MARKS SHIPPING P.LTD, MUMBAI V. ASST CIT CIR 4(2), MUMBAI

ITA 6367/MUM/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2970 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 30-10-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G N MAKWANA
• Assessee Lawyers: SANJUKTA CHOWDHARY
• Keywords: Principle of natural justice; Earning of tax free income; Avoidance of tax
• Section: 14A; 145; 10; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI B BENCH , MUMBAI BEFORE SHRI SHAILEND RA K UMAR YADAV, JUDICIAL MEMBER, AND SHRI RAJESH KUMAR , ACCOUNTANT MEMBER . ITA. NO S . 7 18 7 /MUM/2012 & 6367 / M UM /20 1 3 (ASSESSMENT YEAR S : 200 9 - 1 0 & 2 0 1 0 - 11 ) M/ S. MARKS SHIPPING PVT. LTD., NO.401/402, 4 TH FLOOR, ATLANTA TOWER, SAHAR ROAD, ANDHERI (E), MUMBAI 400 099 APPELLANT VS. A CIT - 4 (2) , MUMBAI RESPONDENT PAN: AAACM3202B / BY APPELLANT : MS. SANJUKTA CHOWDHARY , A.R. / BY RESPONDENT : SHRI G. N. MAKWANA , D .R. / DATE OF HEARING : 11 . 0 8 .201 6 / DATE OF PRONOUNCEMENT : 14. 0 9 .201 6 ORDER PER RAJESH KUMAR, AM : BOTH APPEAL S HA VE BEEN FILED BY ASSESSEE AGAINST THE ORDER S OF COMMISSIONER OF INCOME - TAX (APPEALS) - 8 , MUMBAI , DATED 19 TH OCTOBER, 20 1 2 FOR BOTH A.Y S . I.E. 20 0 9 - 1 0 & 20 10 - 11 . SINCE, THESE APPEALS PERTAIN TO SAME ASSESSEE AND ON I T A NO S . 7 18 7 /MUM/12 & 6367 / M UM / 1 3 A.Y S . 0 9 - 1 0 & 10 - 11 [ M/S. MARKS SHIPPING PVT. LTD. VS. A CIT ] PAGE 2 ALMOST SIMILAR ISSUE, SO THEY ARE BEING DISPOSED OF BY COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. IN ITA NO.7 1 8 7 /MUM/201 2 FOR A.Y. 20 09 - 10 , ASSESSEE HAS FILED APPEAL ON FOLLOWING GROUNDS: 1) THE LEARNED CIT (A) ERRED IN CONFIRMING ADDITIONAL DISAL LOWANCE OF '4,07,741/ U/S. 14A OF THE INCOME TAX ACT COMPUTED UNDER RULE 8D OVER AND ABOVE THE SUO - MOTTO DISALLOWANCE OF RS.2204742/ - MADE BY THE APPELLANT WITHOUT FINDING ANY DEFECT ON THE DISALLOWANCE MADE BY THE APPELLANT AND ON THE INCORRECT PREMISE TH AT THE APPELLANT HAD NOT ALLOCATED ANY EXPENDITURE TO EARNING OF TAX FREE INCOME AND THAT THE APPELLANT HAD MADE COMPOSITE USE OF FUNDS. 2) THE LEARNED CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE OF COMMISSION OF RS.41 , 95,784/ - PAID TO DIRECTOR WITHOUT C ONSIDERING ANY SUBMISSION MADE BY THE APPELLANT. 3) THE LEARNED CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE OF TRANSPORT CHARGES OF '467500/ - PAID TO SHRI GANESH LIFTERS BASED MERELY ON THE BASIS OF DISALLOWANCE IN THE PREVIOUS YEARS AND WITHOUT ANY INDE PENDENT VERIFICATION OF FACTS BY THE AO. 4) THE LEARNED CIT (A) ERRED IN DISALLOWING EXPENDITURE OF RS.5 LAKHS IN CONNECTION WITH AGENCY AND CARGO CLEARANCE AGAINST THE DISALLOWANCE OF RS.1,86,879/ - MADE THE ASSESSING OFFICER BY MERE COPY PASTE OF DISALLO WANCE IN A.Y. 1997 - 98. 5) THE LEARNED CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE OF FOREIGN TRAVEL EXPENSE OF RS.10,45,4831 - WITHOUT HAVING REGARDS TO THE FACTS AND CIRCUMSTANCE OF THE CASE. 6) THE LEARNED CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE OF MEDICAL EXPENSE OF THE DIRECTOR RS.60,438/ - I T A NO S . 7 18 7 /MUM/12 & 6367 / M UM / 1 3 A.Y S . 0 9 - 1 0 & 10 - 11 [ M/S. MARKS SHIPPING PVT. LTD. VS. A CIT ] PAGE 3 C ONSIDERING THE SAME AS PERSONAL EXPENSE WITHOUT HAVING REGARD TO THE CONTRACTUAL OBLIGATION OF PROVISION OF MEDICAL EXPENDITURE TO THE DIRECTOR. 3. ASSESSEE IS A PRIVATE LIMITED COMPANY WITH FOUR DIRECTORS. I T INVOLVES IN THE BUSINESS OF CUSTOM HOUSE AGENCY AND SUPPLY CHAIN MANAGEMENT AND FREIGHT FORWARDING ACTIVITIES. 3 .1 FIRST ISSUE IS WITH REGARD TO CONFIRMATION OF ADDITION OF DISALLOWANCE OF RS.4,07,771/ - U/S.14A OF THE ACT R.W. RULE 8D. ASSESSEE HAD E ARNED TAX FREE DIVIDEND OF RS.9,34,629/ - . ACCORDING TO ASSESSING OFFICER, SAME EXPENDITURE HAS TO BE ALLOCATED BY VIRTUE OF RULE 8D. SO, HE MADE DISALLOWANCE U/S.14A OF THE ACT R.W.RULE 8D, WHICH WAS CONFIRMED BY CIT(A). 3 .2 ASSESSEE CLAIMED TO HAVE H IRED ONE PORTFOLIO MANAGER TO HANDLE HIS PORTFOLIO MANAGEMENT AS BUSINESS OF ASSESSEE IS LOGISTIC, OPERATIONS AND NOT TO INVOLVE IN SHARES ACTIVITIES. IT HAD PAID PORTFOLIO MANAGEMENT CHARGES (HEREINAFTER REFERRED AS PMC CHARGES ) TO ITS PORTFOLIO MANAGE R. PMS CHARGES HAD BEEN APPORTIONED IN THE EARNING OF LONG TERM CAPITAL GAIN, SHORT TERM CAPITAL GAIN AND DIVIDEND INCOME. ON PROPORTION BASIS, ASSESSEE CLAIMED ITS PMS CHARGES RESPECTIVELY AGAINST SHORT TERM CAPITAL GAIN, LONG TERM CAPITAL GAIN AND DIVID END INCOME DECLARED. ACCORDING TO ASSESSEE, NO OTHER EXPENDITURE HAD BEEN INCURRED EXCEPT PMS CHARGES. NOTHING HAS BEEN BORROWED. IN THIS REGARD, LD. AUTHORIZED REPRESENTATIVE SUBMITTED THAT ASSESSEE HAS INCURRED ONLY PMS CHARGES AND I T A NO S . 7 18 7 /MUM/12 & 6367 / M UM / 1 3 A.Y S . 0 9 - 1 0 & 10 - 11 [ M/S. MARKS SHIPPING PVT. LTD. VS. A CIT ] PAGE 4 THERE WAS NO BORROWI NG. NOTHING REMAINS TO BE ATTRIBUTABLE. RULE 8D HAS NOT BLIND APPLICATION. THE SATISFACTION OF ASSESSING OFFICER IS MISSING IN THIS CASE. THE MECHANISM OF RULE 8D CANNOT BE TRUSTED UPON ASSESSEE. THEREFORE, ASSESSING OFFICER HAS TO ARRIVE AT THE CONCLU SION WHETHER AND WHEN SPECIFIC EXPENSES WERE INCURRED AND THE SAME HAD BEEN CONSIDERED PROPORTIONATELY BY ASSESSEE, WHETHER THERE COULD NOT BE ANY FURTHER ADDITION IN A SUMMARY FASHION BY APPLYING RULE 8D. ASSESSEE RELIED ON FOLLOWING DECISIONS: I. WALFOR T SHARES & SECURITIES VS. CIT [2010] 326 ITR 1 (SC) II. CIT VS. HERO CYCLES LTD. 323 ITR 518 (P&H) III. MAXOPP VS. CIT 2003 TAXMANN 364 (DEL) IN THIS BACKGROUND, IT WAS CLAIMED THAT NO DISALLOWANCE U/S.14A OF THE ACT R.W. RULE 8D CAN BE MADE WITHOUT SHOW ING HOW ASSESSEES CALCULATION WAS WRONG AND ONLY READ EXPENSES ATTRIBUTABLE TO THE DIVIDEND INCOME EARNED. DIVIDEND INCOME CAN BE DISALLOWED. 3 .3 WE HAVE HEARD THE PARTIES. WE FIND THAT THE ASSESSEE DURING THE YEAR HAS EARNED TAX FREE DIVIDEND OF RS.9 ,34,629/ - AND SUO MOTTU DISALLOWED THE SUM OF RS.22,04742/ - AS EXPENSES ATTRIBUTABLE TO EARNING OF EXEMPT INCOME UNDER SECTION 14A R.W.R 8D. WE ALSO FIND THAT THE ASSESSEE HAS HIRED ONE PORTFOLIO MANAGER TO HANDLE PORTFOLIO MANAGEMENT AS THE ASSESSEE IS IN THE BUSINESS OF LOGISTIC OPERATION AND WAS NOT CARRYING ON SHARE ACTIVITIES. THE ASSESSEE MADE PAYM ENT TO THE PORTFOLIO MANAGER AND ALLOCATED THE PMS CHARGES BETWEEN LONG TERM CAPITAL GAINS, SHORT TERM CAPITAL GAINS AND I T A NO S . 7 18 7 /MUM/12 & 6367 / M UM / 1 3 A.Y S . 0 9 - 1 0 & 10 - 11 [ M/S. MARKS SHIPPING PVT. LTD. VS. A CIT ] PAGE 5 DIVIDEND INCOME PROPORTIONATEL Y. THE LD. AR SUBMITTED BEFORE US THAT IN TERMS OF SECTION 14A(2) THE AO HAS TO RECORD HIS SATISFACTION OR DISSATISFACTION WITH RESPECT TO CORRECTNESS OF TH E CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE IN RELATION TO THE EXEMPT INCOME AS RULE 8D HA S NO BLIND APPLICATION. WE FIND THAT IN THIS CASES THE AO HAS MECHANICALLY APPLIED THE PROVISION OF RULE 8D WITHOUT RECORDING ANY SATISFACTION MAKING THE DISALLOWANCE. IN OUR OPINION, THE APPLICATION OF RULE 8D IS NOT CORRECT. THE CASE OF THE ASSESSEE ALSO FIND STRONG SUPPORT FROM THE CASE OF HERO CYCLES LTD(SUPRA) , IN WHICH IT HAS BEEN HELD THAT IT IS NOT NECESSARY THAT SOME EXPENSES MIGHT HAVE BEEN INCURRED RELATING TO EXEMPT INCOME DIRECTLY OR INDIRECTLY WHICH MUST BE DISALLOWED U/S 14A. IN OTHE R WORDS , THE AO MUST R E CO R D HIS SATISFACTION AS TO THE EXPENDITURE INCURRED BY THE ASSESSEE WHICH WERE EITHER NOT DISALLOWED BY T HE AS S ES S EE OR SHORT DISALLOWANCE WAS MADE ONLY UNDER THE PROVISIONS OF SECTION 14A R.W. RULE 8D COULD BE INVOKED. HE SIMI LAR ISSUE HAS BEEN DECIDED BY A CO - ORDINATE BENCH OF THE TRIBUNAL IN NUMBER OF DECISIONS UPHOLDING THAT NO APPLICATION OF SECTION 14A R.W.R 8D CAN BE INVOKED WHERE THE AO HAS NOT RECORDED HIS SATISFACTION AS TO THE CORRECTNESS OF THE CLAIM OR DISALLOWAN CE MADE SOU MOTTU WHILE FILING THE RETURN OF INCOME. WE, THEREFORE, FOLLOWING THE RATIO LAID DOWN IN THE ABOVE MENTIONED CASE AND ALSO THE DECISION OF T HE CO - ORDINATE BENCH ES SET ASIDE THE DECISION OF THE LD. CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DEL ETE THE ADDITION O F RS.4,07,771/ - . GROUND IS ALLOWED. I T A NO S . 7 18 7 /MUM/12 & 6367 / M UM / 1 3 A.Y S . 0 9 - 1 0 & 10 - 11 [ M/S. MARKS SHIPPING PVT. LTD. VS. A CIT ] PAGE 6 4 . NEXT ISSUE IS WITH REGARD TO DISALLOWANCE OF COMMISSION OF RS.41,95,784/ - PAID TO DIRECTOR WHICH WAS CONFIRMED BY CIT(A). 4.1 STAND OF ASSESSEE BEFORE US IS THAT O UT OF FOUR DIRECTORS, ASSESSEE C OMPANY HAD PAID COMMISSION TO ONE WHOLE TIME WORKING DIRECOTR WHO HAD RENDERED EXTRA SERVICE TO THE COMPANY IN ITS OPERATIONS, DEVELOPMENT, MEETING NEW CLIENTS BOTH IN INDIA AND ABROAD, DECISIONS MAKING, EXECUTION OF ASSIGNMENTS, MANAGEMENT OF FILED STAFFS AND OFFICE STAFFS, STRICTLY ADHERING TO TIME BOUND ACCOMPLISHMENT OF VARIOUS ASSIGNMENTS AND WHOLE HEARTED CONTRIBUTION FOR THE GROWTH OF COMPANY. THE TURNOVER HAD PROGRESSIVELY GREW NEARLY 10 TIMES WHAT IT WAS PRIOR TO 1995 - 96. THE BOARD MA DE RESOLUTIO N FOR THE PAYMENT IN QUESTION. THE STAND OF ASSESSEE HAS BEEN THAT FOR THE BUSINESS EXPEDIENCY, THE PAYMENT OF COMMISSION WAS DULY CONSIDERED BY ALL THE FOUR DIRECTORS . BY VIRTUE OF THAT RESOLUTION, THE WHOLE WORK DEVOLVED TO SAID SHRI MAHESH A DHARIRA W HO DEVOTED WHOLE TIME SERVICES TO THE COMPANY. OTHER DIRECTORS WHO WERE SHARE HOLDERS AND WERE NOT PAID ANY COMMISSION . ALL THE SHARE HOLDERS HAVE RECEIVED DIVIDEND. UNDER THE MANAGEMENT AND WHOLE HEARTED DEDICATION OF SAID DIRECTOR SHRI MAHESH A DHARIR A, COMPANY GREW MANIFOLD. THE PAYMENT OF COMMISSION MADE AGAINST SERVICES RENDERED BY THE DIRECTOR AND WERE NOT IN LIEU OF DIVIDENDS AS DIVIDEND WERE PRIMA FACIE AN APPROPRIATION OF PROFITS WHICH WAS PAID TO ALL THE SHAREHOLDERS ON THE BASIS OF THEIR SHAR EHOLDING. ALL THE I T A NO S . 7 18 7 /MUM/12 & 6367 / M UM / 1 3 A.Y S . 0 9 - 1 0 & 10 - 11 [ M/S. MARKS SHIPPING PVT. LTD. VS. A CIT ] PAGE 7 SHAREHOLDERS HAD BEEN PAID DIVIDEND. THE COMMISSION PAYMENT IS A CHARGE AGAINST PROFITS ONLY. THUS, THE NEXUS OF RENDERING OF SERVICES AND PAYMENT OF COMMISSION WAS VERY CO - RELATED IN THE INSTANT CASE AND THE SAME HAS NOT BEEN PROPERLY CONSIDERED BY LOWER AUTHORITIES. ASSESSING OFFICER MAINLY RELIED ON THE DECISION OF SPECIAL BENCH IN CASE OF DALAL BROACHA STOCK BROKING PVT. LTD. VS. ACIT (2011) 131 ITD 36 (MUM - SB). IN CASE OF DALAL BROACHA STOCK BROKING PVT. LTD. (SUPRA), ALL THE THR EE DIRECTORS HAD BEEN PAID UNIFORMALLY COMMISSION OF RS.40LACS WHICH IS 10% OF PROFITS SUBJECT TO MAXIMUM LIMIT OF RS.40LACS. IN CASE OF ASSESSEE, ONLY ONE WORKING DIRECTOR OUT OF FOUR DIRECTORS HAD BEEN PAID COMMISSION AS @ 5% OF THE GROSS TOTAL RECEIPTS . IN CASE OF DALAL BROACHA STOCK BROKING PVT. LTD. (SUPRA), TRIBUNAL CAME TO CONCLUSION THAT NO EVIDENCE ON RECORD WAS AVAILABLE TO SUPPORT THE FACT THAT THE DIRECTORS HAD RENDERED ANY EXTRA SERVICES FOR THE PAYMENT OF HUGE COMMISSION OR REMUNERATION. SO , IT WAS HELD THAT JUSTIFICATION OF FIRM HAS NO MERIT IN ABSENCE OF SERVICE RENDERED BUT IN CASE OF ASSESSEE, THE RENDERING OF SERVICES BY THE SAID DIRECTOR HAD BEEN ACCEPTED BY THE LOWER AUTHORITIES. IN CASE BEFORE US, T HE WHOLE - TIME DIRECTOR HAD IMMENSE LY CONTRIBUTED FOR THE GROWTH OF COMPANY, THE ONLY SINGLE HEADED AT THE INSTANCE OF CONTRIBUTION OF ADMINISTRATIVE CONTROL OF SAID SHRI MAHESH A DHARIRA. THE PAYMENT OF COMMISSION WAS AGAINST SERVICED RENDERED THROUGHOUT THE YEAR. IN CASE OF DALAL BROACH A STOCK BROKING PVT. LTD. (SUPRA), NO LINKAGE OF SERVICES RENDERED TO THE PROFITS EARNED. EXCEPTIONAL PERFORMANCE IN PROFITABILITY WAS I T A NO S . 7 18 7 /MUM/12 & 6367 / M UM / 1 3 A.Y S . 0 9 - 1 0 & 10 - 11 [ M/S. MARKS SHIPPING PVT. LTD. VS. A CIT ] PAGE 8 DUE TO THE MARKET BOOM AND NOT OTHERWISE. IN CASE OF ASSESSEE, HIGH TURNOVER AND PROFITS ARE HAVE DIRECT NEXUS WITH THE EFFORTS PUT IN BY THE SAID DIRECTOR, SHRI MAHESH A DHARIRA. IN CASE OF DALAL BROACHA STOCK BROKING PVT. LTD. (SUPRA), ASSESSEE DID NOT PAY COMMISSION WHEN TURNOVER AND PROFITS WERE BOTH DECLINING. IN CASE OF ASSESSEE, COMMISSION HAD BEEN PAID STEADILY O VER THE YEARS IN A CONSISTENT MANNER SINCE 1995 - 96, BESIDES ASSESSEES DIVIDEND POLICY. 4.2 IN CASE OF ASSESSEE, SERVICES RENDERED BY DIRECTOR SHRI MAHESH A DHARIRA, IT IS PERTINENT TO MENTION HERE THAT PAYMENT HAS NOT BEEN PAID TO OTHER DIRECTORS. THUS, PAYMENT IN QUESTION WAS WITH RESPECT TO S ERVICES RENDERED BY THE SAID DIRECTOR , WAS NOT AVOIDANCE OF PAYMENT OF TAX. WE FIND NO AVOIDANCE OF TAX DONE. SO, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE SAME BECAUSE SAME WAS PAID TO DIRECTOR IN PROPORTION TO THE SERVICE RENDERED BY HIM . 5 . NEXT ISSUE IS WITH REGARD TO DISALLOWANCE OF TRANSPORT CHARGES OF RS.4,67,500/ - PAID TO SHRI GANESH LIFTERS BASED MERELY ON THE BASIS OF DISALLOWANCE IN THE PREVIOUS YEAR. DURING ASSESSMENT PROCEEDINGS, ASSESSEE WAS R EQUESTED TO JUSTIFY THE PAYMENTS MADE TO SAID TRANSPORTER BECAUSE SIMILAR CLAIM WAS DISALLOWED IN THE PRECEDING YEARS AS THE PARTY WAS NOT FOUND GENUINE. ACCORDINGLY, DISALLOWANCE WAS MADE. 5 .1 IN APPEAL, THE STAND OF ASSESSEE HAS BEEN THAT ASSESSEE HA D UTILIZED THE SERVICE OF TRANSPORTERS AS IT WAS UNDER CONTRACTUAL OBLIGATION TO DELIVER THE CARGO AT THE CUSTOMERS I T A NO S . 7 18 7 /MUM/12 & 6367 / M UM / 1 3 A.Y S . 0 9 - 1 0 & 10 - 11 [ M/S. MARKS SHIPPING PVT. LTD. VS. A CIT ] PAGE 9 PLACES LOCATED OUTSIDE MUMBAI AND ASSESSEE WAS NOT HAVING ANY TRANSPORT VEHICLE OF ITS OWN. ASSESSEE HAS RECOVERED THE TRANSPORTATION CHAR GES FROM THE CUSTOMERS AND SHOWN IT AS INCOME. ASSESSEE HAS CHALLENGED THE DISALLOWANCE MADE ON ACCOUNT OF SIMILAR DISALLOWANCE. THE STAND OF ASSESSEE HAS BEEN THAT EVERY ASSESSMENT YEAR IS INDEPENDENT AS NEW ASSESSMENT YEAR IS CONCERNED. ACCORDING TO US , EVERY YEAR IS INDEPENDENT BUT CONSISTENCY OF JUDICIAL AUTHORITIES HAS ALSO BEEN GIVE MUCH PRIORITY, SO, LET EVERY CLAIM HAS TO BE DECIDED IN ITS FACTS AND CIRCUMSTANCES. THEREFORE, WE RESTORE THIS ISSUE TO ASSESSING OFFICER WITH DIRECTION TO DECIDE AS P ER FACT AND LAW AND AFTER TAKING INTO CONSIDERATION, THE READ SERVICE RENDERED BY THE SAID TRANSPORTER TO THE ASSESSEE AND ALSO TAKING INTO CONSIDERATION THE EARLIER PRECEDENT AND ASSESSING OFFICER CAN ALLOW THE CLAIM IN THE FACTS AND CIRCUMSTANCES OF THE YEAR UNDER CONSIDERATION AND ASSESSEE HAS BEEN RENDERED SERVICES OF TRANSPORTER OF ACTUAL BASIS. 6 . NEXT ISSUE IS WITH REGARD TO DISALLOWANCE OF EXPENDITURE OF RS.5 LAKS IN CONNECTION WITH AGENCY AND CARGO CLEARANCE AGAINST THE DISALLOWANCE OF RS.1,86, 879/ - . IN APPEAL, CIT(A) ENHANCED THE DISALLOWANCE FOR CONSOLIDATED AMOUNT OF RS.5LACS. NO NOTICE OF ENHANCEMENT WAS GIVEN. BOOKS OF ACCOUNT S HA D NOT BEEN REJECTED. ACCORDING TO ASSESSING OFFICER, IN FACT THIS DISALLOWANCE HAS BEEN MADE ON THE BASIS O F ORDER OF ITAT FOR A.Y.1997 - 98. THE STAND OF ASSESSEE BEFORE US HAS BEEN THAT EACH YEAR IS INDEPENDENT YEAR. NO RES JUDICATA I T A NO S . 7 18 7 /MUM/12 & 6367 / M UM / 1 3 A.Y S . 0 9 - 1 0 & 10 - 11 [ M/S. MARKS SHIPPING PVT. LTD. VS. A CIT ] PAGE 10 WAS APPLIED TO THE ASSESSEE AND EACH YEAR HAS BEEN DECIDED IN ITS FACTS AND CIRCUMSTANCES. 6.1 WE FIND THAT BOOKS OF ACCOUNTS HAD NOT BEEN REJECTED AND NO NOTICE OF ENHANCEMENT WAS GIVEN BY CIT(A). SO, IT SHOWS THAT PRINCIPLE OF NATURAL JUSTICE HAS NOT BEEN APPLIED IN THIS CASE. SO, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, ADDITION IN QUESTION IS DIRECTED TO BE DELETED. 7 . NEXT ISSUE IS WITH REGARD TO DISALLOWANCE OF FOREIGN TRAVEL EXPENSE OF RS.10,45,483/ - . DURING ASSESSMENT PROCEEDINGS, ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF TRAVELLING EXPENSES INCLUDING FOREIGN TRAVEL. ON PERUSAL OF THE DETAILS, ASSESSING OFFICER FOUND THAT FOREIGN TRAVEL EXPENSES WERE INCURRED BY SHRI MAHESH DHARIRA AND SHRI ARJUN DHARIRA FOR THEIR VISITS TO USA AND AUSTRALIA ALONG WITH THEIR SPOUSES AND CHILDREN. ASSESSEE WAS ASKED TO JUSTIFY THE EXPENSES. ASSESSEE SUBMITTED HIS EXPLANATION VI DE LETTER DATED 10.10.2011, WHICH WAS NOT FOUND ACCEPTABLE BY ASSESSING OFFICER BECAUSE DIRECTORS HAVE TRAVELLED TO THE USA AND AUSTRALIA ALONG WITH THEIR SPOUSES AND KIDS. ASSESSEE WAS NOT ABLE TO GIVE ANY EVIDENCE AS TO WHAT KIND OF MEETING WERE HELD IN THOSE TRIPS AND WHETHER ANY ACTUAL BENEFIT HAS BEEN ARRIVED FROM THOSE TRIPS DUE TO WHICH SOME EXTRA BUSINESS WERE GENERATED, WHICH WAS CONFIRMED BY CIT(A). 7 .1 BEFORE US, IT WAS SUBMITTED THAT THE COMPANY HOWORTH HAD DISCONTINUED THEIR SERVICES SINCE 20 08 - 09. TWO DIRECTORS I T A NO S . 7 18 7 /MUM/12 & 6367 / M UM / 1 3 A.Y S . 0 9 - 1 0 & 10 - 11 [ M/S. MARKS SHIPPING PVT. LTD. VS. A CIT ] PAGE 11 HAD GONE FOR NEGOTIATION WITH THE SAID COMPANY IN USA AND AUSTRALIA. SO, VISITS WERE PURELY OF BUSINESS NATURE. WE FIND THAT SIMILAR DISALLOWANCE WAS MADE IN EARLIER YEAR BUT EVERY YEAR IS INDEPENDENT YEAR, SO, SAME SHOULD BE LOOKED INTO ITS FACTS AND CIRCUMSTANCES. ASSESSEE HAS NOT BEEN ABLE TO SUBSTANTIATE THE FOREIGN VISIT EXPENSES WITH ASSESSEES BUSINESS. SO, TAKING ALL FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE NOT INCLINED TO INTERFERE WITH THE FINDING OF CIT(A) WHO HAS DIS ALLOWED THE EXPENSES IN QUESTION ON ACCOUNT OF FOREIGN TRAVEL OF TWO DIRECTORS MADE BY ASSESSING OFFICER AND SAME IS UPHELD. 8 . NEXT ISSUE IS WITH REGARD TO MEDICAL EXPENSE OF DIRECTOR RS.60,438/ - . DURING ASSESSMENT PROCEEDINGS, ASSESSING OFFICER FOUND T HAT THE AMOUNT OF EXPENDITURE HAD NOT BEEN CONSIDERED AS PERQUISITE IN THE HANDS OF DIRECTOR. ASSESSEE WAS ASKED TO EXPLAIN THE ALLOWABILITY OF CLAIM. NO DETAILS WERE FILED BY ASSESSEE, THE AMOUNT OF RS.60,438/ - WAS DISALLOWED AS MEDICAL EXPENSES. SAME WAS CONFIRMED BY CIT(A). 8 .1 WE FIND THAT THERE IS NOTHING ON RECORD TO SUGGEST THAT ABOVE SAID EXPENSE HAS BEEN INCURRED. NO EVIDENCE IN THIS REGARD HAS BEEN RENDERED BY ASSESSEE BEFORE LOWER AUTHORITIES. SO, SAME HAS RIGHTLY BEEN DISALLOWED BY LOWER AUTHORITIES. SAME IS UPHELD. 9 . AS A RESULT, APPEAL FILED BY ASSESSEE FOR A.Y. 2009 - 10 IS PARTLY ALLOWED. I T A NO S . 7 18 7 /MUM/12 & 6367 / M UM / 1 3 A.Y S . 0 9 - 1 0 & 10 - 11 [ M/S. MARKS SHIPPING PVT. LTD. VS. A CIT ] PAGE 12 10 . IN ITA NO.6367/MUM/2013 FOR A.Y. 2010 - 11, ASSESSEE HAS FILED APPEAL ON FOLLOWING GROUNDS: 1. DISALLOWANCE U/S. 36(1) ( II) - RS. 49,15,431/ - I) THE L D. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE WITHOUT APPRECIATING THAT THE APPELLANT AFTER COMPLYING TO THE ENABLING CONDITIONS OF SEC. 36(1)(II) HAD PAID COMMISSION TO ONE OF ITS DIRECTORS IN PARTICULAR AGAINST HIS FULL TIME RENDERING OF SERVICES; THUS THE DISALLOWANCE IS UNCALLED FOR AS THE SAID PAYMENT IS NOT AN APPROPRIATION OF PROFITS OR A PAYMENT IN LIEU OF DIVIDEND BUT PURELY A CHARGE OF AGAINST PROFITS. II) WITHOUT PREJUDICE TO ABOVE, ANY PAYMENT MADE EVEN TO A DIRECTOR WITH SUBSTANTIAL HOL DING PURELY IN TERMS OF HIS APPOINTMENT AGAINST THE SERVICES RENDERED BY HIM IS OUTSIDE THE SCOPE OF SEC. 36(1)(II); THUS THE SAME CANNOT BE ATTRIBUTED AS DISTRIBUTION OF DIVIDEND OR PROFITS IN THE GUISE OF COMMISSION; AS THE PAYMENT HAS DIRECT NEXUS TO TH E SERVICES RENDERED, SEC. 36(1)(II) HAS NO ROLE TO PLAY AND THE DISALLOWANCE MAY BE DELETED. III) THE L D. CIT(A) ERRED IN NOT CONSIDERING THE CONSISTENCY OF PAYMENTS OF COMMISSION SINCE THE ASSESSING OFFICER HAD ALLOWED SIMILAR PAYMENTS MADE TO THE DIRECT ORS IN EARLIER YEARS SINCE A.Y. 1995 - 96; A GROSS DISREGARD TO THE FACTS AND PROVISIONS OF LAW, HENCE, THE DISALLOWANCE MAY BE DELETED. 2. DISALLOWANCE U/S. 14A - RS. 4,14,185/ - THE L D. CIT(A) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER TO ENHA NCE THE DISALLOWANCE U/S. 14A WITHOUT APPRECIATING THAT THE APPELLANT BY ITS OWN ACTION HAD DETERMINED THE SHARE OF DIRECT AND INDIRECT EXPENSES INCLUDING PMS CHARGES AS ATTRIBUTABLE TO EARNING OF TAX - FREE INCOME AS PER THE PRESCRIPTION OF RULE 8D, THEREFO RE, ENHANCEMENT OF DISALLOWANCE U/S. 14A IS UNCALLED FOR WITHOUT POINTING OUT ANY DEFECT IN I T A NO S . 7 18 7 /MUM/12 & 6367 / M UM / 1 3 A.Y S . 0 9 - 1 0 & 10 - 11 [ M/S. MARKS SHIPPING PVT. LTD. VS. A CIT ] PAGE 13 THE METHOD OF COMPUTATION ADOPTED BY THE APPELLANT AND THE SAME MAY BE DELETED. 3. DISALLOWANCE ON ACCOUNT OF PAYMENTS MADE TO TRANSPORTERS - RS.3,56,1 90/ - THE L D . CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE ROUTINELY AS WAS DONE IN EARLIER ASSESSMENT YEARS 2005 - 06, 2006 - 07 AND 2009 - 10 ON THE PREMISE THAT APPRECIATING THE VERACITY OF PAYMENT AND SINCE EACH YEAR IS DIFFERENT THE DISALLOWANCE ON A FILMSY GROUND WITHO UT TAKING RECOURSE TO SEC. 145 IS NOT JUSTIFIED AND THE SAME MAY BE DELETED. 4. LEVY OF PENAL INTEREST U/S.24A, 234B, 234C AND 234D THE APPELLANT, ON MERITS, DENIES ITS LIABILITY TO PENAL INTEREST. 1 1 . FIRST ISSUE IS REGARDING DISALLOWANCE U/S.36(1)(II) OF RS.49,15,431/ - . ASSESSING OFFICER DISCUSSED AND DECIDED THIS ISSUE IN PARA 4 OF THIS ORDER. FACTS BEING SIMILAR, SO, FOLLOWING SAME REASONING, ISSUE IS DECIDED IN FAVOUR OF ASSESSEE. 1 2 . NEXT ISSUE IS WITH REGARD TO ADDITION OF RS.4,14,185/ - UNDER T HE PROVISIONS OF SECTION 14A OF THE ACT. SIMILAR ISSUE HAS BEEN DISCUSSED AND DECIDED VIDE PARA 3 OF THIS ORDER. FACTS BEING SIMILAR, SO, FOLLOWING SAME REASONING WE ALLOW THIS GROUND. 1 3 . NEXT ISSUE IS WITH REGARD TO DISALLOWANCE ON ACCOUNT OF PAYMENT MADE TO TRANSPORTERS OF RS.3,56,190/ - . SIMILAR ISSUE AROSE IN PARA 5 OF THIS ORDER. FACTS BEING SIMILAR, SO, FOLLOWING SAME REASONING , WE ALLOW THE GROUND OF THE ASSESSEE ON THIS ISSUE. I T A NO S . 7 18 7 /MUM/12 & 6367 / M UM / 1 3 A.Y S . 0 9 - 1 0 & 10 - 11 [ M/S. MARKS SHIPPING PVT. LTD. VS. A CIT ] PAGE 14 14. AS A RESULT, APPEAL FILED BY ASSESSEE FOR A.Y. 2010 - 11 IS PART LY ALLOWED. 1 5 . IN THE RESULT, BOTH A PPEAL S FILED BY ASSESSEE ARE PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS THE 14TH DAY OF SEPT , 201 6 . SD SD (SHAILENDRA KUMAR YADAV) ( RAJESH KUMAR ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI : DATED 14 /0 9 /201 6 S.K.SINHA / COPY OF ORDER FORWARDED TO: - 1 . / REVENUE 2 . / ASSESSEE 3 . / CONCERNED CIT 4. - / CIT (A) 5 . , , / DR, ITAT, MUMBAI 6 . / GUARD FILE. BY ORDER / , TRUE COPY / , ,