JHP SECURITIES P. LTD, MUMBAI V. ACIT 4(3), MUMBAI

ITA 8266/MUM/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75221 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-01-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 23-12-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 29-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P SINGH
• Assessee Lawyers: V G GINDE
• Keywords: Rule of consistency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH I , MUMBAI BEFORE SHRI R.C. SHARMA , ACCOUNTANT MEMBER AND SHRI SANJAY GARG , JUDICIAL MEMBER ITA NO. 8266/M/2010 ASSESSMENT YEAR: 2007 - 08 M/S. J.H.P. SECURITIES PVT. LTD. 21/28 , GOKUL ARCADE, S.N. ROAD , VILE PARLE (E AST ), MUMBAI 400 057 PAN: AAACJ2847H VS. ACIT 4(3) AAYAKAR BHAVAN, M.K. ROAD, CHURCHGATE, MUMBAI 400 020 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI V.G. GINDE, A.R. REVENUE BY : SHRI O.P. SINGH, D.R. DATE OF HEARING : 07.01. 201 4 DATE OF PRONOUNCEMENT : 07.01.2014 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE SHORT GROUND RAISED BY THE ASSESSEE IS AGAINST THE CONFIRMATION OF THE DISALLOWANCE UNDER SE CTION 36(1 )(II) OF THE INCOME TAX ACT WHICH WAS MADE BY THE AO IN RESPECT OF DIRECTORS REMUNERATION PAID BY WAY OF COMMISSION OF RS.15,00,000/ - BY HOLDING THAT THE SAID SUM WAS PAYABLE AS DIVIDEND OR PROFIT. 2. THE LD. REPRESENTATIVE OF THE ASSESSEE , AT THE OUTSET , HA S BROUGHT OUR ATTENTION TO THE FACT THAT THE ASSESSEE HAD BEEN PAYING SUCH REMUNERATION TO ITS DIRECTORS SINCE THE FINANCIAL YEAR 1999 - 2000 ONWARDS WITHOUT ANY BREAK A ND THE REVENUE HAS NEVER DISALLOWED THE SAME. HE HAS FURTHER BROUGHT OUR ATTENTION TO TH E FACT THAT IN THE PRECEDING YEARS I.E. FOR THE FINANCIAL YEAR 2004 - 05 , AGAINST THE NET PROFIT OF RS.46,97,960/ - A REMUNERATION OF RS.14,09,388/ - ITA NO .8266/M/10 M/S. J.H.P. SECURITIES PVT. LTD. 2 WAS PAID TO THE DIRECTORS. SIMILARLY , FOR FINANCIAL YEAR 2005 - 06 , AGAINST THE NET PROFIT OF RS.76,25,257/ - A REMUNERATION OF RS.22 , 87 , 577/ - WAS PAID TO THE DIRECTORS WHICH WAS ALLOWED BY THE AO. HOWEVER, FOR THE YEAR UNDER CONSIDERATION THE REMUNERATION PAID TO THE DIRECTORS WAS MUCH LESS THAN THE PRECEDING YEARS , AS FOR THIS YEAR AGAINST PROFIT OF RS.62,67,906/ - A REMUNERATION OF RS.15,00,000/ - ONLY WAS PAID TO THE DIRECTORS. HE HAS THEREFORE CONTENDED THAT THE DISALLOWANCE FOR THIS SPECIFIC YEAR WAS NOT JUSTIFIED. ON THE OTHER HAND , THE LD. D.R. HAS RELIED UPON THE AUTHORITIES BELOW. 3 . WE HAVE CONSIDERED THE SUBMISSIONS OF THE LD. REPRESENTATIVES OF BOTH THE PARTIES. ADMITTEDLY THE ASSESSEE , AS MENTIONED ABOVE, HAS BEEN PAYING THE REMUNERATION TO THE DIRECTORS FOR THE LAST SO MANY YEARS AND WHICH HAS NEVER BEEN DISALLOWED BY THE AO. ONLY FOR THE YEAR UND ER CONSIDERATION , SUCH REMUNERATION HAS BEEN DISALLOWED WHICH SEEMS TO BE A DEPARTURE FROM THE EARLIER PRACTICE OF ALLOWING TH E PAYMENT OF SUCH REMUNERATION BY THE ASSESSEE WITHOUT ANY CONVINCING REASON. THOUGH THE REMUNERATION PAYABLE TO THE DIRECTORS H A S BEEN DECIDED FROM TIME TO TIME TAKING INTO CONSIDERATION THE PROFITS OF THE COMPANY BUT THAT ITSELF IS NOT SUFFICIENT TO HOLD THAT THE DIRECTORS WERE NOT ENTITLED TO ANY REMUNERATION , WHICH IS PAID IN ACCORDANCE WITH THE RESOLUTION PASSED BY THE DIRECTOR S. IT IS NOT THE CASE OF THE REVENUE THAT REMUNERATION PAID TO THE DIRECTOR IS HIGHLY EXAGGERATED OR EXCESSIVE WHEN COMPARED TO THE MARKET RATES FOR OBTAINING SUCH SERVICES FROM PROFESSIONALS OR OTHERWISE. RATHER, AS OBSERVED ABOVE, FOR THE YEAR UNDER CO NSIDERATION, THE REMUNERATION PAID TO DIRECTOR WAS LESS IN PERCENTAGE TO THE PROFITS EARNED WHEN COMPARED WITH THE REMUNERATION PAID TO DIRECTORS IN EARLIER YEARS WHICH HAD CONSISTENTLY BEEN ALLOWED BY THE AO. UNDER SU CH CIRCUMSTANCES, WE DO NOT FIND ANY REASON ON THE PART OF LOWER AUTHORITIES IN JUSTIFYING SUCH DISALLOWANCE MADE BY THE AO FOR THE YEAR UNDER CONSIDERATION. ITA NO .8266/M/10 M/S. J.H.P. SECURITIES PVT. LTD. 3 4 . HENCE, F OLLOWING THE RULE OF CONSISTENCY AND IN VIEW OF OUR OBSERVATIONS MADE ABOVE, THE DISALLOWANCE MADE BY THE AO FURTHER CO NFIRMED BY THE CIT(A) IS HEREBY SET ASIDE AND THE APPEAL OF THE ASSESSEE IS HEREBY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 07.01. 201 4 . SD/ - SD/ - ( R.C. SHARMA ) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 07.01. 201 4 . * KISHORE COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT ( A) CONCERNED, MUMBAI THE DR C BENC H //TRUE COPY// [ BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.