ACIT, Ludhiana V. M/s Abhishek Industries Limited, Ludhiana

ITA 756/CHANDI/2014

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1630 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-10-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 14-10-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 27-08-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Keywords: Maximum Marginal Rate; Fair market value; Revenue expenditure; Capital expenditure
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO.651/CHD/2014 (ASSESSMENT YEAR : 2007-08) M/S TRIDENT LIMITED(FORMERLY VS. THE ADDL.C.I.T., ABHISHEK INDUSTRIES LTD.), E-212, RANGE-I, KITCHLU NAGAR, LUDHIANA. LUDHIANA. PAN: AABCA4139J AND ITA NO.756/CHD/2014 (ASSESSMENT YEAR : 2007-08) THE A.C.I.T., VS. ABHISHEK INDUSTRIES LIMITED, RANGE-I, E-212, KITCHLU NAGAR, LUDHIANA. LUDHIANA. PAN: AABCA4139J (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ASHWANI KUMAR DEPARTMENT BY : SHRI S.K. MITTAL, DR DATE OF HEARING : 14.10.2015 DATE OF PRONOUNCEMENT : 27.10.2015 O R D E R PER RANO JAIN, A.M . : BOTH THE CROSS APPEALS ARE DIRECTED AGAINST THE ORD ER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-II, LU DHIANA DATED 9.6.2014 FOR ASSESSMENT YEAR 2007-08. 2 ITA NO.651/CHD/2014 : 2. THE GROUND NO.1 RAISED BY THE ASSESSEE RELATES TO THE DISALLOWANCE OF RS.5 LACS OUT OF TOTAL DISALLO WANCE OF RS.46,91,849/- MADE BY THE ASSESSING OFFICER BY RES ORT TO PROVISIONS OF SECTION 14A OF THE ACT. 3. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAD INVESTED AN AMOUNT OF RS.5038.88 LACS ON 31.3.2006 AND RS.4575.77 LACS AS ON 31.3.2007 IN VA RIOUS EQUITY FUNDS HAVING TAX FREE INCOME. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTIC ED THAT THE ASSESSEE HAD INCURRED INTEREST EXPENDITURE . ACCORDINGLY, HE HELD THAT THE PROVISIONS OF SECTION 14A OF THE INCOME TAX ACT WERE APPLICABLE IN ASSESSEES CA SE. IT WAS OBSERVED THAT THE ASSESSEE HAD EARNED DIVIDE ND INCOME OF RS.46,91,849/- DURING THE YEAR. THE ASS ESSING OFFICER COMPUTED DISALLOWANCE UNDER RULE 8D OF THE INCOME TAX RULES AT RS.65,30,803/-. 4. BEFORE THE LEARNED CIT (APPEALS), IT WAS ARGUED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE ASSES SMENT ORDER IN QUESTION BEING FOR ASSESSMENT YEAR 2007-08 , THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULES ARE N OT APPLICABLE IN VIEW OF THE RATIO OF HON'BLE MUMBAI H IGH COURT IN THE CASE OF GODREJ & BOYCEE LTD. VS. DCIT, 328 ITR 81. THE LEARNED CIT (APPEALS) NOTED THAT SIMILAR DISALL OWANCE WAS MADE AMOUNTING TO RS.2,37,67,894/- IN ASSESSMENT YE AR 2008-09, WHICH WAS DELETED BY THE LEARNED CIT (APPE ALS). IT 3 WAS NOTED BY THE LEARNED CIT (APPEALS) THAT DURING THE ASSESSMENT YEAR 2005-06, THE ASSESSEE HAD RECEIVED DIVIDEND INCOME OF RS.25,75,000/- AND A DISALLOWANCE OF RS.2 ,50,000/- WAS MADE BY THE ASSESSING OFFICER. THIS DISALLOWAN CE WAS CONFIRMED BY THE LEARNED CIT (APPEALS). ON AN APP EAL FILED BY THE ASSESSEE, THE HON'BLE I.T.A.T. REDUCED THE D ISALLOWANCE TO RS.1,25,000/-. KEEPING IN VIEW THE TOTALITY OF THE FACTS AND CIRCUMSTANCES, THE LEARNED CIT (APPEALS) FOUND IT FAIR AND REASONABLE TO RESTRICT THE DISALLOWANCE TO RS.5 LAC S. 5. THE LEARNED COUNSEL FOR THE ASSESSEE RELIED UPO N THE ORDER OF THE I.T.A.T. FOR ASSESSMENT YEAR 2005-06 AND PRAYED THAT A REASONABLE RELIEF MAY BE GIVEN TO IT. 6. ON PERUSAL OF THE ORDER OF HON'BLE I.T.A.T. FOR ASSESSMENT YEAR 2005-06 RESTRICTING THE DISALLOWANC E TO RS.1,25,000/-ON A DIVIDEND INCOME OF RS.25,75,000/- , WE CONSIDER IT FAIR AND REASONABLE TO RESTRICT THE DIS ALLOWANCE TO RS.2.5 LACS ON A DIVIDEND OF RS.46,91,849/- RECEIVE D BY THE ASSESSEE THIS YEAR. THIS IS IN CONSONANCE WITH TH E FACT THAT THE COMPUTATION AS PER RULE 8D OF THE INCOME TAX |R ULES IS NOT APPLICABLE IN THE ASSESSMENT YEAR 2007-08 IN VI EW OF THE MANDATE GIVEN BY THE MUMBAI HIGH COURT IN THE CASE OF GODREJ & BOYCEE LTD. (SUPRA). 7. THE GROUND NO.2 RAISED BY THE ASSESSEE RELATES TO THE DISALLOWANCE OF RS.22,49,634/- OUT OF EXPENSES RELATING TO THE PAYMENT MADE TO PSEB FOR LAYING HIGH POWER E LECTRIC LINES. 4 8. THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAD PAID RS.22,49,634/- TO PSEB FOR ELECTRIC FEEDER LINE AND CLAIMED THE SAME AS REVENUE EXPENDITURE. THE ASSESSING OF FICER HOLDING THE SAID EXPENSES TO BE CAPITAL IN NATURE D ISALLOWED THE SAME. THE LEARNED CIT (APPEALS) FOLLOWING THE DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF SRIYANSH INDUSTRIES LTD., REPORTED IN ITA NO.277 OF 2004, DATED 15.11.2013 DISMISSED THE APPEAL OF THE ASSESS EE ON THIS GROUND. 9. BEFORE US, IT WAS BROUGHT TO OUR NOTICE THAT SI MILAR ISSUE WAS RAISED IN ASSESSEES OWN CASE FOR ASSESSM ENT YEAR 2005-06, WHEREBY WHILE ADJUDICATING THE SAME THE CH ANDIGARH BENCH OF THE TRIBUNAL IN ITA NO.859/CHD/2012 DATED 20.3.2014 SET ASIDE THE MATTER TO THE FILE OF THE A SSESSING OFFICER TO APPLY THE RATIO LAID DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF SRIYANSH INDUSTRI ES LTD. (SUPRA). THE FINDINGS OF THE I.T.A.T., CHANDIGARH ARE AT PAGE 8 IN PARAS 16 TO 18, WHICH READ AS UNDER : 16. THE ISSUE OF ALLOWABILITY OF THE CLAIM OF THE ASSESSEE WAS SET ASIDE TO THE FILE OF THE ASSESSING OFFICER TO ESTABLISH WHETHER THE AMOUNT HAD ACTUALL Y BEEN SPENT FOR BRINGING THE SAID ASSET INTO EXISTEN CE OR IT IS MERE WORK-IN-PROGRESS. WE FIND THAT THE I SSUE RAISED IN THE PRESENT APPEAL IS IDENTICAL TO THE IS SUE BEFORE THE TRIBUNAL IN ASSESSMENT YEAR 2006-07 (SUPRA) AND THE SAME IS SET ASIDE TO THE FILE OF TH E ASSESSING OFFICER WITH SIMILAR DIRECTIONS. 17. WE FURTHER FIND THAT THE HON'BLE PUNJAB & HARYANA HIGH COURT IN CIT-I, LUDHIANA VS. SHREYANS 5 INDUSTRIES LTD. REPORTED IN ITA NO.277 OF 2004 (SUPRA) VIDE JUDGMENT DATED 15.11.2013 HAD HELD AS UNDER: ANY EXPENDITURE INCURRED IN COMPLYING WITH STATUTORY REQUIREMENTS PARTICULARLY WHERE THE ASSET CONCERNED WOULD ENURE TO THE BENEFIT OF THE ASSESSEE FROM YEAR TO YEAR, WOULD NECESSARILY BE AN ASSET OF ENDURING NATURE AND, THEREFORE, CATEGORISED AS CAPITAL EXPENDITURE. THE MERE FACT THAT THE LAND IS NOT OWNED BY THE ASSESSEE, IS IRRELEVANT AS BY EXCAVATING THE DRAIN THROUGH FOREST LAND ON THE BASIS OF APPROVAL GRANTED BY THE FOREST DEPARTMENT, THE ASSESSEE HAS BEEN ABLE TO OVERCOME STATUTORY REQUIREMENTS FOR RELEASE OF EFFLUENTS AS PRESCRIBED UNDER THE POLLUTION CONTROL ACT, THE RULES AND NOTIFICATIONS ETC. ISSUED THEREUNDER, THEREBY CONFERRING BENEFIT OF AN ENDURING NATURE THAT WOULD BE AVAILABLE TO THE ASSESSEE FROM YEAR TO YEAR. THE FACT THAT THE ASSESSEE HAS TRANSFERRED LAND TO THE FOREST DEPARTMENT OR HAS PAID MONEY FOR COMPENSATORY FORESTRY DOES NOT DENUDE THE ASSESSEE'S RIGHTS VIS-A-VIS THE ASSET CREATED. A PERUSAL OF THE APPROVAL GRANTED TO THE ASSESSEE, CONSIDERATION OF THE NATURE OF THE EXPENSE INCURRED AND THE STATUTORY OBLIGATIONS FOR DISCHARGE OF EFFLUENTS, IN OR CONSIDERED OPINION, LEAVE NO AMBIGUITY THAT EXPENSE INCURRED UPON CONSTRUCTION OF THE DRAIN FOR RELEASE OF EFFLUENTS HAVE CONFERRED BENEFIT OF AN ENDURING NATURE UPON THE ASSESSEE. WE, THEREFORE, ANSWER THIS QUESTION IN FAVOUR OF THE REVENUE AND AGAINST THE APPELLANT. 18. THE ASSESSING OFFICER IS DIRECTED TO APPLY THE RATIO LAID DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN SHREYANS INDUSTRIES LTD. VS. CIT (SUPRA) WHILE ADJUDICATING THE ISSUE IN THE PRESENT CASE AFTER ESTABLISHING THE FACT SITUATION OF THE I SSUE RAISED. THE GROUND OF APPEAL NO.1 RAISED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 9. ON PERUSAL OF THE ORDERS OF THE LOWER AUTHORITI ES, WE SEE THAT AT THE TIME OF FINALIZATION OF THE ASSESSM ENT, THE ORDER OF THE I.T.A.T., AS STATED HEREINABOVE, WAS N OT AVAILABLE 6 TO THE ASSESSING OFFICER. THEREFORE, HE DID NOT H AVE ANY OCCASION TO CONSIDER THE PROPOSITION LAID DOWN BY T HE PUNJAB & HARYANA HIGH COURT IN THE CASE OF SRIYANSH INDUS TRIES LTD. (SUPRA), AS DIRECTED BY THE I.T.A.T. THE LEARNED CIT (APPEALS) HAD THE BENEFIT OF THE DIRECTIONS OF THE I.T.A.T., AS DURING THE APPELLATE PROCEEDINGS, THE ORDER WAS AVAILABLE TO H IM. HOWEVER, ON PERUSAL OF THE ORDER OF THE LEARNED CIT (APPEALS), WE SEE THAT AFTER QUOTING THE FINDINGS OF THE HON'B LE PUNJAB & HARYANA HIGH COURT IN THE CASE OF SRIYANSH INDUSTR IES LTD. (SUPRA), HE COMMENTS AS UNDER : THE ISSUE IS SQUARELY COVERED BY THE AFORESAID DECI SION OF THE HON'BLE P&H HIGH COURT. THE AO WAS THEREFORE FULLY J USTIFIED IN TREATING THE EXPENDITURE AS CAPITAL EXPENDITURE. THE DISALLOWANCE MADE BY THE AO IS CONFIRMED. THIS GROUND OF APPEAL I S ACCORDINGLY DISMISSED. 10. WE DO NOT APPRECIATE THE WAY LEARNED CIT (APPE ALS) HAS ADJUDICATED THE ISSUE, DESPITE THE DIRECTIONS O F THE I.T.A.T. (ALTHOUGH IN A DIFFERENT ASSESSMENT YEAR). IT IS INCUMBENT UPON THE AUTHORITIES BELOW TO BRING OUT T HE FACTS OF THE ASSESSEE, BEFORE RELYING ON ANY OF THE JUDGMENT S. WE, THEREFORE, RESTORE THE ISSUE TO THE FILE OF THE LEA RNED CIT (APPEALS), TO DECIDE THE ISSUE AS PER THE DIRECTION S GIVEN BY THE I.T.A.T. HE SHOULD BRING ALL THE FACTS ON REC ORD WHILE APPLYING THE JUDGMENT, BEFORE REACHING TO ANY CONCL USION. 11. THE GROUND NO.3 RAISED BY THE ASSESSEE RELATE S TO DISALLOWANCE OF RS.2,09,58,801/- OUT OF FINANCIAL E XPENSES RELATING TO THE EXEMPT UNIT UNDER SECTION 80IA OF T HE ACT. 7 12. THE FACTS OF THE CASE ARE THAT THE ASSESSEE HA D CLAIMED FINANCIAL EXPENSES OF RS.38,07,84,433/-. TH E ASSESSING OFFICER NOTED THAT NO EXPENDITURE OUT OF THESE FINANCIAL EXPENSES HAD BEEN ALLOCATED TO THE UNITS CLAIMING DEDUCTION UNDER SECTION 80IA OF THE ACT. THE ASSES SING OFFICER WAS OF THE VIEW THAT THE PROVISIONS OF SECT ION 14A OF THE ACT WERE APPLICABLE TO THE INCOME ON WHICH DEDU CTION UNDER SECTION 80IA OF THE ACT WAS ALLOWABLE. THER EFORE, THE ALLOCATED FINANCIAL EXPENSES OF RS.2,09,58,801/- TO THE UNIT CLAIMING DEDUCTION UNDER SECTION 80IA OF THE ACT. THE ASSESSEE MADE SUBMISSIONS CHALLENGING THE SAID ACTI ON OF THE ASSESSING OFFICER BEFORE THE LEARNED CIT (APPEALS). THE LEARNED CIT (APPEALS) HELD THAT THE ASSESSEE HAD NO T RAISED ANY OBJECTION ON THIS ISSUE IN HIS WRITTEN SUBMISSI ONS OR IN HIS GROUNDS OF APPEAL. RELYING ON A NUMBER OF JUD GMENTS HE HELD THAT THE ASSESSEE IS NOT ENTITLED TO DEDUCTION UNDER SECTION 80P(2)(D) OF THE ACT AFTER DEDUCTING THE EX PENDITURE ATTRIBUTABLE TO THE EARNING OF SUCH INCOME. IN THI S VIEW, HE DISMISSED THE GROUND RAISED BY THE ASSESSEE. 