The ACIT, Circle-1, Bhavnagar V. The Bhavnagar Salt & Industrial Works Pvt.Ltd., Bhavnagar

ITA 319/AHD/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 67536 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 15-04-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 04-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Fair market value; Tax effect

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH AHMADABAD BEFORE SHRI D.K.TYAGI , JUDICIAL MEMBER AND SHRI T.R. MEENA, ACCOUNTANT MEMBER ITA NO. 2853/AHD/2012 ASSESSMENT YEAR : 2009-10 THE BHAVNAGAR SALT & INDUSTRIAL WORKS PRIVATE LIMITED PLOT NO. 1517, GHOGHA CIRCLE, BHAVNAGAR V/S . JOINT COMMISSIONER OF INCOME TAX (OSD), CIRCLE-1, BHAVNAGAR. PAN NO. A ABCT3761D (APPELLANT) .. (RESPONDENT) ITA NO. 319/AHD/2013 ASSESSMENT YEAR : 2009-10 JOINT COMMISSIONER OF INCOME TAX (OSD), CIRCLE-1, BHAVNAGAR. V/S . THE BHAVNAGAR SALT & INDUSTRIAL WORKS PRIVATE LIMITED PLOT NO. 1517, GHOGHA CIRCLE, BHAVNAGAR (APPELLANT) .. (RESPONDENT) BY REVENUE SHRI NIMESH YADAV, SR. D.R. /BY ASSESSEE SHRI SUNIL TALATI, A.R. /DATE OF HEARING 21.06.2013 /DATE OF PRONOUNCEMENT 08.08.2013 O R D E R PER : T.R.MEENA, ACCOUNTANT MEMBER THESE ARE CROSS APPEALS AT THE BEHEST OF ASSESSEE A ND REVENUE WHICH HAVE EMANATED FROM THE ORDER OF CIT(A)-XX, AHMADABA D, DATED 07.11.2012 FOR ASSESSMENT YEAR 2009-10. THESE CROSS APPEALS W ERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY WAY OF THIS COMMON ORDER F OR THE SAKE OF CONVENIENCE. THE EFFECTIVE GROUNDS OF BOTH APPEALS ARE AS UNDER: ITA NOS. 2853/AHD/2012 & 319/AHD/2013, A.Y. 09-10 PAGE 2 GROUNDS OF ITA NO. 2853/AHD/2012 (ASSESSEE'S APPEAL ) 1. THE LEARNED C.I.T. (APPEALS) HAS ERRED IN CONFI RMING THE ADDITION OF RS.30,00,000/- U/S. 40A(2)(B) OF THE IN COME TAX ACT PURELY ON THE GROUND THAT THE ASSESSEE HAS INCREASE D REMUNERATION TO ITS DIRECTORS. IT IS SUBMITTED THAT THE ASSESSE E HAD JUSTIFIED INCREASE IN THE REMUNERATION TO THE DIRECTORS BECAU SE OF SUBSTANTIAL INCREASE IN THE WORK AND CORRESPONDING BENEFIT OF H IGHER TURNOVER AND HIGHER INCOME TO THE COMPANY. IT IS SUBMITTED THAT THE DISALLOWANCE BEING TOTALLY INCORRECT, ILLEGAL AND U NJUSTIFIED AS THE REMUNERATION PAID IS ABSOLUTELY REASONABLE AS COMPA RED TO THE MARKET RATE, THE SAME BE ALLOWED. WITHOUT PREJUDICE TO THE ABOVE THE LEARNED C.I.T. (APPEALS) ERRED IN COMPARING THE REMUNERATION PAID IN THE EAR LIER YEAR. IT IS SUBMITTED THAT THE PREVIOUS REMUNERATION WHICH WAS VERY LOW IS NOT A CRITERIA FOR INVOKING PROVISIONS OF SECTION 40A(2 )(B) OF THE I.T. ACT. IT IS SUBMITTED THAT THE REMUNERATION PAID TO DIREC TORS IS ABSOLUTELY AS PER THE MARKET RATE OF WHAT SUCH DIRECTORS WOULD RECEIVE IF THEY ARE WORKING OUTSIDE AND THEREFORE TREATING THEM AS EXCESSIVE AND UNREASONABLE IS INCORRECT AND UNJUSTIFIED AND THE A DDITION CONFIRMED OF RS.30,00,000/- BE DELETED. 2. THE ORDER PASSED BY THE LEARNED C.I.T. (APPEALS) IS BAD IN LAW AND CONTRARY TO THE PROVISIONS OF LAW AND FACTS. I T IS SUBMITTED THAT THE SAME BE HELD SO NOW. GROUNDS OF ITA NO. 319/AHD/2013 (REVENUES APPEAL) 1. THE LD. CIT(A)-XX, AHMADABAD HAS ERRED IN FACTS AND CIRCUMSTANCES OF THE CASE IN REDUCING THE ADDITION U/S 40A(2)(B) OF RS.59,09,560/- TO RS.29,09,500/- BY IGNORING THE FA CT THAT THE PERCENTAGE INCREASE OF SALARY, BONUS AND COMMISSION TO OTHER EMPLOYEES WAS ONLY 16% AS COMPARED TO LAST YEAR WHE REAS THE PERCENTAGE INCREASE OF SALARY, BONUS AND COMMISSION IN RESPECT OF ITA NOS. 2853/AHD/2012 & 319/AHD/2013, A.Y. 09-10 PAGE 3 SHAREHOLDER DIRECTORS COVERED U/S 40A(2)(B) RANGES FROM 256% TO 534% AND THAT ONE OF THE NON-SHAREHOLDER DIRECTOR W AS NOT PAID ANY AMOUNT DURING THE YEAR. 2. THE LD. A.O. OBSERVED THAT DURING THE YEAR UNDER CONSIDERATION, THE DIRECTORS REMUNERATION HAS BEEN INCREASED FROM RS. 13,98,000/- TO RS. 74,43,360/-. HE GAVE REASONABLE OPPORTUNITY OF BEI NG HEARD, WHICH WAS REPLIED BY THE APPELLANT VIDE LETTER DATED 07.12.20 11. HE FURTHER ASKED FROM THE ASSESSEE TO EXPLAIN THE ROLE AND RESPONSIBILITY OF THE EACH DIRECTORS, BUT NOTHING HAS BEEN PRODUCED BEFORE THE A.O. ON ASSESS EES CLAIM THAT TURNOVER HAD SUBSTANTIALLY INCREASED DUE TO EFFORT OF THE DI RECTORS. THE APPELLANT DID NOT FURNISH THE FAIR MARKET VALUE OF THE SERVICES P ROVIDED BY THE DIRECTOR FROM JUSTIFICATION FOR REASONABLENESS OF REMUNERATION PA ID TO THE DIRECTORS. THUS, HE ALLOWED SALARY, REMUNERATION AND COMMISSION TO T HE DIRECTOR AT RS. 15,37,800/- I.E. 10% INCREASE ON THE REMUNERATION A ND COMMISSION. IN PRECEDING YEAR, AT RS. 13,98,000/- REMAINING CLAIM OF REMUNERATION AND COMMISSION OF RS.59,09,560/- WAS ADDED BACK IN THE INCOME OF THE ASSESSEE. THE LD. A.O. MADE COMPARISON OF SALARY P AID TO DIRECTOR WITH PATEL SALT & MARINE CHEMICAL PVT. LTD. AND GANDHAR SALT & CHEMICAL PVT. LTD., WHEREIN SALARY TO THE DIRECTORS WAS PAID CONSISTENT LY RS.12 LACS IN A.Y. 08-09 & 09-10 ON BOTH THE CASES. 3. THE ASSESSEES CARRIED THE MATTER BEFORE THE CIT( A) WHO HAD ALLOWED THE APPEAL PARTLY BY OBSERVING AS UNDER: 3.2. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSION MADE BY THE APPELLANT. AS FAR AS THE COM PARATIVE CASE ANALYSED BY THE AO IS CONCERNED IT IS SEEN THAT THE AO HAS WHILE ITA NOS. 2853/AHD/2012 & 319/AHD/2013, A.Y. 09-10 PAGE 4 MAKING THE COMPARISON NOT MADE A COMPARISON WITH EQ UIVALENT VARIABLES. THE AO HAS MADE A COMPARISON ONLY WITH R ESPECT TO PAYMENT OF SALARY. THE COMPARISON IS INADEQUATE IN AS MUCH AS THE LEARNED AO OUGHT TO HAVE ALSO COMPARED THE COMPARAT IVE PROFITS OF HIS COMPARATIVE CASES WITH THAT OF THE APPELLANT CO MPANY. TO THE EXTENT THE ARGUMENT OF LEARNED AO SUFFER FROM VICE OF INCOMPLETE AND INACCURATE COMPARISONS. THE LEARNED AO HAS ALSO NOT BROUGHT ANY EVIDENCE ON RECORD TO INDICATE THAT THE CONCERN ED DIRECTORS WERE EITHER NOT CAPABLE OF RENDERING ANY SERVICES TO THE COMPANY OR HAVE NOT GIVEN ANY SERVICES TO THE COMPANY. IT IS AN UND ISPUTED FACT THAT THE PROFITS AND THE TURNOVER OF THE APPELLANT COMPA NY HAS SUBSTANTIALLY INCREASED AS COMPARED TO PRECEDING YE AR AND THEREFORE THE DECISION OF THE COMPANY TO SHARE A PART OF ITS PROFITS WITH THOSE INVOLVED IN THE ACHIEVEMENT OF SUCH PROFITS CANNOT BE QUESTIONED. THE BOARD RESOLUTIONS MENTIONED SUPRA CLEARLY INDIC ATE THAT THE PAYMENTS MADE BY THE APPELLANT COMPANY HAD THE REQU ISITE SANCTION OF BOARD. THE ONLY ISSUE WHICH IS NOW LEFT TO BE DECIDED IS AS TO THE ADEQUACY OF THE PAYMENT MADE BY THE APPEL LANT COMPANY. THE LEARNED AO HAS HELD THAT GIVEN THE INFLATIONARY FACTOR THE PAYMENTS MADE CAN BE INCREASED BY 10% FROM PREVIOUS YEAR. NOTWITHSTANDING THE TOTALITY OF THE FACTS OF THE CA SE I.E. THE PROFITS OF THE APPELLANT COMPANY HAS INCREASED OVERWHELMINGLY, THE DIRECTORS ARE REPORTEDLY INVOLVED IN ALL THE AFFAIRS OF THE C OMPANY SINCE ITS INCEPTION THEIR DOES EXIST AN ELEMENT OF PAYMENTS M ADE TO THE DIRECTORS WHICH CAN BE DEEMED AS EXCESSIVE WHEN STR ICTLY COMPARED WITH PREVAILING MARKET PARAMETERS. IT IS THEREFORE, CONSIDERED FAIR AND REASONABLE TO RESTRICT THE ADDITION MADE BY THE AO TO RS. 30,00,000/-. THUS SEEN THE ADDITION MADE BY THE AO TO_THE_EXTENT OF RS.30,00,000/- IS CONFIRMED AND TH E BALANCE OF RS.29,09,500/- IS DELETED. CONSEQUENTLY, THE GROUND OF APPEAL RAISED IS PARTLY_ALLOWED. ITA NOS. 2853/AHD/2012 & 319/AHD/2013, A.Y. 09-10 PAGE 5 4. NOW THE ASSESSEE AS WELL AS REVENUE IS BEFORE US . LD. COUNSEL FOR THE APPELLANT SUBMITTED AS UNDER: THE ONLY GROUND OF APPEAL IS WITH REGARD TO DISALLO WANCE U/S. 40A(2)(B) OF RS.30,00,000/-UPHELD BY THE LD.CIT (A) OUT OF TOTAL DISALLOWANCE OF RS.59,09,560/- MADE BY THE LD. A.O. UNDER THE IT. ACT, 1961. IN THIS CONNECTION, THE APPELLANT HAS TO STATE THAT DURING THE COURSE OF ASSESSMENT PROCEEDING AND HEARING BEF ORE THE LD. CIT(A), ALL THE DETAILS AND EXPLANATIONS WITH EVIDE NCES WERE SUBMITTED REGARDING CLAIM OF REMUNERATION EXPENSES OF RS.59,09,560/-. THE LD. A.O. HAD DISALLOWED THE EXC ESS REMUNERATION JUST BY GIVING 10% INCREASE AS ALLOWAB LE COMPARE TO PREVIOUS YEAR REMUNERATION AND HAS DISALLOWED THE E NTIRE BALANCE OF DIFFERENCE BEING EXCESSIVE AND UNREASONABLE U/S. 40 A(2)(B). IN THIS CONNECTION, THE APPELLANT HAS TO STATE THAT THE A.O. HIMSELF ACCEPT THE FACT IN PARA 5 OF THE ORDER THAT THE ASSESSEE HAD MADE AN SUBMISSION DATED 07/12/2011 THAT DURING THE F.Y. 2008-09, WHEREIN IT CLEARLY EXPLAINED THAT THE COMPANY'S TUR NOVER HAD INCREASED FORM RS.4,24,14,441/- IN F.Y.2007-08 TO R S.7,64,36,946/- IN F.Y. 2008-09 AND DUE TO EFFORTS OF DIRECTORS , T HE PROFIT OF THE COMPANY HAS ALMOST DOUBLED. THEREFORE, THE DIRECTOR S OF THE COMPANY HAS DECIDED TO GIVE THE INCENTIVE AND COMMI SSION TO DIRECTORS WHO MADE ALL EFFORTS TO INCREASE THE TURN OVER. FURTHER, THERE IS NO SPECIFIC ROLE OF THE DIRECTORS IN THE COMPANY . THEY HAVE TO PERFORM ALL KIND OF WORKS REQUIRE FOR THE BENEFIT A ND SMOOTH FUNCTIONING OF THE COMPANY. THEY ARE CONTINUOUSLY M AKING THE EFFORTS FOR THE PROGRESS OF THE COMPANY AND TAKE TH E COMPANY AT THE TOP. THIS IS ONLY POSSIBLE DUE TO SINCERE EFFORTS O F THE DIRECTORS ONLY. THEREFORE, THE REASON MENTIONED BY THE LD. A.O. WIT H REGARD TO THE DISALLOWANCE IN THE ASSESSMENT ORDER PASSED ARE COM PLETELY WRONG AND UNJUSTIFIABLE. ITA NOS. 2853/AHD/2012 & 319/AHD/2013, A.Y. 09-10 PAGE 6 FURTHER, THE LD. CIT(A) HAS PARTLY DISALLOWED THE C LAIM REGARDING REMUNERATION EXPENSE U/S. 40A(2)(B) OF THE ACT IN H IS ORDER PASSED WITHOUT MENTIONING ANY REASON IN THE ORDER JUST BY CONSIDERING THE SAME ON FAIR AND REASONABLE BASIS. CONTRARY TO THE ABOVE , THE LD. CIT(A) HIMSELF ADMITTED THE FOLLOWING FACTS ON PAGE NO. 9 PARA3,2 OF THE ORDER: 1) AS FAR AS THE COMPARATIVE CASE ANALYSED BY THE A.O. IS CONCERNED IT IS SEEN THAT THE A.O. HAS WHILE MAKING THE COMPA RISON NOT MADE A COMPARISON WITH EQUIVALENT VARIABLES. 