ARUN V NAIK, MUMBAI V. ACIT CIR 23(2), MUMBAI

ITA 4198/MUM/2010

• Counselvise Citation: 419819914 RSA 2010
• Duration Of Justice: 1 year(s) 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 23-11-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 24-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS USHA NAIR
• Assessee Lawyers: C N VAZE

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: MUMBAI BEFORE SHRI G.E. VEERABHADRAPPA, PRESIDENT AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO.4198/MUM/2010 (ASSESSMENT YEARS: 2004-05) MR. ARUN V. NAIK, PROP. ZEOLITES & ALLIED PRODUCTS, 16, UDHOG KSHETRA, MULUND GOREGAON LINK ROAD, MULUND (W), MUMBAI -400 080 ....... APPELLANT VS ACIT- CIRCLE-23(2), MUMBAI ..... RESPONDENT APPELLANT BY: SHRI C.N. VAZE RESPONDENT BY: MRS. USHA NAIR ITA NO.5010/MUM/2010 (ASSESSMENT YEARS: 2004-05) ACIT- CIRCLE-23(2), MUMBAI ....... APPELLANT VS MR. ARUN V. NAIK, PROP. ZEOLITES & ALLIED PRODUCTS, 16, UDHOG KSHETRA, MULUND GOREGAON LINK ROAD, MULUND (W), MUMBAI -400 080 ..... RESPONDENT PAN: AAAPN 6157 D APPELLANT BY: MRS. USHA NAIR RESPONDENT BY: SHRI C.N. VAZE DATE OF HEARING: 23.11.2011 DATE OF PRONOUNCEMENT: 28.12.2011 O R D E R ITA 4198 AND 5010/MUM/2010 MR. ARUN V. NAIK 2 PER R.S. PADVEKAR, JM THESE TWO CROSS APPEALS ONE BY THE ASSESSEE AND ANO THER BY THE REVENUE ARE FILED CHALLENGING THE IMPUGNED ORDER OF THE LD. CIT (A) - 33, MUMBAI DATED 23.03.2010 FOR THE A.Y. 2004-05. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUND IN THE APPEAL:- 1. THE LD. CIT (APPEALS) -33, MUMBAI, HAS ERRED IN RETAINING THE DISALLOWANCE OF PROFESSIONAL FEES TO THE EXTENT OF ` 7,39,000/- PAID TO SHRI ULHAS NAIK AS AGAINST THE DISALLOWANCE OF ` 10,00,000/- MADE BY THE ASSESSING OFFICER. ENTIRE DISALLOWANCE MAY PLEASE BE DELETED . 2. THE LD. CIT (APPEALS) -33, MUMBAI, HAS ERRED IN RETAINING THE DISALLOWANCE OF PROFESSIONAL FEES TO THE EXTENT OF ` 3,44,837/- PAID TO SHRI ASHOK NAIK AS AGAINST THE DISALLOWANCE OF ` 11,27,837/- MADE BY THE ASSESSING OFFICER. ENTIRE DISALLOWANCE MAY PLEASE BE DELETED . 3. THE LD. CIT (APPEALS) -33, MUMBAI, HAS ERRED IN CONFIRMING THE LUMP SUM DISALLOWANCE OF ` 3,00,000/- OF JOB WORK CHARGES PAID TO NAIK INDUSTRIES. THE SAME MAY PLEA SE BE DELETED. 2. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS IN T HE APPEAL:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN RESTRICTING THE CLAIM ON ACCOU NT OF PROFESSIONAL FEES OF ` 16,27,837/- TO ` 12,83,000/- PAID TO SHRI ASHOK NAIK AND CLAIM ON ACCOUNT OF SALARY OF ` 24,60,000/- TO ` 17,21,000/- TO SHRI ULHAS NAIK IN PLACE DISALLOWANCE OF ` 11,27,837/- AND ` 10,00,000/- RESPECTIVELY MADE BY THE A.O. ITA 4198 AND 5010/MUM/2010 MR. ARUN V. NAIK 3 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ER RED IN APPRECIATING THAT THE ASSESSEE HAS NOT JUSTIFIED AN D SUBSTANTIATED THE PAYMENT TO THE ABOVE PERSONS WITH ANY DOCUMENTARY EVIDENCE. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT (A) ERRED IN APPRECIATING THE FACTS THAT NO ASSESSMENT U/S.143(3) WAS MADE FOR A.Y. 2003-04 AND AS SUCH COMPARISON MADE WAS IRRELEVANT AND ILLOGICAL A S ASSESSMENT FOR AY 2003-04 U/S.143(1) COULD NOT BE T ERMED AS REGULAR ASSESSMENT. 3. THE FIRST ISSUE IS IN RESPECT OF DISALLOWANCE OF THE PROFESSIONAL FEES PAID TO SHRI ASHOK NAIK INVOKING SEC.40A(2)(B) OF THE ACT AND ON THIS ISSUE THE ASSESSEE AS WELL AS REVENUE ARE IN A PPEAL FOR PARTLY GIVING THE RELIEF AND FOR PARTLY SUSTAINING THE DIS ALLOWANCE. IN THIS CASE AN ORDER WAS PASSED U/S.263 OF THE ACT BY LD. CIT DIRECTING THE A.O. TO REDO THE ASSESSMENT AFRESH AS PER THE LAW. THERE WERE TWO ISSUES IN THE ORDER AND ONE OF THE ISSUES WAS GENUI NENESS OF THE PAYMENTS MADE TO SPECIFIC PERSONS U/S.40A(2)(B) WIT H REGARD TO THE SERVICES RENDERED IN COMPLIANCE WITH THE DIRECTIONS GIVEN BY THE ORDER PASSED U/S.263. THE A.O. SOUGHT THE DETAILS FROM T HE ASSESSEE. IT WAS NOTICED THAT THE ASSESSEE HAS PAID CONSULTING C HARGES OF ` 16,27,837/- TO SHRI ASHOK NAIK WHO CLAIMED TO BE QU ALIFIED COMMERCIAL ENGINEER AND HAVING 10 YEARS EXPERIENCE. THE ASSESSEE STATED THAT ON ACCOUNT OF TECHNICAL SERVICES REND ERED BY HIM, THE ASSESSEE COULD GET MORE BUSINESS AND SAID SHRI ASHO K NAIK WAS RESPONSIBLE FOR PRODUCTION, PLANNING, RAW MATERIAL PROCUREMENT, PREVENTIVE MAINTENANCE ETC. IN THE OPINION OF THE A.O. THE ASSESSEE HAS SHOWN THE EXCESS PAYMENT TO SHRI ASHOK NAIK AND HIS OPINION WAS BASED ON COMPARATIVE FINANCIAL PERFORMANCE SHOW N BY THE ASSESSEE IN THE PRECEDING YEARS. THE A.O. HAD NOTE D THAT IN THE ITA 4198 AND 5010/MUM/2010 MR. ARUN V. NAIK 4 FINANCIAL YEAR 2002-03 AS AGAINST THE PROFIT OF ` 12.67 LAKH SHRI ASHOK NAIK WAS PAID RS. 2.60 LAKH. IN THE FINANCIAL YEAR 2003-04 THOUGH TH E PROFIT HAD GONE-UP TO ` 43.27 LAKH BUT PAYMENT WAS MADE TO THE EXTENT OF ` 5.27 LAKH. IN THE OPINION OF THE A.O. THERE WAS DISPROPORTIONATE PAYMENT IN THE FINANCIAL YEAR 2003 -04. THE A.O. RESTRICTED THE PAYMENT TO ` 5 LAKH AND DISALLOWED THE BALANCE PAYMENT TREATING THE SAME AS EXCESSIVE. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTI ES AND PERUSED THE RECORDS. WE FIND THAT SHRI ASHOK NAIK IS THE BR OTHER OF THE ASSESSEE. WE FURTHER FIND THAT HE IS A QUALIFIED C OMMERCIAL ENGINEER. WE FURTHER FIND THAT THERE IS AN INCREASE IN THE PR OFIT AS PER FINANCIAL PERFORMANCE OF THE ASSESSEE. NOTHING HAS BEEN BROU GHT ON RECORD BY THE A.O. THAT AS COMPARED TO THE PREVAILING RATES I N THE MARKET THE PAYMENT MADE TO SHRI ASHOK NAIK WAS UNREASONABLE. ONCE THE CLAIM IS MADE BY THE ASSESSEE THEN THE PRIMARILY BURDEN I S ON THE A.O. TO PROVE THAT IN VIEW OF SEC.40A(2)(A) OF THE ACT THE EXPENDITURE IS UNREASONABLE. THE A.O. CANNOT LINK THE PERFORMANCE OF ONE OR TWO YEARS WITH THE EXPENDITURE. WE FIND NO MERIT IN DI SALLOWANCE MADE BY THE A.O. AND SUSTAINED BY THE LD. CIT (A) AND WE AC CORDINGLY ALLOW GROUND TAKEN BY THE ASSESSEE AND DELETE THE ENTIRE ADDITION. 5. THE NEXT ISSUE IS THE SALARY PAID TO SHRI ULHAS NAIK WHETHER THE SAME IS EXCESSIVE OR UNREASONABLE IN VIEW OF SEC.40 (A)(2)(B) OF THE ACT. 6. IT WAS NOTICED BY THE A.O. THAT THE ASSESSEE HAS PAID ` 24.60 LAKH TO SHRI ULHAS NAIK IN THE A.Y. 2004-05. IN TH E OPINION OF THE A.O. AS COMPARED TO PREVIOUS TWO YEARS THE SAID SAL ARY WAS VERY MUCH EXCESSIVE. THERE WAS NO EMPLOYMENT CONTRACT SPECIF YING TERMS AND CONDITIONS. THE A.O. HAS NOTED THAT THERE WAS THER E WAS DRASTIC INCREASE IN THE ANNUAL SALARY PAID TO SHRI ULHAS NA IK FROM ` 3,80,000/- IN THE A.Y. 2002-03 TO ` 13,31,875/- IN THE A.Y. 2003 - 04 AND THE ASSESSEE HAS INCREASED ` 9.5 LAKH IN THE A.Y. 2004-05. THE ITA 4198 AND 5010/MUM/2010 MR. ARUN V. NAIK 5 ASSESSEE CONTENDED THAT SHRI ULHAS NAIK IS A QUALIF IED CHEMICAL ENGINEER HAVING 33 YEARS OF EXPERIENCE IN THE FIELD OF PRODUCTION, RESEARCH AND DEVELOPMENT AND HE HAS BEEN ASSOCIATED IN PAST WITH REPUTED COMPANIES LIKE ACC, IPCL, CALICO CHEMICALS ETC. THE A.O. COMPARED THE ASSESSEES PROFIT FOR THE LAST THREE Y EARS AND FINALLY CONCLUDED THAT TO THE EXTENT OF ` 10 LAKHS THE SALARY IS EXCESSIVE AND UNREASONABLE. HE DISALLOWED THE SALARY TO THAT EXT ENT PAID TO SHRI ULHAS NAIK AND MADE THE ADDITION. THE ASSESSEE CHA LLENGED THE ADDITION BEFORE THE LD. CIT (A) BUT WITHOUT SUCCESS . 7. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTI ES AND PERUSED THE RECORDS. WE FIND THAT THERE IS NO DISPUTE IN R ESPECT OF APPLICABILITY OF SEC.40A2)(B) IN THE CASE OF ULHAS NAIK AS HE IS THE BROTHER OF THE ASSESSEE-APPELLANT. THOUGH THE QUERY RAISED BY THE A.O. APPEARS TO BE CORRECT BUT AT THE SAME TIME, THERE MAY BE HUNDR ED REASONS FOR INCREASING THE SALARY. MOREOVER, THE ASSESSEE IS A LSO IN THE HIGHER INCOME BRACKET AND IT CANNOT BE SAID IT IS A CASE O F SIPHONING OF THE INCOME. NOTHING HAS BEEN BROUGHT ON THE RECORD BY THE A.O. TO SUPPORT HIS PRESUMPTIONS SAVE CONSIDERING ONLY FINA NCIAL PERFORMANCE OF THE ASSESSEES BUSINESS. MOREOVER, SHRI ULHAS NA IK IS QUALIFIED CHEMICAL ENGINEER, HAVING SUBSTANTIAL EXPERIENCE IN ASSESSEES BUSINESS FIELD. WE FIND NO REASON TO SUSTAIN THE A DDITION MADE BY THE A.O. AND ACCORDINGLY THE SAME IS DELETED. 