13. BEFORE US, IT WAS SUBMITTED THAT THE GROUND SPECIFICALLY RAISED BEFORE THE LEARNED CIT (APPEALS ) WAS ALSO AGITATED BUT IS NOT BEING ADJUDICATED BY THE LEARNE D CIT (APPEALS) IN RIGHT PERSPECTIVE. IT WAS ARGUED THAT NO FINANCIAL EXPENSES CAN BE ATTRIBUTED TO UNIT CLAIMING DEDUCTI ON UNDER SECTION 80IA OF THE ACT IN VIEW OF THE FACT THAT TH E SEPARATE BOOKS OF ACCOUNT FOR BOTH THE UNITS ARE MAINTAINED BY THE ASSESSEE AND BOOKS OF ACCOUNT HAVE NOT BEEN REJECTE D BY THE 8 ASSESSING OFFICER. IN THIS VIEW, IT WAS PRAYED TO SENT BACK THIS ISSUE TO THE FILED OF THE LEARNED CIT (APPEALS ) TO GIVE A PROPER FINDING. 14. THE LEARNED D.R. RELIED UPON THE ORDER OF THE LEARNED CIT (APPEALS). 15. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF B OTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIE S BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECORD. FROM THE PERUSAL OF THE ORDER OF THE LEARNED CIT (APPEALS) I N THIS REGARD AND SUBMISSIONS MADE BY THE LEARNED COUNSEL FOR THE ASSESSEE, WE FIND THAT THE ISSUE OF APPLICABILITY O F SECTION 14A OF THE ACT ON THE INCOME OF THE UNIT CLAIMING EXEMP TION UNDER SECTION 80IA OF THE ACT WAS CONFUSED BY THE DISALLO WANCE MADE BY THE ASSESSING OFFICER OTHERWISE UNDER SECTI ON 14A OF THE ACT BY THE LEARNED CIT (APPEALS) WHILE ADJUDICA TING THIS ISSUE. 16. IN THIS VIEW, WE FIND IT APPROPRIATE TO SEND T HIS GROUND BACK TO THE FILE OF THE LEARNED CIT (APPEALS ) TO ADJUDICATE THE SAME IN PROPER PERSPECTIVE. NEEDLE SS TO SAY, THE ASSESSEE BE GIVEN PROPER OPPORTUNITY OF BEING H EARD AND FILED RELEVANT EVIDENCE. 17. THE LEARNED COUNSEL FOR THE ASSESSEE PREFERRED NOT TO PRESS GROUND NO.4 OF THE APPEAL. THE SAME IS DI SMISSED AS NOT PRESSED. 18. THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 9 ITA NO.756/CHD/2014 : 19. THE GROUND NO.1 RAISED BY THE DEPARTMENT IS WI TH REGARD TO DISALLOWANCE MADE UNDER SECTION 14A OF TH E ACT. 20. SINCE THE ISSUE HAS BEEN DISCUSSED UNDER GROUN D NO.1 IN ITA NO.651/CHD/2014, AND THE FINDINGS GIVEN IN ITA NO.651/CHD/2014 SHALL APPLY TO THIS CASE ALSO WITH EQUAL FORCE. 21. THE GROUND NO.2 RAISED BY THE DEPARTMENT READS AS UNDER : 2. THAT THE LD. C1T(A) HAS ERRED IN LAW AND ON FAC TS IN DELETING THE ADDITION OF RS. 60,00,000/-, MADE U/S 40A(2)(A) R.W.S. 37 OF THE L.T. ACT, 1961 BY TH E A.O. OUT OF SALARY PAID TO MANAGING DIRECTOR, RELYING UPON THE CASE OF C1T VS. SIYARAM GARG HUF(2011) 49 DTR 126 WHICH IS DIFFERENT FROM THE FACTS OF THE CASE. THE A.O. HAD RIGHTLY MADE THE ADDITION AS PER LAW AND FACTS OF THE CASE. 22. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE A SSESSEE HAD PAID AN AMOUNT OF RS.2.40 CRORES AS SALARY TO T HE MANAGING DIRECTOR IN ADDITION TO COMMISSION AMOUNTI NG TO RS.63,36,283/- AND A SITTING FEE OF RS.8,20,000/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE REMUNERATION PAID TO MANAGING DIRECT OR IN THE YEAR 2006-07 WAS ONLY RS.1.20 CRORES. HE OBSERVED THAT THE TURNOVER OF THE COMPANY HAD INCREASED ONLY BY 9.8% WHILE THE SALARY HAD BEEN INCREASED BY 100%. HE ALSO NOTED THAT ASSESSEE COMPANY HAD NOT DECLARED THE DIVIDEND TO T HE SHARE 10 HOLDERS OR INCREASED THE SALARY OF OTHER EMPLOYEES IN THE TOP MANAGEMENT BY THE SAME AMOUNT. HE POINTED OUT THA T THE MANAGING DIRECTOR AND HIS FAMILY MEMBERS WHO ARE SP ECIFIED PERSONS UNDER SECTION 40A(2)(B) OF THE ACT WERE HOL DING SUBSTANTIAL INTEREST IN THE COMPANY AND, THEREFORE INCREASE IN THE SALARY WAS APPROVED BY PRACTICALLY FAMILY MEMBE RS ONLY. KEEPING IN VIEW THE AFORESAID FACTS, THE ASSESSING OFFICER HELD THAT THE INCREASE IN SALARY BY 100% WAS UNREASONABL E. ACCORDINGLY, HE HELD THAT THE INCREASE OF 50% IN TH E SALARY WAS CONSIDERED AS REASONABLE AND DISALLOWED THE BAL ANCE AMOUNT OF RS.60 LACS UNDER SECTION 40A(2)(B) OF THE ACT. 23. BEFORE THE LEARNED CIT (APPEALS), THE ASSESSEE SUBMITTED AN ANALYSIS OF TURN OVER, EXPORTS AND RET URN OF NET WORTH AS PERCENTAGE INCREASE FOR THE YEAR ENDING DE CEMBER, 2002 TO MARCH, 2005. THE DETAILS OF EMPLOYEES, WH OSE SALARY HAD INCREASED MORE THAN 70% WAS ALSO GIVEN TO THE L EARNED CIT (APPEALS). IT WAS SUBMITTED THAT THE REMUNERA TION PAID TO THE MANAGING DIRECTOR IS DULY COVERED BY THE PRO VISIONS OF SECTIONS 198 AND 309 OF THE COMPANIES ACT. 24. AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE, THE LEARNED CIT (APPEALS) ALLOWED THE GRO UND OF APPEAL OF ASSESSEE STATING AS FOLLOWS : 7.5 IN THIS REGARD, THE FOLLOWING FACTS NEED CONSIDERA TION:- (A) THE PERSON TO WHOM SALARY UNDER REFERENCE HAS B EEN PAID IS MANAGING DIRECTOR OF THE COMPANY AND IS THE MAIN PE RSON MANAGING ALL THE BUSINESS AFFAIRS OF THE COMPANY. 11 (B) AS MENTIONED IN THE ASSESSMENT ORDER ON PAGE 27, PERFORMANCE OF THE COMPANY IN VARIOUS AREAS OF PERF ORMANCE INDICATORS HAS INCREASED IN RANGE OF 34% TO 123% BE TWEEN THE PERIOD DECEMBER, 2002 TO MARCH 2005. (C) THE COMPANY IS A PUBLIC LIMITED COMPANY I.E COMPANY IN WHICH PUBLIC IS SUBSTANTIALLY INTERESTED AND ITS SHARE S ARE LISTED ON STOCK EXCHANGE. (D) REMUNERATION PAID TO THE MANAGING DIRECTOR WAS DULY APPROVED BY THE BOARD OF THE DIRECTORS AND SHARE HO LDERS OF THE COMPANY. (E) AS PER THE DETAILS FILED BY THE APPELLANT (ANNEXURE - 1 TO THIS ORDER) THERE ARE LARGE NUMBERS OF EMPLOYEES WHOSE REMUNERATION HAS INCREASED BY 100% OR MORE DURING T HE PERIOD 2002-05. 7.6 KEEPING IN VIEW THE AFORESAID FACTS, IT CANNOT BE SAID THAT THE REMUNERATION PAID TO MANAGING DIRECTOR DURING T HE YEAR WAS EXCESSIVE. EVEN OTHERWISE, AS REFERRED TO IN PARA 7. 3 ABOVE, FOR THE PURPOSE OF SECTION 40A(2)(A), WHETHER THE EXPEN DITURE IS EXCESSIVE OR REASONABLE HAS- TO BE SEEN WITH RESPEC T TO THE FAIR MARKET VALUE OF THE FACILITIES. IN THE INSTANT CASE, T HE AO HAS NOT BROUGHT OUT ANY MATERIAL TO SHOW THAT THE REMUNERAT ION PAID TO THE MANAGING DIRECTOR WAS EXCESSIVE HAVING REGARD T O THE FAIR MARKET VALUE OF THESE FACILITIES. NO COMPARATIVE CASE HAS BEEN REFERRED TO BY THE AO WHERE THE REMUNERATION PAID TO THE MANAGING DIRECTOR WAS SHOWN TO BE LESS THAN THE MANA GING DIRECTOR OF THE APPELLANT'S COMPANY. MERELY BECAUSE THE SALARY OF THE MANAGING DIRECTOR HAS BEEN INCREASED BY 100% AFT ER A PERIOD OF 3 YEARS DOES NOT BY ITSELF SHOW THAT SALARY IS EXCESSIV E. 7.7 THERE IS ANOTHER ASPECT TO THIS ISSUE. DURING T HE APPELLATE PROCEEDINGS THE APPELLANT WAS ASKED TO FURNISH THE D ETAILS OF TAX PAID BY THE MANAGING DIRECTOR. AS PER THE DETAILS FIL ED BY THE APPELLANT, THE MANAGING DIRECTOR HAD RETURNED AN IN COME OF RS 21745128/- AND HAD PAID TAX ON THE RETURNED INCOME A T THE MAXIMUM MARGINAL RATE. THAT BEING SO, IT IS EVIDENT THAT BOTH, THE APPELLANT AND ITS MANAGING DIRECTOR WERE BEING TAXED AT THE SAME RATE PROVING THAT THERE WAS NO REASON FOR THE APPEL LANT TO SHOW HIGHER SALARY PAYMENT BEING PAID TO THE MANAGING DI RECTOR. 12 REFERENCE IN THIS REGARD MAY BE MADE TO THE DECISIO N OF THE HON'BLE P &H HIGH COURT IN THE CASE OF CIT VS. SIYARAM GARG HUF (2011) 49 DTR 126. IN THIS CASE THE AO HAD MADE AN ADDITION U/S 40A (2) OF THE I.T. ACT ON THE GROUND THAT THE APPE LLANT HAD PAID HIGHER RATE TO ITS SISTER CONCERN WHILE PURCHASING THE COTTON AND WASTE. THE CIT(A) ALLOWED THE APPEAL OF THE APPELLA NT. ON FURTHER APPEAL, THE HON'BLE IT AT HELD AS UNDER: ON THIS ISSUE, -WE FIND THAT INDEED, THE DETAILS FILED BY THE ASSESSEE SHOWED THAT ITS SISTER CONCERNS WERE BEING TAXED AT THE SAME RATE AT WHICH THE ASSESSEE WAS BEING TAXED, PR OVING THAT THERE WAS NO REASON FOR THE ASSESSEE TO SHOW HIGHER RATE PURCHASES MADE BY THE ASSESSEE FROM ITS SISTER CONC ERNS. THE ASSESSEE'S SISTER CONCERN HAD OFFERED THEIR INCOME FROM SUCH SALES, WHICH FACT HAS NOT BEEN DISPUTED. THEREFORE, THE AO ERRED IN INVOKING THE PROVISIONS OF S. 40A(2) OF TH E ACT AND THE LEARNED CIT (A) HAS CORRECTLY DELETED THE DISALLOWA NCE. ' THE HON'BLE P&H HIGH COURT UPHELD THE ORDER OF THE HON'BLE TRIBUNAL AND DISMISSED THE APPEAL OF THE DEPARTMENT. 