DCIT, New Delhi V. Global Vectra Helicorp Ltd., New Delhi

ITA 5919/DEL/2013

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9959 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 6 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 06-05-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 04-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P DAM KANUNJANA
• Keywords: Retrospective amendment
• Section: 143(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : C : NEW DELHI BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA NO . 5919 /DEL / 2013 ASSESSMENT YEAR: 2008 - 09 DEPUTY COMMISSIONER OF VS. GLOBAL VECTRA HELICORP LTD. INCOME TAX, CIRCLE - 12(1), C/O - NANGIA & CO., SUIT - 4A, NEW DELHI PLAZA - MG , JASOLA, NEW DELHI (PAN:AADCA9318F ) (APPELLANT) (RESPONDENT) APPELLANT BY : SH. P. DAM KANUNJANA, SR.DR RESPONDEN T BY: SH. AMIT ARORA DATE OF HEARING: 06.05.2015 DATE OF PRONOUNCEMENT: 13.05.2015 ORDER PER INTURI RAMA RAO, A.M. : THIS IS AN APPEAL FILED BY THE REVENUE FOR THE ASSESSMENT YEAR 2008 - 09 IMPUG NING THE ORDER OF LEARNED CIT(A), DATED 19.08.2013 , RAISING THE FOLLOWING GROUNDS OF APPEAL: I. WHETHER LD. CIT(A) WAS CORRECT ON FACTS AND CIRCUM STANCES OF THE CASE AND IN LAW IN DELETING THE ADDITION OF RS. 18,69,463/ - MADE BY THE AO ON ACCOUNT OF THE REMUNERATION PAID IN EXCESS OF THE LIMITS? II. WHETHER LD. CIT(A) WAS CORRECT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW IN HOLDING THAT REMUNERA TION PAID TO THE DIRECTORS WAS ALLOWABLE U/S 37(1) OF THE ACT, WITHOUT CONSIDERING THE EXPLANATION TO THAT SECTION AS PER WHICH PAYMENT TO DIRECTORS IN CONTRAVENTION TO PROVISIONS OF COMPANIES ACT WAS PROHIBITED AND NOT ELIGIBLE FOR DEDUCTION? III. THE APPELLANT CRAVES LEAVE, TO ADD, ALTER OR AMEND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF THE HEARING. 2 ITA NO. 5919/DEL /2013 AY : 2008 - 09 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A LIMITED COMPANY ENGAGED IN THE BUSINESS FLYING, OPERATIONS, LETTING ON HIRE, LEASE AND CHARTER HIRE OF HELICOPTERS AND PROVIDING AVIATION SERVICES IN RESPECT OF HELICOPTERS. FOR THE ASSESSMENT YEAR 2008 - 09, RETURN OF INCOME DISCLOSING OF RS. 30,17,48,878/ - WAS FILED ON 30 TH SEPTEMBER, 2008 A FTER ISSUING NOTICE UNDER SECTION 143(2) OF THE INC OME - TAX ACT, 1961 (FOR SHORT THE ACT ) . THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT VIDE ORDER DATED 29.12.2011 AT A TO TAL LOSS OF RS. 29,98,79,415/ - . WHILE DOING SO, THE ASSESSING OFFICER HAD MADE THE DISALLOWANCE OF DIRECTOR S REMUNERAT ION OF RS. 18,69,463/ - . THE ASSESSING OFFICER WAS OF THE VIEW THAT THE SAID REMUNERATION PAID IN EXCESS OF THE LIMITS PRESCRIBED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956. THEREFORE, HE WAS OF THE VIEW THAT SUCH REMUNERATION CANNOT BE ALLOWED A S DEDU CTION SINCE IT VIOLATES THE PROVISIONS OF THE COMPANIES ACT , 1956 . BEING AGGRIEVED BY THE ORDER OF ASSESSMENT, THE RESPONDENT ASSESSEE FILED AN APPEAL BEFORE THE LEARNED CIT(A) WHO VIDE ORDER DATED 19 TH AUGUST, 2013 ALLOWED THE CLAIM OF THE RESPONDENT ASSESSEE BY PLACING RELIANCE ON THE DECISIONS OF HON BLE SUPREME COURT IN THE CASES OF BADRIDAS DAGA VS. CIT, 34 ITR 10 (SC) , NILGIRI FINANCE AND HIRE PURCHASE PVT. LTD. VS. CIT, 213 ITR 384 AND CIT VS. SREE RAJENDRA MILLS LTD., 93 ITR 122. THE LEARNED C IT(A) HELD THAT THE ASSESSING OFFICER FELL IN ERROR BY INVOKING THE PROVISIONS OF SECTION 198 OF THE COMPANIES ACT, 1956 3 ITA NO. 5919/DEL /2013 AY : 2008 - 09 WHICH HAS NO BEARING ON THE ALLOWABILITY OF THE EXPENDITURE UNDER SECTION 37(1) OF THE ACT AND THEREFORE ALLOWED THE CLAIM OF THE ASSES SEE. AGGRIEVED BY THIS ORDER, THE REVENUE CAME UP WITH THE PRESENT APPEAL. 3. IT WAS ARGUED ON BEHALF OF THE REVENUE THAT LEARNED CIT(A) GROSSLY ERRED IN ALLOWING THE APPEAL OF THE RESPONDENT ASSESSEE IN THE IGNORANCE OF PROVISIONS OF EXPLANATION (I) TO SECTION 37(1) OF THE ACT. 4. ON THE OTHER HAND, LEARNED AUTHORIZED REPRESENT ATIVE REITERATED THAT THE ISSUE IN APPEAL IS COVERED BY THE DECISIONS OF HON BLE MADRAS HIGH COURT IN THE CASE S OF NILGIRI FINANCE AND HIRE PURCHASE PVT. LTD. VS. CIT, 213 ITR 38 4, CIT VS. SREE RAJENDRA MILLS LTD., 93 ITR 122. HE ALSO FILED COPY OF APPROVAL GRANTED U/S 309(5B) OF THE COMPANIES ACT, 1956 BY THE GOVERNMENT OF INDIA, MINISTRY OF CORPORATE AFFAIRS , DATED 11 TH JUNE, 2013 FOR PAYMENT OF SUCH EXCESS REMUNERATION OF R S. 18,69,463/ - . THEREFORE, HE SUBMITTED THAT THE EXCESS REMUNERATION PAID SHOULD NOT BE DISALLOWED. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND HAVE PERUSED THE MATERIAL ON RECORD. WE NOTICE D THAT THE LEARNED CIT(A) PASSED THE IMPUGNED ORDER WI THOUT CONSIDERING THE APPLICABILITY OF EXPLANATION (I) TO SECTION 37(1) OF THE ACT , WHICH READS AS UNDER: 37. GENERAL. - (1) ANY EXPENDITURE (NOT BEING EXPENDITURE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36 AND NOT BEING IN THE NATURE OF CAPITAL EXPENDI TURE OR PERSONAL EXPENSES OF THE ASSESSEE), LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OR PROFESSION SHALL BE ALLOWED IN 4 ITA NO. 5919/DEL /2013 AY : 2008 - 09 COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION . EXPLAN ATION. FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT ANY EXPENDITURE INCURRED BY AN ASSESSEE FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW SHALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS OR PROFESSION AND N O DEDUCTION OR ALLOWANCE SHALL BE MADE IN RESPECT OF SUCH EXPENDITURE. 6. THE EXPLANATION (I) TO SECTION 37(1) OF THE ACT INSERTED BY THE FINANCE ACT NO. 2 OF 1998 WITH RETROSPECTIVE EFFECT FROM APRIL 1 ST , 1962 WHICH PROVIDES THAT ANY EXPENDITURE INCURRED BY AN ASSESSEE FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW SHALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS OR PRO FESSION AND NO DEDUCTION OR ALLOWANCE SHALL ME MADE IN RESPECT OF SUCH EXPENDITURE. 7. AS WE HAVE BEEN TOLD AT BAR THAT THE APPROVAL FROM THE MINISTRY OF CORPORATE AFFAIRS WAS NOT PRODUCED BEFORE THE AUTHORITIES BELOW T H E R E F O R E , THE LEARNED CIT(A) CLEARLY F ELL IN ERROR IN ALLOWING THIS APPEAL IN IGNORANCE OF TH E PROVISIONS OF EXPLANATION (I) TO SECTION 37(1) OF THE ACT. H O W E V E R , I N VIEW OF THE FACT THAT POST FACTO APPROVAL GRANTED BY THE MINISTRY OF CORPORATE AFFAIRS BY LETTER DATED 11 TH JUNE, 2013 WHICH IS FILED BEFORE US, THE EXPENDITURE CAN NO LONGER SAID BE PROHIBITE D. IT IS SETTLED PROPOSITION OF LAW THAT THE QUESTION WHETHER THERE IS AN INFRACTION OF LAW OF THE EXPENDITURE INCURRED FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW IS TO BE DECIDED BY THE AUTHORITIES OR COURT EMPOWERED TO DO SO UNDER THE RESPECTIVE LAWS NOT BY T HE INCOME TAX AUTHORITIES AS HELD BY ACIT 5 ITA NO. 5919/DEL /2013 AY : 2008 - 09 VS. A.K. MENON AND ORS., 215 ITR 364 (SC) . IN VIEW OF THE APPROVAL , IT AMOUNTS THAT THE EXPENDITURE IS NOT HIT BY THE EXPLANATION (I) TO SECTION 37(1) OF THE ACT. IN THIS CONNEC TION, WE MAY ALSO STATE THAT WE HAVE TAKEN COGNIZANCE OF THE APPROVAL GRANTED BY THE MINISTRY OF CORPORATE AFFAIRS FILED BEFORE US , K EEPING IN VIEW THAT IT IS STATUTORY ORDER AND DOES NOT REQUIRE ANY VERIFICATION BY LOWER AUTHORITIES. HENCE, THE APPEAL FIL ED BY THE REVENUE IS DISMISSED. 8. IN THE RESULT, THE APPEAL IS DISMISSED. THE DECISION IS PRONOUNCED IN THE OPEN COURT ON 1 3 T H MAY , 2015. S D / - S D / - ( DIVA SINGH ) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 1 3 T H MAY , 2015. RK/ - COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI