Solae Company India Company Limited, Gurgaon V. ACIT, New Delhi

ITA 3214/DEL/2010

• Counselvise Citation: 321420114 RSA 2010
• Duration Of Justice: 1 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 22-03-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 29-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S MOHANTY
• Assessee Lawyers: SATYAM SETHI

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G: NEW DELHI BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER AND SMT. DIVA SINGH, JUDICIAL MEMBER ITA NO. 3214/DEL/2010 ASSESSMENT YEAR: 2007-08 SOLAE COMPANY INDIA CO. LIMITED, 8 TH FLOOR, TOWER C, SECTOR 25A, CYBER GREENS, PHASE III, GURGAON. AAHCS9328P VS. ACIT, CIRCLE 9(1), NEW DELHI. (APPELLANT) (RESPONDENT) & ITA NO.3558/DEL/2010 ASSESSMENT YEAR: 2007-08 DCIT, CIRCLE 9(1), ROOM NO. 163, C.R. BLDG., NEW DELHI. VS. SOLAE COMPANY INDIA (P) LTD., 8 TH FLOOR, TOWER C, DLF CYBER GREENS, GURGAON. AAHCS9328P (APPELLANT) (RESPONDENT) APPELLANT BY : SH. SATYAM SETHI, ADV. & SH. A.T. PANDA, ADV. RESPONDENT BY : SH. S. MOHANTY, DR O R D E R PER S.V. MEHROTRA, A.M. BOTH ASSESSEE AND REVENUE ARE IN APPEAL AGAINST TH E ORDER OF LD. CIT(A) DATED 05.05.2010 FOR A.Y. 2007-08. 2. BRIEF FACTS OF THE CASE ARE THAT IN THE RELEVANT ASSESSMENT YEAR, THE ASSESSEE COMPANY WAS ENGAGED IN THE TRADING OF HIGH QUALITY SOYA ITA NOS. 3214 &3558/D/2010 2 INGREDIENTS, PROTEIN ISOLATES AND OTHER RELATED ING REDIENTS. IT HAD FILED ITS RETURN OF INCOME DECLARING LOSS OF RS. 68,76,182/-. THE ASSESSMENT WAS COMPLETED AT A TOTAL LOSS OF RS. 31,58,090/-, INTER -ALIA, MAKING FOLLOWING TWO DISALLOWANCES: - I) PAYMENT TO GOLF CLUB RS. 3,36,720/- II) DISALLOWANCE U/S 40A(2)(B) RS. 29,66,740/- 3. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) WHO WHILE PARTLY ALLOWING THE ASSESSEES APPEAL, CONFIRMED TH E ADDITION IN REGARD TO PAYMENT MADE TO GOLF CLUB BUT DELETED THE DISALLOWA NCE OF RS. 29,66,740/- MADE U/S 40A(2)(B). 4. BEING AGGRIEVED WITH THE ORDER OF LD. CIT(A), BO TH ASSESSEE AND DEPARTMENT ARE IN APPEAL BEFORE US. 5. FIRST WE TAKE UP THE DEPARTMENTS APPEAL VIDE IT A NO. 3558/D/2010 . 6. THE ONLY GROUND RAISED BY THE DEPARTMENT READS A S UNDER: - LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED, I N LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE, IN DELETING ADDITION OF RS. 29,66,740/- MADE BY THE AO U/S 40A(2)(B) OF THE I.T. ACT ON ACCOUNT OF EXCESS REMUNERATION PAID TO THE DIRECTORS. 7. BRIEF FACTS APROPOS THIS ISSUE ARE THAT ASSESSEE HAD CLAIMED MANAGERIAL REMUNERATION TO ITS DIRECTORS AT RS. 59, 33,479/-, WHEREAS NO PAYMENT HAD BEEN MADE IN THE IMMEDIATELY PRECEDING YEAR. THE AO HAS REFERRED TO THE REPLY FILED BY THE ASSESSEE DATED 1 7.09.2009 AND POINTED OUT THAT SINCE ONLY QUALIFICATIONS OF THE TWO DIREC TORS WERE ENUMERATED AND NOTHING PLAUSIBLE WAS SAID, THEREFORE, SUCH HUG E REMUNERATION COULD NOT BE ALLOWED. HE, THEREFORE, ALLOWED HALF OF THE REMUNERATION CLAIMED BY THE ASSESSEE AND, THUS, MADE A DISALLOWANCE OF R S. 29,66,740/-. LD. DR REFERRED TO LD. CIT(A)S ORDER AND POINTED OUT T HAT AFTER INCORPORATING THE ASSESSEES SUBMISSIONS, SHE DELETED THE ADDITIO N SIMPLY OBSERVING AS UNDER: - IN VIEW OF THE JUSTIFICATION, ESTABLISHED, THE SAI D ADDITION IS DELETED. ITA NOS. 3214 &3558/D/2010 3 8. LD. DR SUBMITTED THAT THIS IS COMPLETELY A NON-S PEAKING ORDER AND, THEREFORE, THE MATTER NEEDS TO BE REFERRED BACK TO LD. CIT(A) FOR PASSING A SPEAKING ORDER. THE LD. DR SUBMITTED THAT ASSESSEE DID NOT EXPLAIN AS TO HOW THE COMPANY WAS BENEFITED BY SUCH HIGH REMUNERA TION. 9. LD. COUNSEL FOR THE ASSESSEE REFERRED TO PAGE 9 OF PAPER BOOK, WHEREIN ASSESSEES REPLY DATED 14.10.2009 IS CONTAI NED WHICH WAS FILED BEFORE AO AND SUBMITTED THAT THE AO DID NOT EVEN RE FER TO THE SAID REPLY. HE SUBMITTED THAT THE OBJECT OF PAYING REMUNERATION WAS ELABORATELY EXPLAINED IN THE SAID REPLY. HE FURTHER POINTED OU T THAT IT IS THE FIRST YEAR WHEN THE PRODUCTION COMMENCED AND, THEREFORE, THE O BSERVATION THAT NO REMUNERATION WAS PAID LAST YEAR WAS NOT JUSTIFIED. 10. WE HAVE CONSIDERED THE SUBMISSION OF BOTH THE P ARTIES AND HAVE PERUSED THE RECORD OF THE CASE. WE FIND THAT THE R EPLY OF ASSESSEE DATED 14.10.2009 HAS NOT BEEN CONSIDERED BY THE AO AND LD . CIT(A) HAS ALSO PASSED COMPLETELY NON-SPEAKING ORDER BY SIMPLY ACCE PTING THE ASSESSEES CONTENTION. UNDER SUCH CIRCUMSTANCES, W E ARE OF THE OPINION THAT THE MATTER BE RESTORED BACK TO THE FILE OF THE AO FOR DECIDING THE ISSUE DENOVO. THE ASSESSEE WOULD BE FREE TO SUBSTANTIATE ITS CLAIM BY FILING ALL NECESSARY DOCUMENTS IN THIS REGARD. 11. IN THE RESULT, THIS APPEAL IS ALLOWED FOR STATI STICAL PURPOSES. 12. ITA NO. 3241/D/2010 : - GROUND NO. 1 READS AS UNDER: - 1. THAT THE COMMISSIONER OF INCOME TAX (APPEALS)- XII ERRED IN LAW AND ON THE FACTS OF THE CASE IN UPHOLDING THE DECISION OF THE ASSESSING OFFICER, THAT THE EXPENDITURE INCURRED BY APPELLANT BY WAY O F CLUB MEMBERSHIP FEE IS NOT AN ALLOWABLE EXPENDITURE. 13. THE EFFECTIVE GROUND RAISED BY THE ASSESSEE IS THAT LD. CIT(A) HAD ERRED IN LAW AND ON THE FACTS OF THE CASE IN UPHOLD ING THE DISALLOWANCE IN RESPECT OF CLUB MEMBERSHIP FEES. 14. BRIEF FACTS APROPOS THIS ISSUE ARE THAT ASSESSE E HAD MADE A PAYMENT OF RS. 3,36,720/- TOWARDS ANNUAL SUBSCRIPTI ON FEE TO DLF GOLF ITA NOS. 3214 &3558/D/2010 4 CLUB WHICH WAS NOT ADDED BY THE ASSESSEE IN THE COM PUTATION OF INCOME. THE ASSESSEE CONTENDED THAT THE EXPENDITURE WAS WHO LLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND WAS ALLOWABLE U/S 3 7(1) OF THE ACT. THE AO DID NOT ACCEPT THE CONTENTION AND MADE THE ADDIT ION OF RS. 3,36,720/-. LD. CIT(A) CONFIRM THE ADDITION, INTER-ALIA, OBSERV ING THAT THE ASSESSE HAD NOT ESTABLISHED ANY BUSINESS PURPOSE WHICH WAS SERV ED BY THIS MEMBERSHIP FEES. 15. LD. COUNSEL SUBMITTED THAT ASSESSEE HAD RELIED UPON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SAMTEL COLOR LTD., 326 ITR 425 WHICH HAS NOT BEEN CONSIDERED BY LD. CIT(A) . HE FURTHER REFERRED TO THE WRITTEN SUBMISSIONS FILED BEFORE LD. CIT(A) AND POINTED OUT THAT IT WAS CLEARLY EXPLAINED AS TO HOW THE BUSINESS NEEDS WOULD BE SERVED BY THIS MEMBERSHIP FEE. 16. LD. DR RELIED ON THE ORDER OF LD. CIT(A). 17. WE HAVE CONSIDERED THE SUBMISSION OF BOTH THE P ARTIES AND HAVE PERUSED THE RECORD OF THE CASE. WE FIND FROM THE W RITTEN SUBMISSIONS THAT THE CORPERATE MEMBERSHIP FEE COMPRISED OF THE FOLLO WING COMPONENTS: - 1. REFUNDABLE SECURITY DEPOSIT RS. 5,00,000/- 2. NON-REFUNDABLE SECURITY DEPOSIT INCLUDING SERVICE TAX @ 12.24% RS. 3,36,720/- 3. ANNUAL SUBSCRIPTION INCLUDING SERVICE TAX @ 12.24% RS. 20,203/- 18. THE AO HAS REFERRED TO THE SUM OF RS. 3,36,720/ - AS ANNUAL SUBSCRIPTION WHEN IT WAS ACTUALLY NON-REFUNDABLE SE CURITY DEPOSIT. ON A SPECIFIC QUERY FROM THE BENCH REGARDING THE TREATME NT OF ANNUAL SUBSCRIPTION IN THE COMPUTATION OF INCOME, LD. COUN SEL COULD NOT FURNISH THE NECESSARY DETAILS. FURTHER LD. COUNSEL HAS SUB MITTED THAT DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SAM TEL COLOR LTD. (SUPRA) 326 ITR 425 HAS NOT CONSIDERED. UNDER SUCH CIRCUMS TANCES, WE ARE OF THE OPINION THAT THE FACTS NEEDS TO BE RE-MARSHELLE D AND THE MATTER NEEDS TO BE DECIDED DENOVO AFTER INCORPORATING ALL THE NE CESSARY DETAILS IN ITA NOS. 3214 &3558/D/2010 5 REGARD TO CLUB MEMBERSHIP FEE. ACCORDINGLY, WE RES TORE THIS ISSUE TO THE FILE OF AO FOR DECIDING DENOVO. THE ASSESSEE WOULD BE FREE TO SUBSTANTIATE ITS CLAIM BY FILING ALL NECESSARY DOCU MENTS IN THIS REGARD. 19. IN THE RESULT, THIS APPEAL IS ALLOWED FOR STATI STICAL PURPOSES. 20. IN THE RESULT, BOTH THE APPEALS ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 22.03.2012 SD/- SD/- (DIVA SINGH) JUDICIAL MEMBER (S.V. MEHROTRA) ACCOUNTANT MEMBER DATED: 22.03.2012 *KAVITA COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI. TRUE COPY BY ORDER DEPUTY REGISTRAR