DCIT 5(1), MUMBAI V. GREATER PACIFIC CAPITAL INIDA P.LTD, MUMBAI

ITA 7205/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92596 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2010-2011
• Appeal Filed On: 10-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAY KUMAR BORA
• Keywords: Commercial expediency

Judgement Text

G IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ./ I.T.A. NO. 7205 /MUM/2013 ( / ASSESSMENT YEAR 2010-11) DY. COMMISSIONER OF INCOME TAX 5(1), ROOM NO. 568, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. / VS. M/S GREATER PACIFIC CAPITAL INDIA PVT. LTD., B-2, IST FLOOR, AMARCHAND MANSION, MADAME CAMA ROAD, MUMBAI 400 001. ./ PAN : AACCG 7244H ( / APPELLANT ) .. ( / RESPONDENT ) A PPELLANT BY SHRI VIJAY KUMAR BORA - DR R E SPONDENT BY : SHRI NIRAJ SHETH / DATE OF HEARING : 11-05-2015 / DATE OF PRONOUNCEMENT : 29-05-2015 [ !' / O R D E R PER R.C. SHARMA, AM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF LD. CIT(A) -9, MUMBAI DATED 04-10-2013 FOR THE A.Y. 201 0-11 WHEREIN THE FOLLOWING GROUND HAS BEEN TAKEN BY THE REVENUE: WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING THE APPEAL OF THE ASSE SSEE BY DELETING DISALLOWANCE OF DIRECTORS REMUNERATION AMOUNTING T O RS. 87,45,107/- UNDER SECTION 40A(2) OF THE I.T. ACT HOLDING THAT T HE SAME EXCESSIVE. 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESEE IS A COMPANY ENG AGED IN THE BUSINESS OF ITA 7205/M/13 2 PROVIDING INVESTMENT ADVISOR SERVICES AND ACTS AS T ECHNICAL, INDUSTRIAL, ADMINISTRATIVE CONSULTANT, BOTH IN INDIA AND ABROAD . DURING THE COURSE OF SCRUTINY ASSESSMENT, THE A.O. OBSERVED THAT THE ASS ESSEE HAS CLAIMED PAYMENT OF SALARIES AND ALLOWANCES OF RS.7,14,08,48 9/- AS AGAINST RS.3,16,68,750/- IN THE PREVIOUS YEAR. THE AO ASKED THE ASSESSEE TO FURNISH THE BREAK-UP OF SALARY & ALLOWANCES EXPENSES ESPECI ALLY THE REMUNERATIONS PAID TO DIRECTORS. THE ASSESSEE SUBMITTED THAT INCR EASE IS DUE TO APPOINTMENT OF NEW DIRECTOR SHRI AKSHAYA PRASAD WHO WAS PAID TH E SALARY OF RS.2,16,40,120/-. THE SUBMISSION OF THE ASSESSEE WA S NOT ACCEPTED BY THE AO SINCE IN HIS OPINION THE EXPENDITURE INCURRED WA S EXCESSIVE AS THE INCREASE IN REMUNERATION TO THE DIRECTOR WAS NOT ON THE COMMERCIAL EXPEDIENCY. THE AO VIDE OFFICE ORDER SHEET ENTRY AS KED THE ASSESSEE TO JUSTIFY THE DISCREPANCY AND ASKED TO SHOW-CAUSE AS TO WHY T HE SALARY & ALLOWANCES PAID TO DIRECTOR SHRI AKSHAYA PRASAD SHOULD NOT BE RESTRICTED TO EQUIVALENT PAID TO EARLIER DIRECTOR. IT IS OBSERVED BY THE A.O . THAT THERE WAS NO SPECIFIC RESPONSE FROM THE ASSESSEE, THEREFORE, THE A.O. APP LIED THE PROVISIONS OF SECTION 40A(2)(B) AND HELD THAT THE REMUNERATION PA ID TO THE DIRECTOR WAS EXCESSIVE. THE A.O. RESTRICTED THE REMUNERATION PA ID TO SHRI AKSHAYA PRASAD TO THE EXTENT OF PAYMENT MADE TO SHRI SANJAY C. JHA VERI WHO WAS ASSESSEE COMPANYS OTHER DIRECTOR WHO WAS WORKING SINCE LAST YEAR. THEREFORE RS. 87,45,107/- WAS DISALLOWED AND ADDED TO ASESSEES T OTAL INCOME. BY THE IMPUGNED ORDER, THE LD. CIT(A) DELETED THE ADDITION AFTER HAVING FOLLOWING OBSERVATION:- 5.1 I HAVE CAREFULLY AND DISPASSIONATELY CONSIDERE D THE FACTS AND CIRCUMSTANCES OF THE CASE, STATEMENT OF FACTS, RELE VANT ASSESSMENT ORDER, WRITTEN SUBMISSION, RELIED UPON CASE LAWS AN D THE ARGUMENTS MADE BY THE LAR BEFORE THE UNDERSIGNED. THE ONLY DI SPUTE IN THIS CASE IS REGARDING THE REMUNERATION OF THE NEW DIRECTOR W HO WAS APPOINTED DURING THE YEAR UNDER CONSIDERATION. THE A.O IS OF THE VIEW THAT THE SALARY OF THE NEW DIRECTOR SHOULD BE RESTRICTED EQU IVALENT TO THE OLD DIRECTOR, WHEREAS THE CONTENTION OF THE APPELLANT I S THAT THE NEW DIRECTOR HAS BEEN APPOINTED ON HIGHER SALARY BECAUS E OF HIS ACADEMIC AND BUSINESS ACHIEVEMENTS, THEREFORE HIS SALARY IS COMMENSURATE WITH ITA 7205/M/13 3 THE QUALITY EXPERIENCE OF THE NEW DIRECTOR AND AS P ER THE BUSINESS NEEDS OF THE ASSESSEE COMPANY. AFTER CONSIDERING TH E RIVAL SUBMISSION I DO NOT AGREE WITH THE CONTENTION OF THE AO THAT THE SALARY OF THE NEW DIRECTOR SHOULD BE RESTRICTED EQUIVALENT TO THE OLD DIRECTOR. IN THIS REGARD, IT IS A SETTLED PRINCIPLE THAT UNDER THE PR OVISIONS OF 40A (2)(B) THE AO CANNOT RESTRICT THE SALARY OF ANY OF THE DIR ECTOR WITHOUT ASSIGNING CONVINCING REASONS PARTICULARLY WHEN THE APPELLANT IS CLAIMING THAT ENHANCED SALARY OF NEW DIRECTOR OF TH E COMPANY IS ON ACCOUNT OF THE SPECIALIZED ACADEMIC OR BUSINESS ACH IEVEMENTS OF THE SAID PERSON. IN THE INSTANT CASE IT IS AN UNDISPUTE D FACT THAT THE NEW DIRECTOR IS HIGHLY QUALIFIED WHO HAS DONE BA (HONS. ) FROM ST. STEPHEN COLLEGE AND MBA FROM IIM, BANGALORE WHICH ARE UNDOU BTEDLY ONE OF THE LEADING ACADEMIC MANAGEMENT INSTITUTE OF THE COUNTR Y. HE HAS EXTENSIVE EXPERIENCE IN THE CAPACITY OF EX-FOUNDER AND HEAD GOLDMEN SACHS INDIA INFRASTRUCTURE GROUP AND EX-EXECUTIVE D IRECTOR GOLDMEN SACHS INDIA INTERNATIONAL, LONDON FOR SEVERAL YEARS . UNDER THESE CIRCUMSTANCES, I DO NOT FIND ANY MERIT IN THE GENER AL FINDING OF THE A.O THAT THE SALARY OF THE NEW DIRECTOR CANNOT EXCEED T HE SALARY OF THE OLD DIRECTOR. IT IS NOT NECESSARY AT ALL THAT ALL THE D IRECTOR OF A COMPANY SHALL BE PAID EQUAL SALARY. IT IS THE DECISION OF C OMPANY TO FIX THE REMUNERATION OF DIFFERENT DIRECTORS AS PER THEIR CA PABILITIES AND USEFULNESS FOR THE COMPANY. THEREFORE, THE DISALLOW ANCE MADE BY THE AO U/S.40A(2)(B) IN THE INSTANT CASE IS DEVOID OF A NY CONVINCING REASON ACCORDINGLY THE SAME IS DIRECTED TO BE DELETED. AGAINST THE ABOVE ORDER, THE REVENUE IS IN FURTHER APPEAL BEFORE US. 3. WE HAVE CONSIDERED THE RIVAL CONTENTION, ORDERS OF THE AUTHORITIES BELOW AND FOUND THAT THE DISALLOWANCE WAS MADE BY THE A.O . ON THE PLEA THAT THE SALARY PAID TO NEW DIRECTOR SHOULD NOT BE MORE THAN THE OLD DIRECTOR. THEREFORE, THE A.O. INVOKED THE PROVISIONS OF SECTI ON 40A(2)(B) OF THE ACT AND PARTLY DISALLOWED REMUNERATION PAID TO NEW DIRECTOR . THE LD. CIT (A) AFTER CONSIDERING THE ASSSESSEES SUBMISSION, DELETED THE DISALLOWANCE AFTER OBSERVING THAT THE SALARY WAS PAID TO THE NEW DIREC TOR AS PER HIS QUALIFICATION AND EXPERIENCE IN THE FIELD FOR SEVERAL YEARS AND D ID NOT FIND ANY MERIT IN THE FINDING OF THE A.O. THAT SALARY OF THE NEW DIRECTOR CANNOT EXCEED THE SALARY OF THE OLD DIRECTOR. WE FIND THAT THE COMPANY HAS FIXE D THE REMUNERATION OF THE NEW DIRECTOR AS PER THEIR CAPABILITIES AND USEFULNE SS FOR THE COMPANY. THE DETAILED FINDING RECORDED BY THE LD. CIT(A) HAS NOT BEEN CONTROVERTED BY THE LD. D.R. BY BRINGING ANY POSITIVE MATERIAL ON RECOR D, ACCORDINGLY WE DO NOT ITA 7205/M/13 4 FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A) DELETING PART OF THE REMUNERATION PAID TO THE NEW DIRECTOR. 4. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH MAY, 2015. !' # $% &! ' 29-05-2015 ( ) SD/- SD/- (SANJAY GARG) (R.C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER $ 5 MUMBAI ; &! DATED 29-05-2015 .6../ RK , SR. PS ! '#$% &%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. 7 () / THE CIT(A) 9,, MUMBAI 4. 7 / CIT --5 MUMBAI 5. :;( 66<= , <= , $ 5 / DR, ITAT, MUMBAI G BENCH 6. (?@ A / GUARD FILE. ' / BY ORDER, : 6 //TRUE COPY// (/') * ( DY./ASSTT. REGISTRAR) , $ 5 / ITAT, MUMBAI