MEGHRAJ CAPITAL ADVISORS P.LTD ( FORMERLY KNOWN AS MEGHRAJ SP CORPORAE FINANCE P. LTD), MUMBAI V. ACIT CIR 6(3), MUMBAI

ITA 6449/MUM/2010

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5853 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 24-03-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 01-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: NITISH JOSHI
• Keywords: Business expenditure; Fair market value; Avoidance of tax

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B , MUMBAI BEFORE SHRI N. K. BILLAIYA , ACCOUNTANT MEMBER AND SHRI SANJAY GARG , JUDICIAL MEMBER ITA NO. 6449/M/2010 ASSESSMENT YEAR: 2006 - 07 M/S. MEGHRAJ CAPITAL ADVISORS PVT. LTD., (FORMERLY KNOWN AS ME GHRAJ SP CORPORATE FINANCE P. LTD.), 2 ND FLOOR, 5 BRADY GLADYS PLAZA, 1/447 SENAPATI BAPAT MARG, LOWER PAREL, MUMBAI 400 013 PAN: AAACM3113H VS. ASSISTANT COMMISSIONER OF INCOME - TAX, CIRCLE 6(3), AAYAKAR BHAVAN, M.K. MARG , CHURCHGATE, MUMBAI - 400020 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI NITISH JOSHI REVENUE BY : MS. NEERAJA PRADHAN DATE OF HEARING : 24.03 .201 4 DATE OF PRONOUNCEMENT : 28.03.2014 O R D E R PER SANJAY GARG, JUDICIAL M EMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) [(HEREINAFTER REFERRED TO AS CIT(A)] DATED 21.05.10. THE GROUNDS OF APPEAL READ AS UNDER: 1. LEARNED COMMISSIONER OF INCOME - TAX (APP EALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.7,41,250/ - OUT OF PROFESSIONAL FEES OF RS.18,00,000/ - PAID TO N.A. SHAH ASSOCIATES IN CONNECTION WITH SERVICES RENDERED FOR RECRUITMENT OF ITS MANAGING DIRECTOR (MD) ON THE GROUND THAT FEES PAID IS EXCES SIVE COMPARED TO PREVAILING MARKET PRACTICE. ON FACTS AND CIRCUMSTANCES AND IN LAW, THE SAID PAYMENT OF FEES OF RS.7,41,250/ - OUGHT TO BE ALLOWED. 2. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND/OR RESCIND ANY GROUND OF APPEAL DURING THE COURSE OF THE HEARING. ITA NO. 6449/M/2010 M/S. MEGHRAJ CAPITAL ADVISORS PVT. LTD., (FORMERLY KNOWN AS MEGHRAJ SP CORPORATE FINANCE P. LTD.) 2 2. THE SOLE GRIEVANCE OF THE ASSESSEE IN THE PRESENT APPEAL IS RELATING TO CONFIRMATION OF DISALLOWANCE OF RS.7,41,250/ - OUT OF PROFESSIONAL FEES OF RS.18,00,000/ - . THE DISALLOWANCE HAS BEEN MADE BY THE LOWER AUTHORITIES ON THE GROUND THA T FEES PAID WAS EXCESSIVE COMPARED TO PREVAILING MARKET PRICES. 3. THE BRIEF FACTS OF THE CASE ARE THAT DURING THE ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAD CLAIMED THE FOLLOWING EXPENDITURE: I. MANAGEMENT AND BUSINESS RS.15,00,0 00/ - II. ADVISING IN THE APPOINTMENT OF NEW MD RS. 18 ,00,000/ - III. INTERNAL AUDIT RS.3 5 ,000/ - ----------------- TOTAL RS.33,35,000/ - ----------------- THE AO OUT OF THE SAID AMOUNT ALLOWED RS.3,00,000/ - AS PROFESSION AL FEES PAID TO N.A. SHAH ASSOCIATES AND RS.35,000/ - AS AUDIT FEE AND DISALLOWED THE REMAINING AMOUNT OF RS.30,00,000/ - . 4. THE LD. CIT(A) , CONSIDERING THE MARKET RATES FOR SUCH SERVICES , RESTRICTED THE DISALLOWANCE RELATING TO PROFESSIONAL FEES PAID TO N.A. SHAH ASSOCIATES TO RS.7,41,250/ - OUT OF RS.18,00,000/ - . HOWEVER, HE DELETED THE DISALLOWANCE RELATING TO MANAGEMENT AND BUSINESS EXPENSES OF RS.15,00,000/ - . THE ASSESSEE IS THUS IN APPEAL BEFORE US AGITATING THE SUSTAINING OF DISALLOWANCE OF RS.7 ,41,250/ - BY THE LD. CIT(A). 5. WE HAVE HEARD THE LD. REPRESENTATIVES OF BOTH THE PARTIES AND ALSO HAVE GONE THROUGH THE RECORDS. THE LD. CIT(A) HAS NOT DISPUTED THE GENUINENESS OF THE TRANSACTIONS. EVEN IT IS ALSO NOT THE CASE OF THE REVENUE THAT THE SAID EXPENDITURE WAS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THE LD. CIT(A) HAS RESTRICTED THE DISALLOWANCE ONLY TAKING INTO CONSIDERATION THE MARKET RATES FOR SUCH TYPE OF PROFESSIONAL ITA NO. 6449/M/2010 M/S. MEGHRAJ CAPITAL ADVISORS PVT. LTD., (FORMERLY KNOWN AS MEGHRAJ SP CORPORATE FINANCE P. LTD.) 3 SERVICES. IT MAY BE OBSERV E THAT N.A. SHAH ASSOCIATES TO WHOM THE PROFESSIONAL FEES WAS PAID WAS NOT A DIRECTOR OR RELATIVE OF A DIRECTOR OF THE ASSESSEE COMPANY. HENCE THE QUESTION OF UNREASONABLENESS HAVING REGARD TO THE FAIR MARKET VALUE IN THIS CASE IS NOT ATTRACTED WHEN THE G ENUINENESS OF THE TRANSACTION IN QUESTION OR AVAILING OF THE SERVICES BY THE ASSESSEE FROM THE SAID N.A. SHAH ASSOCIATES IS NOT IN DISPUTE. MOREOVER, IT ALSO DOES NOT SEEM TO BE A CASE OF AVOIDANCE OF TAX. THE ASSESSEE COMPANY HAS FILED THE RETURN IN LOS SES AND AS SUCH EVEN IF IT IS HELD THAT THE PAYMENT WAS EXCESSIVE THEN ALSO THERE WILL NOT BE ANY EFFECT ON THE TAX LIABILITY OF THE ASSESSEE COMPANY. THE LD. A.R. HAS ALSO CONTENDED THAT THE SAID RECIPIENT OF THE AMOUNT IN QUESTION IS ALSO A TAX PAYER AN D THE AMOUNT IN QUESTION HAS BEEN RETURNED BY THE SAID RECIPIENT I.E. N.A. SHAH ASSOCIATES IN ITS RETURN OF INCOME. 6. UNDER SUCH CIRCUMSTANCES, THE PART DISALLOWANCE BY THE CIT(A) OUT OF THE PROFESSIONAL FEES PAID BY THE ASSESSEE WAS WRONG. ACCORDINGL Y, THE SAME IS DELETED. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS HEREBY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28.03. 201 4 . SD/ - SD/ - ( N. K. BILLAIYA ) (SANJAY GARG) ACCOUNTANT MEMB ER JUDICIAL MEMBER MUMBAI, DATED : 28.03. 201 4 . * KISHORE COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT ( A) CONCERNED, MUMBAI ITA NO. 6449/M/2010 M/S. MEGHRAJ CAPITAL ADVISORS PVT. LTD., (FORMERLY KNOWN AS MEGHRAJ SP CORPORATE FINANCE P. LTD.) 4 THE DR C BENCH //TRUE COPY// [ BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.