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Income Tax Appellate Tribunal, MUMBAI BENCHES “D” MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI N.K. PRADHAN
ORDER
PER N.K. PRADHAN, AM
This is an appeal filed by the assessee. The relevant assessment year is 2009-10. The appeal is directed against the order of the Commissioner (Appeals) – 20, Mumbai and arises out of order u/s 143(3) r.w.s. 263 of the Income Tax Act, 1961 (the ‘Act’).
The grounds of appeal filed by the assessee read as under:- i. On the facts and circumstances of the case and in law the Ld. Commissioner of Income Tax (A) erred in confirming the deduction u/s 80IB at Rs. 22,05,842/- allowed by the Assessing Officer as against the deduction claimed at Rs. 28,54,204/- by the appellant. ii. On the facts and circumstances of the case and in law the Ld. Assessing Officer as well as Commissioner of Income Tax (A) while allowing the deduction failed to appreciate the fact that the remuneration paid to the Directors of the company were properly apportioned between the unit entitled to deduction under section 80IB at Daman and another unit at Kandivali. iii. On the facts and circumstances of the case and in law the Ld. Commissioner of Income Tax (A) erred in confirming the order of the Assessing Officer who merely followed the observations of CIT in order u/s 263 without examining the facts of the case.
3. Briefly stated, the facts are that the assessee M/s. Rexnord Electronics & Controls Ltd. (RECL) filed its return of income for the A.Y. 2009-10 on 27.09.2009 declaring total income at Rs. 46,93,544/-. The Assessing Officer (AO) completed the assessment u/s 143(3) on 28.11.2011 assessing the total income at Rs. 47,03,544/-. RECL had two units namely Kandivali (Non-80IB unit having job work activities) and Daman (80IB unit having manufacturing activities). It debited Rs. 2,70,000/- as Director’s remuneration in Daman unit for Mr. Ram Bahadur Roka and Rs. 21,70,500/- in Kandivali unit for the Directors namely Mr. Kishore Chand Talwar, Mrs. Sharda Talwar and Ms. Nainy K. Tanna. The Commissioner of Income Tax (CIT) found that the Kandivali unit accounted for only 0.38% of the turnover. Therefore, it does not stand to reason that the Directors should be concentrated on Kandivali unit and not on Daman unit. The CIT in his order passed u/s 263 held that the remuneration paid to the Directors should have been apportioned in proportion to the turnover of the company. In response to a query raised by the AO on 23.09.2013, the AR of the assessee filed a reply on 11.10.2013 stating that the Directors remuneration should not be apportioned in proportion to the turnover of the respective unit. The AO was not convinced with the above reply of the assessee and he held that there can be no justification for paying salary to the extent of Rs. 21,70,500/- to the Directors in respect of Kandivali unit when the contribution of this unit to the total turnover is miniscule. The AO took into account the turnover and reallocated the remuneration paid to the Directors and made a disallowance of Rs. 22,05,842/- u/s 80IB of the Act.
4. Aggrieved by the order of the AO, the assessee filed an appeal before the learned CIT(A). We find that the learned CIT(A) agreed with the findings of the AO and dismissed the appeal filed by the assessee.
5. Before us, the learned counsel of the assessee files a copy of unit-wise balance sheet and Profit & Loss account of RECL for the year ended 31.03.2009. He submits that RECL is a public limited company listed on Bombay Stock Exchange. All the statutory requirement for maintaining the accounts, other formalities for shareholders interest, compliance under different laws are being handled from the head office at Kandivali. The unit at Kandivali is inclusive of head office and all the accounts and legal compliance has to be maintained from Kandivali. The corporate address is at 92-D, Government Industrial Estate, Charkop, Kandivali (W), Mumbai – 400067. Therefore, the learned counsel submits that (i) the Directors remuneration is not for two units independently and (ii) Directors remuneration is inclusive of head office work, legal compliance etc. as mentioned in the Directors report. Therefore, the learned counsel submits that the disallowance of Rs. 22,05,842/- made by the AO be deleted. Per contra the learned DR supports the order of the learned 6. CIT(A) confirming the disallowance of Rs. 22,05,842/- made by the A.O.
We have heard the rival submissions and perused the relevant material on record. We find that the AO during the course of assessment proceedings had asked the assessee vide notice u/s 142(1) dated 16.06.2011 to file the major expenses under various heads. In response to it, the assessee had filed its reply dated 25.07.2011 about the claim u/s 80IB and also furnished the details of Directors remuneration vide letter dated 02.11.2011. Having gone through the order of the AO and the unit wise balance sheet and Profit & Loss account of the assessee for the year ended 31.03.2009, we find that the AO has not found any fault in the books of account maintained by the assessee. The AO has also not found any fault in the nature of duties carried out by the Directors in the head office at Kandivali and the factory at Daman unit. The AO should not have reallocated the remuneration paid to the Directors in Kandivali unit and Daman unit without finding fault in the books of accounts and the nature of duties carried out by the Directors. In view of the above, the disallowance of Rs. 22,05,842/- made by the A.O. u/s 80IB is deleted.
In the result, the appeal filed the assessee is allowed.
Order pronounced in the open Court on 11/04/2017