2) THE COMPARISON IS INADEQUATE IN AS MUCH AS THE LD. A.O. OUGHT TO HAVE ALSO COMPARED THE COMPARATIVE PROFITS OF HI S COMPARATIVE CASES WITH THAT OF APPELLANT OF COMPANY. TO THE EXT ENT THE ARGUMENT OF LD. A.O. SUFFER FROM VICE OF INCOMPLETE AND INAC CURATE COMAPARISONS. 3) THE LD. A.O. HAS ALSO NOT BROUGHT ANY EVIDENCE ON T HE RECORD TO INDICATE THAT THE CONCERNED DIRECTORS WERE EITHER N OT CAPABLE OF RENDERING ANY SERVICES TO THE COMPANY OR HAVE NOT G IVEN ANY SERVICES TO THE COMPANY. 4) IT IS AN UNDISPUTED FACT THAT THE PROFITS AND THE T URNOVER OF THE APPELLANT OF THE COMPANY HAS SUBSTANTIALLY INCREASE D AS COMPARED TO PRECEDING YEAR AND THEREFORE THE DECISION OF THE COMPANY TO SHARE A PART OF ITS PROFITS WITH THOSE INVOLVED IN THE ACHIEVEMENT OF SUCH PROFITS CAN NOT BE QUESTIONED. 5) THE BOARD RESOLUTIONS MENTIONED SUPRA CLEARLY INDIC ATE THAT THE PAYMENTS MADE BY THE APPELLANT COMPANY HAD THE REQU ISITE SANCTION OF BOARD. AS THE LD. CLT(A) HAS HIMSELF ACCEPTED ALL ABOVE FA CTS IN THE ORDER PASSED DATED 06/11/2012 THE DISALLOWANCE CONFIRMED BY THE LD. CIT(A) UP TO RS.30,00,000/- IS COMPLETELY INCORRECT AND UNLAWFUL ITA NOS. 2853/AHD/2012 & 319/AHD/2013, A.Y. 09-10 PAGE 7 PARTICULARLY WHEN THERE IS NO SPECIFIC REASON RECOR DED BY THE CIT(A) AND WITHOUT ANY BASE, SUCH DISALLOWANCE MADE CAN NO T BE MADE. THE APPELLANT HAS RESPECTFULLY SUBMITTED TO THE LD. CIT(A) THAT THE DISALLOWANCE U/S. 40A(2)(B) CAN BE MADE ONLY AND ON LY ON FOLLOWING GROUNDS: (A) THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE; OR (B) THE LEGITIMATE BUSINESS NEEDS OF THE ASSESSEE'S BUSINESS OR PROFESSION; OR (C) THE BENEFIT DERIVED BY OR ACCRUING TO THE ASSES SEE FROM THE PAYMENT. ACCORDINGLY, IF THE ABOVE CONDITIONS ARE FULFILLED, THE OFFICER CAN DISALLOW EXPENDITURE TO THE EXTENT HE CONSIDER IT E XCESSIVE OR UNREASONABLE BY KEEPING THE OBJECTIVE STANDARDS. IN THE APPELLANT'S CASE, THE REMUNERATION PAID IS NOT AT ALL EXCESSIVE OR UNREASONABLE COMPARED TO REMUNERATION PAID BY MANY COMPANIES TO THEIR DIRECTORS BASED ON THE TURNOVER AND PROFIT. NOW A D AYS REMUNERATION OF CRORES OF RUPEES TO VARIOUS M.D. OF PUBLIC LIMIT ED COMPANIES ARE WELL-KNOWN. IT IS AN ESTABLISHED FACT THAT IF WORKI NG DIRECTORS ARE PAID HANDSOMELY THEN ONLY THE COMPANY WILL EARN MORE PRO FIT. THE APPELLANT RELIES ON THE RECENT DECISION OF ITAT DELHI BENCH IN THE CASE OF DCIT VS. SPARK HOTELS PVT LTD. [ ITA NO. 4631/DEL/201] WHEREIN HON'BLE TRIBUNAL HAS HELD THAT REMUNERATION HAS TO BE DECIDED ON THE BASIS OF (A) FAIR MARKET VALUE OF THE SERVICES, (B) LEGITIMATE NEEDS OF THE BUSINESS, AND (C) BENEFITS DERIVED BY OR ACCRUING TO THE ASSESSEE . IT ALSO HELD THAT INCOME TAX AUTHORITIES MUST PUT T HEMSELVES IN THE SHOES OF THE ASSESSEE AND SEE HOW A PRUDENT BUSINES SMAN WOULD ITA NOS. 2853/AHD/2012 & 319/AHD/2013, A.Y. 09-10 PAGE 8 AT. THE AUTHORITIES MUST NOT LOOK AT THE MATTER FRO M THEIR OWN VIEW POINT BUT THAT OF A PRUDENT BUSINESSMAN. A PRUDENT BUSINESSMAN WOULD CERTAINLY GIVE INCENTIVE AND COMMISSION TO TH E DIRECTORS TO WHOM TOKEN SALARIES OF JUST RS.20,000/- PER MONTH WERE PAID AND NOTHING WAS PAID TO SHRI ARVINDBHAI KAMDAR AND SHRI KHIMJIBHAI KAMDAR, WHO WERE WORKING HONORARILY SINCE LAST YEAR . IT WAS BECAUSE OF THE SINCERE WORK OF ENTIRE DIRECTORS THA T THE COMPANY COULD EARN DOUBLE THE PROFIT AND DOUBLE TURNOVER. T HE ASSESSING OFFICER HAS NOT BEEN ABLE TO DISPROVE THE FACT THAT ALL THE SIX DIRECTORS WERE WORKING WHOLLY AND EXCLUSIVELY FOR T HE PURPOSE OF THE COMPANY. IN THE RECENT DECISION OF ITAT MUMBAI BENCH IN THE CASE ROYAL HYDRAULIC PVT. LTD. [ ITA NO.8814/ MUM /2010] IT HAS BEEN HELD THAT IT IS A WELL-SETTLED PROPOSITION THAT THE ASSESSING OFFICER CANNOT DIRECT THE ASSESSEE TO CONDUCT ITS BUSINESS IN A PARTICULAR MANNER. IT IS FOR THE ASSESSEE TO DECIDE HOW TO CON DUCT ITS BUSINESS AND HOW MUCH TO PAY TO THE DIRECTORS. IT HAS BEEN H ELD ON THE BASIS OF SUPREME COURT DECISION IN THE CASE OF CIT VS. EDWARD KEVENTER PVT. LTD. [ 115 ITR 149 (SC) ], WHEREIN HON'BLE SUPREME COURT HELD THAT NO PART OF REMUNERATION PAID TO DIR ECTOR COULD BE REGARDED AS EXCESSIVE OR UNREASONABLE IF IT WAS FOR LEGITIMATE BUSINESS NEED AND BENEFIT WAS DERIVED BY THE COMPANY. THE COPIES OF ALL ABOVE DECISIONS ARE DULY SUBMITTE D TO THE LD. CIT(A) WITH WRITTEN SUBMISSION FILED. IN THE APPELLANT'S CASE LEGITIMATE BUSINESS NEED IS CLEAR AS ALL THE WORK F ROM PURCHASE TO PRODUCTION, TO SALES , TO ACCOUNTS ARE HANDLED B Y