Appeal details
Counselvise Citation
[2015] 120 COUNSELVISE.COM (IT) 9174 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 4 month(s) 26 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
25-03-2015
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
C
Next Hearing Date
03-03-2015
Assessment Year
2009-2010
Appeal Filed On
30-10-2012
Judgement Text
, ' ' INCOME TAX APPELLATE TRIBUNAL,MUMBAI - C BENCH , ! , BEFORE S/SH. VIJAY PAL RAO,JUDICIAL MEMB ER & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO.6577/MUM/2012, ' ' ' ' # # # # / ASSESSMENT YEAR-2009-10 M/S IMA PG INDIA PVT. LTD. (FORMERELY KNOWN AS PRECISION GEARS LTD.), PLOT NO.R-677, MIDC TTC INDL. AREA,THANEBELAPUR ROAD, RABALE, NAVI MUMBAI-400701 PAN:AAACP6442Q VS ACIT RANGE 5(2), AAYKAR BHAVAN,M K ROAD, MUMBAI-20 ( $% / ASSESSEE) ( &'$% / RESPONDENT) ' () ' () ' () ' () * * * * /ASSESSEE BY :SHRI. NISHIT GANDHI + * / REVENUE BY :SHRI PREMANAND J. ' ' ' ' + ++ + ), ), ), ), / DATE OF HEARING :03 - 03 -2015 -.# + ), / DATE OF PRONOUNCEMENT :25 -03-2015 ' ' ' ' , 1961 1961 1961 1961 + + + + 254 254 254 254( (( (1 11 1) )) ) )7) 8 )7) 8 )7) 8 )7) 8 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,AM ! ! ! ! ' ' ' ' : CHALLENGING THE ORDER DT.24.08.2012 OF THE CIT(A)-9 ,MUMBAI,ASSESSEE-COMPANY HAS RAISED FOLLOWING GROUNDS OF APPEAL: (1) THE LEARNED CIT (A) ERRED IN LAW AS WELL IN FAC TS IN CONFIRMING DISALLOWANCE MADE BY A.O.FOR ALLEGED EXCESS REMUNERATION OF RS. 66,77,91 9 PAID TO THE DIRECTORS. (2) THE C.I. T. (A) ERRED IN NOT APPRECIATING THAT THE A.O. MADE THE DISALLOWANCE SIMPLY RELYING ON THE ERRONEOUS REMARK IN AUDITORS' REPORT , WITHOUT VERIFYING THE FACTS. (3) THE C.I.T. (A) HAS NOT APPRECIATED THE AUDITOR' S REMARK IN CORRECT PERSPECTIVE, WHICH CLEARLY MENTIONS IN THE REPORT THAT APPLICATION FOR SANCTION OF ADDITIONAL REMUNERATION HAS BEEN MADE TO THE CENTRAL GOVT. AND SANCTION IS AWAI TED. (4) THE C.I.T.(A) HAS OVERLOOKED THE ITAT'S ORDER I N APPELLANT'S OWN CASE IN EARLIER YEARS RE: ALLOW ABILITY OF REMUNERATION DULY SANCTIONED BY TH E CENTRAL GOVERNMENT UNDER THE PROVISIONS OF THE COMPANIES ACT. (5) THE C.I.T. (A) ERRED IN NOT APPRECIATING THAT T HE CENTRAL GOVERNMENT'S SANCTION WAS DULY RECEIVED BEFORE THE ASSESSMENT WAS MADE, AND THEREF ORE, THE A.O. OUGHT NOT TO HAVE MADE THE SAID DISALLOWANCE AND THE C.I. T. (A) OUGHT NOT TO HAVE CONFIRMED THE SAID DISALLOWANCE. 2. DISALLOWANCE U/S. 40(A)(IA) OF RS. 18,72,166: (1) THE C.I.T. (A) ERRED IN LAW AND IN FACT AS WELL AS CONFIRMING DISALLOWANCE OF RS. 18,72,166 U/S. 40(A)(IA) OF I. TAX ACT, 1961. (2) THE C.I.T. (A) ERRED IN NOT APPRECIATING THAT T HE A.O. MADE THE DISALLOWANCE SIMPLY BY RELYING ON THE ERRONEOUS REMARK IN AUDITOR'S REPORT , WITHOUT VERIFYING THE FACTS. (3) THE C.I.T. (A) ERRED IN NOT ACCEPTING ADDITIONA L EVIDENCES SUBMITTED BY THE APPELLANT IN RESPECT OF THE SAID DISALLOWANCE. ITA/6577/MUM/2012,AY.2009-10IMPGIPL 2 (4) THE C.I.T.(A) ERRED IN NOT APPRECIATING THE FAC T THAT COMPOSITE COMMON CHALLANS WERE PREPARED FOR TDS PAYMENTS MADE FOR BOTH AY 2009-10 AND AY 2010-11. (5) THE C.I.T.(A) ERRED IN NOT APPRECIATING THAT TH E ADDL. CIT-V STARTED THE ASSESSMENT PROCEEDINGS MUCH LATE ,AND DUE TO PAUCITY OF TIME A T HIS DISPOSAL TO COMPLETE THE ASSESSMENT, DID NOT TO ALLOW THE APPELLANT FURTHER TIME TO SUBM IT THE YEAR WISE BIFURCATION OF TDS PAYMENTS, THROUGH COMPOSITE COMMON CHALLANS AND THE REFORE, SUCH DETAILS SUBMITTED AS ADDITIONAL EVIDENCES AT APPEAL STAGE OUGHT TO HAVE BEEN ACCEPTED BY HIM. (6) THE C.I.T. (A) ERRED IN SIMPLY RELYING ON THE R EMAND REPORT WITHOUT LOOKING IN THE CASE RECORDS OF THE AO TO VERIFY WHETHER THE EVIDENCES S UBMITTED AS ADDITIONAL EVIDENCES WERE IN FACT NOT IN THE ASSESSMENT RECORDS. (7) THE C.I.T. (A) ERRED IN NOT APPRECIATING THAT T HE APPELLANT DEDUCTED TDS BEFORE THE YEAR END FROM THE PROVISION MADE FOR RELEVANT EXPENSES A ND PAID THE TDS IN VARIOUS INSTALLMENT BEFORE DUE DATE FOR FILING THE RETURN OF INCOME I.E . 30TH SEPT., 2009, AND THE AUDITORS REPORT WAS ERRONEOUS TO THAT EXTENT. (8) THE C.I.T. (A) ERRED IN NOT APPRECIATING THAT A MENDMENT IN SEC.40(A)(IA) IN 1. TAX ACT, 1961 MADE BY FINANCE ACT, 2010 HAS RETROSPECTIVE EF FECT. 3. THE APPELLANT CRAVES LEAVE TO ALTER, AMEND, EXPA ND OR CHANGE THE GROUNDS OF APPEAL AS MAY BE ADVISED. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF MANUFAC TURE,EXPORTS AND DOMESTIC SALES OF BLISTER PACKAGING & ALLIED MACHINES, FILED ITS RETURN OF IN COME ON 25.09.2009,DECIARING TOTAL INCOME OF RS.8,95,21,216/-.THE AO COMPLETED THE ASSESSMENT U/ S.143(3) OF THE ACT ON 29.12. 2011, DETERMINING THE INCOME OF THE ASSESSEE AT RS.9,90,7 4,910/-. 2.FIRST GROUND OF APPEAL IS ABOUT EXCESS REMUNERATI ON PAID TO THE DIRECTOR.WE FIND THAT THE IDENTICAL ISSUE HAD ARISEN IN THE EARLIER AY.ALSO.W HILE DECIDING THE APPEAL FOR THAT YEAR(ITA/ 378/MUM/2012-DT. 13.03.2015,WE HAVE DECIDED THE ISS UE AS UNDER: '6.NEXT GROUND OF APPEAL IS ABOUT EXCESS REMUNERATI ON, AMOUNTING TO RS. 36.40 LAKHS, PAID TO DIRECTOR.DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE AUDITOR INFORM NO.3CB, VIDE NOTE NO.3,HAD REPORTED THAT THE ASSESSEE HAD PAID R S.36,40,038/- IN EXCESS OF LIMITS PRESCRIBED UNDER THE COMPANIES ACT. HE ASKED THE ASSESSEE TO S HOW CAUSE AS TO WHY SUCH EXCESSIVE REMUNERATION PAID IN CONTRAVENTION TO THE PROVISION S OF THE COMPANIES ACT SHOULD NOT BE DISALLOWED ULS.37(1) OF THE ACT. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSE,THE AO HELD THAT THERE WAS NO DISPUTE ABOUT THE TOTAL REMUNERATION D EBITED AND THE REMARKS MADE BY THE AUDITORS, THAT THE ASSESSEE HAD FAILED TO PROVE THAT WORKING GIVEN BY THE AUDITORS WAS INCORRECT. INVOKING THE PROVISIONS OF EXPLANATION TO 37(1) OF THE ACT,THE A O DISALLOWED THE EXCESSIVE REMUNERATION OF RS. 36.40 LAKHS AND ADDED BACK TO THE TOTAL INCOME OF T HE ASSESSEE. 7.AGGRIEVED BY THE ORDER OF THE AO THE ASSESSEE PRE FERRED AN APPEAL BEFORE THE FAA. BEFORE HIM, IT WAS CONTENDED THAT THE AUDITORS HAD NOT CONSIDERED SCHEDULE 13 OF THE COMPANIES ACT WHILE WORKING OUT THE REMUNERATION,THAT AN APPLICATION WA S MADE IN FORM NO.25A TO THE CENTRAL GOVERNMENT FOR APPROVAL OF EXCESS REMUNERATION WHIC H WAS SANCTIONED VIDE LETTER DATED 14.04.2010,THAT THE EXCESS REMUNERATION PAID TO THE DIRECTORS WAS AN ALLOWABLE EXPENDITURE. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE A ND THE ASSESSMENT ORDER,THE FAA HELD THAT ASSESSE'S OWN AUDITOR HAD REPORTED THE PAYMENT OF E XCESS REMUNERATION, THAT A COPY OF SANCTIONED LETTER GRANTED BY THE CENTRAL GOVERNMENT FOR EXCESS IVE REMUNERATION PAID WAS FILED BEFORE HIM.THE FAA CALLED FOR A REMAND REPORT FROM THE AO WITH REG ARD TO THE ADDITIONAL EVIDENCE SUBMITTED BY THE ASSESSEE IN FORM OF THE SANCTION LETTER OF THE CENTRAL GOVERNMENT.AFTER CONSIDERING THE REMAND REPORT,DATED 11.02.11,THE FAA HELD THAT THE PROVISI ONS OF SECTION 309(5A) AND 309(5B) OF THE COMPANIES ACT WERE APPLICABLE TO THE CASE UNDER CON SIDERATION.THAT THE ASSESSEE WAS NOT ENTITLED TO GET DEDUCTION OF THE EXCESSIVE REMUNERATION PAID , THAT THE EXCESSIVE REMUNERATION WAS NOT ALLOWABLE U/S. 37(1) OF THE ACT, THAT IT WAS PAID O VER AND ABOVE THE PRESCRIBED LIMITS OF THE COMPANIES ACT.HE CONFIRMED THE DISALLOWANCE MADE BY AO. ITA/6577/MUM/2012,AY.2009-10IMPGIPL 3 8.BEFORE US, THE AR ARGUED THAT THE CENTRAL GOVERNM ENT HAD ALLOWED PAYMENT OF EXCESS REMUNERATION TO THE DIRECTORS.THAT SANCTION LETTER WAS MADE AVAILABLE TO THE FAA,THAT PROVISIONS OF EXPLANATION TO SECTION 37(1) WERE NOT APPLICABLE WI TH REGARD TO THE PAYMENT. HE REFERRED TO THE PAGE NO.38 OF THE PAPER BOOK.HE ALSO RELIED UPON TH E ORDER OF THE TRIBUNAL DELIVERED FOR THE YEAR 2001-02 TO 2004-05 WHEREIN ALLEGED EXCESSIVE REMUNE RATION TO THE DIRECTORS DISALLOWED U/S. 40A (2) (B)OF THE WAS DELETED.DR SUPPORTED THE ORDER OF THE FAA. 9.WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE MATERIAL BEFORE US. WE FIND THAT THE ASSESSEE HAD MADE EXCESSIVE PAYMENT OF REMUNERATION TO THE DIRECTOR.BUT SAME WAS APPROVED BY THE CENTRAL GOVERNMENT, AS REQUIRED BY THE COMPANIE S ACT.1N THESE CIRCUMSTANCES, WE ARE OF THE OPINION THAT THERE WAS NO CONTRAVENTION OF THE PROV ISIONS OF THE ACT. THEREFORE, REVERSING THE ORDER OF THE FAA, WE DECIDE GROUND NO. 2 IN FAVOUR OF THE ASSESSEE. ' 3 .AT PAGE NO.7-9 OF THE PAPER BOOK IS THE APPROVAL O F THE CENTRAL GOVERNMENT ALLOWING THE ASSESSEE TO PAY EXCESS REMUNERATION TO THE DIRECTOR .AS THE FACTS AND CIRCUMSTANCES OF THE YEAR UNDER APPEAL ARE SIMILAR TO THE FACTS OF THE EARLIE R YEAR,THEREFORE, FOLLOWING THE ORDER FOR THAT YEAR,WE ARE DECIDING GROUND NO.1 IN FAVOUR OF THE A SSESSEE. 4 .NEXT GROUND OF APPEAL DEALS WITH DISALLOWANCE OF R S.18.72 LAKHS ULS.40(A)(IA)OF THE ACT. DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT TDS HAD NOT BEEN DEDUCTED ON RS. 18.72 LAKHS,THAT THE SAID AMOUNT WAS NOT ADDED IN COMPUTA TION OF INCOME.HE ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE IN THAT REGARD.LN ITS REPLY, THE ASSESSEE STATED THAT TDS PAYMENT OF RS.18.72 LAKHS HAD BEEN MADE BEFORE SEPTEMBER,2009,THAT ALL THE EXPENSES WERE ALLOWABLE.THE AO HELD THAT AS PER THE AUDIT REPORT TAX WAS NOT DEDUCTED F OR THE AMOUNT IN QUESTION AND HENCE SAME WAS NOT ALLOWABLE. 5 .AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (F AA).BEFORE HIM IT WAS CONTENTED THAT T HE AUDITORS HAD NOT ERRED IN NOT CONSIDERING THE PROVISO TO SECTION 40(A)(IA)OF THE ACT,THAT TDS PAYMENT WAS MADE NEXT YEAR,THAT COMPOSITE CHALLAN WAS PREPARED FOR THE A Y .S.2009-1 0 AND 20 1O-11.BEFORE THE F AA,THE ASSESSEE FILED ADDITIONAL EVIDENCES.HE CALLED FOR REMAND REPORT(RR )FROM THE AO.AFTER CONSIDERING THE MATERIAL AVAILABLE,HE HELD THAT AMENDED PROVISIONS OF THE SECTION WERE APPLICABLE W.E.F. 01.04. 2010,THAT THERE WERE MANY A DISCREPANCIES IN TDS RE CONCILIATIONS,THAT THE ASSESSEE HAD NOT DEDUCTED THE PRESCRIBED TAX WHICH WAS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVIIB OF THE ACT.THE ADDITIONAL EVIDENCES WERE NOT ADMITTED BY THE F AA. FINALLY,HE UPHELD THE ORDER OF THE AO AND DISMISSED THE APPEAL FILED BY THE ASSESSEE. 6 .BEFORE US,AUTHORISED REPRESENTATIVE (AR) STATED TH AT THE ASSESSEE HAD PAID THE TAX DEDUCTED AT SOURCE BEFORE FILING OF RETURN,THAT PROVISO TOT THE SECTION WAS RETROSPECTIVE,THAT BIFURCATION OF TAXES PAID AT SOURCE WAS NOT POSSIBLE.HE REFERRED T O PAGE NO.26-29 AND 65 OF THE PAPER BOOK.HE RELIED UPON THE CASE OF NARESH KUMAR(362ITR562)OF H ON'BLE DELHI HIGH COURT.DEPARTMENTAL REPRESENTATIVE(DR)SUPPORTED THE ORDER OF THE FAA. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT THE ASSESSEE HAD FILED ADDITIONAL EVIDENCES,THAT SAME W ERE NOT ADMITTED BY THE F AA,THAT THE ASSESSEE HAD FILED COMPOSITE CERTIFICATE OF DEDUCTI NG TAXES. IT IS FOUND THAT HON'BLE DELHI HIGH COURT HAS IN THE MATTER OF NARESH KUMAR(SUPRA) HAS HELD THAT THE PROVISO WAS APPLICABLE WITH RETROSPECTIVE EFFECT.FOLLOWING IS THE DECISION OF T HE HON'BLE COURT: PROVISIONS RELATING TO DEDUCTION OF TAX AT SOURCE A RE IMPORTANT AS THIS ENSURES THAT TAX SO DEDUCTED GETS DEPOSITED WITH THE GOVERNMENT AND NON -TAXPAYERS/FILERS CAN BE IDENTIFIED. THE DEDUCTEES DO NOT SUFFER AND ARE NOT DEPRIVED OF CRE DIT OF DEDUCTION MADE FROM THEIR INCOME. SECTION 40(A)(IA) OF THE INCOME-TAX ACT, 1961IS A P ROVISION INCORPORATED WITH THAT OBJECTIVE AND PURPOSE IN MIND. IT IS NOT BASICALLY A PENAL PROVIS ION AS WHEN THE TAX DEDUCTED AT SOURCE IS DEPOSITED, THE AMOUNT ON WHICH DEDUCTION WAS MADE I S ALLOWED AS AN EXPENDITURE INCURRED IN THE ITA/6577/MUM/2012,AY.2009-10IMPGIPL 4 PREVIOUS YEAR IN WHICH THE PAYMENT OF TAX DEDUCTED AT SOURCE IS MADE. THUS, IT RESULTS IN SHIFTING OF THE YEAR IN WHICH THE EXPENDITURE CAN BE CLAIMED , EVEN IF PAYMENT HAS BEEN MADE TO THE RECIPIENT AND IS TO BE ALLOWED AS EXPENDITURE IN AN OTHER YEAR. THE PRINCIPLE OF MATCHING, I.E., MATCHING OF RECEIPTS WITH EXPENDITURE TO THE EXTENT INDICATED IN SECTION 40(A)(IA), THEREFORE, GETS AFFECTED. THE PROVISION CAN WORK HARSHLY AND MAY BE VERY STRINGENT IN SOME CASES. THE LEGISLATIVE PURPOSE AND THE OBJECT IS TO ENSURE PAY MENT AND DEPOSIT OF TAX DEDUCTED AT SOURCE WITH THE GOVERNMENT. TAX DEDUCTED AT SOURCE RESULTS IN COLLECTION OF TAX. THE LEGISLATURE CAN AND DOES EXPERIMENT AND INTERVENE FROM TIME TO TIME WHE N IT FEELS AND NOTICES THAT THE EXISTING PROVISION IS CAUSING AND CREATING UNINTENDED AND EX CESSIVE HARDSHIP TO CITIZENS AND SUBJECTS OR HAS RESULTED IN GREAT INCONVENIENCE AND UNCOMFORTAB LE RESULTS. THE AMENDMENTS MADE IN 2010 WERE A STEP IN THIS DIRECTION AND THIS ASPECT HAS T O BE KEPT IN MIND WHEN EXAMINING AND CONSIDERING WHETHER THE AMENDMENT SHOULD BE GIVEN R ETROSPECTIVE EFFECT OR NOT. ONE IMPORTANT CONSIDERATION IN CONSTRUING A MACHINERY SECTION IS THAT IT MUST BE SO CONSTRUED AS TO EFFECTUATE THE LIABILITY IMPOSED BY THE CHARGING SECTION AND T O MAKE THE MACHINERY WORKABLE. HOWEVER, WHEN THE MACHINERY SECTION RESULTS IN UNINTENDED OR HARSH CONSEQUENCES WHICH WERE NOT INTENDED, THE REMEDIAL OR CORRECTION ACTION TAKEN I S NOT TO BE DISREGARDED BUT GIVEN DUE REGARD. SECTION 40(A)(IA) HAS TO BE GIVEN FULL PLAY KEEPING IN MIND THE OBJECT AND PURPOSE BEHIND THE SECTION. AT THE SAME TIME, THE PROVISION CAN BE AND SHOULD BE INTERPRETED LIBERALLY AND EQUITABLY SO THAT AN ASSESSEE SHOULD NOT SUFFER UNINTENDED AN D DELETERIOUS CONSEQUENCES BEYOND WHAT THE OBJECT AND PURPOSE OF THE PROVISION MANDATES. THE A MENDMENTS MADE TO SECTION 40(A)(IA)OF THE ACT BY THE FINANCE ACT,2010, SHOULD BE GIVEN RETROS PECTIVE EFFECT. CONSIDERING THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE AND THE ABOVE MENTIONED JUDGMENT, WE ARE OF THE OPINION THAT MATTER NEEDS FURTHER VER IFICATION.THEREFORE,IN THE INTEREST OFJUSTICE,WE ARE REMITTING THE MATTER TO THE FILE OF THE AO FOR FRESH ADJUDICATION.HE WILL AFFORD A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. GROUND NO.2 IS ALLOWED IN FAVOUR OF THE ASSESSEE, IN PART. AS A RESULT,APPEAL FILED BY THE ASS ESSEE STANDS PARTLY ALLOWED. 9): ' () ; < + 7 8): = + ) >?. ORDER PRONOUNCED IN THE OPEN COURT ON 25TH,MARCH, 2015. 8 + -.# A B' 25 C,2015 . + 7 F SD/- SD/- ( / VIJAY PAL RAO) ( ! ! ! ! / RAJENDRA) / JUDICIAL MEMBER /ACCOUNTANT MEMBER , / MUMBAI, B' /DATE: 25.03 . 2015. SK 8 8 8 8 + ++ + &) &) &) &) G #) G #) G #) G #) / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / $% 2. RESPONDENT / &'$% 3. THE CONCERNED CIT(A)/ H I , 4. THE CONCERNED CIT / H I 5. DR C BENCH, ITAT, MUMBAI / J7 &)' LH LHLH LH , . . . 6. GUARD FILE/ 7 9 ') &) //TRUE COPY// 8' / BY ORDER, K / > DY./ASST. REGISTRAR , /ITAT, MUMBAI.
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