DCIT, New Delhi V. M/s. KL Concast Pvt. Ltd., Delhi

ITA 518/DEL/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5837 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-06-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 01-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Fair market value

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : C : NEW DELHI BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER ITA NO . 51 8 /DEL/ 20 1 6 ASSESSMENT YEAR: 20 12 - 1 3 DCIT CIRCLE - 1 4(2), ROOM NO. 317B, 3 RD FLOOR, C.R. BUILDING, I.P. ESTATE, NEW DELHI VS. K.L. CONCAST PVT. LTD., Z - 18, LOHA MANDI, NARAINA, DELHI PAN: AAAC K0329B ( APPELLANT ) ( RESPONDENT ) DEPARTMENT BY : SH. ARUN KUMAR YADAV, SR. DR ASSESSEE BY : SH. ASHWANI KUMAR , CA DATE OF HEARING : 06 .0 6 . 201 8 DATE OF PRONOUNCEMENT : 07 . 0 6 . 201 8 ORDER PER R.S. SYAL, VP: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) ON 26 .11 .201 5 IN RELATION TO ASSESSMENT YEAR 2012 - 13. 2. THE ONLY GROUND RAISED IN THIS APPEAL IS AGAINST THE DELETION OF ADDITION OF RS. 39,60,000/ - . BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE IS ITA NO. 518/DEL/2016 2 ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF BILLETS, SHAPES, SECTIONS AND OTHER PRODUCTS OF STEEL. DURING T HE COURSE OF ASSESSMENT PROCEEDINGS , IT WAS OBSERVED BY THE ASSESSING OFFICER THAT SA LARY AND BONUS AMOUNTING TO RS. 77,4,000/ - WAS PAID TO THREE DIRECTORS. HE HELD SUCH A PAYMENT AS EXCESSIVE IN VIEW OF DECREASE IN THE RATIO OF NET PROFIT TO TURNOVER. HE RESTRICTED THE DEDUCTION TO THE AMOUNT OF SALARY AND BONUS AS ALLOWED BY HIM IN THE F INANCIAL YEAR RELATING TO THE ASSESSMENT YEAR 2009 - 10. REMAINING AMOUNT OF RS. 39,60,000/ - , COMPRISING OF SALARY OF RS. 33,00,000/ - AND BONUS OF RS. 6.60 L AC WAS DISALLOWED IN TERMS OF S ECTION 40A(2)(B) . THE LEARNED CIT(A) DELETED THE ADDITION , AGAINST WHICH THE REVENUE HAS COME UP IN THE APPEAL BEFORE THE TRIBUNAL. 3 . WE HAVE HEARD BOTH THE SIDES AND PERUSED THE RELEVANT MATERIAL ON RECORD. TOTAL REMUNERATIO N PAID TO THE D IRECTORS DURING THE YEAR STAND S A T RS. 77.04 L AC AS AGAINST REMUNERATION OF RS.67.68 L AC PAID DURING TH E PRECEDING YEAR. TOTAL SALES MADE BY THE ASSESSEE DURING THE YEAR ARE TO THE TUNE OF RS. 288.73 C RORE AS AGAINST THE PRECEDING YEAR S SALES AT RS. 263.81 C RORE . RATIO OF D IRECTORS REMUNERATION TO SALES FOR THE YEAR UNDER CONSIDERATION IS 0.26% IN COMPARISON WITH 0.257% IN THE PRECEDING YEAR. ITA NO. 518/DEL/2016 3 THE ASSESSING OFFICER HAS INVOKED THE PROVISIONS OF SECTION 40A(2) FOR MAKING DISALLOWANCE OF R S. 37.60 L AC . CLAUSE (A) OF SECTION 40A(2), MANDATING THE MAKING OF DISALLOWANCE, PROVIDES THAT : ` WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT HAS BEEN OR IS TO BE MADE TO ANY PERSON REFERRED TO IN CLAUSE (B) OF THIS SUB - SECTION, AND THE ASSESSING OFFICER IS OF OPINION THAT SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE OR THE LEGITIMATE NEEDS OF THE BUSINESS OR PROFESSION OF TH E ASSESSEE OR THE BENEFIT DERIVED BY OR ACCRUING TO HIM THEREFROM, SO MUCH OF THE EXPENDITURE AS IS SO CONSIDERED BY HIM TO BE EXCESSIVE OR UNREASONABLE SHALL NOT BE ALLOWED AS A DEDUCTION . A BARE READING OF THE PROVISION CLARIFIES THAT BEFORE VENTURING TO MAK E THE DISALLOWANCE, THE AO HAS TO NECESSARILY SHOW THAT THE PAYMENT MADE BY THE ASSESSEE TO THE PERSONS REFERRED TO IN CLAUSE (B) IS EXCESSIVE AS TO THE FA I R MARKET VALUE OF GOODS OR SERVICES OR THE LEGITIMATE NEEDS OF THE BUSINESS O R THE BENEFIT DER IVED BY THE ASSESSEE. ONLY THEN, T HE PROVISIONS OF SECTION 40A(2) ARE TRIGGERED . NO DISALLOWANCE CAN BE MADE IN AN ARBITRARY MANNER WITHOUT SATISFYING THE STATUTORY CONDITIONS AS SET OUT IN THE SECTION . ITA NO. 518/DEL/2016 4 4 . ADVERTING TO THE FACTS OF THE INSTANT CASE, IT IS EVINCIBLE THAT THE ASSESSING OFFICER HAS NOT SHOWN THE EXISTENCE OF ANY ONE OR MORE OF THE THREE CONDITIONS STIPULATED IN SECTION 40A(2) OF THE ACT BEFORE MAKING DISALLOWANCE. HE SIMPLY ALLOWED D IRECTORS REMUNERATION TO THE EXTENT AS ALLOWED BY HIM IN MAKING ASSESSMENT FOR THE ASSESSMENT YEAR 2009 - 10 AND THE EXCESS AMOUNT WAS DISALLOWED. SUCH A COURSE OF ACTION IS NOT IN ACCORDANCE WITH THE PRESCRIPTION OF SECTION 40A(2) OF THE ACT . IN VIEW OF THE FOREGOING DISCUSSION, WE ARE OF THE CONSIDERED OPINION THAT THE LEARNED CIT(A) WAS FULLY JUSTIFIED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER. 5. IN THE RESULT, THE APPEAL IS DISMISSED . THE ORDER PRONOUNCED IN THE OPEN COURT ON 0 7 T H JUNE , 2018. S D / - S D / - [BEENA A. PILLAI] [ R.S. SYAL ] JUDICIAL MEMBER VICE PRESIDENT DATED, 7 T H JUNE , 201 8 . SH ITA NO. 518/DEL/2016 5 COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT (A) 5 . DR, ITAT AR, ITAT, NEW DELHI. DATE INITIAL 1. DRAFT DICTATED ON 6 .6.201 8 PS 2. DRAFT PLACED BEFORE AUTHOR 6 .6.201 8 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS PS/PS 6. KEPT FOR PRONOUNCEMENT ON .6.2018 PS 7. FILE SENT TO THE BENCH CLERK PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER. *