT MANY OF THEM WERE MORE OR EQUALLY QUALIFIED THAN THE FOUR PERSONS WHO WERE WIVES OF THE DIRECTO RS OF THE ASSESSEE COMPANY. NO DOUBT, THE LD.AR DID SUBMIT THAT THE A O HAD NOT BROUGHT OUT ANY COMPARABLE CASE TO PROVE THAT THE PAYMENTS WERE EXCESSIVE. HOWEVER, IN MY OPINION, THE ABOVE TABLE EXTRACTED B Y LD.CIT(A) GIVE COMPARABLE CASES WHICH GOES TO SHOW THAT THE SALARY PAID BY THE ASSESSEE TO THE FOUR PERSONS WERE EXCESSIVE. LD.CIT(A) WAS FAIR IN ALLOWING RS.1,06,000/- AS SALARY FOR THE THREE PERSONS WHO H AD APPEARED BEFORE THE AO. NEVERTHELESS, IN MY OPINION SMT. G.SAROJA OUGHT NOT HAVE BEEN DENIED THIS BENEFIT, JUST FOR A REASON THAT SHE DID NOT APPEAR BEFORE THE AO. ESPECIALLY SO SINCE, THE THREE PERSONS WHO APPE ARED BEFORE THE LD.AO, HAD NOT GIVEN ANY INFORMATION ENLIGHTENING ENOUGH T O SHOW THAT THEY WERE DOING ANY WORK COMMENSURATE WITH THEIR ASSIGNED POS ITIONS. I AM OF THE OPINION THAT THE SALARY OF RS.4,24,000/- FOR ALL TH E FOUR PERSONS WOULD HAVE BEEN FAIR VALUE OF THE SERVICES RENDERED BY TH EM. LD.AO IS DIRECTED TO ALLOW SALARY OF RS.4,24,000/- TO THE FOUR PERSON S. BALANCE DISALLOWANCE IS SUSTAINED U/S.40A(2) OF THE ACT. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON JULY 04, 201 8, AT CHENNAI. SD/- ( . ) ( ABRAHAM P.GEORGE ) /ACCOUNTANT MEMBER ITA NO.2974/CHNY/2017 :- 10 -: /CHENNAI, . /DATED: JULY 04, 2018. TLN ' %/0 10 /COPY TO: 1. $ /APPELLANT 4. 2 /CIT 2. %&$ /RESPONDENT 5. 0 % /DR 3. 2 ( ) /CIT(A) 6. /GF