8. THE NEXT ISSUE IS REGARDING DISALLOWANCE OF ` 3 LAKHS OUT OF JOB WORK CHARGES PAID TO M/S. NAIK INDUSTRIES. 9. WE HAVE HEARD THE PARTIES. THE ASSESSEE HAS PAID ` 18,73,000/- TO M/S. NAIK INDUSTRIES TOWARDS THE JOB WORK CHARGE S. THE ASSESSEE FILED THE STATISTICAL PROFILE/INFORMATION TO SUPPOR T THE COST ON EXPENDITURE AND SELLING PRICE. THE ASSESSEE CONTEN DED THAT SINCE A CAPACITY OF THE ASSESSEE WAS NOT SUFFICIENT AND HE WAS UNABLE TO HANDLE ITS PRODUCTION HENCE, WORK WAS GIVEN TO M/S. NAIK INDUSTRIES ITA 4198 AND 5010/MUM/2010 MR. ARUN V. NAIK 6 ON THE JOB WORK BASIS. THE A.O. MADE THE LUMP SUM DISALLOWANCE OF ` 3 LAKHS TREATING THE SAME AS IN EXCESSIVE NATURE. THE LD. CIT (A) CONFIRMED THE SAME. THERE IS NO DISCUSSION IN RESP ECT OF THE NATURE OF THE JOB WORK CARRIED OUT BY M/S. NAIK INDUSTRIES IN THIS CASE. BOTH THE AUTHORITIES BELOW HAVE GONE INTO COMPARATIVE FI GURES OF THE SAME IN THIS CASE ALSO. AS DISCUSSED HEREINABOVE, THE P RIMARY BURDEN IS ON THE A.O. TO PROVE HOW THE PAYMENT IS UNREASONABLE A ND EXCESSIVE, IF HE DESIRES TO MAKE DISALLOWANCE UNDER SEC. 40A(2)(B ). ONLY GENERAL OBSERVATION ARE NOT SUFFICIENT. THE A.O. COULD HAV E BROUGHT ON RECORD AT LEAST FEW INSTANCES TO SHOW HOW THE JOB CHARGES ARE EXCESSIVE TO EXTENT OF ` 3 LAKHS. WE FIND NO JUSTIFICATION FOR THE AUTHORI TIES BELOW TO MAKE AND SUSTAIN DISALLOWANCE AND ACCORDINGLY SA ME IS DELETED. THE REVENUE HAS RAISED THE OBJECTIONS TO THE RELIEF GIVEN BY THE LD. CIT (A) IN ITS APPEAL. AS WE HAVE DELETED THE ADDITION IN ENTIRETY MADE BY THE A.O. INVOKING SEC.40A(2)(B), GROUNDS TAKEN BY T HE REVENUE HAVE TO BE DISMISSED, WE ACCORDINGLY DO SO. 10. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED AND REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 2 8TH OF DECEMBER, 2011. SD/- SD/- ( G.E. VEERABHADRAPPA ) PRESIDENT ( R.S. PADVEKAR ) JUDICIAL MEMBER MUMBAI, DATE : 28TH DECEMBER, 2011 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) 33, MUMBAI. 4) THE CIT-23, MUMBAI. 5) THE D.R. A BENCH, MUMBAI. ORDER PRONOUNCED IN THE OPEN COURT ON 28.12.2011 SD/- SD/- ( JSR ) ( RSP ) ITA 4198 AND 5010/MUM/2010 MR. ARUN V. NAIK 7 BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T., MUMBAI *CHAVAN