Viramgam Re-Rolling Mills Pvt.Ltd., Ahmedabad V. The Income tax Officer,Ward-8(4), Ahmedabad

ITA 4583/AHD/2007

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9290 (ITAT-AHMEDABAD)
• Duration Of Justice: 40 year(s) 10 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-11-2010
• Appeal Filed By: Assessee
• Assessment Year: misc
• Appeal Filed On: 01-01-1970
• Court: TRIBUNAL
• Department Lawyers: ABHIJEET KUMAR N
• Keywords: Fair market value
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND SHRI D.C. AGRAWAL, ACCOUNTANT MEMBER DATE OF HEARING : 11/11/2010 DRAFTED ON: 11/11/2010 ITA NO.4583/AHD/2007 ASSESSMENT YEAR : 2004-05 VIRAMGAM RE-ROLLING MILLS PVT.LTD. MRUDUL TOWER ASHRAM ROAD AHMEDABAD VS. THE INCOME TAX OFFICER WARD-8(4) AHMEDABAD PAN/GIR NO. : AAACV 9303 L ( APPELLANT ) .. ( RESPONDENT ) APPELLANT BY : - NONE - RESPONDENT BY: SHRI ABHIJEET KUMAR N., D.R. O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL AT THE BEHEST OF THE ASSESSEE W HICH HAS EMANATED FROM THE ORDER OF THE LEARNED CIT(APPEALS)-XIV, AHM EDABAD DATED 01/08/2007 AND THE ONLY GROUND IS IN RESPECT OF DI SALLOWANCE U/S.40A(2)(B) OF THE I.T.ACT. THE APPELLANT HAS CHALLENGED AN ADH OC DISALLOWANCE OF RS.1,94,000/- IN THE SAID GROUND OF APPEAL. 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDI NG ASSESSMENT ORDER PASSED U/S. 143(3) OF THE I.T. ACT, 1961 DATED 20/11/200 6 WERE THAT THE ASSESSEE- COMPANY IS IN THE BUSINESS OF MANUFACTURING AND TRA DING OF STEEL. IT WAS NOTED BY THE ASSESSING OFFICER THAT A PAYMENT OF RS .21,65,554/- WAS MADE TO THE PERSONS ALLEGED TO BE COVERED UNDER THE PROVISI ONS OF SECTION 40A(2)(B) OF THE ACT. AS PER ASSESSING OFFICER, THERE WAS SU BSTANTIAL INCREASE OF ITA NO.4583/AHD /2007 VIRAMGAM RE-ROLLING MILLS P.LTD. VS. ITO ASST.YEAR - 2004-05 - 2 - EXPENDITURE DURING THE YEAR UNDER CONSIDERATION COM PARING THE PAST YEAR. FURTHER, IT WAS NOTED THAT A REMUNERATION OF RS.3,7 5,000/- WAS PAID TO SHRI HITESH H.SHAH AND A SUM OF RS.3,25,000/- WAS PAID T O MS.NILA H.SHAH, BOTH DIRECTORS OF THE COMPANY. IT HAS ALSO BEEN FOUND THAT THOSE PERSONS WERE GETTING REMUNERATION AS DIRECTOR FROM THE COMPANY A S WELL AS GETTING REMUNERATION AS A WORKING PARTNER FROM A PARTNERSHI P FIRM. HOWEVER, BY REFERRING CERTAIN PROVISIONS OF THE COMPANIES ACT, THE ASSESSING OFFICER HIMSELF HAS CONCLUDED THAT IT IS PERMITTED TO GET R EMUNERATION FROM TWO COMPANIES AND ALSO HELD THAT THERE WAS NO RESTRICTI ON FOR THE DIRECTORS TO WORK IN TWO COMPANIES. HOWEVER, HE HAS MADE AN ADHOC 25 % DISALLOWANCE OF THE TOTAL REMUNERATION TO BOTH THE WORKING DIRECTORS. BEING AGGRIEVED THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY. 3. BEFORE LEARNED CIT(APPEALS), IT WAS ARGUED THAT THE NET PROFIT OF THE COMPANY HAD INCREASED AND BETTER PROFITS HAVE BEEN DISCLOSED, THEREFORE, THE DIRECTORS BEING QUALIFIED PERSONS AS WELL AS LOOKIN G AFTER THE BUSINESS OF THE COMPANY WERE DULY ENTITLED FOR THE SAID REMUNERATIO N. HOWEVER, LEARNED CIT(APPEALS) WAS NOT CONVINCED AND HELD THAT SINCE THE NATURE OF WORK AND THE TURNOVER OF THE COMPANY REMAINED THE SAME, THEREFOR E, THERE WAS NO REASON TO INCREASE THE REMUNERATION. WITH THE RESULT, THE A CTION OF THE A.O. WAS AFFIRMED. 4. ON THE DATE OF HEARING, I.E. ON 11/11/2010 AN AD JOURNMENT APPLICATION WAS MOVED FROM THE SIDE OF THE APPELLANT, HOWEVER, CONSIDERING THE SMALLNESS OF THE ISSUE AND THE NATURE OF DISPUTE, WE HAVE DEC IDED TO PROCEED WITH THE CASE BY REJECTING THE ADJOURNMENT APPLICATION EX-PARTE QUA THE ASSESSEE, AFTER HEARING LEARNED DEPARTMENTAL REPRESENTATIVE MR.ABHI JEET KUMAR N., D.R. ITA NO.4583/AHD /2007 VIRAMGAM RE-ROLLING MILLS P.LTD. VS. ITO ASST.YEAR - 2004-05 - 3 - 5. FROM THE FACTS AS DISCUSSED HEREINABOVE ONE THIN G IS EVIDENT THAT THE ASSESSING OFFICER HAS MADE AN ADJOC DISALLOWANCE WI THOUT ASSIGNING ANY COGENT OR SPECIFIC REASON THAT HOW HE HAS ARRIVED A T THE CONCLUSION THAT THE IMPUGNED PAYMENT OF REMUNERATION TO THE WORKING DIR ECTORS WAS AN EXCESSIVE PAYMENT. THERE IS NOT AN IOTA OF EVIDENCE IN THE POSSESSION OF THE ASSESSING OFFICER THROUGH WITH IT CAN BE SAID THAT THE FAIR M ARKET VALUE IN LIKE NATURE CASES WAS LOWER THAN THE PAYMENT MADE BY THE ASSESS EE TO THE DIRECTORS. PROVISIONS OF SECTION 40A(2)(B) OF THE ACT ARE VERY SPECIFIC THAT THE FIRST ONUS IS ON THE REVENUE TO DEMONSTRATE THAT IF IN THE OPI NION OF THE ASSESSING OFFICER AN EXPENDITURE IN QUESTION IS EXCESSIVE OR UNREASON ABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILIT IES FOR WHICH THE PAYMENT IS MADE THEN ONLY THE SAID PROVISIONS CAN BE INVOKED. THIS IS ONE PART OF THE REASON FOR WHICH WE ARE NOT IN AGREEMENT WITH THE A CTION OF THE REVENUE AUTHORITIES FOR THE IMPUGNED DISALLOWANCE. THE O THER REASON FOR THE DISAGREEMENT IS THAT LEARNED CIT(APPEALS) HAD GONE TOTALLY WRONG IN REMARKING THAT THERE WAS NO CHANGE IN THE TURNOVER OF THE APPELLANT AND THE BUSINESS REMAINED THE SAME DURING THE YEAR UNDER CO NSIDERATION COMPARING THE PAST YEAR. AS AGAINST THAT, FACTS HAVE REVEALE D THAT DURING THE YEAR THE ASSESSEE-COMPANY HAD SHOWN GROSS PROFIT OF RS.1,00, 70,094/- ON THE TOTAL TURNOVER OF RS.53,98,92,639/- AND, THEREUPON THE GR OSS PROFIT PERCENTAGE WAS WORKED OUT AT 1.37%. THESE FACTS HAVE BEEN MENTIO NED IN PARAGRAPH NO.3 BY THE ASSESSING OFFICER. IN THIS PARAGRAPH, THE ASS ESSING OFFICER HAS COMPARED THE BOOK RESULTS FORM THE PAST YEAR AND MENTIONED T HAT THE GROSS PROFIT DECLARED IN THE IMMEDIATELY PRECEDING YEAR WAS AT R S.6,80,175/- ON THE TOTAL TURNOVER OF RS.53,61,69,501/- AND THEREUPON DISCLO SED THE PERCENTAGE OF GROSS PROFIT AT 0.13%. FROM THESE FIGURES, IT IS, THER EFORE, EVIDENT THAT THERE WAS ITA NO.4583/AHD /2007 VIRAMGAM RE-ROLLING MILLS P.LTD. VS. ITO ASST.YEAR - 2004-05 - 4 - IMPROVEMENT IN THE BUSINESS PROFIT OF THE ASSESSEE . THAT COULD HAVE BEEN ONE OF THE REASONS FOR ENHANCEMENT OF REMUNERATION TO T HE WORKING DIRECTORS. BECAUSE OF THIS REASON, AS WELL, WE HEREBY REVERSE THE FINDINGS OF THE LEARNED CIT(APPEALS). FURTHER, IT HAS ALSO BEEN NOTED THA T THE APPELLANT HAS MENTIONED FEW DECISIONS IN THE STATEMENT OF FACTS, NAMELY UNI TED SUPPLY AGENCY (153 ITR 262)[CAL.], SIVANANDHA MILLS (156 ITR 629)[MAD .], KARAMCHAND THAPPER & BROS (157 ITR 212)[CAL.) AND NAVSARI COTTON & SIL K MILLS LIMITED (135 ITR 546)[GUJ.]. IN THE LIGHT OF THE ABOVE DECIS IONS AND CONSIDERING THE TOTALITY OF THE CIRCUMSTANCES OF THE CASE AS ALSO T HE REASONS ASSIGNED HEREINABOVE, WE HEREBY ACCEPT THE CONTENTION OF THE ASSESSEE AND DIRECT TO ALLOW THE CLAIM. THUS, THIS GROUND OF THE ASSESSE E IS ALLOWED. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 19/ 11 /2010. SD/- SD/- ( D.C. AGRAWAL) ( MUKUL KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 19 / 11 /2010 T.C. NAIR, SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE. 2. THE DEPARTMENT. 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-XIV, AHMEDABAD 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD ITA NO.4583/AHD /2007 VIRAMGAM RE-ROLLING MILLS P.LTD. VS. ITO ASST.YEAR - 2004-05 - 5 - 1. DATE OF DICTATION..11/11/2010 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 11/11/2010 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S 19/11/2010 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 19/11/2010 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 9. DATE OF DESPATCH OF THE ORDER