PREMIER GRINDERS & PACKERS P. LTD, MUMBAI V. DCOT COR 7(1), MUMBAI

ITA 9241/MUM/2010

• Counselvise Citation: 924119914 RSA 2010
• Duration Of Justice: 3 year(s) 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 27-05-2014
• Assessment Year: 1999-2000
• Appeal Filed On: 31-12-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: JI TENDRA YADAV
• Keywords: Principle of natural justice
• Section: 80IB

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE S/SHRI I.P. BANSAL, (JM) AND N.K.BILLAIYA (AM) . . , . . , ./I.T.A. NO.9241/MUM/2010 ( / ASSESSMENT YEAR : 1999-2000) PREMIER GRINDERS AND PACKERS PVT LTD., 21/1/RIKHGAV, R A KIDWAI MARG, WADALA (W), MUMBAI-400031 / VS. DY COMMISSIONER OF INCOME TAX, CIRCLE 7(1), AAYAKAR BHAVAN, M K ROAD, MUMBAI-400020 ( $ / APPELLANT) .. ( %&$ / RESPONDENT) ./ ./PAN/GIR NO. : AAACP7745G $ / APPELLANT BY : NONE %&$ * /RESPONDENT BY : SHRI JITENDRA YADAV * . / DATE OF HEARING : 27.5.2014 * . /DATE OF PRONOUNCEMENT : 27.5.2015 / O R D E R PER I.P.BANSAL, JM: THIS APPEAL IS FILED BY THE ASSESSEE AND IS DIRECT ED AGAINST THE ORDER PASSED BY THE LD. CIT(A) DATED 9.9.2010 FOR ASSESSMENT YEAR 1999-2000. 2. GROUNDS OF APPEAL TAKEN BY THE ASSESSEE READ AS UNDER : 1. THE LD. CIT(A) JUSTIFYING THE ACT OF THE AO AND ERRED IN DISALLOWING RS.2,11,858/- OUT OF THE SALARY AND COMMISSION PAID TO THE APPELLANTS DIRECTORS WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LD. CIT(A) FAILED TO APPRECIATE THAT THE SA LARY AND COMMISSION IS PAID TO THE APPELLANTS DIRECTOR AS PER THE ARTICLE OF ASSOCIATION OF THE APPELLANTS IN LIEU OF THEIR SERVICES RENDERED BY THEM. HENC E, THE DISALLOWANCE IS NOT AT ALL JUSTIFIED; 3. THE LD. CIT(A) FAILED TO APPRECIATE THAT THE ENT IRE SALARY AND COMMISSION PAID TO THE APPELLANTS DIRECTOR IS WHOLLY AND EXCL USIVELY LAID OUT FOR THE PURPOSE OF THE APPELLANTS BUSINESS. HENCE NO PART OF THE E XPENDITURE CAN BE DISALLOW AS I.T.A. NO.9241/MUM/2010 2 EXCESSIVE AND UNREASONABLE, THE DISALLOWANCE OF RS .2,11,858/- IS NOT AT ALL JUSTIFIED AND THE SAME MAY BE DELETED; 4. THE LD. AO HAS DISALLOWED THE ABOVE AMOUNT MEREL Y ON THE BASIS OF SUCH EXPENDITURE NOT DEBITED TO THE PROFIT AND LOSS ACCO UNT OF M/S PREMIER HOLLOWARES PVT LTD A GROUP COMPANY AND HELD AS BE ING EXCESSIVE OR UNREASONABLE WHILE COMPARING WITH THE APPELLANTS C OMPANY AND THUS ERRED IN ADOPTING PREMIER HOLLOWERS AS YARDSTICK. THE LD. AO HAS NOT APPRECIATED THE FACT THAT BOTH ARE SEPARATE LEGAL COMPANIES FORMED UNDER THE COMPANIES ACT AND HAVE SEPARATE BOOKS OF ACCOUNT, THE SAME FACTS ARE TOTALLY IGNORED BY THE LD. CIT(A); 5. THE ORDER UNDER APPEAL IS AGAINST THE WEIGHT OF EVIDENCE ON THE RECORD AND CONTRARY TO THE FACTS ON THE RECORD AND ADDITIO NS MADE ARE CONTRARY TO PRINCIPLES OF EQUITY AND NATURAL JUSTICE AND THEREF ORE IN VIEW OF ABOVE GROUNDS OF APPEAL, THE APPELLANT PRAYS YOUR HONOUR TO ALLOW TH E AFORESAID EXPENSES OF RS.2,11,858/- 3. THIS APPEAL WAS FIXED FOR HEARING ON 27.5.2014, HOWEVER, NONE APPEARED ON BEHALF OF THE ASSESSEE. THEREFORE, WE PROCEED TO DECIDE THIS APPEAL EX-PARTE QUA THE ASSESSEE ON MERITS AND AFTER HEARING THE LD. DEPART MENTAL REPRESENTATIVE WHO RELIED UPON THE ORDER OF AO AND THE LD. CIT(A). 4. DURING THE COURSE OF RE-ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE AO THAT TWO COMMON WHOLE- TIME DIRECTORS NAMELY SHRI RA MESH H THACKER AND SHRI DHIREN H THACKER WERE ALSO WORKING DILIGENTLY FOR SISTER C ONCERN OF THE ASSESSEE NAMELY M/S PREMIER HOLLOWARES PVT LTD. IT WAS ALSO NOTICED THAT THESE DIRECTORS WERE PERFORMING DAY TO DAY WORK FOR BOTH THE COMPANIES AND THE ASSE SSEE-COMPANY HAS INCURRED AN EXPENSES OF RS.6,36,666/- ON TRAVELLING AND CONVE YANCE MOSTLY ON COMMON DIRECTORS TRAVEL BETWEEN THESE TWO COMPANIES LOCATED AT DIF FERENT PLACES. IT WAS NOTICED THAT THE TOTAL SALARY DEBITED ON ACCOUNT OF SALARY PAI D TO THOSE DIRECTORS WAS A SUM OF RS.23,53,980/- WHICH WAS DEBITED IN ITS ENTIRETY T O THE ASSESSEE-COMPANY. IT WAS ALSO NOTICED THAT THE ASSESSEE COMPANYS OFFICE IS SITU ATED AT MUMBAI AND ITS INCOME IS TAXABLE WHEREAS THE INCOME OF ITS SISTER CONCERN WAS ELIGIBLE FOR DEDUCTION U/S 80IB OF THE ACT AND THEREFORE, THE AO OBSERVED THAT THE AS SESSEE HAS OPTED TO DEBIT FULL SALARY IN THE ACCOUNT OF THE ASSESSEE COMPANY BOOKS AND PR EFERRED TO REDUCE ITS TAXABLE INCOME. THE AO WORKED OUT PROPORTIONATE DISALLO WABLE SALARY PERTAINING TO THE SISTER I.T.A. NO.9241/MUM/2010 3 CONCERN ON THE BASIS OF TURNOVER. THE SALES OF T HE ASSESSEE COMPANY ARE RS.20,18,85,802/- AS AGAINST THE SALE OF THE SISTE R CONCERN AT RS.1,99,99,385/-. THE RATIO WAS WORKED OUT AT 91:9 AND A SUM OF RS.2,1 1,858/- WHICH WAS DISALLOWED OUT OF THE SALARY PAID TO THE DIRECTORS. THE DISALLOWANCE HAS BEEN SUSTAINED BY THE LD. CIT(A) ON THE GROUND THAT SINCE THE SISTER CONCERN OF THE ASSESSEE WAS CLAIMING DEDUCTION U/S 80IB THERE WAS A CLEAR CUT INTENTION OF M/S PRE MIER HOLLOWARES PVT LTD(SISTER CONCERN) NOT TO CHARGE ANY SALARY TO M/S PREMIER H OLLOWARES PVT LTD BUT THE WHOLE SALARY AND COMMISSION PAID BY THE ASSESSEE COMPANY WAS TO REDUCE ITS TAXABLE INCOME AND THE SAME CANNOT BE ALLOWED IN VIEW OF THE DECIS ION OF THE HONBLE SUPREME COURT IN THE CASE OF MC DOWELLS V/S CIT (154 ITR 148 (SC)). THE ASSESSEE IS AGGRIEVED, HENCE HAS FILED AFOREMENTIONED GROUNDS OF APPEAL. 5. IT CAN BE SEEN FROM THE GROUNDS OF APPEAL AS WE LL AS FROM THE ORDERS OF AUTHORITIES BELOW THAT THE DEFENCE TAKEN BY THE ASS ESSEE COMPANY WITH REGARD TO THE IMPUGNED DISALLOWANCE WAS THAT THE SALARY AND COMMI SSION GIVEN TO THE DIRECTORS WERE WITHIN THE LIMIT PRESCRIBED UNDER THE COMPANIES ACT I.E. U/S 309. ACCORDING TO THE AO, THE SAID SECTION IS APPLICABLE TO PUBLIC LIMITE D COMPANIES AND THE ASSESSEE COMPANY DID NOT EXPLAIN AS TO WHY THE DIRECTORS HAVE REND ERED FREE SERVICES TO M/S PREMIER HOLLOWARES PVT LTD EXCEPT THE ARGUMENT THAT THE ASS ESSEE HAS LIBERTY TO CHARGE OR NOT TO CHARGE SALARIES AND BOTH THE COMPANIES ARE SEP ARATED ENTITIES UNDER THE COMPANIES ACT. 6. IN THE GROUNDS OF APPEAL, IT HAS BEEN MENTIONED THAT THE SALARY IS DISALLOWED BY THE AO ON THE BASIS THAT SUCH EXPENDITURE WAS NOT DEBITED TO PROFIT AND LOSS ACCOUNT OF ITS SISTER CONCERN AND IS EXCESSIVE OR UNREASONAB LE WHILE COMPARING WITH THE ASSESSEE- COMPANY AND THUS ERRED IN ADOPTING PREMIER HOLLO WERS AS YARDSTICK AND THE LD. AO FAILED TO APPRECIATE THE FACT THAT BOTH THE COMPAN IES ARE SEPARATE LEGAL COMPANIES I.T.A. NO.9241/MUM/2010 4 FORMED UNDER THE COMPANIES ACT AND HAVE THE SEPARAT E BOOKS OF ACCOUNT. IT IS ALSO THE CASE OF THE ASSESSEE THAT EVEN BEFORE COMMENCEM ENT OF GROUP COMPANY I.E OF M/S PREMIER HOLLOWARES PVT LTD (INCORPORATED ON 24.3. 1997) THOSE DIRECTORS WERE BEING PAID REMUNERATION FROM THE ASSESSEE COMPANY ONLY AN D THEREFORE THE EXPENSES INCURRED ON SALARY BY THE ASSESSEE COMPANY CANNOT ATTRIBUTED TO M/S PREMIER HOLLOWERRS PVT LTD. 7. WE HAVE CONSIDERED THE SUBMISSIONS ON BEHALF OF THE ASSESSEE. THE RENDERING OF SERVICES BY THESE DIRECTORS TO M/S P REMIER HOLLOWERS PVT. LTD HAS NOT BEEN DENIED AT ANY STAGE. THESE DIRECTORS WERE ALSO INC URRING THE TRAVELLING EXPENDITURE TO TRAVEL BETWEEN THE ASSESSEE COMPANY AND M/S PREMIE R HOLLOWERS PVT S OFFICE WHICH IS SITUATED AT NAROLI, DISTRICT SILVASA, DADRA AND N AGARHAVELI. THEREFORE, IT IS A MATTER OF FACT THAT THESE DIRECTORS HAVE RENDERED THE SERVICE S TO M/S PREMIER HOLLOWERS PVT LTD. AND ALSO NO SALARY HAS BEEN DEBITED ON ACCOUNT OF REMUNERATION PAYABLE TO THESE DIRECTORS IN THE BOOKS OF ACCOUNT OF M/S PREMIER H OLLOWERS PVT LTD. . IF IT IS SO THEN THOSE DIRECTORS HAVE ALSO WORKED FOR M/S PREMIER HO LLOWERS PVT LTD AND SALARY PAID TO THEM CANNOT BE SAID TO BE EXCLUSIVELY HAVE BEEN PA ID FOR THE SERVICES RENDERED BY THEM TO THE ASSESSEE COMPANY. IN VIEW OF THIS SITUATION , AFTER CAREFUL CONSIDERING THE FACTS OF THE PRESENT CASE, WE ARE OF THE OPINION THAT THE AO WAS RIGHT IN PROPORTIONATE ALLOCATION OF SALARY PAID TO THESE DIRECTORS ON THE BASIS OF TURNOVER OF BOTH THE COMPANIES. THEREFORE, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) VIDE WHICH HE HAS CONFIRMED THE ACTION OF AO. WE DECLINE TO INTE RFERE IN THE ORDER OF LD. CIT(A) AND DISMISS THE APPEAL FILED BY THE ASSESSEE. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DIS MISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 27TH MAY, 2014. 2 3 27TH MAY, 2014 * SD SD ( . . / N.K.BILLAIYA) ( . . /I.P. BANSAL ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI: 27TH MAY, 2014 . . ./ SRL , SR. PS I.T.A. NO.9241/MUM/2010 5 ! / COPY OF THE ORDER FORWARDED TO : 1. $ / THE APPELLANT 2. %&$ / THE RESPONDENT. 3. 8 ( ) / THE CIT(A)- CONCERNED 4. 8 / CIT CONCERNED 5. 9 %; , . ; , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) . ; , /ITAT, MUMBAI