ORANGE ASSOCIATES PVT. LTD., NEW DELHI V. ACIT, CIRCLE- 22(1), NEW DELHI

ITA 5874/DEL/2017

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 5265 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2014-2015
• Appeal Filed On: 14-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GAURAV PUNDIR SENIOR
• Assessee Lawyers: TARANPREET KOHLI
• Keywords: Capital asset converted into stock in trade; Principle of natural justice; Set aside
• Section: 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E : NEW DELHI) BEFORE SHRI KULDIP SINGH, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER (THROUGH VIDEO CONFERENCE) ITA NO.5874/DEL./2017 (ASSESSMENT YEAR : 2014-15) M/S. ORANGE ASSOCIATES PVT. LTD., VS. ACIT, CIRCL E 22 (1), (FORMERLY ONE SOURCE EDUCATION PVT. LTD.) NEW DELH I. 9, NEAR TELEPHONE EXCHANGE, DARYAGANJ, NEW DELHI 110 002. (PAN : AAACS1177K) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI TARANPREET KOHLI, CA REVENUE BY : SHRI GAURAV PUNDIR, SENIOR DR DATE OF HEARING : 20.09.2021 DATE OF ORDER : 24.09.2021 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : APPELLANT, M/S. ORANGE ASSOCIATES PVT. LTD. (FORME RLY KNOWN AS ONE SOURCE EDUCATION PVT. LTD.) (HEREINAFT ER REFERRED TO AS THE ASSESSEE) BY FILING THE PRESENT APPEAL SOU GHT TO SET ASIDE THE IMPUGNED ORDER DATED 11.08.2017 PASSED BY THE C OMMISSIONER OF INCOME - TAX (APPEALS)-30, NEW DELHI QUA THE ASS ESSMENT YEAR 2014-15 ON THE GROUNDS INTER ALIA THAT:- ITA NO.5874/DEL./2017 2 1. THAT THE AUTHORITIES BELOW ERRED BOTH IN LAW AN D ON THE FACTS IN INVOKING THE PROVISIONS OF SEC. 40A(2)(B) IGNORING THE FACTS ON RECORD AND REJECTING THE EXPLANATIONS OF T HE ASSESSEE IN THE SUMMARY MANNER. THUS THE ADDITION OF RS.15,00, 000/- AS CONFIRMED BY THE CIT APPEALS IS LIABLE TO BE DELETE D. 2. THAT THE AUTHORITIES BELOW ERRED BOTH IN LAW AND ON FACTS IN THE ESTIMATIONS OF EXCESSIVE SALARY PAID TO THE DIRECTORS @ 15% I.E. RS.15,00,000/- OUT OF GROSS SALARY PAID OF RS. 1,00,00,000/- TO THE DIRECTORS IS EXCESSIVE, WRONG, BASELESS AND IS BASED ON SURMISES & CONJECTURE. THUS THE DISALLOWANCE OF RS .15,00,000/- IS LIABLE TO BE DELETED. 3. THAT THE ORDERS OF THE AUTHORITIES BELOW ARE BAD IN LAW AND ON THE FACTS OF THE CASE. 4. THAT THE ORDERS PASSED ARE ERRONEOUS, ILLEGAL AN D AGAINST THE PRINCIPLES OF NATURAL JUSTICE AND EQUITY AS WEL L AS THE WELL SETTLED LAWS. 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : ASSESSEE BEING A PRIVATE LIMITED COMPANY IS INTO THE BUSINESS OF PUBLISHER OF EDUCATIONAL BO OKS. DURING THE SCRUTINY PROCEEDINGS, ASSESSING OFFICER (AO) NOTICE D THAT THE ASSESSEE COMPANY HAD PAID REMUNERATION OF RS.1,00,0 0,000/- TO ITS DIRECTORS. DECLINING THE CONTENTIONS RAISED BY THE ASSESSEE THAT REMUNERATION PAID TO THE DIRECTORS IS FULLY JUSTIFI ED AS THEY ARE PAYING THE TAX @ 30% ON THEIR RECEIPTS MEANING THER EBY THERE IS NO LOSS OF REVENUE TO THE DEPARTMENT, THE AO PROCEEDED TO DISALLOW THE REMUNERATION PAID TO THE DIRECTORS TO THE EXTEN T OF 50% AND THEREBY MADE AN ADDITION OF RS.50,00,000/-. 3. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT ( A) BY WAY OF FILING APPEAL WHO HAS SCALED DOWN THE DISALLOWANCE BY FOLLOWING ITA NO.5874/DEL./2017 3 THE ORDER FOR AY 2012-13 FROM 50% TO 15% I.E. FROM RS.50,00,000/- TO RS.15,00,000/- BY PARTLY ALLOWING THE APPEAL. FEELING AGGRIEVED, THE ASSESSEE HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT APPEAL. 4. 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. 5. LD. AR FOR THE ASSESSEE CONTENDED THAT THIS ISSU E HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN EARLIER Y EAR BY THE COORDINATE BENCH OF THE TRIBUNAL IN APPEAL BEARING ITA NO.2091/DEL/2017 FOR AY 2012-13 ORDER DATED 05.01.2 021 . ON THE OTHER HAND, LD. DR FOR THE REVENUE THOUGH RELIE D UPON THE ORDER PASSED BY THE AO/CIT(A), HAS FAILED TO BRING ON RECORD ANY MATERIAL IF ORDER (SUPRA) PASSED BY THE COORDINATE BENCH OF THE TRIBUNAL IS OVERTURNED OR STAYED BY ANY HIGHER FORU M. 6. WE HAVE PERUSED THE ORDER PASSED BY THE COORDINA TE BENCH OF THE TRIBUNAL WHICH IS ON THE IDENTICAL ISSUES, N OW RAISED BY THE ASSESSEE IN THE PRESENT APPEAL, DELETING THE AD HOC DISALLOWANCE QUA THE REMUNERATION PAID TO THE DIRECTORS. OPERATIVE PART OF THE ORDER (SUPRA) PASSED BY THE TRIBUNAL IS EXTRACTED FOR THE SAKE OF BREVITY AS UNDER :- ITA NO.5874/DEL./2017 4 5.0 WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE ALSO PERUSED THE MATERIAL ON RECORD. UNDISPUTEDLY, THERE HAS BEEN A 775% INCREASE IN THE REMUNERATION TO THE DIRECTORS AS COMPARED TO THE EARLIER ASSESSMENT YEARS. ALL THE SAME, IT I S SETTLED LAW THAT ALTHOUGH THE OBJECTIVE OF SECTION 40A(2) IS TO PREV ENT EVASION OF TAX THROUGH EXCESSIVE OR UNREASONABLE PAYMENTS, BUT THIS PROVISION SHOULD NOT BE APPLIED IN A MANNER WHICH W ILL CREATE HARDSHIP IN BONA FIDE CASES. A PERUSAL OF THE ASSES SMENT ORDER SHOWS THAT THE ASSESSING OFFICER HAS NOT BROUGHT AN Y COMPARABLE CASES ON RECORD TO ESTABLISH AND BUTTRESS HIS ALLEG ATION THAT THE SALARY PAID TO THE DIRECTORS WAS EXCESSIVE AS COMPA RED TO THE SALARY BEING PAID TO SIMILAR PERSONS WITH SIMILAR Q UALIFICATIONS AND EXPERIENCE. THE LD. CIT (A), THOUGH HAS GIVEN P ARTIAL RELIEF TO THE ASSESSEE BY LIMITING THE DISALLOWANCE TO RS. 12,60,000/-, ALSO DID NOT CONSIDER THIS ASPECT OF THE CASE AND H AS REDUCED THE DISALLOWANCE IN AN AD HOC MANNER. IT IS ALSO UNDISP UTED THAT THE ASSESSEE COMPANY AS WELL AS DIRECTORS BOTH ARE IN T HE SAME TAX BRACKET, WHICH IS THE HIGHEST IN THEIR CASES AND, T HEREFORE, THERE CAN BE NO QUESTION OF ANY EVASION OF TAX BY PAYING REMUNERATION TO THE DIRECTORS. THE CBDT CIRCULAR NO.6-P DATED 6T H JULY, 1968 CLEARLY STATES THAT NO DISALLOWANCE IS TO BE MADE U /S 40A (2) IN RESPECT OF PAYMENTS MADE TO RELATIVES AND SISTER CO NCERNS WHERE THERE IS NO ATTEMPT TO EVADE TAX. CLEARLY NO CASE O F EVASION OF TAX CAN BE MADE OUT IN THE PRESENT APPEAL. THIS CIRCULA R IS BINDING ON THE DEPARTMENT AND SINCE NO MOTIVE TO EVADE TAX IS ESTABLISHED AND FURTHER SINCE THE ASSESSING OFFICER HAS NOT POINTED OUT ANY COMPARABLES TO DEMONSTRATE THAT THE SALARY PAID TO DIRECTORS WAS EXCESSIVE, WE HAVE NO OPTION BUT T O SET ASIDE THE ORDER OF THE LD. CIT (A) AND WHILE DOING SO, WE DIR ECT THE ASSESSING OFFICER TO DELETE THE ENTIRE ADDITION. WH ILE DOING SO, WE PLACE RELIANCE ON THE FOLLOWING JUDICIAL PRECEDENTS : (A) CIT VS. SPANK HOTELS LTD., [2014] 50 TAXMANN.C OM 452 (DELHI) (B) AMIT MEHRA VS. ITO, [2020] 116 TAXMANN.COM 870 (DELHI TRIB.) (C) TALLY SOLUTIONS (P.) LTD. VS. DCIT, [2011] 8 I TR (1) 434 (BANGALORE) (D) ACIT VS. DOON VALLEY MOTORS, [2006] 10 SOT 525 (DELHI) (E) DIVAKAR SOLAR SYSTEM LTD. VS. DCIT, [2017] 88 TAXMANN.COM 770 (KOLKATA-TRIB.) (F) SIGMA RESEARCH & CONSULTING (P.) LTD. VS. CIT, [2019] 103 TAXMANN.COM 397 (DELHI) (G) CIT VS. INDO SAUDI SERVICES (TRAVEL), [2009] 3 10 ITR 306 (BOMBAY) (H) PCIT VS. GUJARAT GAS FINANCIAL SERVICES LTD., [2015] 60 TAXMANN.COM 483 (GUJARAT) (I) CIT VS. V.S. DEMPO & CO. (P.) LTD., [2010] 8 TAXMANN.COM 159 (BOMBAY) ITA NO.5874/DEL./2017 5 (J) CIT VS. SIYA RAM GARG (HUF), [2012] 20 TAXMANN .COM 622 (PUNJAB & HARYANA). 6.0 IN THE FINAL RESULT, THE APPEAL OF THE ASSESSE E STANDS ALLOWED. 7. FOLLOWING THE ORDER PASSED BY THE COORDINATE BENCH OF THE TRIBUNAL IN AY 2012-13 (SUPRA), WE ARE OF THE CONSIDERED VIEW THAT DISALLOWANCE TO THE TUNE OF 15% OF REMUNERATIO N PAID TO THE DIRECTORS OF THE ASSESSEE COMPANY SUSTAINED BY THE LD. CIT(A) ON AD HOC BASIS IS NOT SUSTAINABLE U/S 40A (2) QUA THE PAYMENT MADE TO THE RELATIVES AND SISTER CONCERNS WHERE THERE IS NO ATTEMPT TO EVADE TAX. IN THE INSTANT CASE, ASSESSEE HAS CATEG ORICALLY COME UP WITH THE ARGUMENT THAT SINCE DIRECTORS TO WHOM THE REMUNERATION HAS BEEN PAID BY THE ASSESSEE COMPANY HAD ALREADY P AID TAX @30%, THERE IS NO TAX EVASION ON THE PART OF THE AS SESSEE COMPANY. SO, IN VIEW OF THE MATTER, DISALLOWANCE MADE BY THE AO AND SUSTAINED BY THE LD. CIT (A) IS ORDERED TO BE DELET ED. RESULTANTLY, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 24 TH DAY OF SEPTEMBER, 2021. SD/- SD/- (PRASHANT MAHARISHI) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 24 TH DAY OF SEPTEMBER, 2021 TS ITA NO.5874/DEL./2017 6 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-30, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.