ORANGE ASSOCIATES PVT. LTD. (Formerly One Source Education Pvt. Ltd.), NEW DELHI V. DCIT, CIRCLE- 19(1), NEW DELHI

ITA 7507/DEL/2017

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 7548 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 8 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2013-2014
• Appeal Filed On: 14-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: AGAINST DATED PASSED
• Keywords: Principle of natural justice; Commercial expediency; Rule 8D
• Section: 143(3); 14A

Judgement Text

1 ITA NO. 7507/DEL/2017 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: E NEW DELHI BEFORE MS SUCHITRA KAMBLE, JUDICIAL ME MBER AND SH. PRASHANT MAHARISHI, ACCOUN TANT MEMBER I.T.A. NO. 7507/DEL/20 17 (A.Y 2013-14) (THROUGH VIDEO CON FERENCING) ORANGE ASSOCIATES PVT. LTD. (FORMERLY ONE SOURCE EDUCATION PVT. LTD.) 9, DARYAGANJ, NEAR TELEPHONE EXCHANGE , NEW DELHI AAACS21177K (APPELLANT) VS DCIT CIRCLE-19(1) C. R. BUILDING NEW DELHI (RESPONDENT) ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER DATED 12/10/2017 PASSED BY CIT(A)-7, DELHI FOR ASSESSMENT YEAR 2013 -14. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- 1. THAT THE AUTHORITIES BELOW ERRED BOTH IN LAW AND ON THE FACTS IN INVOKING THE PROVISIONS OF SEC 40A(2)(B) IGNORING THE FACTS ON RECORD AND REJECTING THE EXPLANATIONS OF THE ASSESSEE IN THE S UMMARY MANNER. THUS THE ADDITION OF RS. 16,20,000/- AS CONFIRMED BY THE CIT APPEALS IS LIABLE TO BE DELETED. 2. THAT THE AUTHORITIES BELOW ERRED BOTH IN LAW AN D ON THE FACTS IN THE ESTIMATIONS OF EXCESSIVE SALARY PAID TO THE DIRECTORS @ I.E. % I.E. RS. APPELLANT BY SH. TANPREET KOHLI, CA RESPONDENT BY SH. GAURAV PUNDIR, SR. DR DATE OF HEARING 27.07.2021 DATE OF PRONOUNCEMENT 26.08.2021 2 ITA NO. 7507/DEL/2017 16,20,000.00 OUT OF GROSS SALARY PAID OF RS. 1,08,0 0,000.00 TO THE DIRECTORS IS EXCESSIVE, WRONG, BASELESS AND IS BASED ON SURMI SES & CONJECTURE. THUS THE DISALLOWANCE OF RS. 16,20,0000.00 IS LIABLE TO BE DELETED. 3. THAT THE ORDERS OF THE AUTHORITIES BELOW ARE BA D IN LAW AND ON THE FACTS OF THE CASE. 4. THAT THE ORDERS PASSED ARE ERRONEOUS, ILLEGAL AN D AGAINST THE PRINCIPLES OF NATURAL JUSTICE AND EQUITY AS WELL AS THE WELL SETTLED LAWS. 3. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PUBLICATION OF EDUCATION BOOK. THE ASSESSEE COMPANY E-FILED ITS R ETURN OF INCOME ON 30/09/2014 FOR AY 2013-14 DECLARING IN INCOME OF RS . 6,50,12,700/-. ORDER U/S 143(3) WAS PASSED ON 8/3/2016 THEREBY ASSESSING AN INCOME AT RS. 7,14,31,990/- AFTER MAKING DISALLOWANCE OF RS. 54 L AC U/S 40A (2)(B) OF THE ACT, DISALLOWANCE OF RS. 46,887/- U/S 14A READ WITH RULE 8D OF THE INCOME TAX RULES AND ADDITION OF RS.9,72,406/- U/S 2(24) (X) R EAD WITH SECTION 36 (1)(VA) OF THE ACT FOR DELAYED DEPOSIT OF PAYMENT OF EMPLOYEES CONTRIBUTION TOWARDS ESI/PF. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, TH E ASSESSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 5. AS REGARDS TO GROUND NO. 1 RELATING TO DISALLOWA NCE RS. 54 LAC U/S 40A (2)(B) OF THE ACT, THE LD. AR SUBMITTED THAT THE AS SESSING OFFICER HAS IGNORED THE FACTS ON RECORD AND SIMPLY REJECTED THE EXPLANA TIONS OF THE ASSESSEE IN THE SUMMARY MANNER, WITHOUT LOOKING INTO THE ACTUAL ASP ECT THAT THE DIRECTORS WERE PAID SALARY FOR SIMILAR WORK, HAVING SIMILAR Q UALIFICATION AND EXPERIENCE IN THE EARLIER YEAR AND SUBSEQUENT YEARS AS WELL. IN FACT, IN A.YS. 2012-13 AND 2014-15, THE SAME WAS RESTRICTED TO 15% BUT IN THE PRESENT ASSESSMENT YEAR THE CIT(A) TOTALLY IGNORED THE PRINCIPLE OF CONSIST ENCY AND HAS NOT GIVEN ANY COGENT REASON FOR MAKING THE SAID DISALLOWANCE. BES IDES THIS, THE CIT(A) HAS NOT GIVEN ANY REASONS AS TO HOW THE DISALLOWANCE HA S BEEN ESTIMATED BY THE 3 ITA NO. 7507/DEL/2017 ASSESSING OFFICER. THUS, THE LD. AR SUBMITTED THAT THE ADDITION SHOULD HAVE BEEN DELETED. THE LD. AR SUBMITTED THAT THE ESTIMA TION OF EXCESSIVE SALARY PAID TO THE DIRECTORS AT 15% OUT OF GROSS SALARY PA ID OF RS.1,08,000,00/- TO THE DIRECTOR BY THE ASSESSING OFFICER AND CIT(A) IS WRO NG, BASELESS AND IS BASED ON SURMISES AND CONJECTURES. 6. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AND THE ORDER OF T HE CIT(A). 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E MATERIAL AVAILABLE ON RECORD. THE ASSESSEE COMPANY HAS PAID THE DIRECTOR S REMUNERATION DURING THE PREVIOUS YEAR AS WELL AS THE SUBSEQUENT YEARS, THE ASSESSING OFFICER HAS OBSERVED THAT THEY ARE THE MANAGERS TO DIRECTORS AN D CONTROL THE COMPANY. THE ASSESSING OFFICER HAS NOT DISPUTED THAT THE BOA RD MEETING HAS APPROVED THE INCREASE OF REMUNERATION PAYABLE TO THE DIRECTO RS IN ACCORDANCE WITH THE PROVISIONS OF THE COMPANIES ACT, 1956 DURING THE PR EVIOUS YEAR 2011-12 & 2012-13. WHEN A COMPANY PAYS HIGHER SALARY TO THE DIRECTORS OF THE MANAGERS OR OTHER OFFICERS OR EMPLOYEES IT IS FOR T HE COMMERCIAL EXPEDIENCY OF INTERNAL AFFAIRS OF THE COMPANY, IT IS NOT FOR T HE REVENUE AUTHORITIES TO DECIDE THAT PARTICULAR SALARY SHOULD NOT HAVE BEEN PAID TO THE DIRECTORS. IT IS THE BUSINESS DECISION AND, THEREFORE, THE DISALLOWA NCE U/S 40A(2)(D) IS WRONGLY INVOKED BY THE ASSESSING OFFICER AND WRONGLY CONFI RMED BY THE CIT(A) AND DISALLOWING ON ESTIMATED BASIS TO 15%. THUS, THE C IT(A) WAS NOT RIGHT IN CONFIRMING THE DISALLOWANCE. HENCE, THE APPEAL OF T HE ASSESSEE IS ALLOWED. 8. IN RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 26TH DAY OF AUGUST, 2021. SD/- SD/- (PRASHANT MAHARISHI) (SUCH ITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 26/08/2021 R. NAHEED * COPY FORWARDED TO: 4 ITA NO. 7507/DEL/2017 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI