DCIT, New Delhi V. M/s. Sigma Research and Consulting Pvt. Ltd., New Delhi

ITA 5243/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 4823 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 11 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-08-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 22-06-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 25-09-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ARUN KUMAR YADAV SENIOR
• Assessee Lawyers: RAKESH K AGGARWAL
• Keywords: Fair market value

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C : NEW DELHI) BEFORE SHRI B.P. JAIN, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.5243/DEL./2014 (ASSESSMENT YEAR : 2011-12) DCIT, VS. M/S. SIGMA RESEARCH AND CONSULTING CIRCLE 8 (1), PVT. LTD., NEW DELHI. C 23, FIRST FLOOR, SOUTH EXTENSION, PART I, MEW DELHI - 110 048. (PAN : AAMCS3537P) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RAKESH K. AGGARWAL, FCA REVENUE BY : SHRI ARUN KUMAR YADAV, SENIOR DR DATE OF HEARING : 23.08.2017 DATE OF ORDER : 29.08.2017 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : APPELLANT, DEPUTY COMMISSIONER OF INCOME-TAX, CIRCL E 8(1), NEW DELHI (HEREINAFTER REFERRED TO AS THE REVENUE ), BY FILING THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORD ER DATED 03.07.2014 PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS)- XI, NEW DELHI, FOR THE ASSESSMENT YEAR 2011-12 ON T HE GROUNDS INTER ALIA THAT :- ITA NO.5243/DEL./2014 2 THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.45,90,748/- MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF SALARY AND ADVISORY FEES PAID TO THE DIRECTORS U/S 40A(2)(B) O F I.T. ACT, 1961. 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : DURING THE SCRUTINY PROCE EDINGS, THE ASSESSING OFFICER NOTICED THAT THE DIRECTORS OF THE COMPANY, NAMELY, SHRI TILAK MUKHERJI, DR. U.V. SOMAYAJULU AN D SHRI ARINDAM GANGULY HAVE INCREASED THEIR SALARIES AND O THER BENEFITS MANIFOLDS TO THE TUNE OF 250% TO 300% WHICH IS EVID ENT FROM THE DETAILS TABLULATED AS UNDER :- F.Y. NAME OF THE DIRECTORS SALARY PAID FEE 2008-09 SHRI TILAK MUKHERJI, DR. U.V. SOMAYAJULU 14,32,391 SHRI ARINDAM GANGULY 1,82,500 2009-10 -DO- 27,81,720 4,05,000 2010-11 -DO- 73,57,484 13,76,000 3. AO, BEING DIS-SATISFIED WITH THE EXPLANATION FUR NISHED BY THE ASSESSEE COMPANY, MADE ADDITION OF RS.45,90,748/- B Y DISALLOWING THE SAME U/S 40A(2)(B) OF THE INCOME-TAX ACT, 1961 (FOR SHORT THE ACT) BY GRANTING REASONABLE INCREASE IN THE RANGE OF 25% TO 30% AS AGAINST 250% TO 300% CLAIMED BY THE ASSESSEE. 4. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT ( A) BY WAY OF AN APPEAL WHO HAS DELETED THE ADDITION OF RS.45,90, 748/- BY PARTLY ALLOWED THE APPEAL. FEELING AGGRIEVED, THE REVENUE HAS COME UP ITA NO.5243/DEL./2014 3 BEFORE THE TRIBUNAL BY WAY OF CHALLENGING THE IMPUG NED ORDER PASSED BY LD. CIT (A). 5. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 6. LD. CIT (A) DELETED THE ADDITION ON THE GROUNDS INTER ALIA THAT THE AO HAS NOT MADE ANY ENQUIRY TO ASSESSEE TH E FAIR MARKET VALUE OF THE SERVICES RENDERED BY SHRI TILAK MUKHER JI, DR. U.V. SOMAYAJULU AND ADVISE GIVEN BY SHRI ARINDAM GANGULY ; THAT NO COMPARABLE CASE HAS BEEN BROUGHT ON RECORD BY THE A O TO ESTABLISH THAT THE PAYMENTS MADE TO THESE PERSONS WERE EXCESS IVE AND UNREASONABLE; THAT ALL THE THREE DIRECTORS HAVE EXT ENSIVE EXPERIENCE IN THEIR AREAS AND WORK, BEING HIGHLY QUALIFIED, AN D THEY WERE GETTING COMPARABLE SALARIES FROM PREVIOUS EMPLOYER, M/S. TNS INDIA PVT. LTD.. 7. HOWEVER, WHEN THE REASONS RECORDED BY LD. CIT (A ) WHILE DELETING THE ADDITION MADE BY AO ARE EXAMINED IN TH E LIGHT OF THE ARGUMENTS ADDRESSED BY LD. AR FOR THE ASSESSEE WHO HAS RELIED UPON ORDER DATED 17.05.2016 PASSED BY LD. CIT (A)-8 , NEW DELHI QUA AY 2012-13 IN ASSESSEES OWN CASE, IT IS PROVED ON RECORD THAT THE ASSESSEE COMPANY IS INCREASING THE SALARY OF TH E AFORESAID THREE ITA NO.5243/DEL./2014 4 DIRECTORS AS PER ITS SUBJECTIVE SATISFACTION AND NO T ON THE BASIS OF ANY OBJECTIVE CRITERION BY TAKING INTO ACCOUNT THE QUALIFICATIONS, EXPERIENCE AND NATURE OF DUTIES RENDERED BY AFORESA ID PERSONS. 8. WHEN WE PERUSE THE SALARY OF THE COMPANIES HAVIN G BEEN PAID TO AFORESAID THREE DIRECTORS IN AY 2012-13, TH ERE IS NO INCREASE IN THEIR SALARY AS HAS BEEN MADE DURING TH E YEAR UNDER ASSESSMENT. WHEREAS WHEN ASSESSEE COMPANY HAS PAID SALARY TO SHRI TILAK MUKHERJI AND DR. U.V. SOMAYAJULU TO THE TUNE OF RS.14,32,391/-, RS.27,81,720/- & RS.73,57,484 IN FY 2008-09, 2009-10 & 2010-11 RESPECTIVELY AND FEES PAID TO SHR I ARINDAM GANGULY TO THE TUNE OF RS.1,82,500/-, RS.4,05,000/- & RS.13,76,000/- IN FY 2008-09, 2009-10 & 2010-11 RES PECTIVELY WHICH IS AN INCREASE IN THE RANGE OF 250% TO 300% W ITHOUT EXPLAINING THAT IF THERE WAS A CHANGE IN THE NATURE OF THEIR WORK OR THEY HAVE PUT MORE TIME WHILE RENDERING SERVICES TO THE ASSESSEE COMPANY OR THEY HAVE IMPROVED THEIR QUALIFICATION O R EXPERTISE IN ONE YEAR. BECAUSE WHEN SHRI TILAK MUKHERJI AND DR. U.V. SOMAYAJULU WERE GETTING SALARY OF RS.27,81,720/- IN FY 2009-10 SUDDENLY THEIR SALARY ENHANCED TO RS.73,57,484 IN F Y 2010-11. 9. DURING THE COURSE OF ARGUMENTS, THE LD. AR FOR T HE ASSESSEE CONTENDED THAT THEIR SALARY WAS ENHANCED AS THE COM PANY HAS EARNED MORE PROFIT DURING THE YEAR UNDER ASSESSMENT . BUT THIS ITA NO.5243/DEL./2014 5 CONTENTION IS NOT SUSTAINABLE FOR THE REASON THAT T HE SALARY OF A PERSON CANNOT BE BASED UPON LOSSES AND PROFITS OF T HE COMPANY BUT IT NEEDS TO BE COMMENSURATE TO THE NATURE OF THEIR WORK, QUALIFICATION AND SERVICES RENDERED. DESPITE THE F ACT THAT THERE WAS NOT AN IOTA OF MATERIAL BEFORE THE LD. CIT (A) TO O BJECTIVELY COME TO THE CONCLUSION THAT THEIR SALARY / FEES HAVE BEEN R IGHTLY INCREASED TO THE TUNE OF 250% TO 300%, THE ADDITION HAS BEEN DEL ETED. 10. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, WE AR E OF THE CONSIDERED VIEW THAT AO HAS OBJECTIVELY THRASHED TH E ISSUE BY ENHANCING THE SALARY/FEE OF THE DIRECTORS BY 25% TO 30% AND LD. CIT (A) HAS ERRED IN DELETING THE ADDITION ON THE B ASIS OF CONJECTURES AND SURMISES. SO, IN THESE CIRCUMSTANC ES, WE HEREBY ALLOW THE APPEAL FILED BY THE REVENUE. ORDER PRONOUNCED IN OPEN COURT ON THIS 29 TH DAY OF AUGUST, 2017. SD/- SD/- (B.P. JAIN) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 29 TH DAY OF AUGUST, 2017 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XI, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.