DCIT, New Delhi V. M/s. Associated Trade Logistics (P) Ltd., New Delhi

ITA 3366/DEL/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53015 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 14-10-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 09-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANUSHA KHURANA
• Assessee Lawyers: KARAN KHANNA
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : A : NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI A.N. PAHUJA, ACCOUNTANT MEMBER ITA NO.3366/DEL/2010 ASSESSMENT YEAR : 2007-08 DCIT, CIRCLE 2 (1), ROOM NO.398D, CR BLDG., NEW DELHI. VS. ASSOCIATED TRADE LOGISTICS (P) LTD., RZ-A-292, MAHIPALPUR EXTENSION, NEW DELHI. PAN : AACCA5717H (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI KARAN KHANNA, ADVOCATE REVENUE BY : SMT. ANUSHA KHURANA, SR. DR ORDER PER I.P. BANSAL, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE REVENUE. IT IS DIRECT ED AGAINST THE ORDER PASSED BY THE CIT (A) DATED 20 TH APRIL, 2010 FOR ASSESSMENT YEAR 2007-08. THE GROUNDS OF APPEAL READ AS UNDER:- 1. THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN DELETING ADDITION OF RS.9,50,000/- ON ACCOUNT OF EXPEN SES PAYABLE TOWARDS PERFORMANCE BASED ALLOWANCE IGNORING THE FACT THAT THE ASSESSEE FAILED TO DISCHARGE THE ONUS OF QUANTIF YING THE BASE AND METHOD OF DETERMINING SUCH LIABILITY WHICH THE ASSESSEE IS GOING TO DISCHARGE THE SAME ON A LATER DATE . 2. THE APPELLANT CRAVES LEAVE FOR RESERVING THE RIGHT TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 2. THE ASSESSEE COMPANY IS AN INTERNATIONAL FREIGHT FORW ARDING COMPANY FOR EXPORT AND IMPORT CARGO FOR VARIOUS EXPO RTERS AND ITA NO.3366/DEL/2010 2 IMPORTERS UTILISING THE SERVICES OF SCHEDULED AIRLINES AN D SHIPPING COMPANIES FOR TRANSPORTATION OF GOODS. THE GP RATE DE CLARED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION IS 7.03% AGAINST THE TOTAL TURNOVER OF `105,19,83,719 AS COMPARED TO THE GROSS PR OFIT RATE OF 5.54% OUT OF TOTAL TURNOVER OF ` 119,10,46,252/- FO R THE IMMEDIATE PRECEDING YEAR. DURING THE COURSE OF ASSESSMENT PROCEED INGS, THE AO NOTICED THAT THE EXPENSES PAYABLE BY THE ASSESSEE WERE CL AIMED AT ` 32,53,565/- WHICH INCLUDED THE PERFORMANCE BASED ALL OWANCE (PBA) PAYABLE OF A SUM OF `9,50,000/-. THE ASSESSEE WAS REQUIR ED TO EXPLAIN THE SAME. THE REQUIRED DETAILS WERE SUBMITTED ACCORDI NG TO WHICH THE ASSESSEE HAD PAID THE PERFORMANCE BASED ALLOWANCE TO ITS EMPLOYEES TOTALING TO ` 9,98,800/- IN THE MONTH OF NOVEMBER, 2007. SUCH DETAILS ARE GIVEN AT PAGE 3 OF THE ASSESSMENT ORDER. ACCORDING TO THE AO, SUCH AMOUNT COULD NOT BE ALLOWED AS THE PBA WAS NOT WO RKED OUT SCIENTIFICALLY; NO CRITERIA FOR WORKING SUCH ALLOWANC E WAS SUBMITTED; QUANTUM OF PBA SHOWN AS PAYABLE AT THE END OF THE YEA R AND THE AMOUNT ACTUALLY DISBURSED ARE DIFFERENT, THEREFORE, L IABILITY WAS UNCERTAIN. IN THIS MANNER, THE AO HAS MADE THE DISALL OWANCE. THE DISALLOWANCE WAS AGITATED IN AN APPEAL FILED BEFORE T HE CIT (A). IT WAS SUBMITTED THAT DURING THE MONTH OF JANUARY AND FEBRU ARY, 2007 THE COMPANYS MANAGEMENT WAS APPROACHED BY A FEW VERY REL IABLE AND TRUST WORTHY EMPLOYEES WHO INFORMED THE COMPANY THAT A FEW NEWLY FORMED COMPANIES IN THE SAME BUSINESS ARE QUIETLY APPROA CHING THEM TO MOVE TO THOSE COMPANIES AT THE SALARY MUCH HIGHER T HAN WHAT WAS BEING PAID AND THE ASSESSEE IN AN EFFORT TO RETAIN OLD AND TRAINED EMPLOYEES DECIDED TO ALLOCATE AN AMOUNT OF ` 9,50,00 0/- AS PERFORMANCE BASED INCENTIVE FOR FINANCIAL YEAR 2006 -07 WHICH WAS TO BE PAID TO STAFF IN 2007-08. THE AMOUNT WAS TO BE PA ID ONLY TO THOSE MEMBERS OF THE COMPANY WHO WOULD CONTINUE IN THE EMP LOYMENT OF THE COMPANY TILL DATE OF THE ACTUAL PAYMENT IN FINA NCIAL YEAR 2007-08. A LIST WAS FURNISHED TO SHOW THAT A LARGE NUMBER OF EMP LOYEES HAD LEFT ITA NO.3366/DEL/2010 3 THE SERVICES OF THE ASSESSEE BETWEEN MARCH, 2007 TO JUNE, 2007. DESCRIBING THE JUSTIFICATION OF METHOD OF ALLOCATION, IT WAS SUBMITTED THAT THE ALLOCATION WAS BASED ON VARIOUS PARAMETERS INT ER ALIA INCLUDING : - JOB KNOWLEDGE - CAPABILITY TO LEARN & ADAPT TO CHANGING PROCEDURES - TASK FULFILLMENT & DEPENDABILITY - SYSTEMATIC MAINTENANCE OR RECORDS - BEHAVIOUR TOWARDS CUSTOMERS - BEHAVIOUR TOWARDS SUBORDINATES, COLLEAGUES & SUPERVISORS - WILLINGNESS TO ACCEPT ADDITIONAL RESPONSIBILITY - COMMUNICATION CAPABILITIES - LOYALTY TOWARDS THE COMPANY - PUNCTUALITY - MARKETING & BUSINESS DEVELOPMENT STRENGTHS. 3. IT WAS SUBMITTED THAT THE COMMITTEE DISCUSSED EACH CA NDIDATE IN DETAIL DURING THE PROCESS OF EVALUATION FOR PURPOSES OF PAYMENT OF PBA AND, IN THIS MANNER, THE PAYMENT WAS MADE. REFERRING TO ALL THESE FACTS, IT WAS SUBMITTED THAT IT WILL NOT BE OPEN TO TH E AO TO ADOPT A SUBJECTIVE STANDARD OF REASONABLENESS OF THE AMOUNT PAID AND TO DISALLOW ANY PORTION THEREOF AS UNREASONABLY HIGH. LD . CIT (A) AFTER CONSIDERING ALL THE SUBMISSIONS HAS GIVEN A FINDING THAT ABOUT 83 EMPLOYEES OF THE ASSESSEE HAD LEFT THE ASSESSEE COMPANY IN M ARCH, 2007 TO JUNE, 2007 IN ORDER TO RETAIN OTHER SKILLED EMPLOYEES, THE MANAGEMENT MADE THE ARRANGEMENT OF GIVING PBA TO RE TAIN ITS SKILLED EMPLOYEES FOR RUNNING THE BUSINESS AND SUCH PAYMENT WAS SU PPORTED BY THE DETAILS FILED BY THE ASSESSEE. THE PAYMENT MADE BY THE ASSESSEE WAS GENUINE AND, IN THIS MANNER, LD. CIT (A) HAS DELETED THE ADDITION. ITA NO.3366/DEL/2010 4 4. AFTER NARRATING