REXNORD EXLECTRONICS & CONTROLS LTD, MUMBAI V. DCIT 9(3), MUMBAI

ITA 7156/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1345 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-04-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2009-2010
• Appeal Filed On: 28-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MAYUR R MAKADIA
• Section: 143(3); 142(1); 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D MUMBAI BEFORE SHRI SAKTIJIT DEY (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 7156/MUM/2014 ASSESSMENT YEAR: 2009-10 M/S. REXNORD ELECTRONICS & CONTROLS LTD. VS. DCIT 9(3) 92-D, GOVERNMENT INDUSTRIAL ESTATE AAYAKAR BHAV AN CHARKOP, KANDIVALI (W) MUMBAI 400020 MUMBAI - 400067 PAN NO. AAACR2920H (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI MAYUR R. MAKADIA, AR REVENUE BY: SHRI PURUSHOTTAM KUMAR, DR DATE OF HEARING : 23/0 1/2017 DATE OF PRONOUNCEMENT: 11/04/2017 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RELEVA NT ASSESSMENT YEAR IS 2009-10. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER (APPEALS) 20, MUMBAI AND ARISES OUT OF ORDER U/S 143(3) R.W.S. 263 OF THE INCOME TAX ACT, 1961 (THE ACT). 2. THE GROUNDS OF APPEAL FILED BY THE ASSESSEE READ AS UNDER:- I. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE LD. COMMISSIONER OF INCOME TAX (A) ERRED IN CONFIRMING THE DEDUCTION U/S 80IB AT RS. 22,05,842/- ALLOWED BY THE ASSESSING OF FICER AS AGAINST THE DEDUCTION CLAIMED AT RS. 28,54,204/- BY THE APPELLA NT. II. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. ASSESSING OFFICER AS WELL AS COMMISSIONER OF INCOME TAX (A) W HILE ALLOWING THE ITA NO. 7156/MUM/2014 2 DEDUCTION FAILED TO APPRECIATE THE FACT THAT THE RE MUNERATION PAID TO THE DIRECTORS OF THE COMPANY WERE PROPERLY APPORTIONED BETWEEN THE UNIT ENTITLED TO DEDUCTION UNDER SECTION 80IB AT DAMAN A ND ANOTHER UNIT AT KANDIVALI. III. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. COMMISSIONER OF INCOME TAX (A) ERRED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER WHO MERELY FOLLOWED THE OBSERVATI ONS OF CIT IN ORDER U/S 263 WITHOUT EXAMINING THE FACTS OF THE CASE. 3. BRIEFLY STATED, THE FACTS ARE THAT THE ASSESSEE M/S. REXNORD ELECTRONICS & CONTROLS LTD. (RECL) FILED ITS RETURN OF INCOME FOR THE A.Y. 2009-10 ON 27.09.2009 DECLARING TOTAL INCOME A T RS. 46,93,544/-. THE ASSESSING OFFICER (AO) COMPLETED THE ASSESSMENT U/S 143(3) ON 28.11.2011 ASSESSING THE TOTAL INCOME AT RS. 47,03, 544/-. RECL HAD TWO UNITS NAMELY KANDIVALI (NON-80IB UNIT HAVING JO B WORK ACTIVITIES) AND DAMAN (80IB UNIT HAVING MANUFACTURI NG ACTIVITIES). IT DEBITED RS. 2,70,000/- AS DIRECTORS REMUNERATION I N DAMAN UNIT FOR MR. RAM BAHADUR ROKA AND RS. 21,70,500/- IN KANDIVA LI UNIT FOR THE DIRECTORS NAMELY MR. KISHORE CHAND TALWAR, MRS. SHA RDA TALWAR AND MS. NAINY K. TANNA. THE COMMISSIONER OF INCOME TAX (CIT) FOUND THAT THE KANDIVALI UNIT ACCOUNTED FOR ONLY 0.38% OF THE TURNOVER. THEREFORE, IT DOES NOT STAND TO REASON THAT THE DIR ECTORS SHOULD BE CONCENTRATED ON KANDIVALI UNIT AND NOT ON DAMAN UNI T. THE CIT IN HIS ORDER PASSED U/S 263 HELD THAT THE REMUNERATION PAI D TO THE DIRECTORS SHOULD HAVE BEEN APPORTIONED IN PROPORTIO N TO THE TURNOVER OF THE COMPANY. IN RESPONSE TO A QUERY RAI SED BY THE AO ON 23.09.2013, THE AR OF THE ASSESSEE FILED A REPLY ON 11.10.2013 STATING THAT THE DIRECTORS REMUNERATION SHOULD NOT BE APPOR TIONED IN PROPORTION TO THE TURNOVER OF THE RESPECTIVE UNIT. THE AO WAS NOT CONVINCED WITH THE ABOVE REPLY OF THE ASSESSEE AND HE HELD THAT THERE CAN BE NO JUSTIFICATION FOR PAYING SALARY TO THE EX TENT OF RS. 21,70,500/- TO THE DIRECTORS IN RESPECT OF KANDIVAL I UNIT WHEN THE ITA NO. 7156/MUM/2014 3 CONTRIBUTION OF THIS UNIT TO THE TOTAL TURNOVER IS MINISCULE. THE AO TOOK INTO ACCOUNT THE TURNOVER AND REALLOCATED THE REMUNERATION PAID TO THE DIRECTORS AND MADE A DISALLOWANCE OF RS. 22, 05,842/- U/S 80IB OF THE ACT. 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE F ILED AN APPEAL BEFORE THE LEARNED CIT(A). WE FIND THAT THE LEARNED CIT(A) AGREED WITH THE FINDINGS OF THE AO AND DISMISSED THE APPEA L FILED BY THE ASSESSEE. 5. BEFORE US, THE LEARNED COUNSEL OF THE ASSESSEE F ILES A COPY OF UNIT-WISE BALANCE SHEET AND PROFIT & LOSS ACCOUNT O F RECL FOR THE YEAR ENDED 31.03.2009. HE SUBMITS THAT RECL IS A PU BLIC LIMITED COMPANY LISTED ON BOMBAY STOCK EXCHANGE. ALL THE ST ATUTORY REQUIREMENT FOR MAINTAINING THE ACCOUNTS, OTHER FOR MALITIES FOR SHAREHOLDERS INTEREST, COMPLIANCE UNDER DIFFERENT L AWS ARE BEING HANDLED FROM THE HEAD OFFICE AT KANDIVALI. THE UNIT AT KANDIVALI IS INCLUSIVE OF HEAD OFFICE AND ALL THE ACCOUNTS AND L EGAL COMPLIANCE HAS TO BE MAINTAINED FROM KANDIVALI. THE CORPORATE ADDR ESS IS AT 92-D, GOVERNMENT INDUSTRIAL ESTATE, CHARKOP, KANDIVALI (W ), MUMBAI 400067. THEREFORE, THE LEARNED COUNSEL SUBMITS THAT (I) THE DIRECTORS REMUNERATION IS NOT FOR TWO UNITS INDEPENDENTLY AND (II) DIRECTORS REMUNERATION IS INCLUSIVE OF HEAD OFFICE WORK, LEGA L COMPLIANCE ETC. AS MENTIONED IN THE DIRECTORS REPORT. THEREFORE, THE L EARNED COUNSEL SUBMITS THAT THE DISALLOWANCE OF RS. 22,05,842/- MA DE BY THE AO BE DELETED. 6. PER CONTRA THE LEARNED DR SUPPORTS THE ORDER OF THE LEARNED CIT(A) CONFIRMING THE DISALLOWANCE OF RS. 22,05,842 /- MADE BY THE A.O. ITA NO. 7156/MUM/2014 4 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS HAD ASKED THE ASSESSEE VIDE NOTICE U/S 142(1) DATED 16.06.2011 TO FILE THE MAJOR EXPENSES UNDER VARIOUS HEADS. IN RESPONSE TO IT, THE ASSESSEE HAD FILED IT S REPLY DATED 25.07.2011 ABOUT THE CLAIM U/S 80IB AND ALSO FURNIS HED THE DETAILS OF DIRECTORS REMUNERATION VIDE LETTER DATED 02.11.2011 . HAVING GONE THROUGH THE ORDER OF THE AO AND THE UNIT WISE BALAN CE SHEET AND PROFIT & LOSS ACCOUNT OF THE ASSESSEE FOR THE YEAR ENDED 31.03.2009, WE FIND THAT THE AO HAS NOT FOUND ANY FAULT IN THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE. THE AO HAS ALSO NOT FOU ND ANY FAULT IN THE NATURE OF DUTIES CARRIED OUT BY THE DIRECTORS IN TH E HEAD OFFICE AT KANDIVALI AND THE FACTORY AT DAMAN UNIT. THE AO SHO ULD NOT HAVE REALLOCATED THE REMUNERATION PAID TO THE DIRECTORS IN KANDIVALI UNIT AND DAMAN UNIT WITHOUT FINDING FAULT IN THE BOOKS O F ACCOUNTS AND THE NATURE OF DUTIES CARRIED OUT BY THE DIRECTORS. IN V IEW OF THE ABOVE, THE DISALLOWANCE OF RS. 22,05,842/- MADE BY THE A.O. U/ S 80IB IS DELETED. 8. IN THE RESULT, THE APPEAL FILED THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11/04/2017 SD/- SD/- (SAKTIJIT DEY) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBE R MUMBAI: DATED: 11/04/2017 BISWAJIT, SR. P.S. ITA NO. 7156/MUM/2014 5 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI