M/s. S.B. Kwality Chains Pvt.Ltd, Pune V. Deputy Commissioner of Income-tax, Pune

ITA 819/PUN/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 9250 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 3 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-07-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 06-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RAJEEV THAKKAR
• Keywords: Fair market value; Set aside
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUNE , , , BEFORE SHRI ANIL CHATURVEDI, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO . 819 /P U N/201 7 / ASSESSMENT YEAR : 20 1 2 - 13 M/S. S.B. KWALITY CHAINS PVT. LTD., SHAH KHANDEWAL JAIN & ASSOCIATES, CHARTERED ACCOUNTANTS, LEVEL 3, RIVERSIDE BUSINESS BAY, PLOT NO. 84, WELLESLEY ROAD, NEAR RTO, PUNE 411001 PAN : AAICS8956N ....... / APPELLANT / V/S. DY. COMMISSIONER OF INCOME TAX, CIRCLE 6, PUNE / RESPONDENT ASSESSEE BY : SHRI RAJEEV THAKKAR REVENUE BY : SHRI RAJESH GAWALI / DATE OF HEARING : 19 - 06 - 2019 / DATE OF PRONOUNCEMENT : 08 - 0 7 - 2019 / ORDER PER VIKAS AWASTHY, JM : TH IS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - 8, PUNE DATED 20 - 01 - 2017 FOR THE ASSESSMENT YEAR 2012 - 13. THE ONLY ISSUE RAISED BY THE ASSESSEE IN APPEAL IS AGAINST DISALLOWANCE OF REMUNERATION PAID TO DIRECTORS U/S. 40A(2) O F THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). 2 ITA NO .819/PUN/2017, A.Y. 2012 - 13 2. SHRI RAJEEV THAKKAR APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE COMPANY IS ENGAGED IN MANUFACTU RING AND REFINING OF GOLD ORNAMENTS. THE ASSESSEE COMPANY IS HAVING FOUR DIRECTORS. IN THE ASSESSMENT YEAR 2011 - 12, THE REMUNERATION PAID TO THE DIRECTORS WAS RS.24,71,000/ - . IN THE ASSESSMENT YEAR UNDER APPEAL I.E. ASSESSMENT YEAR 2012 - 13, THE REMUNERA TION TO THE DIRECTORS WAS INCREASED TO RS.56,40,000/ - . IN SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HELD THAT THE INCREASE IN THE REMUNERATION PAID TO THE DIRECTORS IS NOT COMMENSURATE TO THE TURNOVER OF COMPANY. THE INCREASE IN REMUNERATION TO THE DIRECTORS IS UNREASONABLE HIGH. THE ASSESSING OFFICER RESTRICTED THE INCREMENT IN THE SALARY OF DIRECTORS TO 10% AND DISALLOWED THE BALANCE AMOUNT OF RS.29,21,900/ - . AGGRIEVED AGAINST THE FINDINGS OF ASSESSING OFFICER IN ASSESSMENT ORDER DATED 16 - 02 - 2015 PASSED U/S. 143(3) OF THE ACT, THE ASSESSEE FILED APPEAL INTER ALIA CHALLENGING THE DISALLOWANCE OF INCREASE IN REMUNERATION TO THE DIRECTORS U/S. 40A(2) OF THE ACT. THE COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE FINDINGS OF ASSESSING O FFICER ON THIS ISSUE. HENCE, THE PRESENT APPEAL BY THE ASSESSEE. 2.1 THE LD. AR FURTHER SUBMITTED THAT THE AUTHORITIES BELOW WHILE MAKING DISALLOWANCE U/S. 40A(2) HAS MERELY CONSIDERED THE INCREASE IN REMUNERATION VIS - - VIS INCREASE IN TURNOVER. THE A SSESSING OFFICER HAS NOT UNDERTAKEN ANY EXERCISE TO EXAMINE THE SALARY PAID TO THE DIRECTORS IN THE SAME INDUSTR Y/TRADE FOR COMPARATIVE ANALYSIS. THE LD. AR POINTED THAT IN SUBSEQUENT ASSESSMENT YEARS I.E. ASSESSMENT YEARS 2013 - 1 4 AND 2014 - 15 THE ASSESSEE PAID THE SAME REMUNERATION TO THE DIRECTORS AS WAS PAID IN THE IMPUGNED ASSESSMENT YEAR, THE SAME WAS ACCEPTED BY THE ASSESSING OFFICER. IN ASSESSMENT YEAR 2013 - 14, ADMITTEDLY, THERE WAS INCREASE OF 3 ITA NO .819/PUN/2017, A.Y. 2012 - 13 56% IN TURNOVER , H OWEVER, THERE WAS NEGATIVE INCREASE O F ( - ) 6% IN TURNOVER IN ASSESSMENT YEAR 2014 - 15. ONCE, THE ASSESSING OFFICER ACCEPTED THE REMUNERATION IN ASSESSMENT YEARS 2013 - 14 AND 2014 - 15 ON SAME SET OF FACTS , THE ASSESSING OFFICER OUGHT TO HAVE ACCEPTED THE PAYMENT OF REMUNERATION TO THE DIRECTORS IN ASSESSMENT YEAR 2012 - 13 , AS WELL . 2.2 THE LD. AR FURTHER CONTENDED THAT OUT OF FOUR DIRECTORS, TWO DIRECTORS I.E. SHRI DEEPAK SALUNKHE AND SHRI JAYDEEP BABBAR ARE ASSESSED TO TAX AT SAME RATE OF TAX AS THAT OF COMPANY. THEREFORE, THERE WOULD BE NO LOSS OF REVENUE IN RESPECT OF THE SALARY PAID TO THE SAID DIRECTORS. IN SUPPORT OF HIS CONTENTIONS LD. AR PLACED RELIANCE ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF COMMIS SIONER OF INCOME TAX VS. INDO SAUDI SERVICES (TRAVEL) (P.) LTD. REPORTED AS 219 CTR 562. 3. ON THE OTHER HAND SHRI RAJESH GAWALI REPRESENTING THE DEPARTMENT VEHEMENTLY DEFENDED THE IMPUGNED ORDER. THE LD. DR SUBMITTED THAT THERE WAS PHENOMENAL INCREASE OF 128% IN THE REMUNERATION OF DIRECTORS AS COMPARED TO IMMEDIATELY PRECEDING ASSESSMENT YEAR . W HEREAS, THE INCREASE IN THE TURNOVER OF COMPANY WAS MERELY 4%. THE ASSESSEE COULD NOT JUSTIFY SUCH A HUGE INCREASE IN THE PAYMENT OF SALARY TO THE DIRECTORS. 4. W E HAVE HEARD THE SUBMISSIONS MADE BY REPRESENTATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW . THE ONLY ISSUE IN APPEAL IS DISALLOWANCE OF ALLEGED EXCESSIVE INCREMENT IN PAYMENT OF REMUNERATION TO THE DIRECTORS U/S. 40A(2) O F THE ACT. THE LD. AR OF ASSESSEE HAS FILED A T ABLE INDICATING PAYMENT OF SALARY TO THE DIRECTORS, INCREASE IN REMUNERATION OF DIRECTORS AND TURNOVER OF THE ASSESSEE COMPANY OVER THE PERIOD OF TIME. THE RELEVANT EXTRACT OF THE SAME IS REPRODUCED HERE - IN - BELOW : 4 ITA NO .819/PUN/2017, A.Y. 2012 - 13 PARTICULARS YEAR A.Y. 10 - 11 A.Y. 11 - 12 A.Y. 12 - 13 A.Y. 13 - 14 A.Y. 14 - 15 A.Y. 15 - 16 REMUNERATION PAID TO DIRECTORS 1,644,000 2,471 5,640,000 5,640,000 5,640,000 5,890,000 TURNOVER 50,683,397 79,735,657 82,846,963 129,413,293 121,873,144 155,643,284 % INCREASE IN REMUNERATION PAID TO DIRECTORS 34% 50% 128% 0% 0% 4% % INCREASE IN TURNOVER 20% 57% 4% 56% - 6% 28% 5. A PERUSAL OF TABLE SHOWS THAT THERE WAS SUBSTANTIAL INCREASE IN THE REMUNERATION OF DIRECTORS IN THE ASSESSMENT YEAR UNDER APPEAL. THEREAFTER, THERE WAS NO INCREASE IN THE REMUNERATION OF THE DIRECTORS FOR THE SUBSEQUENT TWO ASSESSMENT YEARS. ALTHOUGH, THERE WAS SUBSTANTIAL INCREASE IN THE TURNOVER IN THE IMMEDIATELY SUCCEEDING ASSESSMENT YEAR. A SAFE CONCLUSION THAT CAN BE DRAWN FROM THE ABOVE TABLE IS THAT INCREASE IN REMUNERATION OF DIRECTORS IS NOT LINKED WITH THE INCREASE IN TURNOVER OR EVEN PROPORTIONATE INCREASE IN TURNOVER. THE LD. AR HAS STATED AT THE BAR THAT THE ASSESSING OFFICER IN ASSESSMENT YEARS 2013 - 14 AND 2014 - 15 HAS ACCEPTED THE SAME AMOUNT OF REMUNERATION PAID TO THE DIRECTORS AS WAS PAID IN THE IMPUGNED ASSESSMENT YEAR . A BARE PERUSAL OF PROVISIONS OF SECTION 40A(2) SHOWS THAT THE DISALLOWANCE U/S. 40A CAN BE MADE BY ASSESSING OFFICER IF IN HIS OPI NION THE EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO FAIR MARKET VALUE OF THE SERVICES. IN THE INSTANT CASE, WE OBSERVE THAT ASSESSING OFFICER HAS NOT CARRIED OUT ANY EXERCISE TO DETERMINE FAIR REMUNERATION PAID TO THE DIRECTORS IN THE SIMIL AR LINE AND SCALE OF BUSINESS. THERE IS NO COMPARATIVE ANALYSIS OF REMUNERATION PAID TO THE DIRECTORS IN THE SIMILAR TRADE. AS IS EVIDENT FROM 5 ITA NO .819/PUN/2017, A.Y. 2012 - 13 CHART FURNISHED , INCREMENT IN PAYMENT OF REMUNERATION TO THE DIRECTORS HAS NO CO - RELATION TO THE TURNOVER OF BU SINESS OF ASSESSEE. THEREFORE, IN OUR CONSIDERED VIEW REASONS FOR MAKING DISALLOWANCE OF REMUNERATION U/S. 40A(2) BY THE AUTHORITIES BELOW ARE NOT SUSTAINABLE. CONSEQUENTLY, THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE ARE SET ASIDE AND THE APPEAL OF ASSESSEE IS ALLOWED. 6. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON MONDAY, THE 08 TH DAY OF JU LY, 2019. SD/ - SD/ - ( / ANIL CHATURVEDI ) ( / VIKAS AWASTHY) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE; / DATED : 08 TH JU LY, 2019 . RK / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 8, PUNE 4. THE PR. COMMISSIONER OF INCOME TAX - 3, PUNE 5 . , , , / DR, ITAT, A BENCH, PUNE. 6 . / GUARD FILE. / / // TRUE COPY// / BY ORDER, / PRIVATE SECRETARY, , / ITAT, PUNE