Changex Servicves P.Ltd, New Delhi V. ITO, Ward-6(1), New Delhi

ITA 5199/DEL/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 7176 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-09-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 01-08-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ALKA GAUTAM
• Keywords: Corroborative evidences; TDS
• Section: 192

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B, NEW DELHI BEFORE SH. KUL BHARAT, JUDICIAL MEMBER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER (THROUGH VIDEO CONFERENCING) ITA NO. 5199/DEL/2018 : ASSTT. YEAR : 2014-15 CHANGEX SERVICES PVT. LTD., D-134, 1 ST FLOOR, EAST OF KAILASH, NEW DELHI-110065 VS INCOME TAX OFFICER, WARD-6(1), NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. AA EC C3268P ASSESSEE BY : SH. SHARAD SHAH, CA REVENUE BY : MS. ALKA GAUTAM, SR. DR DATE OF HEAR ING: 26 . 0 8 .20 2 1 DATE OF PRONOUNCEMENT: 01 .0 9 .20 2 1 ORDER PER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A)-2, NEW DELHI DATED 11.05.20 18. 2. THE ASSESSING OFFICER DISALLOWED THE SALARY AND INCENTIVES PAID TO THE DIRECTORS OF RS.1,05,00,000/- U/S 40A(2 )(A). THE LD. CIT (A) CONFIRMED THE ADDITION TO THE EXTENT OF 75% AND ALLOWED 25% OF THE CLAIM HOLDING IT AS REASONABLE. 3. THE RELEVANT UNDISPUTED FACTS EXAMINED FOR ADJUD ICATION FOR THE ISSUE WERE THAT, ITA NO.5199/DEL/2018 CHANGEX SERVICES PVT. LTD. 2 A. THE ASSESSEE COMPANY WAS INCORPORATED IN MARCH 2011 , ENGAGED IN CONSULTANCY SERVICES, HAVING TWO SHAREHO LDER DIRECTORS NAMELY, MR. SHALABH SAHAI AND RAHUL NAINW AL. B. OWING TO ITS NASCENT STAGE OF SET-UP, THE SHAREHOLDER/DIRECTORS I.E. MR. SHALABH SAHAI AND RA HUL NAINWAL, DID NOT DRAW ANY EXPENDITURE TOWARDS, THEI R 'SALARY/ REMUNERATION/ INCENTIVES'. C. DURING THE CURRENT YEAR, THE DIRECTORS RECEIVED (I) A 'DIRECTORS REMUNERATION' OF RS.1,00,000/-; AND (II) AN 'INCENTIVE' OF RS.1,05,00,000/-. D. THE AMOUNT WAS TREATED AS 'SALARY' IN THE HANDS OF THE DIRECTORS AND TDS WAS ACCORDINGLY DEDUCTED U/S 192 OF THE ACT. E. THE AO HAD QUESTIONED THE TRANSACTION UNDER SECTION 40A(2)(A) OF THE ACT BETWEEN THE ASSESSEE COMPANY A ND THE TWO SHAREHOLDER/ DIRECTORS AND SOUGHT FOR SUBMI SSION OF DOCUMENTS TO SUBSTANTIATE/ PROVE THE 'REASONABLE NESS OF THE PAYMENT ALONG WITH SUPPORTING EVIDENCES'. F. THE AO HELD THAT THE AMOUNTS PAID IS UNREASONABLE A ND ALSO THAT IT WAS A STRATEGY TO BENEFIT THE DIRECTOR S INSTEAD OF PAYING THE DIVIDEND BY THE COMPANY. THE AO HELD THAT IT WAS A PLOY TO AVOID PAYMENT OF DIVIDEND TAX. 4. HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERU SED THE MATERIAL AVAILABLE ON RECORD. ITA NO.5199/DEL/2018 CHANGEX SERVICES PVT. LTD. 3 5. WE FIND THAT THE DIRECTORS WERE MBA HOLDERS FROM THE INSTITUTION KNOWN AS IRMA, ANAND. IT IS A FACT ON R ECORD THAT THE SHAREHOLDER DIRECTORS HAVE NOT DRAWN MUCH SALARY IN THE EARLIER YEARS OWING TO NASCENT STAGE OF FORMATION OF THE CO MPANY. WHILE DISALLOWING THE REMUNERATION PAID U/S 40A(2)( A), WE FIND THAT THE AO HAS NOT DETERMINED THE FAIR MARKET VAL UE OF THE SERVICES IN COMPARISON WITH ANY OTHER INDUSTRY AV ERAGES . MOREOVER, IN THE INSTANT CASE, EVEN IF IT IS PRESUM ED THAT THE DIVIDEND HAS BEEN DECLARED BY THE COMPANY, THEN ALS O IT WOULD HAVE BEEN RECEIVED BY THE SHAREHOLDER DIRECTORS ONL Y. THE RECIPIENTS WOULD ENJOY THE TAX FREE BENEFIT. THE FINDING OF THE AO THAT PAYMENT OF HIGH SALARY IS A RUSE TO AVOID P AYMENT OF DIVIDEND TAX IS NOT FOUND TO BE ON A REASONABLE GRO UND AS THE RECEIPT OF SALARY BY THE DIRECTORS IS TAXED AT MAXI MUM MARGINAL RATE. SIMILARLY, WE ARE UNABLE TO SUSTAIN THE RAISO N D'TRE OF THE LD. CIT (A) RESTRICTING THE DISALLOWANCE TO 75% WIT HOUT ANY GOOD ENOUGH REASON. 6. IN A NUTSHELL, THE DISALLOWANCE MADE BY THE AUTHORITIES U/S 40A(2)(A) WITHOUT EXAMINING ANY ANALOGOUS CASES CAN NOT BE SUSTAINED. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 01/09/2021. SD/- SD/- (KUL BHARAT) (DR. B. R. R. KUMAR) JUDICIAL MEMBER AC COUNTANT MEMBER DATED: 01/09/2021 *SUBODH KUMAR, SR. PS*