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Before: Shri Duvvuru RL Reddy & Shri S. Jayaraman
O R D E R
PER DUVVURU RL REDDY, JUDICIAL MEMBER:
Both the appeals filed by the assessee are directed against separate orders of the ld. Commissioner of Income Tax (Appeals) 1, Chennai dated 13.01.2017 and 31.01.2018 relevant to the assessment years 2008-09 and 2009-10 respectively.
The only effective ground raised in the appeal of the assessee is that the ld. CIT(A) has erred in confirming the restriction of deduction under 2 & 861/Chny/18 section 10B of the Income Tax Act, 1961 [“Act” in short] due to the apportionment of director’s remuneration as per assessee of ₹.9,69,792/- instead of ₹.92,39,034/- as per the Assessing Officer. In pursuance to the order of the Tribunal dated 31.10.2014, a notice under section 143(2) of the Act was served on the assessee to furnish the evidences relating to the Director’s remuneration paid for the assessment year 2008-09. The Director’s remuneration paid as per assessee was ₹.6,19,792 [Total remuneration : ₹.92,39,034 – Keyman Insurance: ₹.86,19,242]. In order to verify the above claim, the Assessing Officer considered director’s remuneration for the assessment years 2007-08 to 2009-10, which was based on the performance of the company. After verification of the profit and loss account for the assessment years 2007-08 to 2009-10, after considering the submissions of the assessee, the Assessing Officer determined the director’s remuneration at ₹.92,39,034/- instead of ₹.6,19,792/- as claimed by the assessee on the ground that the assessee has artificially increased the profit of the EOU unit by setting off the Keyman Insurance of ₹.86,19,242/- to claim huge amount as exemption under section 10B of the Act.
The assessee carried the matter in appeal before the ld. CIT(A). Since the assessee has not produced any evidence with regard to the Keyman Insurance policy in order to consider to allow the surrender value, the ld.
On being aggrieved, the assessee is in appeal before the Tribunal.
We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. This is second round of litigation. The assessment under section 143(3) of the Act was completed and determined the total income of the assessee at ₹.1,22,36,056/- resulting in an addition of ₹.62,82,141/-. The addition was mainly due to the disallowance of a portion of the claim for exemption under section 10B of the Act. On appeal, vide order dated 31.10.2014 in & 312/Mds/2014, the Tribunal remitted the matter back to the file of the Assessing Officer by observing that prima facie, there is contra entry in the accounts of the assessee for ₹.86,19,242/- and thereby there is a miscarriage of justice due to the allocation of director’s remuneration. Accordingly, in order to verify the above claim, the Assessing Officer considered director’s remuneration for the assessment years 2007-08 to 2009-10, which was based on the performance of the company and the same are reproduced as under: Assessment year Director Remuneration (in INR) 2007-08 65,37,491 2008-09 92,39,034 (claimed ₹.6,19,792 after set off Keyman insurance) 2009-10 40,72,357
4 & 861/Chny/18 Vide order dated 31.10.2014, the Tribunal has observed as under: 4.3. We have heard both the parties and carefully perused the materials available on record. On examining the paper book produced by the assessee, we find at page No.13 the ledger account of “Keyman Policy” wherein the “Director’s remuneration payable” account was debited by `82,69,242/- and “Keyman policy” account was credited correspondingly. On page No.14 we find ledger account of “Director’s remuneration” account, which is debited with Rs. 86,39,034 and “Director’s remuneration payable” account is credited by Rs. 79,09,242/- and Bank account with Rs. 7,29,792/-. On page No.15 we find in “Director’s remuneration” account another amount of ₹6/- lakhs is debited, credit being given to Mr.Maruthi R. Kathare, Anand R. Kathare & Mukund R. Kathare for ₹2/- lakhs each, being salary the due to them for the year. Further on verifying the Profit & Loss account and Balance sheet, we find that balance sheet of Kalavakkam Unit-II under the head “Administration and Selling expenses” Schedule-14 page-19 only to the extent of ₹6/- lakhs being remuneration to Directors is charged to the Profit & Loss account. On page-22 of the paper book in the P&L account of Perunkudi Unit-I Scheduled-10 under the head ‘other income’ ₹86,19,242/- is disclosed as insurance received while as in schedule–15 under the head ‘Administrative and selling expenses’ ₹86,39,034/- is shown as remuneration to directors. Thus, on the overall, remuneration to directors will have the effect in the profit & loss account of ₹6,19,792/- [ (₹86,39,034 – ₹86,19,242 + ₹6,00,000) ], being the amount of remuneration to directors debited to the P&L account. Therefore, apparently the submissions of the assessee that only ₹6 lakhs stands debited to account of Director’s remuneration account’ is not correct while as the correct figure appears to be ₹6,19,792/-. Moreover, there appears to be a contra entry with respect to the ‘insurance received’ under the head “other income” Schedule-10 paper book page No.22 and remuneration to directors under the head Administrative and selling expenses Schedule-15 paper book at page No.23 for ₹86,19,242/-, thereby disproving the claim of the Ld. A.R. that the contra entry was for the amount ₹82,69,242/-. Any way from the balance sheet and P&L a/c submitted by the assessee, it appears that there is a miscarriage of justice due to the allocation of ₹86,39,034/- as Director’s remuneration because prima facie it can be seen that there is contra entry in the accounts of the assessee for ₹.86,19,242/-. In these circumstances, we are of the considered view that the entire matter requires to be looked into by the Ld. Assessing Officer afresh by examining the entries made in the books of account of the assessee in detail. Therefore, in the interest of justice, we hereby remit this issue back to the file of the Ld. Assessing Officer for denovo consideration.” In view of the above, the Assessing Officer was required to verify the contra entry with respect to the ‘insurance received’ under the head “other income”
5 & 861/Chny/18 as per Schedule 10 paper book page No. 22 and remuneration to directors under the head Administrative and selling expenses as per Schedule 15 of the paper book page No. 23 for ₹.86,19,242/-, against the entry for the amount of ₹.82,69,242/-. On verification of the balance sheet and profit and loss account submitted by the assessee, in the first round of litigation, the Tribunal has observed that there is a miscarriage of justice due to the allocation of ₹.86,39,034/- as Director’s remuneration because prima facie it can be seen that there is contra entry in the accounts of the assessee for ₹.86,19,242/-. After considering the submissions of the assessee during the course of set aside proceedings and after ascertaining both the sales and book profits that has increased year on year, the Assessing Officer was of the opinion that the quantum of the director remuneration should be more than (i.e., ₹.92,39,034/-) that the assessee claimed for the assessment year 2008-09 and it should not be a meager amount of ₹.6,19,792/- by rejecting the claim of set off of Keyman insurance of ₹.86,19,242/- since the assessee intended to artificially increase the profit of the EOU unit and the claim huge amount as exemption under section 10B of the Act. We find that the above observation of the Assessing Officer is not legally tenable since the assessee has claimed set off of Keyman insurance value since the Tribunal has observed that as per paper book page 13, the ledger account of ‘Keyman Policy”, the surrender value was debited as “director’s remuneration payable” and “Keyman Policy” account was credited
6 & 861/Chny/18 correspondingly. The policy was taken for its appropriate usage as per the assessee and not as per the Revenue. The Assessing Officer determined the director remuneration on turnover basis based on the performance of the assessee company whereas, the assessee has accounted on the basis of contributions of the directors in both the EOU and DTA units. In this case, the investment in Keyman insurance was made by the assessee company in the interests of the Directors and to ward off future uncertainties. In order to overcome the difference/loss among the EOU & DTA units, we find that the assessee has made a legal claim of apportioning director remuneration by set off Keyman insurance value. Thus, the Assessing Officer has no valid reason for rejecting the claim of set off Keyman insurance against director remuneration. By allowing the claim of apportionment of director’s remuneration, we direct the Assessing Officer to allow appropriate deduction under section 10B of the Act as claimed by the assessee for the assessment year 2008-09. Thus, the appeal filed by the assessee for the assessment year 2008-09 is allowed for statistical purposes.
[AY: 2009-10] 6. In order to consider the additional evidences filed before the Tribunal with regard to the issue of shifting of forex loss of ₹.40,73,615/-, vide order dated 31.10.2014, the Tribunal remitted the matter to the file of the Assessing Officer for readjudication on limited purpose. Pursuant to the 7 & 861/Chny/18 order of the ITAT, the Assessing Officer framed fresh assessment under section 143(3) r.w.s. 254 of the Act by retaining the addition on account of exchange fluctuation loss to the extent of ₹.40,73,615/- since the assessee failed to give any clarification relating the addition. Other than that, the Assessing Officer considered the same income determined at the time of original assessment except for the relief granted by the ITAT on account of valuation of closing stock. Against the above addition, the assessee has not preferred any appeal before the ld. CIT(A) and thereby, the direction given by the Tribunal in its order dated 31.10.2014 came to an end. However, the assessee has raised various grounds before the ld. CIT(A) with regard to the reallocation made by the Assessing Officer and contested 4 items out of the different heads of expenses that have been reallocated. Since none of the issues are subject matter in appeal before the Tribunal during first round of litigation and thereby, the fresh grounds raised during the course of second round of litigation for the first time, the ld. CIT(A) dismissed the appeal filed by the assessee. Since different grounds have been raised, which are not related to the specific directions given by the Tribunal in the first round of litigation, we find no infirmity in the order passed by the ld. CIT(A) in rejecting fresh grounds raised during the course of second round of litigation. Unrelated grounds raised against the directions of the Tribunal cannot be entertained during the course of second round of litigation. Accordingly, the grounds raised by the assessee stands dismissed.
In the result, the appeal filed by the assessee for the assessment year 2008-09 is allowed for statistical purposes and the appeal filed for the assessment year 2009-10 is dismissed.
Order pronounced on the 24th September, 2019 at Chennai.