SUNVIN INDUSTRIES PVT. LTD., MUMBAI V. DCIT 4(3), MUMBAI

ITA 5380/MUM/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 1505 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2011-2012
• Appeal Filed On: 18-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Fair market value; Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUM BAI BEFORE SHRI SHAMIM YAHYA, AM AND AMARJIT SINGH, JM ITA NO.5380/MUM/2017 (ASSESSMENT YEAR: 2011-12) SUNVIN INDUSTRIES PVT.LTD. 21, VITTHAL CHAMGERS, 3 RD FLOOR 65, KAZI SAYYED STREET MUMBAI-400 003 VS. DCIT - 4(3) ROOM NO.649, 6 TH FLOOR AAYKAR BHAWAN M.K.ROAD MUMBAI-400 020 PAN/GIR NO. AAECS3087L ( APPELLANT ) : ( RESPONDENT ) APPELLANT BY : NONE RESPONDENT BY : ASHIS H KUMAR DATE OF HEARING : 03.01 .2019 DATE OF PRONOUNCEMENT : 15 .03.2019 O R D E R PER SHAMIM YAHYA, A. M.: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX -9, MUMBAI (LD. CIT FOR SHORT) DATED 14.03.2017 AND PERTAINS TO THE ASSESSMENT YEAR (A.Y .) 2011-12. 2. THE GROUNDS OF APPEAL READ AS UNDER: 1. 'THE HONOURABLE COMMISSIONER OF INCOME TAX (CIT) IS NOT JUSTIFIED IN PARTIALLY DISALLOWING THE ADDITION OF RS.10,00,000/ - OF REMUNERATION TO DIRECTORS US 40A(2) IGNORING THE FACT THAT THE P AYMENT MADE IS REASONABLE VIS--VIS THE MARKET CONDITIONS AND HAVI NG REGARD TO THE QUALIFICATION, EXPERIENCE OF THE DIRECTORS, THE EXI GENCIES OF THE BUSINESS AND BENEFIT ACCRUING TO THE APPELLANT. 2. THE APPELLANT CRAVES LEAVE TO MAKE ADDITIONS, DELET ION OR ALTERNATION TO THE ABOVE GROUNDS OF APPEAL. 2 ITA NO. 5380/MUM/2017 SUNVIN INDUSTRIES PVT. LTD. 3. BRIEF FACTS OF THE CASE ARE THAT THE AO HAS DISA LLOWED EXCESS AMOUNT OF EXPENSES ON REMUNERATION PAID TO THE DIRECTORS U /S. 40A(2)(B) OF THE ACT. THE AO HAS ALSO OBSERVED THAT THERE IS NO EVID ENCE TO SHOW THAT DIRECTORS HAD RENDERED ANY EXTRA SERVICES FOR PAYME NT OF HUGE REMUNERATION. THE AO HAS ALSO OBSERVED THAT REMUNER ATION HAS INCREASED FROM RS.6 LACS IN PREVIOUS YEAR TO RS.30 LACS THIS YEAR. THE AO HAS FURTHER OBSERVED THAT THE TURNOVER AND THE PROFIT ALSO DID NOT JUSTIFY THE HUGE PAYMENT TO THE DIRECTORS. AFTER CONSIDERING THE SUB MISSION MADE BY THE APPELLANT, THE AO DISALLOWED AN AMOUNT OF RS.22 LAC S UNDER THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. AGAINST THE ABOVE ORDER ASSESSEE APPEALED BEFORE LD. CIT(A). 4. BEFORE THE LD. CIT(A) ASSESSEE MADE FOLLOWING SU BMISSION * THE APPELLANT PAID REMUNERATION TO THE DIRECTOR A S FOLLOWS A) REMUNERATION TO MR. VINOD KHETRAPAL = RS.18,00, 000/- B) REMUNERATION TO MR. SUNIL RUNGA = RS. 12, 00,000/- RS. 30,00,000/- MR. VINDO KHERTRAPAL AND MR. SUNIL RUNGTA ARE TECHN ICAL DIRECTORS AND ARE HIGHLY REPUTED AND HAVE VERY FAST AND EXCELLENT EXP ERIENCE. IN VIEW OF THEIR EXPERIENCE, QUALIFICATION AND KNOW LEDGE THE REMUNERATION PAID IS EXTREMELY REASONABLE AND IS MUCH LESSER THA N THE REMUNERATION THAT PERSON OF SIMILAR SKILL AND KNOWLEDGE MAY CHARGE AS PER THE MARKET AND BUSINESS EXIGENCIES. THE ASSESSING OFFICER HAS DISALLOWED THE REMUNERATI ON PAID TO DIRECTOR AMOUNTING TO RS.22,00,000/- MERELY ON THE GROUND TH AT ALL REMUNERATION PAID TO THE DIRECTORS DURING THE YEAR IS HIGHER AS COMPARED TO THE PREVIOUS YEAR WITHOUT CONSIDERING THE FACT THAT THE PAYMENT IS REASONABLE. 3 ITA NO. 5380/MUM/2017 SUNVIN INDUSTRIES PVT. LTD. THE DIRECTOR MR. VINOD KHETRPAL IS A HIGHLY REPUTED TECHNICALLY QUALIFIED PERSON WITH 30 YEARS OF EXPERIENCE. THE DIRECTOR IS RESPONSIBLE AND CARRY OUT ALL THE F UNCTION SUCH AS A PRODUCTION, PLANNING AND MARKETING STRATEGIES, FINA NCIAL PLANNING AND CONTROL. HAVING REGARD TO THE NATURE AND THE SCOPE OF WORK O F THE DIRECTORS AND THEIR QUALIFICATION THE AFORE-STATED REMUNERATION IS VERY REASONABLE. RELIANCE IS PLACE OF JUDGMENT OF HONOURABLE DELHI H IGH COURT IN THE CAE OF HIVE COMMUNICATION (P) LTD V/S CIT (2011) 201 TAXMA NN 99/12 TAXMANN.COM 287 , WHEREIN THE COURT HAS DELETED DIS ALLOWANCES OF DIRECTOR REMUNERATION U/S 40A(2) OF THE JUDGMENT REFERRED EN CLOSED IN ANNEXURE-I). 5. HOWEVER, LD. CIT(A) DID NOT CONSIDER THE ABOVE C ONVINCING AND HELD THAT DISALLOWANCE MADE IS ON A HIGHER SIDE. LOOKING INTO THE FACTS OF THE CASE, HE DIRECTED THE AO TO RESTRICT THE DISALLOWAN CE TO RS.10 LACS. 6. AGAINST THE ABOVE ORDER ASSESSEE IS IN APPEAL BE FORE US. 7. WE HAVE HEARD LD. DEPARTMENTAL REPRESENTATIVE AN D PERUSED THE RECORDS. NONE APPEARED ON BEHALF OF THE ASSESSEE D ESPITE NOTICE. 8. UPON CAREFUL CONSIDERATION WE FIND THAT THIS DIS ALLOWANCE HAS BEEN MADE ON CONJECTURE. SECTION 40A(2)(B) PROVIDES FOR DISALLOWANCES IF THE PAYMENT IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE. HENCE FOR MAKING ANY DISALLOWANCE UNDER THIS SECTION, PROPER EVALUATION OF FAIR MARKET VALUE IS NECESSARY. IT DO ES NOT PROVIDE FOR DISALLOWANCE ON SURMISE. NO COGENT BASIS HAS BEEN BROUGHT ON RECORD FOR THE DISALLOWANCES. NO COMPARISON WITH ANY OTHER SIM ILAR PAYMENT HAS BEEN BROUGHT ON RECORD. IT IS ALSO NOT THE CASE THA T DIRECTOR REMUNERATION 4 ITA NO. 5380/MUM/2017 SUNVIN INDUSTRIES PVT. LTD. PAID IS NOT IN ACCORDANCE WITH COMPANYS ACT. HENCE WE SET ASIDE THE ORDER OF AUTHORITIES BELOW. 9. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH MARCH, 2019. SD/- SD/- (AMARJIT SINGH) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED : 15.03.2019 THIRUMALESH , SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT - CONCERNED 5. DR, ITAT, MUMBAI 6. GUARD FILE BY ORDER, (DY./ASSTT. REGISTRAR) ITAT, MUMBAI