25. BEFORE US, THE LEARNED D.R. RELIED UPON THE OR DER OF THE ASSESSING OFFICER AND FURTHER SUBMITTED THAT TH E MANAGING DIRECTOR IS BEING PAID COMMISSION AS WELL AS SITTIN G FEE. THE REMUNERATION WAS INCREASED BY 100% FROM THE YEAR 20 06-07. THERE IS NO INCREASE IN THE SALARY OF OTHER EMPLOYE ES. THEREFORE, THE DISALLOWANCE MADE BY THE ASSESSING O FFICER BE CONFIRMED. 26. THE LEARNED COUNSEL FOR THE ASSESSEE WHILE ARG UING BEFORE US REITERATED THE SUBMISSIONS MADE BEFORE TH E LEARNED CIT (APPEALS) AND SUBMITTED THAT THE ASSESSING OFFI CER HAS MADE DISALLOWANCE UNDER SECTION 40A(2)(A) OF THE AC T WITHOUT BRINGING ON RECORD ANY COMPARABLE INSTANCE AND ADHO C DISALLOWANCE OF RS.60 LACS HAS BEEN MADE ON THIS AC COUNT. IN THIS WAY, IT WAS PRAYED THAT THE ORDER OF THE LE ARNED CIT 13 (APPEALS) BE CONFIRMED ON THIS GROUND. 27. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF B OTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIE S BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECORD. ON P ERUSAL OF THE FINDINGS GIVEN BY THE LEARNED CIT (APPEALS) IN THIS REGARD, WE DO NOT FIND ANY INFIRMITY IN THE SAME. IT IS A FACT OF RECORD THAT THE DISALLOWANCE HAS BEEN MADE ON ADHOC BASIS THOUGH MADE UNDER SECTION 40A(2)(A) OF THE ACT. T HE REQUIREMENT OF SECTION 40A(2)(A) OF THE ACT IS TO D ISALLOW ANY EXPENDITURE WHICH THE ASSESSING OFFICER CONSIDERS T O BE EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICE OR FACILITIES FOR WHICH THE PAYMENT IS MADE. HOWEVER, TO BRING ON RECORD THE FAIR MAR KET VALUE OF SUCH FACILITIES, THE ASSESSING OFFICER HAS TO BRING CERTAIN COMPARABLE INSTANCES OF THE SAME, WHICH IN THIS CAS E THE ASSESSING OFFICER HAS NOT DONE. THE DISALLOWANCE HAS BEEN MADE BY THE ASSESSING OFFICER HOLDING 50% INCREASE IN SALARY TO BE REASONABLE. THERE IS NO BASIS BEFORE THE AS SESSING OFFICER TO TREAT 50% OF SALARY AS REASONABLE. THU S JUST AN ESTIMATE WHICH IS NOT PERMITTED UNDER THE PROVISION S OF SECTION 40A(2)(A) OF THE ACT. THIS GROUND OF APP EAL RAISED BY THE DEPARTMENT IS DISMISSED. 28. THE GROUND NOS.3 AND 4 RAISED BY THE REVENUE A RE GENERAL AND HENCE NEED NO ADJUDICATION. 29. THE APPEAL OF THE REVENUE IN ITA NO.756/CHD/20 14 IS PARTLY ALLOWED. 14 30. IN THE RESULT, BOTH THE CROSS APPEALS ARE PART LY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 27 TH DAY OF OCTOBER, 2015. SD/- SD/- (BHAVNESH SAINI) (RANO JAIN) JUDICIAL MEMBER ACOUNTANT MEMBER DATED : 27 TH OCTOBER, 2015 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH