The DCIT, Circle-5, Ahmedabad V. Omni Lens Pvt.Ltd., Ahmedabad

ITA 3336/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 6229 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-05-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 13-05-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 03-08-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA
• Assessee Lawyers: MUKESH M PATEL
• Section: 143(3); 80HHC; 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD D BENCH (BEFORE S/SHRI G.D. AGARWAL, VICE-PRESIDENT AND BHAVESH SAINI, JUDICIAL MEMBER) ITA.NO.3336/AHD/2007 ASSTT.YEAR : 2004-2005 DCIT, CIR.5 AHMEDABAD. VS. OMNI LENS PVT. LTD. 5/A, SAMRUDHI OPP: SAKAR-III NR.OLD HIGH COURT NAVRANGPURA, AHMEDABAD. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI C.K. MISHRA ASSESSEE BY : SHRI MUKESH M. PATEL O R D E R PER G.D. AGARWAL, VICE-PRESIDENT: THIS IS REVENUES APPEAL AGAINST THE ORDER OF THE CIT(A) DATED 03-5-2007 ARI SING OUT OF ORDER OF THE ASSESSING OFFICER UNDER SECTION 143(3) OF THE INCO ME TAX ACT, 1961. 2. THE FIRST GROUND OF THE REVENUES APPEAL, READS AS UNDER: 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE OF RS.21,00,000/- ON ACCOUNT OF DISAL LOWANCE OF PERFORMANCE INCENTIVES PAID TO THE DIRECTORS COVERE D UNDER SECTION 40A(2)(B) OF THE IT ACT, 1961. 3. THE FACTS OF THE CASE ARE THAT DURING THE ACCOUN TING YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION, IN ADDITION TO SALARY, THE ASSESSEE PAID INCENTIVE OF RS.21,00,000/- TO THREE DIRECTORS OF T HE ASSESSEE-COMPANY. THE AO DISALLOWED THE SAME BY INVOKING PROVISIONS OF SE CTION 40A(2)(B) OF THE ACT. ON APPEAL, THE CIT(A) DELETED THE DISALLOWANC E, HENCE THIS APPEAL BY THE REVENUE. ITA.NO.3336/AHD/2007 -2- 4. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL PLACED BEFORE US. THERE ARE THREE DIRECTORS OF THE COMPANY WHO HAVE B EEN PAID SALARIES AND PERFORMANCE INCENTIVES AS UNDER: NAME OF DIRECTOR SALARY (RS.) PERFORMANCE INCENTIVE (RS.) TOTAL BHANUPRASAD G. PATEL 84,000/- 6,00,000/- 6,84,000 HEMANG B. PATEL 84,000/- 12,00,000/- 12,84,000 PAULOMI J. LAKSHKARI 1,90,000/- 3,00,000/- 4,90,000 5. IN THE IMMEDIATELY PRECEDING YEAR, THE ASSESSEE COMPANY HAS PAID TOTAL PERFORMANCE INCENTIVE OF RS.12.85 LAKHS TO THE DIRE CTORS, WHICH WERE ALLOWED BY THE REVENUE. IN THE YEAR UNDER CONSIDERATION TH ERE IS A SUBSTANTIAL INCREASE IN THE SALES AS WELL AS THE GROSS PROFIT. THE COMP ARATIVE POSITION OF WHICH IS AS UNDER: A/C.YEAR ASSTT.YEAR NET SALES (RS.) EXPORTS OUT OF SALES (RS.) GROSS PROFIT (RS.) 2001-02 2002-2003 1,39,15,350 27,64,833 81,52,076 2002-03 2003-2004 1,95,32,473 72,61,347 99,95,093 2003-04 2004-2005 2,96,44,147 1,13,42,427 1,69,95,7 00 6. IN THE IMMEDIATELY PROCEEDING YEAR ON GP OF RS.9 9.95LAKHS THE PERFORMANCE INCENTIVE OF RS.12.85 LAKHS WAS ACCEPTE D BY THE REVENUE. IF THE PERFORMANCE BONUS IS WORKED OUT IN PROPORTION TO TH E GP OF THE PRECEDING YEAR AND THIS YEAR, THE SAME WOULD BE MORE THAN RS.21 LA KHS. THUS, AS COMPARED TO THE PRECEDING YEAR, IT CANNOT BE SAID THAT THE PERF ORMANCE INCENTIVE PAID TO THE WORKING DIRECTORS WAS EXCESSIVE OR UNREASONABLE. T HE CIT(A) ALSO RECORDED THE FINDING THAT THE AVERAGE MONTHLY REMUNERATION O F THE THREE WORKING DIRECTORS IS RANGING BETWEEN RS.40,833/- AND RS.1,0 7,000/- PER MONTH. THE HIGHEST REMUNERATION IS OF SHRI HEMANG B. PATEL WHI CH IS AT RS.1,07,000/- P.M.. IT IS RECORDED BY THE CIT(A) THAT SHRI HEMAN G PATEL IS AN MBA FROM USA. CONSIDERING HIS ACADEMIC QUALIFICATION AS WEL L AS THE EXPERIENCE IN THE ASSESSEES LINE OF BUSINESS, THE MONTHLY REMUNERATI ON OF ONE LAKH CANNOT BE SAID TO BE EXCESSIVE OR UNREASONABLE. THE CIT(A) H AS ALSO CONSIDERED THE CASE ITA.NO.3336/AHD/2007 -3- OF THE OTHER TWO DIRECTORS AND HAS FINALLY RECORDED THAT THE REMUNERATION PAID TO THE DIRECTORS CANNOT BE SAID TO BE EXCESSIVE OR UNR EASONABLE. HE HAS ALSO RECORDED THE FINDING THAT THE COMPANY IS ELIGIBLE F OR DEDUCTION UNDER SECTION 80IB OF THE ACT AND DUE TO SUCH DEDUCTIONS, IF THE PERFORMANCE INCENTIVE IS NOT PAID TO THE DIRECTORS, THE TOTAL TAX PAYABLE BY THE DIRECTORS AND THE COMPANY TOGETHER WOULD HAVE BEEN LESS THAN WHAT IS ACTUALLY PAID BY THEM. HE POINTED OUT THAT ON THE BASIS OF THE PERFORMANCE INCENTIVE GIVEN TO THE DIRECTORS OF THE COMPANY, THE DIRECTORS AND THE ASSESSEE COMPANY HAV E PAID TOTAL TAX OF RS.47,05,365/-. BUT IF THE PERFORMANCE INCENTIVE I S NOT PAID, THE TOTAL TAX PAYABLE BY THE COMPANY AND THE DIRECTORS WOULD HAVE BEEN RS.45,88,700/-. ALL THESE FACTUAL FINDINGS RECORDED BY THE CIT(A) COULD NOT BE CONTROVERTED BY THE REVENUE. IN VIEW OF THE ABOVE, WE HOLD THAT THE CI T(A) WAS FULLY JUSTIFIED IN DELETING THE DISALLOWANCE OF RS.21 LAKHS ON ACCOUNT OF PERFORMANCE INCENTIVE PAID TO THE DIRECTORS. 7. THE GROUND NO.2 OF THE REVENUES APPEAL READS AS UNDER: 2. THE LD.CIT(A) HAS ERRED N LAW AND ON FACTS IN DI RECTING TO COMPUTE THE DEDUCTION UNDER SECTION 80HHC WITHOUT R EDUCING THE AMOUNT OF DEDUCTION UNDER SECTION 80IB OF THE INCOM E TAX ACT, 1961 FROM THE PROFITS OF THE BUSINESS. 8. AT THE TIME OF HEARING BEFORE US, THE LEARNED CO UNSEL FAIRLY CONCEDED THAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE D ECISION OF THE SPECIAL BENCH OF ITAT IN ASSISTANT COMMISSIONER OF INCOME-TAX VS. HINDUSTAN MINT & AGRO PRODUCTS (P.) LTD., 119 ITD 107 WHEREIN, THE SPECIA L BENCH HAS HELD AS UNDER: THUS DEDUCTION TO BE ALLOWED UNDER ANY OTHER PROVI SION OF CHAPTER VI- A WITH THE HEAD C (WHICH INCLUDES SECTIONS 80H, 8 0HHC ETC.) IS TO BE REDUCED BY AN AMOUNT OF DEDUCTION ALLOWED UNDER SEC TION 80-IA/80- IB). ITA.NO.3336/AHD/2007 -4- 9. RESPECTFULLY, FOLLOWING THE ABOVE JUDGMENT OF TH E SPECIAL BENCH, THE ORDER OF THE CIT(A) ON THIS POINT IS REVERSED AND T HAT OF THE AO IS RESTORED. GROUND NO.2 OF THE REVENUE IS ACCORDINGLY ALLOWED. 10. IN THE RESULT, THE REVENUES APPEAL IS PARTLY A LLOWED. ORDER PRONOUNCED IN OPEN COURT ON 21 ST MAY, 2010. SD/- SD/- (BHAVESH SAINI) JUDICIAL MEMBER (G.D. AGARWAL) VICE-PRESIDENT PLACE : AHMEDABAD DATE : 21-05-2010 VK* COPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER AR, ITAT, AHMEDABAD