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Income Tax Appellate Tribunal, MUMBAI BENCHES “E”, MUMBAI
Before: SHRI SHAMIM YAHYA (AM) & SHRI RAM LAL NEGI (JM)
O R D E R
PER RAM LAL NEGI, JM
This appeal has been preferred by the revenue against the order dated 20.11.2015 passed by the Commissioner of Income Tax (Appeals)9, Mumbai, for the assessment year 2011-12, whereby the Ld. CIT (A) has allowed the appeal filed by the assessee against assessment order passed u/s 143 (3) of the Income Tax Act, 1961 (for short ‘the Act’).
The brief facts giving rise to the present appeal is that the appellant/ assessee engaged in the business of providing educational consultancy and assisting students in overseas education, filed its return of income for the assessment year under consideration declaring the total income of Rs. 10,33,56,606/-. Since, the case was selected for scrutiny notice u/s 143 (2) and 142 (1) were issued to the assessee and in response thereof the authorized representative appeared before the AO and submitted the details called for. It 2 Assessment Year: 2011-12 was seen that the assessee had claimed expenses on account of remuneration paid to the directors which was considerably increased as compared to the previous year. Accordingly, a show cause notice was issued directing the assessee to furnish the details. In compliance thereof, the assessee filed the complete details. It was notice that there was no substantial increase in the business of the assessee in comparison to the assessment year 2010-11 and the increment was made around 5 to 10% taking into consideration, the cost inflation index. However, remuneration was increased manifold. The AO considering the nature of business and profitability held the increase of 10% to be fair and reasonable and disallowed the excess amount of Rs. 72,55,535/- as excessive and added back to the income of the assessee u/s 40A(2)(b) of the Act.
Further, the assessee had claimed depreciation of Rs. 6,06,292/- on Moto Car. It was noticed that the Motor Cars were purchased and registered in the name of the directors during the F.Y. 2010-11 as well as in the previous years. Accordingly, the assessee was asked as to why the said disallowance should not be made in this year. In reply thereof the AR stated that in the Motor Cars are in the name of directors but are shown in the books of the company and are used for the purpose of business of the company. The assessee relied on the following cases to substantiate its claim: Mysore Minerals ltd. vs. CIT (106 Taxman 166 (SC) SBI Home Finance ltd. Vs CIT (148 Taxman 585) Muthoot Bankers Vs Dy CIT 11 SOT 603 CIT Vs. Navdurga Transport 149 CTR 219 CIT vs Amber Corp 207 ITR 435 4. However, the AO rejecting the contention of the assessee and distinguishing the facts of the cases relied upon by the assessee, rejected the claim of depreciation and computed the total income of the assessee at Rs. 3 Assessment Year: 2011-12 11,12,18,430/-. In the first appeal, the Ld. CIT (A) after hearing the assessee allowed the appeal of the assessee and deleted both the additions.
Aggrieved by the order of Ld. CIT (Appeals), the revenue has preferred this appeal before the Tribunal by raising the following effective grounds :-
1. “On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in deciding the issue in favour of the assessee without appreciating the fact that it is the true income that needs to be taxed.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) also erred in deciding the issue in favour of the assessee without appreciating the fact that the assessee cannot get away with the profit of the company in the disguise of incentive/scheme just because the company shows a higher profit margin. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) further erred in deciding the issue in favour of the assessee without appreciating the fact that the assessee was not the lawful owner of the motorcar and hence depreciation could not be claimed.
So far as the first issue is concerned, before us, the Ld. Departmental Representative (DR) relying on the assessment order submitted that the Ld. CIT (A) has erred in deciding the issues regarding remuneration paid to directors without appreciating the fact that increment is made around 5% to 10% taking into consideration the cost inflation index. But in this case the remuneration has been increased manifold which is unreasonable. The assessee company cannot pay unreasonable remuneration in the guise of incentive. The Ld. DR further submitted that since, the Ld. CIT(A) has wrongly deleted the addition made by the AO, the same is liable to be set aside. On the second issue, the Ld. DR further submitted that the Ld. CIT(A) has wrongly deleted the 4 Assessment Year: 2011-12 addition made by the AO on account of wrong claim of depreciation on the Motor Cars, which are in the name of the Directors. Therefore, the impugned order is liable to be set aside.
On the other hand, the Ld. counsel for the assessee submitted that the Ld. CIT (A) has deleted the addition made on account of excess remuneration paid to the directors in accordance with the settled principles of law. Since, the Ld. CIT (A) has relied on the decision of the Mumbai Tribunal rendered in the assessee’s own case for the A.Y. 2008- 09, 2009-10 and 2010-11, whereby the Tribunal has deleted the quantum addition made by the AO in respect of the same issues, there is no infirmity in the findings of the Ld CIT(A). So far as the issue regarding depreciation on Motor car registered in the name of directors is concerned, the Ld. CIT(A) submitted that this issue is also covered in favour of the assessee by the order of the ITAT Mumbai rendered in assessee’s own case for the assessment years 2008-09,2009-10 and 2010-11. Hence, there is no merit in the appeal of the revenue and the same is liable to be set aside.
We have heard the rival submissions and perused the material on record. The first issue pertains to the incentive given to the Directors. We notice that the identical issue was dealt with by the coordinate Bench in asessee’s own case for the A.Y 2008-09, 2009-10 and 2010-11. The Ld. CIT (A) has decided this issue in the present case in favour of the assessee by following the order of the coordinate Bench of the Tribunal. The operative part of the order of the Ld. CIT (A) read as under: “6.3.2 I have considered the stand of the AO as well as submissions of the appellant. I have also gone through the above referred judgment of Hon’ble ITAT, Mumbai where the Hon.ble ITAT, has deleted the quantum addition made by the AO in respect of same 5 Assessment Year: 2011-12 issue in earlier assessment years 2008-09, 2009-10 and 2010-11. Since, the appellant’s case is covered by Hon’ble Mumbai ITAT in its own case in earlier assessment years by the recent and latest judgment dated 14.10.2015, the addition made by the AO in the present assessment cannot be sustained at this stage. Accordingly, the addition made by the AO amounting to Rs. 72,55,535/- on account of remuneration paid to directors is deleted.
In result, ground No. 2 of the appellant is allowed.”
Since, the Ld. CIT (A) has decided this issue by following the order of the coordinate Bench rendered in the assessee’s own case for the A.Ys. 2008-09, 2009-10 and 2010-11, we do not find any reason to interfere with the findings of the Ld. CIT (A). We therefore uphold the findings of the Ld. CIT (A) and dismiss this ground of appeal of the revenue.
10. The second ground pertains to depreciation of Motor car registered in the name of Directors. We further notice that the Ld.CIT (A) has decided this issue in favour of the assessee by following the decision of the ITAT in the assessee’s own case for the A.Ys. 2008-09, 2009-10 and 2010-11. The operative part of the findings of Ld. CIT (A) reads as under:-
7.3.2 Since the judgment of Hon’ble ITAT Mumbai is latest one where the Hon’ble ITAT has also considered earlier judgments as referred in para 23 of the Tribunal’s order, as per the judicial discipline, the same gets precedence over the old judgments cited by the AO in his assessment order. In view of this, the latest judgment of Mumbai ITAT in assessee’s own case with regard to previous assessment year, becomes binding in the present appeal of the A.Y. 2011-12 where the ratio of facts of the case are similar. Therefore, I am inclined to follow the same and differ with the judgments cited by the AO. Accordingly, the AO is directed to delete the disallowance of depreciation of Rs. 6,06,292/- and allow the claim of depreciation on motor car. \ In the result, the above ground of appeal is allowed.
6 Assessment Year: 2011-12
Since, the identical issue has been decided by the coordinate Bench in favour of the assessee in assessee’s own case for the A.Y. 2008-09-, 2009-10 and 2010-11 and the Ld. CIT (A) has decided the identical issue in this case by following the decision of the coordinate Bench, there is no reason to interfere with the findings of the Ld. CIT (A). We therefore uphold the findings of the Ld. CIT (A) and dismiss this ground of appeal of the revenue and direct the AO to delete the addition made on account of depreciation on the vehicles in the name of directors.
In the result, appeal filed by the revenue for assessment year 2011- 2012 is dismissed.