THESE SIX DIRECTORS AND THEREFORE, THE LEGITIMATE NEEDS ARE P ROVED VERY CLEARLY. ALL OF THEM ARE WITH THE COMPANY SINCE BEGINNING RA THER SINCE BIRTH. THEREFORE, THE LEGITIMATE NEED HAVING BEEN SATISFIED IT IS ABSOLUTELY CLEAR THAT THE CONSEQUENCE BENEFIT OF HU GE PROFIT IS APPARENT AND PROVED WITHOUT IOTA OF DOUBT. ITA NOS. 2853/AHD/2012 & 319/AHD/2013, A.Y. 09-10 PAGE 9 LASTLY IT HAS BEEN HELD BY ALL HIGHER AUTHORITIES C ONSISTENTLY THAT IF BY MAKING SUCH PAYMENT OF REMUNERATION OR COMMISSION O R FOR SERVICES ETC. IF ULTIMATELY THERE IS NO TAX EFFECT THEN SECT ION 40A(2)(B) SHOULD NOT BE INVOKED. IN THE APPELLANT'S CASE BOTH THE AS SESSEE COMPANY AS WELL AS THE RECIPIENT DIRECTORS ARE AT THE MAXIM UM SLAB OF INCOME TAX, I.E. AT 30%. THEREFORE, THE DEPARTMENT GETTING INCOME TAX EITHER FROM DIRECTORS OR FROM THE COMPANY MAKES NO DIFFERE NCE AS THERE IS NO LOSS OF REVENUE. THE COPIES OF DIRECTORS' RETURN OF INCOME FILED AND AUDITED BALANCE SHEET OF THE COMPANY WERE ALSO SUBMITTED TO LD. CIT(A) DURING THE HEARING ON THIS GROUND ITSELF THE DISALLOWANCE U/S. 40A(2)(B) SHOULD NOT BE UPHELD AND THE ADDITIO N OF RS.30,00,000/- BE DELETED. IN VIEW OF THE ABOVE, TH E APPELLANT ALSO RELIES ON THE FOLLOWING DECISIONS : 1) CIT V/S V.S.DEMPO & CO. (P.)LTD. [196 TAXMANN 193 (BOM. H.C.) (2011)]( PAGE NO. 1 TO 2) 2) CIT V/S INDO SAUDI SERVICES (TRAVEL)(P.) LTD. [ 219 CTR 562 (BOM. H.C.) (2008) ] ( PAGE NO. 3 ) 3) HIVE COMMUNICTION PVT. LTD. V/S CIT [ ITA 306/2011 ( DELHI H.C.)] (PAGE NO. 4 TO 12) 4) DCIT V/S M/S. RAVI CERAMICS [ ITA NO. 2959/ AHD/2009 ] ( PAGE NO.13 TO 21) HE FURTHER DRAWN OUR ATTENTION UPON CBDT CIRCULAR N O.6P DATED 06/07/1968 WHICH EXPLAIN THE PURPOSE OF SECTION 40A(2), WHICH WAS INTRODUCED FOR THE PURPOSE OF EVASION OF TAX THROUGH EXCESSIVE OR UNRE ASONABLE PAYMENT TO RELATIVE AND ASSOCIATE CONCERNS AND SHOULD NOT BE A PPLIED IN A MANNER WHICH WILL CAUSE HARDSHIP IN BONAFIDE CASES. HE FURTHER GAVE A COMPARABLE CHART FOR A.Y. 2009-10 TO 2012-13 AND ALSO ARGUED THAT THERE IS NO REVENUE LOSS EVEN REMUNERATION AND COMMISSION PAID TO THE DIRECTOR AL LOWED BY THE COURT AS ITA NOS. 2853/AHD/2012 & 319/AHD/2013, A.Y. 09-10 PAGE 10 BOTH ASSESSEE AS WELL DIRECTORS ARE IN SAME TAX SLA B AND PAYING BOTH MAXIMUM RATE OF TAX. AT THE OUTSET, LD. SR. D.R. V EHEMENTLY RELIED UPON THE ORDER OF THE A.O. AND REQUESTED TO CONFIRM THE ORDE R OF THE A.O. AND ARGUED THAT INCREASE IN THE REMUNERATION AND COMMISSION IS NOT REASONABLE AND ARE EXCESSIVE IN COMPARE TO SERVICE RENDERED BY THEM. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. IT IS EVIDENT FROM THE RECORD THAT TURNOVE R IN CURRENT YEAR HAD GONE UP SUBSTANTIALLY WHICH WAS RS.4.24 CORE IN A.Y. 2008-0 9 AND RS.7.64 CRORE IN A.Y. 2009-10. THE PROFIT OF THE COMPANY ALSO INCRE ASED FROM RS. 1.11 CRORE TO 2.12 CRORE. THE APPELLANT PAID REMUNERATION AND COMMISSION IN A.Y. 08-09 AT RS. 13,98,000/- WHICH WAS INCREASED TO RS.75,73, 299/-. THE COMPARABLE CASE REFERRED BY THE A.O. SHOWS THAT THE TURNOVER I N CASE OF PATEL SALT & MARINE CHEMICAL PVT. LTD. INCREASED FROM RS. 3.58 C RORE IN A.Y. 2008-09 TO RS. 4.21 CRORE IN A.Y. 2009-10. IN CASE OF GANDHAR SALT & CHEMICAL PVT. LTD. FROM RS.2.25 CRORE IN A.Y. 2008-09 TO RS. 3.15 CROR E IN A.Y. 2009-10. HONBLE BOMBAY HIGH COURT IN CASE OF CIT VS. V. S. DEMPO & CO.(P.) LTD. (SUPRA) HELD THAT BUYING ORE AT RATE HIGHER THAN MARKET RATE, TH ERE WAS NO DEDUCTION IN THE AMOUNT OF TAX PAYABLE. THUS, THE ORDER OF THE ITAT CONFIRMED. THUS, BOTH WERE PAYING TAX AT SAME TAX RATE. HONBLE BOMBAY H IGH COURT IN CASE OF CIT VS. INDO SAUDI SERVICES (TRAVEL)(P.) LTD. (SUPRA) H ELD THAT REVENUE WAS NOT IN A POSITION TO POINT OUT HOW THE ASSESSEE EVADED PAY MENT OF TAX BY ALLEGED PAYMENT OF HIGHER COMMISSION TO SISTER CONCERN SINC E THE SISTER CONCERN WAS ALSO PAYING TAX AT HIGHER RATE AND HELD THAT DISALL OWANCE OF ALLEGED EXCESS COMMISSION PAID TO THE SISTER CONCERN WAS NOT JUSTI FIED. SIMILAR VIEW ALSO ITA NOS. 2853/AHD/2012 & 319/AHD/2013, A.Y. 09-10 PAGE 11 EXPRESSED BY THE CO-ORDINATE C BENCH, AHMEDABAD, IN CASE OF DCIT, ANAND VS. M/S. RAVI CERAMICS IN ITA NO. 2959/AHD/2009 FOR A.Y. 2006-07. BY RESPECTFULLY FOLLOWING THE ABOVE DECISIONS AND FACT S OF THE CASE, WE INCLINE TO ALLOW THE APPEAL OF THE ASSESSEE AND DISMISS THE AP PEAL OF THE REVENUE. 6. IN THE COMBINED RESULT, ASSESSEES APPEAL IS ALL OWED AND REVENUES APPEAL IS DISMISSED. THESE ORDERS PRONOUNCED IN OPEN COURT ON 08.08.2013 SD/- SD/- ( D.K.TYAGI ) (T.R. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO:- 1. '#$ / APPELLANT 2. &'#$ / RESPONDENT 3. )*)+ ' ', / CONCERNED CIT 4. ' ',- ' / CIT (A) 5. 01'' +, ' ''' +, 34 * / DR, ITAT, AHMEDABAD 6. 167 89 / GUARD FILE. BY ORDER/ , :/3' )' ' ''' +, 34 * <