DCIT 2(1)(1), MUMBAI V. THE BOMBAY SAMACHAR P.LTD, MUMBAI

ITA 35/MUM/2016

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 4459 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-10-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 07-06-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 05-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHAUDHARY ARUN KUMAR SINGH
• Assessee Lawyers: PERCY PARDIWALA SR
• Keywords: Initiation of penalty proceedings; Fair market value
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHRI M ANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER ITA NO. 35 / MUM . /2016 ( ASSESSMENT YEAR : 20 0 8 09 ) DY. COMMISSIONER OF INCOME TAX CIRCLE 2(1)(1), MUMBAI . APPELLANT V/S THE BOMBAY SAMACHAR PVT. LTD . RED HOUSE, SAYED ABDULLA BRELAVI ROAD HORNIMAN CIRCLE, FORT MUMBAI 400 023 PAN AAACT1340B . RESPONDENT ITA NO. 717 1 /MUM . /2010 ( ASSESSMENT YEAR : 2007 08 ) THE BOMBAY SAMACHAR PVT. LTD . RED HOUSE, SAYED ABDULLA BRELAVI ROAD HORNIMAN CIRCLE, FORT MUMBAI 400 023 PAN AAACT1340B . APPELLANT V/S ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 2(1)(1), MUMBAI . RESPONDENT ITA NO. 7141/MUM . /2011 ( ASSESSMENT YEAR : 2008 09 ) THE BOMBAY SAMACHAR PVT. LTD . RED HOUSE, SAYED ABDULLA BRELAVI ROAD HORNIMAN CIRCLE, FORT MUMBAI 400 023 PAN AAACT1340B . APPELLANT V/S DY. COMMISSIONER OF INCOME TAX CIRCLE 2(1)(1), MUMBAI . RESPONDENT 2 THE BOMBAY SAMACHAR PVT. LTD. ITA NO. 1576/MUM . /2013 ( ASSESSMENT YEAR : 2009 10 ) THE BOMBAY SAMACHAR PVT. LTD . RED HOUSE, SAYED ABDULLA BRELAVI ROAD HORNIMAN CIRCLE, FORT MUMBAI 400 023 PAN AAACT1340B . APPELLANT V/S ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 2(1)(1), MUMBAI . RESPONDENT ITA NO. 3949/MUM . /2014 ( ASSESSMENT YEAR : 2010 11 ) THE BOMBAY SAMACHAR PVT. LTD . RED HOUSE, SAYED ABDULLA BRELAVI ROAD HORNIMAN CIRCLE, FORT MUMBAI 400 023 PAN AAACT1340B . APPELLANT V/S DY. COMMISSIONER OF INCOME TAX CIRCLE 2(1)(1), MUMBAI . RESPONDENT ASSESSEE BY : SHRI PERCY PARDIWALA , SR. COUNSEL REVENUE BY : SHRI CHAUDHARY ARUN KUMAR SINGH DATE OF HEARING 04 . 10 .2018 DATE OF ORDER 24.10.2018 O R D E R PER SAKTIJIT DEY, J.M. THIS IS A BUNCH OF FIVE APPEALS AGAINST FIVE SEPARATE ORDERS OF THE LEARNED COMMISSIONER (APPEALS) 4, MUMBAI, FOR THE ASSESSMENT YEARS 2007 08, 2008 09, 2009 10 AND 2010 11. OUT OF THIS, FOUR APPEALS 3 THE BOMBAY SAMACHAR PVT. LTD. BY THE ASSESSEE ARISE OUT OF QUANT UM PROCEEDINGS, WHEREAS, THE LO N E APPEAL OF TH E REVENUE IS AGAINST DELETION OF PENALTY IMPOSED UNDER SECTION 271(1)(C) OF THE ACT FOR THE ASSESSMENT YEAR 2008 09. ITA NO.7171/MUM./2010 A.Y. 2007 08 ITA NO.7141/MUM./2011 A.Y. 2008 09 ITA NO.1576/MUM./2013 A.Y. 2009 10 ITA NO.3949/MUM./2014 A.Y. 2010 11 2 . THE ONLY COMMON ISSUE ARISING FOR CONSIDERATION IN THESE APPEALS BY THE ASSESSEE IS DISALLOWANCE MADE UNDER SECTION 40A(2)(A) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT ) ON ACCOUNT OF PAYMENT OF REMUNERATION TO WHOLE TIME DIRECTORS. SIN CE , FACTS RELATING TO THE ISSUE IN DISPUTE ARE IDENTICAL IN ALL THE APPEALS , FOR THE SAKE OF CONVENIENCE WE WILL ADVERT TO THE FACTS AS INVOLVED IN ITA NO.7171/MUM./ 2010. 3 . BRIEF FACTS ARE, THE ASSESSEE COMPANY PUBLISHES A NEWSPAPER IN VERNACULAR LANGUAGE. AS STATED BY THE ASSESSEE, IT IS CARRYING ON SUCH ACTIVITY FOR MORE THAN 150 YEARS. FOR THE ASSESSMENT YEAR UNDER DISPUTE, THE ASSESSEE FILED ITS RETURN OF INCOME ON 29 TH OCTOBER 2007, DECLARING LOSS OF ` 1,03,07,332. DURING THE ASSESSMENT PROCEEDINGS, THE A SSESSING OFFICER NOTICED THAT THE ASSESSEE HAS PAID REMUNERATION @ ` 48,00,000 EACH TO THREE WHOLE TIME DIRECTORS AGGREGATING TO ` 1,44,00,000. AFTER CALLING FOR FURTHER INFORMATION AND VERIFYING THEM, THE ASSESSING OFFICER FOUND THAT IN FINANCIAL YEAR 2003 04, WHEREIN THE 4 THE BOMBAY SAMACHAR PVT. LTD. ASSESSEE HAD POSITIVE INCOME , IT HAS PAID REMUNERATION OF ` 12,50,000 TO EACH DIRECTOR TOTALING TO ` 37,50,000. HE FOUND THAT IN FINANCIAL YEAR 2004 05, THE REMUNERATION TO THE AFORESAID THREE DIRE CTORS WERE INCREASED BY 40% I.E. @ ` 30,00,000 TO EACH DIRECTORS. IN FINANCIAL YEAR 2005 06, THE REMUNERATION INCREASED BY 416% I.E., @ ` 52,00,000 TO EACH DIRECTOR AND IN FINANCIAL YEAR 2006 07, THE ASSESSEE HAS PAID ` 48,00,000 TO EACH OF THE DIRECTOR. HOWEVER, EXCEPT FINANCIAL YEAR 2003 04 IN THE THREE SUBSEQUENT FINANCIAL YEAR S THE ASSESSEE HAS SHOWN LOSS. BEING OF THE VIEW THAT THE REMUNERATION PAID TO THE THREE DIRECTORS WAS EXCESSIVE AND UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHICH PAYMENT IS MADE AS WELL AS THE LEGITIMATE BUSINESS NEEDS OF THE ASSESSEE AND THE BENEFIT DERIVED BY OR ACCRUING TO THE ASSESSEE , THE ASSESSING OFFICER CALLED UPON THE ASSESSEE TO EXPLAIN WH Y THE REMUNERATION PAID TO THE DIRECTOR S SH OULD NOT BE DISALLOWED IN TERMS OF SECTION 40A(2)(A) OF THE ACT. FURTHER, THE ASSESSING OFFICER OBSERVED , TO ESCAPE THE RIGORS OF THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT, THE ASSESSEE HAS CAMOUFLAGED THE PAYMENTS MADE TO THE DIRECTORS AS REMUNERATION. IN RESPONSE TO THE QUERY RAISED BY THE ASSESSING OFFICER, THOUG H, THE ASSESSEE JUSTIFIED THE PAYMENTS MADE BY STATING THAT THE DIRECTORS WERE HAVING CONSIDERABLE WEALTH OF EXPERIENCE IN THE NEWSPAPER AND PRINTING INDUSTRY AND HAVE BEEN WORKING WITH THE NEWSPAPER FOR 5 THE BOMBAY SAMACHAR PVT. LTD. SEVERAL YEARS. IT WAS SUBMITTED , THE REMUNERATION PA ID TO THE DIRECTORS IS NOT EXCESSIVE OR UNREASONABLE COMPARED TO THE REMUNERATION PAID IN THE PRIVATE SECTOR FOR SIMILAR SERVICES RENDERED. THE ASSESSING OFFICER, HOWEVER, DID NOT FIND MERIT IN THE SUBMISSIONS OF THE ASSESSEE AND HELD THAT THE PAYMENT OF R EMUNERATION TO THE DIRECTOR IS EXCESSIVE AND UNREASONABLE HAVING REGARD TO THE PROVISIONS OF SECTION 40A(2)(B ) OF THE ACT, HENCE, NOT ALLOWABLE. THE ASSESSING OFFICER OBSERVED , IN ASSESSMENT YEAR 2003 04, WHEREIN , THE ASSESSEE HAS SHOWN PROFIT OF ` 2,27,00 ,000 REMUNERATION OF ` 21,00,000 WAS PAID TO THE DIRECTORS. HE OBSERVED , IN ASSESSMENT YEAR 2004 05 REMUNERATION WAS INCREASED BY ALMOST 80% TO ` 37,50,000. HE OBSERVED , CONSIDERING THE TIME SPAN AND SERVICES RENDERED OVER A PERIOD OF TIME AND COMMENSURATE RISE IN THE DIRECTORS REMUNERATION UP TO ASSESSMENT YEAR 2007 08 FROM ASSESSMENT YEAR 2003 04 , WHICH WAS TAKEN AS THE BASE YEAR, INCREASE OF 80% WOULD BE REASONABLE FOR THE IMPUGNED ASSESSMENT YEAR. THUS, THE ASSESSING OFFICER RESTRICTED PAYMENT OF REMUN ERATION TO THREE DIRECTORS AT ` 36,50,000 AS AGAINST REMUNERATION PAID OF ` 1,44,00,000. THIS RESULTED IN DISALLOWANCE OF ` 1,06,50,000. BEING AGGRIEVED OF THE AFORESAID DISALLOWANCE, THE ASSESSEE PREFERRED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 4 . THE LEARNED COMMISSIONER (APPEALS), HOWEVER, SUSTAINED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. IN THE LIKE MANNER, THE 6 THE BOMBAY SAMACHAR PVT. LTD. ASSESSING OFFICER COMPLETED ASSESSMENT S FOR ASSESSMENT YEAR 2008 09, 2009 10 AND 2010 11. THE ONLY DIFFERENCE BEING IN THE QUANTUM O F REMUNERATION ALLOWED BY THE ASSESSING OFFICER AT ` 48,00,000 AS AGAINST ` 1,44,00,000 CLAIMED BY THE ASSESSEE WHICH RESULTED IN ADDITIONS OF ` 1,02,000 IN EACH OF THESE ASSESSMENT YEARS. HOWEVER, THE FATE OF THE ADDITIONS MADE BY THE ASSESSING OFFICER REMAINED THE SAME BEFORE THE LEARNED COMMISSIONER (APPEALS). 5 . SHRI P.J. PARDIWALA, LEARNED SR. COUNSEL APPEARING FOR THE ASSESSEE SUBMITTED , BEFO RE INVOKING THE PROVISIONS OF SECTION 40A(2) (A) OF THE ACT, THE ASSESSING OFFICER MUST ESTABLISH ON RECORD THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF GOODS, SERVICES OR FACILITIES FO R WHICH THE PAYMENT IS MADE. HE SUBMITTED , THE FACTS ON RECORD WOULD REVEAL THAT FROM THE PAST SEVERAL YEARS, THE ASSESSEE HAD BEEN PAYING REMUNERATION TO THESE DIRECTORS IRRESPECTIVE OF PROFIT OR LOSS MADE IN EACH ASSESSMENT YEAR. HE SUBMITTED , THE FACTS AVAILABLE ON RECORD CLEARLY REVEAL THAT PAYMENT OF REMUNERATION INCREASED FROM YEAR TO YEAR RIGHT FROM ASSESSMENT YEAR 2002 03 AND EVEN THOUGH THERE WAS SUBSTANTIAL INCREASE IN PAYMENT OF REMUNERATION TO DIRECTORS IN THE SUBSEQUENT ASSESSMENT YEARS, THE AS SESSING OFFICER HAD NEVER OBJECTED TO INCREASE IN REMUNERATION AND