M/s. Chowgule Ports and Infrastructure Pvt. Ltd., Ratnagiri V. Assistant Commssioner of Income-tax,

ITA 387/PUN/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9255 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-07-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 19-01-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 06-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MUKESH JHA

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE . . . . , , BEFORE SHRI D.KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO. 387/PUN/2015 / ASSESSMENT YEAR : 2011-12 M/S. CHOWGULE PORTS AND INFRASTRUCTURE PVT. LTD., PLOT NO.C-221, MIDC, MIRJOLE, RATNAGIRI 415639 PAN :AADCC3881D . / APPELLANT V/S ACIT, RATN AGIRI CIRCLE, RATNAGIRI. . / RESPONDENT ASSESSEE BY : SHRI MIHIR NANIWADEKAR REVENUE BY : SHRI MUKESH JHA, JCIT / ORDER PER D. KARUNAKARA RAO, AM : THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER OF THE CIT(A), KOLHAPUR DATED 02-05-2014 RELATING TO ASSESSMENT YE AR 2011-12. 2. THE ONLY ISSUE RAISED IN THE APPEAL RELATES TO D ISALLOWANCE OF RS.1,20,90,232/- BEING EXPENSES IN THE NATURE OF SA LARY/PAYMENTS MADE TO THE STAFF ON DEPUTATION. OTHERWISE, THE ASSESSEE R AISED TOTAL 7 GROUNDS. WE FIND THE GROUNDS 1 TO 6 ARE ARGUMENTATIVE AND GROUN D NO.7 CONTAINS THE CORE ISSUE AND THE SAME READS AS UNDER : 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD.CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF RS.1, 20,90,232/- BEING EXPENSES IN THE NATURE OF SALARY/PAYMENTS TO STAFF ON DEPUTATION. HE ERRED IN HOLDING THAT THERE WAS NO EVIDENCE THAT THE PAYMENT S ARE WHOLLY AND / DATE OF HEARING :03.07.2017 / DATE OF PRONOUNCEMENT: 03.07.2017 2 ITA NO.387/PUN/2015 EXCLUSIVE FOR THE PURPOSES OF THE ASSESSEES BUSINE SS, WITHOUT APPRECIATING THE CONFIRMATION LETTERS AND OTHER RECORDS AND DETAILS PLACED. 3. BRIEFLY STATED RELEVANT FACTS ARE THAT THE ASSES SEE HAS APPOINTED EMPLOYEES NAMELY, SHRI MANOHAR P. PATWARDHAN, MANAG ING DIRECTOR, SHRI ATUL KULKARNI AS CEO OF THE COMPANY, SHRI RAVINDRA G. AW ATI AND SHRI MOHAN N. PENDSE AS VICE PRESIDENTS, SHRI GANESH S. BHAGAVE A S AGM (FINANCE) ETC., THESE EMPLOYEES WERE EARLIER DEPUTED TO WORK FOR TH E SUBSIDIARY COMPANIES, SUCH AS ANGRE PORT PVT. LTD. AND LAGVAN DOCKYARD PV T. LTD. TILL THE A.Y. 2010- 11, AGAINST THE SERVICES OF THESE DEPUTED EMPLOYEES OF THE ASSESSEE, ASSESSEE WAS RECEIVING REIMBURSEMENT OF THE SALARY AND OTHER EXPENDITURES OF THE SAID EMPLOYEES; WHEREAS, IN THE YEAR UNDER CONSIDERATION , THE SAID EMPLOYEES HAS STOPPED FUNCTIONING FOR THE SUBSIDIARY COMPANIES OF THE ASSESSEE. THEREFORE, THE ASSESSEE PAID THE SALARY AND OTHER ALLOWANCES I N THE YEAR UNDER CONSIDERATION. IN THE ASSESSMENT PROCEEDINGS, AO C AME TO THE CONCLUSION THAT THE SAID EMPLOYEES FAILED TO RENDER ANY SERVIC ES TO THE COMPANY. AS SUCH, THE COMPANY DID NOT CONDUCT ANY SHIPPING BUSI NESS ACTIVITY. THEREFORE, AO CONCLUDED BY STATING THAT THE CLAIM OF SALARY EX PENDITURE AMOUNTING TO RS.1,32,14,254/- IS DISALLOWABLE. HOWEVER, THE SAL ARY PAYMENT MADE TO SHRI GANESH S. BHAGAVE, AGM (FINANCE) AND SHRI YADUNATH S. DHURI, THE FINANCE EMPLOYEES, HAD DONE THE DUTIES OF DOING SOME FINANC E ACTIVITIES OF THE COMPANY, IS FOUND ALLOWABLE BY THE AO. EVENTUALLY, THE AO MADE ADDITION OF RS.1,20,90,232/- (RS.1,32,14,254/- PER ANNUM RS.9 ,27,000/- PER ANNUM + RS.1,97,022/- PER ANNUM). CIT(A) CONFIRMED THE SAI D DISALLOWANCES. 