THE FACTS AND RELYING UPON THE ASSE SSMENT ORDER, IT WAS SUBMITTED BY LD. DR THAT THE ASSESSEE DID NOT ADOP T ANY SCIENTIFIC METHOD TO WORK OUT THE PBA; NO CRITERIA F OR WORKING OUT SUCH AN ALLOWANCE WAS SUBMITTED BEFORE THE AO. THE QUANTUM OF PBA SHOWN TO BE PAYABLE AND ACTUALLY PAID DIFFERED. IN THIS M ANNER, LD. DR PLEADED THAT THE DISALLOWANCE HAS WRONGLY BEEN DELETE D BY LD. CIT (A) AND IT SHOULD BE RESTORED. 5. ON THE OTHER HAND, RELYING UPON THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE CIT (A) AND ALSO THE FINDINGS RECORDED BY HIM, IT WAS THE CASE OF LD. AR THAT THE DISALLOWANCE HAS RIGHTLY BEEN DELETED. HE ALSO SUBMITTED THAT IN SUBSEQUENT YEAR SIMILAR PBA WAS PA ID AND NO DISALLOWANCE WAS MADE BY THE AO. TO SUBSTANTIATE SUCH A DDITION, HE DREW OUR ATTENTION TO COPY OF ASSESSMENT ORDER PASSED BY THE AO IN RESPECT OF ASSESSMENT YEAR 2008-09 WHICH IS DATED 31 ST AUGUST, 2010 PASSED U/S 143(3) OF THE ACT WHEREIN NO DISALLOWANCE ON ACCOUNT OF PBA HAS BEEN MADE AND THE RETURNED LOSS OF THE ASSESSEE AM OUNTING TO ` 2,46,33,968/- HAS BEEN ASSESSED AT A LOSS OF ` 2,40,0 3,146/-. HE ALSO SUBMITTED THAT THE COMPLETE DETAILS WERE FILED BE FORE THE AO AS WELL AS THE CIT (A) VIDE WHICH IT WAS SHOWN THAT THE M ETHOD OF ALLOCATION FOR ISSUE OF PBA WAS BASED UPON VARIOUS FACTO RS WHICH WERE DULY CONSIDERED BY THE ASSESSEE COMPANY BEFORE MAKING SUC H ALLOCATION. THEREFORE, IT WAS SUBMITTED THAT THE ORD ER OF LD. CIT (A) SHOULD BE UPHELD. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS IN THE LIGHT OF THE MATERIAL PLACED BEFORE US. IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE DID NOT PAY PBA TO ITS EMPLOYEES. THE PBA H AS BEEN PAID BY THE ASSESSEE IN THE MONTH OF NOVEMBER, 2007. THE RE ASON FOR MAKING SUCH PAYMENT HAS ALSO BEEN DESCRIBED. SUCH REASO N IS SUBSTANTIATED BY THE FACT THAT LARGE NUMBER OF EMPLOY EES OF THE ASSESSEE COMPANY HAD LEFT THE SERVICES OF THE ASSESSEE. THER EFORE, ITA NO.3366/DEL/2010 5 UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE O F THE OPINION THAT THE ASSESSEE HAD INCURRED THIS EXPENDITURE WHOLLY A ND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE GENUINENESS OF PAYMENTS BEING NOT DOUBTED AND THE ENTIRE PARTICULARS HAVING BEEN SUBMIT TED BY THE ASSESSEE BEFORE THE AO AND CIT (A), WE ARE OF THE OPINI ON THAT THERE IS NO INFIRMITY IN THE ORDER OF THE CIT (A) VIDE WHICH THE IMPUGNED DISALLOWANCE HAS BEEN DELETED. WE DECLINE TO INTERFE RE. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 21.10.201 1. SD/- SD/- [A.N. PAHUJA] [I.P. BANSAL] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED, 21.10.2011. DK COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES