S.H. KELKAR & CO. P.LTD, MUMBAI V. ADDL CIT 4(3), MUMBAI

ITA 678/MUM/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4286 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-01-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 23-01-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 02-02-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B S N RAJUDR
• Assessee Lawyers: DR K SHIVRAM; RAHUL HAKANIAR

Judgement Text

1 , INCOME TAX APPELLATE TRIBUNAL,MUMBAI E BENCH , ,, , , ,, , BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & SANJAY GARG JUDICIAL MEMBER /.ITA NO.678 & 4452/M/2012, ! ' /ASSESSMENT YEARS-2008-09&09-10 M/S. S.H. KELKAR AND CO. PVT. LTD. 36, DEVKARAN MANSION MANGALDAS ROAD MUMBAI-400 002. PAN:AAACS 9778 G VS ADDL. CIT, CIRCLE-4(3) AAYAKAR BHAVAN MUMBAI-400 021. ( / APPELLANT) ( /RESPONDENT) !#$ /ASSESSEE BY : DR.K.SHIVRAM & SH.RAHUL HAKANI-AR / REVENUE BY : SH. B.S.N. RAJU-DR / DATE OF HEARING : 10-11 -2015 / DATE OF PRONOUNCEMENT : 01.01.2016 , 1961 1961 1961 1961 25 2525 254 44 4( (( (1 11 1) )) ) &'$ ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - ITA NO.678/MUM/2012-AY.2008-09 : IT IS A RECALLED MATTER. VIDE ITS ORDER DATED 13.3. 2015 (MA NO. 434/M/2014) THE TRIBUNAL HAVE RECALLED ITS ORDER WITH REGARD TO THE DISALLOWANCE MADE UNDER THE HEAD LEGAL AND CONSULTATION CHARGES.WE WOULD LIKE TO REPRODUCE THE RELEVANT PO RTION OF THE ORDER, PASSED BY THE TRIBUNAL UNDER SECTION 254(2) OF THE ACT AND SAME READS AS U NDER :- 5. FROM THE ABOVE, WE FIND THAT THE TRIBUNAL HAD DISALLOWED THE LEGAL AND CONSULTATION CHARGES OBSERVING THAT THE LEGAL EXPENDITURE WAS RELATED TO INTERSE DISPUTE BETWEEN THE TWO FACTIONS OF THE DIRECTORS OF THE ASSESSEE COMPANY AND THAT THE EXP ENSES IN RELATION TO CONSULTANCY WERE INCURRED FOR OPERATION OF NEW MANUFACTURING FACILITY AT VAI SHALI. SO FAR AS THE DISALLOWANCE OF LEGAL EXPENDITURE IN RELATION TO DISPUTE BETWEEN THE DIRE CTORS OF THE COMPANY IS CONCERNED, IN VIEW OF THE LAW LAID DOWN BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF 'CIT VS. M/S. CHEMOSYN LTD., MUMBAI' (SUPRA) THE ISSUE, IN OUR VIEW, REQUIRES R E EXAMINATION BECAUSE OF THE BINDING PRECEDENTIAL VALUE OF THE DECISION OF THE JURISDIC TIONAL HIGH COURT. WE ALSO NOTICE THAT THE CIT HAD GIVEN A CONSOLIDATED FINDING ABOUT THE NATURE OF DI FFERENT EXPENSES INCURRED IN RELATION TO VAISHALI UNIT AND THE DETAIL OF EACH OF THE EXPENSES HAS NOT BEEN EXAMINED BY HIM SEPARATELY AND THE TRIBUNAL THEREAFTER ALSO OBSERVED THAT SINCE THE E XPENDITURE WAS INCURRED FOR OPERATION OF NEW UNIT, HENCE THE SAME WAS CAPITAL IN NATURE. HOWEVE R, SINCE THE ASSESSEE HAS POINTED OUT THAT THE UNIT WAS ALREADY UNDER OPERATION AND THAT THE DETAI LS OF EACH OF THE EXPENSES HAVE BEEN GIVEN SEPARATELY AND THAT THE SAID DETAILS HAVE ESCAPED T HE ATTENTION OF THIS TRIBUNAL, HENCE WE FIND THAT, IN VIEW OF THE ABOVE CONTENTION OF THE ASSESSEE, TH E ISSUE RELATING TO LEGAL AND CONSULTATION CHARGES ALSO NEEDS RE-EXAMINATION.MOREOVER, THE ISSUES RELA TING TO LEGAL AND CONSULTATION CHARGES HAVE BEEN TAKEN TOGETHER AND DECIDED BY A COMPOSITE FIND ING. IN VIEW OF THE LAW LAID DOWN BY THE JURISDICTIONAL HIGH COURT, WE ARE OF THE VIEW THAT THE ISSUE RELATING TO LEGAL EXPENSES IS REQUIRED TO BE RE-ADJUDICATED. HENCE, THE ISSUE RELATING TO THE CONSULTATION CHARGES BEING PART OF THE COMPOSITE FINDING/ADJUDICATION GIVEN VIDE PARA NOS.19 TO 24 IN RELATION TO GROUND NOS.10 TO 12 OF THE ASSESSEE'S APPEAL IS ALSO REQUIRED TO BE RE-ADJUDI CATED. WE ACCORDINGLY RECALL OUR FINDINGS GIVEN VIDE OUR ORDER DATED 07.11.14 IN RELATION TO GROUND NOS.10 TO 12 OF THE ASSESSEE'S APPEAL BEARING ITA 678/12 & 4452/12 -SHKELKAR 2 ITA NO.678/M/2012 FOR A.Y. 2008-09. LET THESE ISSU ES BE REHEARD AND DECIDED BY WAY OF A FRESH HEARING. HOWEVER, OUR FINDING IN RESPECT OF THE REM AINING GROUNDS OF APPEAL AND ALSO IN RELATION TO ITA NO.7256 & 72571M12010 WILL REMAIN AS SUCH. 6. IN VIEW OF ABOVE, THE ORDER DATED 07.11.2014 PA SSED IN ITA NO.678/M/2012 FOR A.Y. 2008-09 IS RECALLED TO THE LIMITED EXTENT IN RELATION TO FIND INGS GIVEN IN RESPECT OF GROUNDS NO.10 TO 12 AND TH E REGISTRY IS DIRECTED TO FIX THE APPEAL FOR A HEARI NG ON GROUND NOS.10 TO 12 OF ITA NO.678/M/20L2 FOR 11.05.2015. PARTIES ARE INFORMED ABOUT THE SAI D DATE IN OPEN COURT AND NO SEPARATE NOTICE WILL BE ISSUED. 7. IN THE RESULT, THE MISCELLANEOUS APPLICATION OF THE ASSESSEE IS HEREBY ALLOWED. 2. DURING THE COURSE OF HEARING BEFORE US,THE AUTHORIS ED REPRESENTATIVE (AR)STATED THAT WHILE ADJUDICATING THE APPEAL,FILED BY THE ASSESSEE,THE F IRST APPELLATE AUTHORITY (FAA) HAD NOT CONSIDERED THE SUBMISSIONS MADE BY THE ASSESSEE AND THAT THE GROUNDS WERE NOT ADJUDICATED SEPARATELY,THAT THE TRIBUNAL HAD RESTORED BACK THE ISSUE TO THE FILE OF THE AO WHILE DECIDING THE APPEAL FOR THE SUBSEQUENT YEAR,THAT THE JUDGEMENT O F THE HONBLE BOMBAY HC, DELIVERED IN THE CASE OF CHEMOSYN LTD. MUMBAI(IT APPEAL NO. 361 OF 2 013)HAD TO BE CONSIDERED WHILE DECIDING THE ISSUE.DEPARTMENTAL REPRESENTATIVE (DR) LEFT THE ISSUE TO THE DISCRETION OF THE BENCH. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE TRIBUNAL HAD RECALLED ITS ORDER WITH REGARD TO THE LEGAL EXPENSES,THAT THE FAA HAD NOT DEALT THE ISSUE IN PROPER MANNER.HE HAD DEALT ABOUT THREE ISS UES TOGETHER.IN OUR OPINION,ISSUE NEEDS FURTHER VERIFICATION.THE AR STATED THAT IF THE MATT ER IS SENT BACK TO THE FAA,THE ASSESSEE WOULD LIKE TO FILE NECESSARY DETAILS AND EXPLAIN THE MATT ER.CONSIDERING THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE,IN THE INTEREST OF JUSTIC E,WE ARE REMITTING BACK THE MATTER TO THE FILE OF THE FAA.HE IS DIRECTED TO DECIDE THE ISSUE AFRESH A ND AFTER CONSIDERING THE JUDGMENT OF CHEMOSYN LTD. MUMBAI (SUPRA).EFFECTIVE GROUND OF AP PEAL IS DECIDED IN FAVOUR OF THE ASSESSEE, IN PART. ITA NO.4452/M/2012-/ASSESSMENT YEARS-2009-10: 4 .THE ASSESSEE HAS RAISED TWO GROUNDS OF APPEAL FOR THE ABOVE MENTIONED AY.FIRST GROUND PERTAINS TO LEGAL EXPENSES.WHILE DECIDING THE APPEA L FOR THE EARLIER AY.,WE HAVE RESTORED BACK THE ISSUE TO THE FILE OF THE FAA.FOLLOWING THE SAME ,WE ARE SENDING BACK THE MATTER TO THE FAA FOR FRESH ADJUDICATION. 5 .NEXT GROUND OF APPEAL IS ABOUT PAYMENT OF COMMISSI ON TO THE MANAGING DIRECTOR AND THE DIRECTOR OF THE ASSESSEE-COMPANY.WE FIND THAT THE S IMILAR ISSUE HAD ARISEN IN THE EARLIER YEARS AND THE TRIBUNAL VIDE ITS ORDER DATED 07.11.2014(ITA/72 56/MUM/2010-AY.2006-07)HAD DECIDED THE IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE IN FOLLOW ING MANNER: 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PE RUSAL OF THE IMPUGNED ORDER OF THE LD. CIT(A) REVEALS THAT THE AMOUNT OF SALARY PLUS COMMISSION P AID TO THE DIRECTORS HAS NOT BEEN HELD TO BE EXCESSIVE BY THE LOWER AUTHORITIES. THERE IS NO DEN IAL OF THE FACT THAT THE AMOUNT PAID WAS REASONABLE IN COMPARISON TO THE REMUNERATION PAID F OR THE SERVICES IN THE MARKET. THERE IS NO DENIAL OF THE FACT THAT THE DIVIDEND OF RS.3 CRORE WAS DECLARED IN THE YEAR UNDER CONSIDERATION. THERE SEEMS MERIT IN THE CONTENTION OF THE LD. AR T HAT THE COMPANY HAS 29 SHAREHOLDERS AND 4 DIRECTORS WHEREAS THE COMMISSION WAS PAID TO TWO WO RKING DIRECTORS ONLY. SO FAR THE RELIANCE OF THE LD. D.R. ON THE SPECIAL BENCH DECISION OF THE T RIBUNAL IN THE CASE OF DALAL BROACHA STOCK BROKING P. LTD. V. ADDL. CIT (SUPRA) IS CONCERNED, WE FIND THAT THE FACTS OF THE PRESENT CASE ARE ITA 678/12 & 4452/12 -SHKELKAR 3 QUITE DISTINGUISHABLE. IN THE SAID CASE THERE WERE ONLY THREE SHAREHOLDERS WHO WERE DIRECTORS OF THE COMPANY AND NO DIVIDEND WAS DECLARED AND THERE WAS NO EXPLANATION AS TO WHY THE DIVIDEND WAS NOT DECLARED. UNDER SUCH CIRCUMSTANCES, WE FIND FORCE IN THE CONTENTION OF THE LD. A.R. THAT COMPANY WAS JUSTIFIED IN PAYING THE COMMISSION TO T HE WORKING DIRECTORS WHICH WAS QUITE REASONABLE. THE LOWER AUTHORITIES HAVE NOT NOTICED THESE FACTS WHILE DECIDING THE ISSUE UNDER CONSIDERATION. RESPECTFULLY FOLLOWING THE ABOVE,WE DECIDE THE GROU ND WITH REGARD TO PAYMENT OF COMMISSION IN FAVOUR OF THE ASSESSEE. AS A RESULT, APPEALS FILED BY TH E ASSESSEE FOR BOTH THE A.YS. STAND PARTLY ALLOWED. . . . ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST JANUARY, 2016. 01 , 2016 SD/- SD/- ( /SANJAY GARG) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /MUMBAI, /DATE:01.01.2016 . . . .. . JV.SR.PS. )$ *'$ / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ $ & , 4. THE CONCERNED CIT / $ & 5. DR E BENCH, ITAT, MUMBAI / ') , , . . . 6. GUARD FILE/ (, //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.