ENAM INSURANCE BROKERS P.LTD, MUMBAI V. ITO 2(1)(3), MUMBAI

ITA 325/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7928 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-12-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 20-01-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: POOJA SWAROOP
• Assessee Lawyers: M ANISH DESAI
• Keywords: Opportunity of being heard

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHR I N.K. PRADHAN , ACCOUNTANT MEMBER ITA NO . 325 /MUM. /2016 ( ASSESSMENT YEAR : 20 1 1 12 ) M/S. ENAM INSURANCE BROKERS PVT. LTD. 44A, KHATAU BUILDING, BANK STREET OPP. OLD CUSTOM HOUSE, FORT MUMBAI 400 023 AABCE3912D . APPELLANT V/S INCOME TAX OFFICER WARD 2(1)(3), MUMBAI . RESPONDENT ASSESSE E BY : SHRI MANISH DESAI REVENUE BY : MS. POOJA SWAROOP DATE OF HEARING 28.11.2017 DATE OF ORDER 13.12.2017 O R D E R PER SAKTIJIT DEY, J.M. AFORESAID APPEAL BY THE ASSESSEE IS AGAINST ORDER DATED 23 RD OCTOBER 2015, PASSED BY THE LEARNED COMMISSIONER (APPEALS) 4 , MUMBAI,FOR THE ASSESSMENT YEAR 20 1 1 12 . 2. IN GROUND NO.1, ASSESSEE HAS CHALLENGED ADDITION OF RS. 15,60,133, ON ACCOUNT OF DISCREPANCIES IN BROKERAGE INCOME. 2 M/S. ENAM INSURANCE BROKERS PVT. LTD. 3. BRIEF FACTS ARE, THE ASSESSEE COMPANY IS A REGISTERED INSURANCE AGENT WITH VARIOUS INSURANCE COMPANIES AND ALSO DERIVES INCOME FROM INVESTME NT ACTIVITIES. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, ASSESSEE FILED ITS RETURN OF INCOME ON 29 TH SEPTEMBER 2011, DECLARING TOTAL INCOME OF RS. 3,44,920. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICING DISCREPANCIES BETWEEN THE BROKERAGE INCOME SHOWN BY THE ASSESSEE AS PER THE BOOKS OF ACCOUNT AND AS REFLECTED IN FORM NO.26AS CALLED UPON THE ASSESSEE TO RECONCILE THEM. THOUGH, THE ASSESSEE ATTEMPTED TO RECONCILE THE DISCREPANCIES BY FURNISHING SOME EXPLANATION, HOWEVER, THE ASSE SSING OFFICER WAS NOT CONVINCED WITH THE SUBMISSIONS OF THE ASSESSEE AND ADDED BACK THE AMOUNT OF RS. 15,60,133. THOUGH, THE ASSESSEE CHALLENGED THE ADDITION BEFORE THE FIRST APPELLATE AUTHORITY, HOWEVER, HE DID NOT FIND ANY SUCCESS. 4. AT THE OUTSET, THE LEA RNED AUTHORISED REPRESENTATIVE REFERRING TO THE CONCISE GROUND OF APPEAL SUBMITTED THAT OUT OF THE ADDITION OF RS. 15,60,133, RELAT ING TO BROKERAGE INCOME RECEIVED FROM THREE COMPANIES, THE ASSESSEE WANTS TO CONTEST THE ADDITION MADE OF RS. 14,77,389 IN RESP ECT OF ORIENTAL INSURANCE PVT. LTD. ONLY. THEREFORE, ASSESSEES GROUND WITH REGARD TO THE ADDITION MADE OF RS. 52,652 IN RESPECT OF RELIANCE GENERAL INSURANCE PVT. LTD. AND RS. 30,092 IN RESPECT OF KOTAK MAHINDRA LIFE INSURANCE ARE DISMISSED 3 M/S. ENAM INSURANCE BROKERS PVT. LTD. AS NOT PRES SED. AS FAR AS THE BROKERAGE INCOME RECEIVED FROM ORIENTAL INSURANCE IS CONCERNED, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED, IN THE ORIGINAL FORM NO.26AS UPLOADED BY THE INSURANCE COMPANY, THE BROKERAGE INCOME RECEIVED BY THE ASSESSEE WAS WRONGLY MENTION ED WHICH RESULTED IN THE DISCREPANCY. LEARNED AUTHORISED REPRESENTATIVE SUBMITTED, AFTER CONTINUOUS EFFORTS OF THE ASSESSEE IN GETTING IT CORRECTED, THE INSURANCE COMPANY HAS FINALLY ISSUED A REVISED FORM NO.26AS , WHEREIN , THE BROKERAGE INCOME RECEIVED BY THE ASSESSEE HAS BEEN SHOWN AT RS. 44,00,963, WHICH IS LESSER THAN THE BROKERAGE INCOME OFFERED BY THE ASSESSEE. THEREFORE, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED, THE ISSUE MAY BE VERIFIED BY THE ASSESSING OFFICER . 5. LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED, IN THE COURSE OF PROCEEDINGS BEFORE THE DEPARTMENTAL AUTHORITIES SINCE THE ASSESSEE FAILED TO RECONCILE THE DIFFERENCE ,THE ADDITION WAS MADE. HOWEVER, SHE HAS NO OBJECTION IF THE ISSUE IS RESTORED FOR VERIF ICATION OF THE ASSESSING OFFICER. 6. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ADDITION OF BROKERAGE INCOME IS PURELY DUE TO THE DISCREPANCY IN THE INCOME SHOWN BY THE ASSESSEE AND INCOME REFLECTED IN FORM NO.26AS UPLO ADED BY THE INSURANCE COMPANY. 4 M/S. ENAM INSURANCE BROKERS PVT. LTD. HOWEVER, BEFORE US, THE ASSESSEE HAS FILED THE REVISED FORM NO.26AS, ISSUED BY THE INSURANCE COMPANY, AS PER WHICH THE TOTAL BROKERAGE INCOME RECEIVED BY THE ASSESSEE IS RS. 44, 00, 963, WHICH IS CLAIMED TO BE LESSER THAN THE BR OKERAGE INCOME OFFERED BY THE ASSESSEE FROM THE SAID INSURANCE COMPANY. SINCE , THE AFORESAID REVISED FORM NO.26AS WAS OBTAINED AFTER DISPOSAL OF APPEAL BY THE LEARNED COMMISSIONER (APPEALS), THE ASSESSEE HAD NO OPPORTUNITY TO PRODUCE IT BEFORE THE DEPARTME NTAL AUTHORITIES. IN VIEW OF THE AFORESAID, WE RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO VERIFY ASSESSEES CLAIM BY TAKING NOTE OF THE REVISED FORM NO.26AS ISSUED BY THE INSURANCE COMPANY AND DECIDE THE ISSUE AFTER DUE OPPO RTUNITY OF BEING HEARD TO THE ASSESSEE. THIS GROUND IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 7. IN GROUND NO.2, THE ASSESSEE HAS CHALLENGED DISALLOWANCE OF DIRECTORS REMUNERATION PAID OF RS. 55 LAKH. 8. BRIEF FACTS ARE, DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER EXAMINING THE REASON FOR DRASTIC FALL IN NET PROFIT COMPARED TO PREVIOUS YEAR FOUND THAT THERE IS QUANTUM INCREASE IN PAYMENT OF SALARY. ON FURTHER VERIFICATION HE FOUND THAT COMPARED TO SALARY PAID OF RS. 1,27,09,928 IN THE EARLIER YEA R , SALARY PAID IN THE IMPUGNED ASSESSMENT YEAR AMOUNTED TO RS. 1,91,19,887. FURTHER, HE FOUND SUCH 5 M/S. ENAM INSURANCE BROKERS PVT. LTD. INCREASE IN SALARY WAS DUE TO 100% HIKE IN PAYMENT OF EX GRATIA TO ONE OF THE DIRECTORS OF THE COMPANY SHRI SANDEEP D A DIA . HE FOUND THAT IN THE PRECEDING ASSESSMENT YEAR, THE SAID DIRECTOR WAS PAID SALARY OF ` 45 LAKH WHICH WAS INCREASED TO RS. 1 CRORE IN THE IMPUGNED ASSESSMENT YEAR. HE, THEREFORE, CALLED UPON THE ASSESSEE TO JUSTIFY THE REASONABLENESS OF SALARY PAID TO SHRI SANDEEP D A DIA, KEEPING IN VIEW SECTION 40A(2) OF THE ACT. THOUGH, THE ASSESSEE JUSTIFIED PAYMENT OF SALARY TO THE CONCERNED DIRECTOR BY STATING THAT SUCH INCREASE IN SALARY WAS COMMENSURATE WITH HIS SERVICE TO THE COMPANY, HOWEVER, THE ASSESSING OFFICER F OR THE REASONS STATED IN PARA 8.3 OF THE ASSESSMENT ORDER, DID NOT ACCEPT THE CLAIM OF THE ASSESSEE AND ADDED BACK THE ENHANCED AMOUNT OF RS. 50 LAKH PAID AS SALARY DURING THE RELEVANT PREVIOUS YEAR BY INVOKING SECTION 40A(2) OF THE ACT . 9. THOUGH, THE ASSESS EE CHALLENGED THE ADDITION BEFORE THE FIRST APPELLATE AUTHORITY, HOWEVER, THE LEARNED COMMISSIONER (APPEALS) CONFIRMED THE ADDITION ACCEPTING THE REASONING OF THE ASSESSING OFFICER. 10. LEARNED AUTHORISED REPRESENTATIVE REITERATING THE STAND TAKEN BEFORE THE DEPARTMENTAL AUTHORITIES SUBMITTED THAT SHRI SANDEEP D A DIA, DID NOT HELD ANY SHARE IN THE ASSESSEE COMPANY AND WAS AN EMPLOYE E DIRECTOR. HE SUBMITTED, THE SAID DIRECTOR JOINED THE COMPANY 6 M/S. ENAM INSURANCE BROKERS PVT. LTD. ON 1 ST APRIL 2006 AND BEING A QUALIFIED DOCTOR WAS THE KEY PERSON OF THE COMPANY AND WAS INSTRUMENTAL IN BUILDING THE BUSINESS OF THE COMPANY FROM SCRATCH. HE SUBMITTED, ON COMPLETION OF HIS FIVE YEARS OF SERVICE WITH THE COMPANY AND LOOKING AT HIS HARD WORK AND DEDICATION IN BUILDING THE BUSINESS OF COMPANY , THE MANAGEMEN T DECIDED TO REMUNERATE HIM BY WAY OF EX GRATIA PAYMENT MATCHING TO HIS SALARY. IT WAS SUBMITTED, DUE TO THE EFFORT OF SHRI SANDEEP D A DIA, THE BUSINESS OF THE COMPANY GREW ENORMOUSLY AND BECAUSE OF HIS INVOLVEMENT WITH THE COMPANY THE ASSESSEE COULD SELL T HE BUSINESS TO ADITYA BIRLA GROUP ON SLUMP SALE BASIS FOR A CONSIDERATION OF RS. 2 CRORE. IT WAS SUBMITTED, ONLY BECAUSE OF PRESENCE OF SHRI SANDEEP D A DIA IN THE COMPANY , THE ADITYA BIRLA GROUP WERE INTERESTED IN TAKING OVER THE COMPANY. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED, TDS @ 30% HAS BEEN DEDUCTED FROM THE SALARY PAID TO SHRI SANDEEP D A DIA .T HEREFORE, THERE IS NO LOSS OF REVENUE TO THE DEPARTMENT A S THE EFFECT ON THE REVENUE WOULD BE TAX NEUTRAL. 11. LEARNED DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND STRONGLY RELIED UPON THE OBSERVATIONS OF THE LEARNED COMMISSIONER (APPEALS) AND ASSESSING OFFICER. 12. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. UNDISPUTEDLY, THERE IS A QUANTUM JUMP IN THE 7 M/S. ENAM INSURANCE BROKERS PVT. LTD. SALARY PAID TO SH RI SANDEEP D A DIA, ONE OF THE DIRECTORS OF THE COMPANY FROM RS. 45 LAKH IN THE PR ECE DING ASSESSMENT YEAR TO RS. 1 CRORE IN THE IMPUGNED ASSESSMENT YEAR. THEREFORE, THE ONUS IS ON THE ASSESSEE TO JUSTIFY SUCH INCREASE IN SALARY TO ONE PERSON WITH PROPER REASON ING. THOUGH, THE ASSESSEE HAS STATED THAT THE CONCERNED DIRECTOR HAS IMMENSELY HELPED THE DEVELOPMENT OF THE BUSINESS OF THE COMPANY, HOWEVER, WHAT PROMPTED THE ASSESSEE TO INCREASE THE SALARY TO MORE THAN DOUBLE THE AMOUNT PAID IN THE PRECEDING ASSESSMENT YEAR HAS TO BE BROUGHT ON RECORD. THOUGH, THE ASSESSEE HAS SUBMITTED BEFORE US THAT SUCH PAYMENT OF SALARY IS DUE TO CONTRACTUAL OBLIGATION, HOWEVER, NO SUCH DOCUMENTARY EVIDENCE HAS BEEN BROUGHT ON RECORD TO PROVE SUCH FACTS AND ALSO TO INDICATE THE EXAC T NATURE OF WORK BEING DONE BY THE CONCERNED DIRECTOR AND THE EFFECT OF SUCH WORK ON THE BUSINESS OF THE ASSESSEE TO JUSTIFY SUCH INCREASE IN SALARY . THE ASSESSEE HAS TO PROVE THAT THE SALARY PAID TO THE CONCERNED DIRECTOR IS COMMENSURATE WITH HIS WORK AN D NOT UNREASONABLE AS PER SECTION 40A(2)(B) OF THE ACT. TO AFFORD ONE MORE OPPORTUNITY TO THE ASSESSEE TO PROVE THE AFORESAID FACT BY BRINGING COGENT MATERIAL ON RECORD, WE SET ASIDE THE IMPUGNED ORDER OF THE LEARNED COMMISSIONER (APPEALS) ON THIS ISSUE AND RESTORE THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER FOR DENOVO ADJUDICATION AFTER DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 8 M/S. ENAM INSURANCE BROKERS PVT. LTD. 13. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 13.12.2017 SD / - SD/ - SD/ - N.K. PRADHAN ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 13.12.2017 COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, ITAT, MUMBAI; (6) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY (DY./ASSTT.REGISTRAR) ITAT, MUMBAI .