PRM SECURITIES P. LTD, MUMBAI V. ITO 4(2)(1), MUMBAI

ITA 3326/MUM/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75402 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 8 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-01-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 30-12-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 28-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Fair market value

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH C, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AN D DR. S.T.M. PAVALAN, JUDICIAL MEMBER ITA NO. 3326/MUM/2010 ASSESSMENT YEAR: 2006-07 PRM SECURITIES PVT. LTD. 4, KHANDEKAR WADI, DADI SETH AGIARY LANE, KALBADEVI, MUMBAI-. 400 002 VS. ITO-4(2)(1) AAYAKAR BHAVAN, M.K. ROAD MUMBAI. 400 020 (APPELLANT) (RESPONDENT) PERMANENT ACCOUNT NO. :- AAACP 6140 P APPELLANT BY : SHRI VIPUL JOSHI RESPONDENT BY : SHRI MAURYA PRATAP DATE OF HEARING : 30.12.2013 DATE OF PRONOUNCEMENT : 15 .01.2014 O R D E R PER DR. S.T.M. PAVALAN, JM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE LD.CIT(A) -8, MUMBAI DATED 11.02.2010 FOR THE ASSESSMENT YEAR 200 6-07. 2. THE ONLY ISSUE ARISING OUT OF THE GROUNDS OF APP EAL RELATE TO THE DECISION OF THE LD.CIT(A) IN CONFIRMING THE DISALLOWANCE OF RS.7,50 ,000/- OUT OF THE REMUNERATION PAID TO THE DIRECTORS BY TREATING THE SAME AS UNREASONABLE AND EXCESSIVE WITHIN THE MEANING OF SECTION 40A(2) OF THE INCOME TAX ACT. 3. BRIEFLY STATED, THE ASSESSEE, A COMPANY ENGAGED IN THE BUSINESS OF SHARE BROKER AND TRADING, DURING THE YEAR UNDER CONSIDERATION, I N P&L ACCOUNT, HAD DEBITED RS.12 LAKHS AS REMUNERATION. IN THE ASSESSMENT FRAMED U/S 143(3 ), THE AO NOTICED THAT IN EARLIER YEARS THE DIRECTORS REMUNERATION WAS DEBITED AT RS. 4,50,000/- AND OBSERVED THAT THE ASSESSEE HAD SHOWN A RAISE OF 167% AS COMPARED TO L AST YEAR REMUNERATION. THEREFORE, ACCORDING TO THE AO, THESE ENTRIES OF REMUNERATION SEEMS TO BE UNREASONABLE BEING RS.7,50,000/- EXCESS TO THE AMOUNT OF RS.4,50,000/- AND ACCORDINGLY ADDED RS.7,50,000/- ITA NO. 3326/MUM/2010 PRM SECURITIES PVT. LTD. ASSESSMENT YEAR: 2006-07 2 TO THE TOTAL INCOME OF THE ASSESSEE. ON APPEAL, THE LD.CIT(A) CONFIRMED THE SAID ADDITION/DISALLOWANCE. AGGRIEVED BY THE IMPUGNED DE CISION, THE ASSESSEE HAS RAISED THIS ISSUE IN THE APPEAL BEFORE US. 4. BEFORE US, THE LD.AR OF THE ASSESSEE HAS STATED THAT ALL DIRECTORS AND CEO ARE HIGHLY QUALIFIED AND EXPERIENCED AND DUE TO CONCERT ED EFFORTS OF ALL THE DIRECTORS AND CEO PROFIT OF THE COMPANY HAS GROWN IMPRESSIVELY. SINCE THE INCEPTION OF THE COMPANY IN 1995, DIRECTORS HAVE NOT TAKEN ANY REMUNERATION FOR 8 YEARS. AS COMPARED TO THE COMPANYS GROWTH DURING THE ASSESSMENT YEAR 2002-03 TO 2006-07, THE COMPANYS GROWTH IS 275%. UNDER THESE CIRCUMSTANCES, THE REMUNERATIO N PAID TO THE DIRECTORS AND CEO IS REASONABLE. IN ADDITION THE LD.AR HAS DRAWN OUR ATT ENTION TO THE FACT-SHEET FILED DURING THE COURSE OF THE PROCEEDINGS WHICH CONTAINS VARIOU S PRECEDENTS ON DISALLOWANCE U/S 40A(2) OF THE ACT TO SUBSTANTIATE THE CLAIM THAT TH E AUTHORITIES BELOW ARE NOT JUSTIFIED IN MAKING/CONFIRMING THE IMPUGNED DISALLOWANCE/ADDITIO N. ON THE OTHER HAND, THE LD.DR HAS RELIED ON THE ORDERS OF THE AO AND THE LD.CIT(A). 5. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL ON RECORD. FIRSTLY, IT IS PERTINENT TO MENTION THAT THE AUTHORITIES BELOW HAV E NOT DOUBTED THE GENUINESS OF THE PAYMENTS MADE TO THE DIRECTORS. SECONDLY, U/S 40A (2), NO DOUBT IF THE AO IS OF THE OPINION THAT THE PAYMENT OF THIS KIND IS EXCESSIVE OR UNREASONABLE CAN MAKE THE DISALLOWANCE OF SUCH CLAIM FOR DEDUCTION. HOWEVER, SUCH OPINION OF THE AO IS TO BE FOUND ON RATIONAL BASIS TO ESTABLISH THAT THE EXPENDITURE IS EXCESSIVE OR UNREASONABLE. THIRDLY, IN THIS CONTEXT, IT IS RELEVANT TO STATE THAT THE T RIBUNAL IN THE CASE OF S.K. ENGINEERING VS. JCIT (2006) 103 ITD 97 HAS HELD THAT WHILE INVOKING SEC TION 40A(2), THE ONUS LIES UPON THE AO TO PROVE THAT THE PAYMENT IS EXCESSIVE OR UN REASONABLE WITH RESPECT TO THE FMV OF THE BOOKS/SERVICES. THERE IS NO PRESUMPTION THAT WHATEVER HAS BEEN PAID IN THE EARLIER YEAR ONLY BECOMES REASONABLE AND ANYTHING IN EXCESS BECOMES UNREASONABLE. APPLYING THIS RATIO TO THE FACT OF PRESENT ASSESSEE, THE SAI D ONUS ON THE PART OF THE AO TO PROVE THAT THE PAYMENT MADE TO THE DIRECTORS IS EXCESSIVE OR UNREASONABLE HAS NOT BEEN DULY DISCHARGED WHEREAS THE AO HAS SIMPLY COMPARED THE P AYMENT MADE BY THE COMPANY TO THE DIRECTOR IN THE EARLIER YEARS FOR ARRIVING AT C ONCLUSION THAT THE SAID PAYMENT IS EXCESSIVE AND UNREASONABLE. CONSIDERING THE FACTS A ND THE POSITION OF LAW IN TOTO, THE ITA NO. 3326/MUM/2010 PRM SECURITIES PVT. LTD. ASSESSMENT YEAR: 2006-07 3 LD.CIT(A), IN OUR VIEW IS NOT JUSTIFIED IN CONFIRMI NG THE SAID DISALLOWANCE/ADDITION MADE BY THE AO ON THIS COUNT. THEREFORE, THE IMPUGNED AD DITION/DISALLOWANCE IS DELETED. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 15 TH DAY OF JANUARY, 2014. SD/- SD/- (D. KARUNAKARA RAO) (DR. S.T.M. PAVALAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 15.01.2014. *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR C BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.