4. DURING THE FIRST APPELLATE PROCEEDINGS, ASSESSEE CONTENDED THAT THE SAID AMOUNT WAS ACTUALLY PAID TO THE EMPLOYEES BY T HE ASSESSEE AND THE SAID EMPLOYEES HAVE OFFERED THE SAME TO TAX IN THEIR RES PECTIVE TAX RETURNS. IN SUCH CASE, AO CANNOT DISALLOW THE CLAIM OF THE ASSE SSEE. REFERRING TO THE CONCLUSIONS OF THE CIT(A) GIVEN IN PARA 5, LD. COUN SEL FOR THE ASSESSEE 3 ITA NO.387/PUN/2015 SUBMITTED THAT COMPANYS FAILURE TO EARN INCOME FRO M ITS PORT AND SHIPPING OPERATIONS ETC. IS NOT RELEVANT FACTOR FOR MAKING S UCH DISALLOWANCES. IT IS NOT THE CASE OF THE AO THAT THE PAYMENTS MADE BY THE AS SESSEE ARE NOT GENUINE. FURTHER, EXPECTING REIMBURSEMENT FROM THE OTHER SIS TER CONCERNS TO WHICH THE EMPLOYEES WERE EARLIER DEPUTED IS NO LONGER A RELEV ANT FACTOR FOR THE YEAR UNDER CONSIDERATION AS THEIR SERVICES ARE NO LONGER WANTED BY THE SAID CONCERNS. THEY WERE WORKING FOR THE COMPANY PRESEN TLY AND THEREFORE THE SALARY IS PAYABLE BY THE ASSESSEE AND THE SAME IS A LLOWABLE U/S.37 OF THE ACT. 5. LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE HEAVILY RELIED ON THE ORDERS OF THE AO AND THE CIT(A). 6. WE HEARD BOTH THE SIDES ON THIS LIMITED ISSUE OF ALLOWABILITY OF SALARY EXPENDITURE AMOUNTING TO RS.1,20,90,232/-. THERE I S NO FINDING OF FACT BY THE AO IN THE ORDERS THAT THE SAID EMPLOYEES WERE NOT E MPLOYEES OF THE ASSESSEE. IT IS ALSO NOT DEMONSTRATED THAT ASSESSEE HAS NOT P AID THE SALARY TO THE SAID EMPLOYEES (MD/CEO/VP/AGM ETC.) NOTHING IS BROUGHT ON RECORD TO DEMONSTRATE THAT THE CONCERNED EMPLOYEES HAVE NOT O FFERED THEIR SALARY IN THEIR RETURNS OF INCOME. GENUINENESS OF THE TRANSA CTIONS WAS ALSO NEVER DOUBTED BY THE AO. IN SUCH CIRCUMSTANCES, DISALLOW ING THE CLAIM OF THE ASSESSEE IS NOT PRIMA-FACIE SUSTAINABLE. EXPECTING THE SISTER CONCERNS TO MAKE THE SALARY PAYMENTS BY WAY OF REIMBURSEMENT TO THE ASSESSEE AFTER THE EXPIRY OF DEPUTATION OF THE EMPLOYEES IS NOT PROPER. AS S UCH, IT IS SETTLED LAW THAT THE AO CANNOT DECIDE THE PAYABILITY OF THE SALARIES TO THE EMPLOYEES. IT IS FOR THE PRUDENT WISDOM OF THE ASSESSEE AS TO WHOM THE S ALARY SHOULD BE PAID AND THE AMOUNT OF SALARY, THEREOF. IT IS NOT THE CASE OF THE AO THAT THE ASSESSEE HAS NOT DONE ANY BUSINESS ACTIVITY. HE ACCEPTED TH E FACT OF TRANSACTING SOME FINANCE DEALS. ALLOWING THE SALARY TO SHRI GANESH S. BHAGAVE, AGM (FINANCE) PROVE THE SAME. DISALLOWING THE SALARY TO SHRI MAN OHAR P. PATWARDHAN, 4 ITA NO.387/PUN/2015 MANAGING DIRECTOR OF THE COMPANY IS PRIMA-FACIE CON TRADICTORY AS THE AO ALLOWED THE SALARY PAID TO HIS SUBORDINATES. FOR A LL THE AFORESAID REASONS, WE ARE OF THE OPINION THAT THE ORDER OF THE CIT(A) REQ UIRES TO BE REVERSED WITH THE DIRECTION TO THE AO TO ALLOW THE CLAIM OF THE A SSESSEE. WE CANNOT APPROVE THE ORDERS OF THE REVENUE IN THEIR PRESENT FORM. A CCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 03RD DA Y OF JULY, 2017. SD/- SD/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE; DATED : 03 RD JULY, 2017. / COPY OF THE ORDER FORWARDED TO : / BY ORDER , // TRUE COPY // //TRUE COPY// /ASSISTANT REGISTRAR , / ITAT, PUNE 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT(A) , KOLHAPUR 4. THE CIT , KOLHAPUR 5 . DR, ITAT, A BENCH PUNE; 6 . / GUARD FILE.