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Income Tax Appellate Tribunal, PUNE BENCH “SMC”, PUNE
Before: SHRI D. KARUNAKARA RAO, AM
आदेश / ORDER
PER D. KARUNAKARA RAO, AM
This is the appeal filed by Assessee against the order of CIT(Appeal), Pune-1 dated 23.06.2017 for the assessment year 2014-15.
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Briefly stated relevant facts include that the Assessee is engaged in
the business of construction and development of the residential properties
and filed return of income on 30.11.2014 declaring total income at ‘Nil’. In
the assessment proceedings made u/s.143(3) of the Income Tax Act, 1961
(hereinafter referred to as ‘the Act’), the Assessing Officer invoked the
provisions of section 40A(2)(b) of the Act in respect of salary paid to the
directors. On ad-hoc basis, the Assessing Officer quantified excessive
payment of Rs.9,20,000/- and made addition of the same amount to the
total income of assessee. Otherwise, assessee claims that he paid
remuneration to the Directors to the tune of Rs.92 Lakhs in the year under
consideration as against Rs.9 Lakhs in the previous year which shows
abnormal increase in the salary.
Aggrieved with the assessment order, Assessee filed appeal before
the CIT(A). The CIT(A) confirmed the addition as per discussion given in
Para 10 of the appellate order which reads as under:
“10. I have carefully considered the facts of the case as well as reply of the appellant. In this case it is seen that while in the earlier year remuneration of Rs.9,00,000/- was paid to Shri. Rahul Mundada for a period of three months i.e. January to March, 2013, during the previous year relevant to assessment year 2014-15, the appellant has paid Rs.92,00,000/- as remuneration to following Directors:
Sr. Name of the Director Amount (Rs.) No. 1 Rahul Mundada 56,00,000/- 2 Atul Mundada 12,00,000/- 3 Binod Thakur 12,00,000/- 4 Santosh Thakur 12,00,000/- Total 92,00,000/-
The appellant has claimed that it was having a huge project called “Western Hill” spread over approx 40Acres of land for overseeing such a project. Services of directors were required. The appellant also claims that the directors were in the highest tax bracket and therefore, there was no attempt to reduce the tax liability as the cost of remuneration was debited to WIP while the appellant’s directors
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paid tax on the remuneration received in the same year. This contention of the appellant is difficult to be accepted. The appellant has filed merely a general explanation regarding work done by directors. However, it has failed to satisfy why there is abnormal increase in the remuneration paid to directors while the work of the company as well as project is the same. Further, the year of taxability in the hands of recipient is hardly an issue. The important aspect of taxation is to tax the correct income of particular assessee and all other aspects are secondary in nature. In this case, it is clear that the appellant has not been able to justify the huge increase in remuneration. The fact that the remuneration goes to WIP and thereby taxed in subsequent year is immaterial. In my view, the disallowance made by the AO is quite reasonable and no interference is called for, accordingly, the ground is dismissed.”
Aggrieved with the findings of CIT(A), Assessee filed appeal before
the Tribunal by raising following grounds:
“1) On the facts and in the circumstances of the case and in law, the honourable CIT(A)-1, has erred in confirming the disallowance of Rs.9,20,000/- made by the learned AO by applying the provisions of Section 40A(2)(b) of the Income Tax Act, 1961, being 10% of salary paid to directors, without appreciating the facts of the case in proper perspective. The appellant hereby prays that the disallowance of Rs.9,20,000/- may please be deleted. 2) The appellant hereby reserves the right to add, amend, alter or raise any additional ground or grounds of appeal or delete or withdraw any of the ground of appeal/s.”
Before me, Ld. Counsel for the assessee submitted that this is a case
where the assessee factually made payments to the Directors towards the
services rendered by the Company. The Directors duly offered such
remuneration in their individual return and paid tax at maximum
marginal rate. The Assessee also deducted TDS while paying salary to the
Directors. In this circumstances, disallowance made by the Assessing
Officer u/s. 40A(2)(b) of the Act, is not sustainable. According to him, it is
not the case of Revenue that salary paid to Directors as per open market
value at the relevant point of time is comparable or not for determination
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of assessee’s excessive & unreasonability of the amount paid to the
Directors on account of remuneration.
On the other hand, Ld. DR for the Revenue placed reliance on the
orders of Assessing Officer and CIT(A).
Both sides are heard on this limited issue of invoking provisions of
section 40A(2)(b) of the Act. I find, it is an undisputed fact that payments
were made through banking channels to the Directors after deducting TDS
as per Rules. The Directors offer the same in their individual return and
paid tax at maximum marginal rate. Considering the entire facts of the
case, I am of the opinion that invoking provisions of section 40A(2)(b) of
the Act without bringing comparable cases for quantifying excessiveness
and unreasonableness, is unsustainable. It is a trite law that Assessing
Officer cannot invoke any provision without proper evidence while making
disallowance under the said provision. Therefore, I am of the opinion that
ground raised by the assessee should be allowed and accordingly, I order.
Hence, ground raised by assessee is allowed.
In the result, appeal of the assessee is allowed.
Order pronounced on 05th day of October, 2018.
Sd/- (डी.क�णाकरा राव/D. Karunakara Rao) लेखा सद�य / ACCOUNTANT MEMBER
पुणे / Pune; �दनांक / Dated : 05th October, 2018. SB
5 ITA No.1931/PUN/2017 A.Y.2014-15
आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to :
अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT (Appeal)-1, Pune. 4. The Pr. CIT-1, Pune. 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “एक-सद�य” ब�च, पुणे / DR, ITAT, “SMC” Bench, Pune. गाड� फ़ाइल / Guard File. 6.
// True Copy // आदेशानुसार / BY ORDER,
�नजी स�चव /Private Secretary आयकर अपील�य अ�धकरण, पुणे / ITAT, Pune.