HAS ALLOWED DEDUCTION ON ACCOUNT OF REMUNERATION PAID EVEN IN SCRUTINY ASSESSMENT S . THE 7 THE BOMBAY SAMACHAR PVT. LTD. LEARNED SR. COUNSEL SUBMITTED , COMPARE D TO THE REMUNERATION PAID IN ASSESSMENT YEAR 2006 07 WHICH WAS ALLOWED BY THE ASSESSING OFFICER IN SCRUTINY ASSESSMENT , THE REMUNERATION PAID IN THE IMPUGNED ASSESSMENT YEAR IS LESSER. THEREFORE, HE SUBMITTED , THE REMUNERATION PAID TO DIRECTORS CANNOT BE CONSIDERED AS EXCESSIVE OR UNREASONABLE. THE LEARNED SR. COUNSE L DRAWING OUR ATTENTION TO THE PROVISIONS OF SECTION 40A(2) OF THE ACT SUBMITTED , BEF ORE INVOKING THE SAID PROVISION THE ASSESSING OFFICER MUST BRING MATERIAL ON RECORD TO DEMONSTRATE THAT THE PAYMENT OF REMUNERATION TO DIRECTORS IS EXCESSIVE OR UNREASONAB LE COMPARED TO THE MARKET RATE OF PAYMENT FOR SUCH SERVICES. HE SUBMITTED , NO MATERIAL HAS BEEN BROUGHT ON RECORD BY THE ASSESSING OFFICER TO ESTABLISH SUCH FACT. HE SUBMITTED , THE ONLY REASON FOR WHICH THE ASSESSING OFFICER DISALLOWED REMUNERATION IN THE IMPUGNED ASSESSMENT YEAR IS BECAUSE OF LOSS SHOWN BY THE ASSESSEE. HE SUBMITTED , LOSS SHOWN BY THE ASSESSEE IS DUE TO SUBSTANTIAL RED UCTION IN ADVERTISEMENT REVENUE. THEREFORE , THAT BY ITSELF CANNOT BE A CRITERIA TO INVOKE PROVISIONS OF SECTION 40A(2) OF T HE ACT. THE LEARNED SR. COUNSEL SUBMITTED , THE VERY FACT THAT THE ASSESSEE HAD PAID REMUNERATION TO THE CONCERNED DIRECTORS IN THE PRECEDING ASSESSMENT YEARS AND AT A MUCH HIGHER RATE , GOES TO PROVE THAT THE REMUNERATION PAID IN THE IMPUGNED ASSESSMENT YEA R IS NEITHER EXCESSIVE NOR UN REASONABLE. AS REGARDS THE OBSERVATIONS OF THE ASSESSING OFFICER 8 THE BOMBAY SAMACHAR PVT. LTD. THAT TO AVOID THE MISCHIEF OF SECTION 2(22)(E) OF THE ACT THE ASSESSEE HAS PAID REMUNERATION TO THE DIRECTOR S , THE LEARNED SR. COUNSEL SUBMITTED , SUCH OBSERVATION S OF THE ASSESSING OFFICER IS FALLACIOUS CONSIDERING THE FACT THAT THE THREE DIRECTORS TO WHOM REMUNERATION WAS PAID ARE HOLDING , IN TOTAL , 15% SHARE S OF THE COMPANY. WHEREAS , 85% OTHER SHAREHOLDERS ARE THERE TO WHOM THE ASSESSEE WOULD OTHERWISE HAVE TO PA Y DIVIDEND. THE LEARNED SR. COUNSEL SUBMITTED , THE OBJECT BEHIND INTRODUCING SECTION 40A(2) TO THE ACT IS FOR PREVENTING EVASION OF TAX. HE SUBMITTED , IN THE FACTS OF THE PRESENT CASE, THERE IS NO SUCH OCCASION FOR EVASION OF TAX CONSIDERING THE FACT THAT ULTIMATELY THE ASSESSING OFFICER HAS DETERMINED LOSS IN ALL THE ASSESSMENT YEAR S AND MORE OVER THE DIRECTORS TO WHOM REMUNERATION WAS PAID HAVE NOT ONLY OFFERED SUCH INCOME IN THE RETURN OF INCOME FILED BY THEM BUT THEY HAVE PAID TAX AT THE MAXIMUM RATE OF 30%. THUS, HE SUBMITTED , BY PAYMENT OF SUCH REMUNERATION THERE IS NEITHER EVASION OF TAX NOR LEAKAGE OF REVENUE. THUS, HE SUBMITTED , NO DISALLOWANCE BY INVOKING PROVISIONS OF SECTION 40A(2) OF THE ACT SHOULD BE MADE. IN SUPPORT OF HIS CONTENTION, THE LEARN ED SR. COUNSEL RELIED UPON THE FOLLOWING DECISIONS: I ) CIT V/S INDO SOUDI SERVICES (TRAVEL) PVT. LTD., [2009] 310 ITR 306 (BOM.); II ) CIT V/S V.S. DEMPO & CO. PVT. LTD., [2011] 336 ITR 209 (BOM.); AND 9 THE BOMBAY SAMACHAR PVT. LTD. III ) CHRYSCAPITAL INVESTMENT ADVISORS (I) PVT. LTD. V/S DCIT, [ 2015] 376 ITR 183 (DEL.). 6 . THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE OBSERVATIONS OF THE DEPARTMENTAL AUTHORITIES. HE ALSO RELIED UPON THE FOLLOWING DECISIONS: I ) NUND & SAMONT CO. P. LTD. V/S CIT, [1970] 78 ITR 268 (SC) ; II ) CIT V/S SHATRUNJAY DIAMONDS, [2003] 261 ITR 258 (BOM.) AND III ) SHREE LAXMI MARKETING (P) LTD. V/S ACIT, [2008] 119 I TD 390 (PN.). 7 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIALS ON RECORD. WE HAVE ALSO APPLIED OUR MIND TO THE DECISIONS RELIED UPO N BY BOTH THE PARTIES. BEFORE WE PROCEED TO DECIDE THE VALIDITY OF THE DISALLOWANCE MADE UNDER SECTION 40A(2)(A) OF THE ACT IN THE ASSESSMENT YEARS UNDER APPEAL, IT IS NECESSARY AND RELEVANT TO LOOK INTO THE PROVISIONS CONTAINED UNDER SECTION 40A(2) OF THE ACT. ON A CAREFU L READING OF THE SAID PROVISION, IT IS APPARENT , IN THE RELEVANT PREVIOUS YEAR THE ASSESSEE DID MAKE PAYMENT TO PERSONS REFERRED TO UNDER CLAUSE (B) OF SECTION 40A(2) OF THE ACT. HOWEVER, BEFORE INVOKING THE PROVISIONS OF SECTION 40A(2)(A) OF THE ACT, THE FOLLOWING CONDITIONS HAVE TO BE SATISFIED: 10 THE BOMBAY SAMACHAR PVT. LTD. I ) T HE PAYMENT MADE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE; OR II ) THE EXPENDITURE INCURRED IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE LEGITIMATE BUSINESS NEEDS OF THE ASSESSEES BUSINESS; OR III ) EXPENDITURE INCURRED IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE BENEFIT DERIVED BY OR ACCRUING TO THE ASSESSEE FROM THE PAYMENT. 8 . KEEPING IN VIEW THE AFORESAID LEGAL POSITION, IF WE EXAMINE THE FACTS OF THE PRESENT CASE, IT IS EVIDENT THAT THE ASSESSEE HAD BEEN PAYING REMUNERATION TO THE CONCERNED DIRECTORS FROM PAST SEVERAL YEARS. IN FACT, THE ASSESSING OFFICER HIMSELF IN THE ASSESSMENT ORDER HAS S TATED THAT THE REMUNERATION PAID TO THE THREE DIRECTORS IN ASSESSMENT YEAR 2003 04 WAS ` 21 LAKH , IN ASSESSMENT YEAR 2004 05 IS ` 37.50 LAKH, IN ASSESSMENT YEAR 2005 09 ` 90 LAKH AND IN ASSESSMENT YEAR 2006 07 IS ` 1.56 CRORE. THUS, AS COULD BE SEEN FROM T HE FACTS ON RECORD , OVER THE YEARS THERE IS INCREMENTAL INCREASE IN PAYMENT OF REMUNERATION TO THE DIRECTORS. IT IS NOT A FACT THAT THERE IS A QUANTUM JUMP IN PAYMENT OF SALARY IN THE IMPUGNED ASSESSMENT YEAR ONLY . FURTHER, IT IS RELEVANT TO OBSERVE , PAYME NT OF REMUNERATION 11 THE BOMBAY SAMACHAR PVT. LTD. TO THE DIRECTORS HAVE BEEN ACCEPTED BY THE ASSESSING OFFICER IN PAST ASSESSMENT YEARS WHILE COMPLETING SCRUTINY ASSESSMENTS UNDER SECTION 143(3) OF THE ACT. THIS IS EVIDENT FROM THE COPIES OF THE ASSESSMENT ORDER S FOR ASSESSMENT YEAR S 20 01 02, 2003 04 AND 2004 05 PLACED BEFORE US . IN FACT, WHILE COMPLETING THE SCRUTINY ASSESSMENT FOR ASSESSMENT YEAR 2006 07 UNDER SECTION 143(3) OF THE ACT , WHICH IS EVIDENT FROM THE ASSESSMENT ORDER DATED 16 TH DECEMBER 2008, THE ASSESSING OFFICER HAS ALLOW ED PAYMENT OF REMUNERATION OF ` 1.56 CRORE AGAINST LOSS DETERMINED AT ` 3,16,68,518. THEREFORE, IN COMPARISON TO PAYMENT OF REMUNERATION IN ASSESSMENT YEAR 2006 07 I.E. THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, THE PAYMENT OF REMUNERATION TO THE DIRECTORS IN THE IMPUGNED ASSESSMENT YEARS CANNOT BE CONSIDERED TO BE EITHER EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE. FURTHER, WHILE INVOKING THE PROVISIONS OF SECTION 40A(2) (A) OF THE ACT, THE ASSESSING OFFICER MUST BRING MATERIAL ON RECORD TO DEMONSTRATE THAT THE PAYMENT MADE BY THE ASSESSEE IS EXCESSIVE OR UNREASONABLE HAVING REG ARD TO THE MARKET RATE FOR THE G OODS, SERVICES, FACILITIES AVAILED OR THE BUSINESS NEEDS OF THE ASSESSEE OR COMMENSURATE WITH THE BENEFIT DERIVE D BY THE ASSESSEE. ON SCANNING THROUGH THE ASSESSMENT ORDER PASSED FOR T H E IMPUGNED ASSESSMENT YEAR, WE DO NOT FIND ANY MATERIAL BROUGHT ON RECORD BY THE ASSESSING OFFICER TO DEMONSTRATE THAT THE 12 THE BOMBAY SAMACHAR PVT. LTD. PAYMENT MADE BY THE ASSESSEE IS EXCESSIVE AND UNREASONABLE H AVING REGARD TO THE MARKET RATE OR BUSINESS NEEDS OR BENEFIT DERIVED BY THE ASSESSEE. AS COULD BE SEEN, THE ASSESSING OFFICER BY SIMPLY TAKING THE REMUNERATION P AID IN ASSESSMENT YEAR 2003 04 AS A BASE H AS DETERMINED THE REASONABLE REMUNERATION PAYABLE TO DIRECTORS . THIS , IN OUR VIEW , IS PURELY ON ESTIMATE BASIS WITHOUT HAVING ANY RELEVANCE TO TH E ACTUAL FACTS ON RECORD INCLUDING THE FACT THAT IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR THE ASSESSEE HAS NOT ONLY PAID REMUNERATION OF ` 1.56 CRORE TO THE CONCERNED DIRECTOR S BUT THE ASSESSING OFFICER HAS ALSO ALLOWED SUCH PAYMENT IN SCRUTINY ASSESSMENT. AS REGARDS THE OBSERVATIONS OF THE ASSESSING OFFICER THAT TO AVOID THE MISCHIEF OF SECTION 2(22)(E) OF THE ACT, THE ASSESSEE HAS CAMOUFLA GED LOAN / ADVANCES TO THE DIRECTORS AS REMUNERATION, WE DO NOT FIND ANY SUBSTANCE IN SUCH ALLEGATION. UNDISPUTEDLY, THE ASSESSEE HAD BEEN PAYING REMUNERATION TO THE CONCERNED DIRECTORS FROM PAST SEVERAL YEARS. MOREOVER, FROM THE SHAREHOLDING PATTERN OF TH E COMPANY, IT APPEARS THAT THE TOTAL SHARE HOLDING OF THE AFORESAID THREE DIRECTORS COMBINED TOGETHER CONSTITUTES ONLY 15%. THEREFORE, IT CANNOT BE SAID THAT FOR ESCAPING THE RIGORS OF SECTION 2(22)(E) OF THE ACT THE ASSESSEE HAS PAID REMUNERATION TO THE D IRECTORS. THE OBJECT BEHIND INTRODUCTION OF SECTION 40A(2) OF THE ACT IS FOR PREVENTING EVASION OF TAX THROUGH SHIFTING OF PROFIT BY MAKING PAYMENT TO RELATED PARTIES. 13 THE BOMBAY SAMACHAR PVT. LTD. THEREFORE, IT IS OF PARAMOUNT IMPORTANCE TO EXAMINE WHETHER THE ASSESSEE HAS MADE PAYMEN T FOR EVADING TAX THROUGH SHIFTING OF PROFIT. IN THE FACTS OF THE PRESENT CASE, IT IS EVIDENT THAT THE ASSESSEE HAD BEEN SHOWING LOSS CONTINUOUSLY FOR PAST SEVERAL YEAR S AND THE ASSESSING OFFICER HAS ALSO ACCEPTED LOSS SHOWN BY THE ASSESSEE. THAT BEING THE CASE, THERE CANNOT BE ANY INTENTION ON THE PART OF THE ASSESSEE TO EVADE TAX BY SHIFTING PROFIT. IT IS EQUALLY IMPORTANT TO NOTE THAT THE REMU N ERATION PAID TO THE DIRECTORS HAVE BEEN OFFERED BY THEM TO TAX WHILE FILING THEIR INDIVIDUAL TAX RETURN S FOR THE RESPECTIVE ASSESSMENT YEAR S . THIS FACT IS EVIDENT FROM THE COPIES OF THE INCOME TAX RETURNS OF THE CONCERNED DIRECTORS FILED BEFORE US BY THE LEARNED SR. COUNSEL. IT IS ALSO NOT DISPUTED THAT THE CONCERNED DIRECTORS ARE ASSESSED TO TAX AT THE MAXIMUM RATE OF 30%. IN THE AFORESAID FACTS AND CIRCUMSTANCES, WE ARE OF THE CONSIDERED VIEW THAT THE PROVISIONS OF SECTION 40A(2) OF THE ACT ARE NOT ATTRACTED TO THE PAYMENT MADE TO THE DIRECTORS. THE DECISIONS RELIED UPON BY THE LEARNED SR. COUNSEL ALSO SUPPORT OUR AFORESAID VIEW. WHEREAS , THE DECISIONS CITED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE ARE FACTUALLY DISTINGUISHABLE. THUS, ON OVERALL CONSIDERATION OF FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT THE DISALLOWANCE MADE UNDER SECTION 40A(2) (A) OF THE ACT IN THE IMPUGNED ASSESSMENT YEARS ARE 14 THE BOMBAY SAMACHAR PVT. LTD. UNSUSTAINABLE. ACCORDINGLY, WE DELETED THE DISALLOWANCES MADE IN ALL THE ASSESSMENT YEARS UNDER APPEAL. GROUNDS RAISED ARE ALLOWED. 9 . IN THE RESULT, ALL THESE APPEALS ARE ALLOWED. ITA NO.35/MUM./2016 REVE NUES APPEAL A.Y. 2008 09 10 . AFORESAID APPEAL BY THE REVENUE IS AGAINST DELETION OF PENALTY IMPOSED OF ` 35 LAKH UNDER SECTION 271(1)(C) OF THE ACT. 11 . BRIEF FACTS ARE, WHILE COMPLETING THE ASSESSMENT FOR THE IMPUGNED ASSESSMENT YEAR, OUT OF THE TOTAL REMUNERATION PAID OF ` 1.44 CRORE PAID TO THREE DIRECTORS , THE ASSESSING OFFICER DISALLOWED AN AMOUNT OF ` 1.02 CRORE UNDER SECTION 40A(2)(A) OF THE ACT. ON THE BASIS OF SUCH DISALLOWANCE / ADDITION, THE ASSESSING OFFICER INITIATED PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT ALLEGING CONCEALMENT OF PARTICULARS OF INCOME. THOUGH, THE ASSESSEE OBJECTED TO INITIATION OF PENALTY PROCEEDINGS, HOWEVER, T HE ASSESSING OFFICER REJECTING THE OBJECTIONS OF THE ASSESSEE IMPOSED PENALTY OF ` 35 LAKH UNDER SECTION 271(1)(C) OF THE ACT. THE PENALTY ORDER PASSED BY THE ASSESSING OFFICER WAS CHALLENGED BY THE ASSESSEE BEFORE THE FIRST APPELLATE AUTHORITY. 