ACIT, New Delhi V. M/s. Mitra & Co. Ltd., New Delhi

ITA 3446/DEL/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 6950 (ITAT-DELHI)
• Duration Of Justice: 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 15-09-2010
• Assessment Year: 2007-2008
• Appeal Filed On: 14-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANEESH BAHUGUNA
• Assessee Lawyers: R P MALL
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D DELHI BEFORE SHRI C.L. SETHI AND SHRI K.G. BANSAL ITA NO. 3446(DEL)/2010 ASSESSMENT YEAR: 2007-08 DEPUTY COMMISSIONER OF INCOME J. MIT RA & CO. LTD., TAX, CIRCLE 4(1), NEW DELHI. VS. A- 180, OKHLA INDL. AREA, PHASE-I, NEW DELHI. PAN-AAACJ0482C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MANEESH BAHUGUNA, SR. DR. RESPONDENT BY: SHR I R.P. MALL, ADVOCATE ORDER PER K.G. BANSAL : AM THIS APPEAL EMANATES FROM THE ORDER OF CIT(APPE ALS)-VII, NEW DELHI, PASSED ON 26.05.2010 IN APPEAL NO. 97/200 9-10 AND IT PERTAINS TO ASSESSMENT YEAR 2007-08. THE CORRESPONDING ASS ESSMENT ORDER WAS FRAMED BY THE DEPUTY COMMISSIONER OF INCOME-TAX, C IRCLE 4(1), NEW DELHI, ON 15.12.2009 UNDER THE PROVISIONS OF S ECTION 143(3) OF THE INCOME-TAX ACT, 1961 (THE ACT FOR SHORT). THE REVENUE HAS TAKEN ONLY ONE SUBSTANTIVE GROUND IN THE APPEAL TO THE EFFEC T THAT THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 36,80,906/- , MADE BY THE AO BY DISALLOWING EXPENSES INCURRED ON ACCOUNT OF SALAR Y AND KEYMAN INSURANCE. ITA NO. 3446(DEL)/2010 2 2. IT WAS THE COMMON CASE OF BOTH THE PARTIES B EFORE US THAT THE ISSUES STAND COVERED BY THE ORDER OF C BENCH OF DELH I TRIBUNAL IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEARS 2001-02 TO 20 05-06 DATED 19.12.2008, A COPY OF WHICH HAS BEEN PLACED BEFORE US. PARA GRAPH NO. 33 OF THE ORDER, WHICH DEALS WITH THE ISSUES AT HAND READS AS UN DER:- 33. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND A LSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBS ERVED THAT THE CONCERNED FOUR DIRECTORS WERE RENDERING THEIR SERVI CES AS WORKING DIRECTORS TO THE ASSESSEE COMPANY EVEN PRIO R TO THE COMMENCEMENT OF ITS BUSINESS BY THE PARTNERSHIP FIR M OF M/S BIOTECH INC. AND THEY WERE BEING DULY REMUNERATED B Y THE ASSESSEE COMPANY FOR SUCH SERVICES RENDERED FOR THE PURPOSE OF ITS BUSINESS. THE DETAILS GIVEN BY THE AO IN SCHED ULE-8 ALSO SHOW THAT THE REMUNERATION PAID TO THE SAID DIRECTO RS WAS INCREASED GRADUALLY OVER THE YEARS AND IT IS NOT TH E CASE EVEN OF THE ASSESSING OFFICER THAT THE REMUNERATION PAID TO THEM WAS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE NATU RE OF SERVICES RENDERED BY THEM TO THE ASSESSEE COMPANY. AS REGARDS THE KEYMAN INSURANCE PREMIUM PAID BY THE ASSESSEE C OMPANY, IT IS OBSERVED THAT ALTHOUGH THE SAID POLICY WAS TA KEN IN THE NAME OF THE CONCERNED DIRECTORS, THE BENEFICIARY UN DER THE SAID POLICY WAS THE ASSESSEE COMPANY ITSELF. THE KEYMAN INSURANCE POLICY BY ITS SCHEME ITSELF IS MEANT TO PROTECT THE INTERESTS OF THE EMPLOYER I.E. THE ASSESSEE COMPANY IN THE PRESE NT CASE FROM THE LOSS, IF ANY, ON ACCOUNT OF DEATH OF ANY OF ITS KEYMEN. THE SAID POLICY THUS WAS TAKEN BY THE ASSESSEE COMPANY WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ITS BUSINESS AND IT BEING THE ONLY BENEFICIARY UNDER THE SAID POLICY, THE PREMIUM PAID WAS ENTIRELY ALLOWABLE AS DEDUCTION IN THE CASE OF THE ASSESSEE COMPANY. THE PARTNERS OF THE ASSESSEE COMPANY MIGH T BE RENDERING SERVICES TO THE PARTNERSHIP FIRM OF M/S B IOTECH INC. IN THEIR CAPACITY AS PARTNERS AS ALLEGED BY THE REVENU E. THERE IS, HOWEVER, NO EVIDENCE BROUGHT ON RECORD TO SHOW THAT THEY WERE TO BE REMUNERATED BY THE SAID FIRM FOR SUCH SERVICE S AND SUCH REMUNERATION WAS PAID FROM THE ACCOUNT OF THE ASSES SEE ITA NO. 3446(DEL)/2010 3 COMPANY. THE INFERENCE DRAWN BY THE AO AS WELL AS BY THE LEARNED CIT(A) TO JUSTIFY THE DISALLOWANCE OUT OF S ALARY EXPENSES IN THE HANDS OF THE ASSESSEE COMPANY IS ME RELY BASED ON PRESUMPTIONS AND SURMISES. IT WAS ENTIRELY UP T O THE PARTNERS TO DECIDE ABOUT THE SALARY TO BE DRAWN FRO M THEIR PARTNERSHIP FIRM FOR THE SERVICES RENDERED AND IF T HEY AGREE NOT TO WITHDRAW ANY REMUNERATION FROM THE PARTNERSHIP F IRM, SUCH REMUNERATION CANNOT BE PERFORCED BY THE AO. THIS D ECISION HAS TO BE TAKEN BY THE PARTNERS IN THEIR OWN INTEREST A ND IN THE INTEREST OF THE PARTNERSHIP FIRM AS A PRUDENT BUSIN ESSMAN AND THE AO CANNOT DICTATE ANY TERMS IN THIS CONTEXT. M OREOVER, MERELY BECAUSE NO REMUNERATION WAS DRAWN BY THE PAR TNERS FROM THEIR PARTNERSHIP FIRM, IT CANNOT BE PRESUMED THAT SUCH REMUNERATION WAS ACTUALLY DRAWN BY THEM FROM THE CO MPANY IN THE FORM OF DIRECTORS REMUNERATION ESPECIALLY WHEN THERE IS NOTHING ON RECORD TO SUPPORT AND SUBSTANTIATE THE S AME. IT IS ALSO NOT A CASE OF THE REVENUE THAT THE REMUNERATIO N PAID BY THE ASSESSEE COMPANY TO ITS DIRECTORS WAS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE SERVICES RENDERED BY THEM. AS SUCH, CONSIDERING ALL THE FACTS OF THE CASE, WE ARE OF TH E VIEW THAT THE DISALLOWANCE MADE BY THE AO AND SUSTAINED BY THE LE ARNED CIT(A) OUT OF DIRECTORS REMUNERATION AND KEYMAN IN SURANCE PREMIUM WAS NOT JUSTIFIED AND DELETING THE SAME, WE ALLOW GROUND NO.2 OF THE ASSESSEES APPEAL AND DISMISS GR OUND NO.3 OF THE REVENUES APPEAL. 3. FOLLOWING THE AFORESAID ORDER, IT IS HELD THA T THE LD. CIT(APPEALS) RIGHTLY ALLOWED THESE EXPENSES. 4. IN THE RESULT, THE APPEAL IS DISMISSED. THE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 21S T OCTOBER, 2010. SD/- SD/- (C.L. SETHI) (K.G.BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER: 21ST OCTOBER, 2010. ITA NO. 3446(DEL)/2010 4 SP SATIA COPY OF THE ORDER FORWARDED TO: M/S J. MITRA & CO. LTD., NEW DELHI. DY. CIT, CIRCLE 4(1), NEW DELHI. CIT(A) CIT THE DR, ITAT, NEW DELHI. ASSISTANT RE GISTRAR.