1 5 THE BOMBAY SAMACHAR PVT. LTD. 12 . THE LEARN ED COMMISSIONER (APPEALS) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE IN THE CONTEXT OF FACTS AND MATERIAL ON RECORD BEING SATISFIED THAT IT IS MERELY A DISALLOWANCE OF DEDUCTION CLAIMED BY THE ASSESSEE NOT LEADING TO CONCEALMENT OF INCOME , DELETED T HE PENALTY IMPOSED UNDER SECTION 271(1)(C) OF THE ACT. WHILE DOING SO, HE RELIED UPON CERTAIN JUDICIAL PRECEDENTS, INCLUDING , THE DECISION OF THE HON'BLE SUPREME COURT IN CIT V/S RELIANCE PETROPRODUCTS PVT. LTD., [2010] 322 ITR 158 (SC). 13 . WE HAVE CONSIDERE D RIVAL SUBMISSIONS AN D PERUSED MATERIALS ON RECORD. UNDISPUTEDLY, THE IMPOSITION OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT IS ON ACCOUNT OF PART DISALLOWANCE OF REMUNERATION PAID TO THE DIRECTORS BY INVOKING PROVISIONS OF SECTION 40A(2)(A) OF THE ACT. IT IS A FACT ON RECORD THAT THE ASSESSEE HAD BEEN PAYING REMUNERATION TO THE CONCERNED DIRECTORS FROM PAST SEVERAL YEARS AND THE DEPARTMENT HAS ALSO ACCEPTED THE DEDUCTION CLAIMED BY THE ASSESSEE ON THAT ACCOUNT IN SCRUTINY ASSESSMENT S . EVEN , IN THE IMPUG NED ASSESSMENT YEAR THE ASSESSING OFFICER HAS ONLY DISALLOWED A PART OF THE REMUNERATION BY TREATING IT AS EXCESSIVE AND UNREASONABLE. THE R EFORE, THERE IS NO DOUBT OR DISPUTE WITH REGARD TO T H E GENUINENESS OF PAYMENT MADE. THEREFORE, THIS IS A CLEAR CASE OF DEDUCTION CLAIMED BY THE ASSESSEE AND A PART OF WHICH WAS DISALLOWED BY THE ASSESSING OFFICER ON ESTIMATE BASIS. THAT BEING THE CASE, THE ASSESSEE CANNOT BE 16 THE BOMBAY SAMACHAR PVT. LTD. ALLEGED OF CONCEALING THE PARTICULARS OF INCOME. EVEN OTHERWISE ALSO , WHILE DECIDING ASSESSEES QUANTUM APPEAL FOR THE IMPUGNED ASSESSMENT YEAR IN ITA NO.7141/MUM./2011, WE HAVE DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. THEREFORE, IN ANY CASE OF THE MATTER, PENALTY IMPOSED UNDER SECTION 271(1)(C) OF THE ACT, COULD NOT HAVE SURVIVED. IN VIEW OF THE AFORESAID, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE DECISION OF THE LEARNED COMMISSIONER (APPEALS). GROUND RAISED IS DISMISSED. 14 . IN THE RESULT, REVENUES APPEAL IS DISMISSED. 15 . TO SUM UP, ALL THE APPEALS OF THE ASSESSEE ARE ALLOWED , WHERE AS , REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON SD/ - MANOJ KUMAR AGGARWAL ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 24.10.2018 COPY OF THE ORDER FORWARDED TO : 17 THE BOMBAY SAMACHAR PVT. LTD. ( 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 (SR. PRIVATE SECRETARY) ITAT, MUMBAI