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Income Tax Appellate Tribunal, MUMBAI BENCHES “B”, MUMBAI
Before: Shri Joginder Singh, & Shri Ashwani Taneja
आदेश / O R D E R
Per Joginder Singh (Judicial Member) The assessee is aggrieved by the impugned order dated 29/09/2010 of the First Appellate Authority, Mumbai, The only ground agitated by the assessee is with respect to levy of penalty of Rs.20,44,735/- u/s 271(1)(c) of the Income tax Act, 1961 (hereinafter the Act).
During hearing, the ld. counsel for the assessee, Shri Ronak G. Doshi, at the outset, claimed that on identical facts, for Assessment year 1999-2000 and 2001-02 vide order dated 07/01/2011, the penalty levied u/s 271(1)(c) was deleted by the Tribunal in and ITA No.3154/Mum/2007. This factual matrix was consented to be correct the ld. DR, Shri M. V. Rajguru. No contrary facts were brought to our notice by either side.
2.1. We have considered the rival submissions and perused the material available on record. In view of the above, we are reproducing hereunder the relevant portion from the order of the Tribunal dated 07/01/2011 for ready reference:-
“In both these appeals the orders of the Ld. CIT(A) have been challenged for confirming the levy of penalty u/s.271[1][c] amounting to Rs.4,84,167/- and Rs.5 lakhs for A.Yrs. 1999-2000 and 2001-02. 2. In the grounds of appeal for A.Y 1999-2000 the amount of penalty has been shown at Rs.6,20,064/- but the Ld. counsel of the assessee pointed out that this amount was actually Rs.4,84,167/- because
M/s Boots Piramal Healthcare Pvt Ltd. penalty in respect of depreciation on vehicle was deleted by the CIT(A) himself, whereas the total amount was mentioned in the ground is Rs.6,20,064/-. In this regard he has also filed a letter that this amount should be taken at Rs.4,84,167/- and, therefore, for adjudication of the appeal for A.Y 1999-2000 we are considering the amount of Rs.4,84,167/- only.
In both these cases during assessment proceedings the salary paid to the Managing Director was disallowed mainly on the basis that assessee company was not responsible to make such payments in terms of shareholders agreement. The additions were confirmed by the CIT(A) and, accordingly, AO invoked Explanation 1 to section 271[1][c] and levied penalty @ 100%.
The action of the AO has been confirmed by the ld. CIT(A).
Before us Ld. counsel of the assessee referred to page-54 of the paper book, which is a copy of the Shareholders Agreement between the assessee company and Boots Company, PLC who was a foreign partner in the joint venture. He invited our attention to clause 9.13 through which it was agreed that Boots Company, PLC i.e. joint venture partnership was responsible for payment of salaries and other expenses in relation to the Managing Director. He submitted that, in fact, the Managing Director was to be appointed by Boots Company, PLC because the joint venture partner’s wanted its own representative as they were 51% shareholders in the joint venture of the assessee company. However, later on their representative Mr. Khoo Seng Chee Joseph resigned and, therefore, assessee company proposed the name of Mr. Tarun Pasricha to be appointed as the Managing Director and this proposal was accepted by the foreign partner. In this regard he referred to pages 55 to 57 of the paper book which is a copy of the Board’s Resolution accepting the resignation of Mr. Khoo Seng Chee Joseph and appointment of Mr. Tarun Pasricha. Since the representative of the assessee company was appointed as the Managing Director, assessee also verbally agreed to pay the remuneration which was in excess of the limits prescribed under sections 198/349 of the Companies Act and in this regard he referred to page-21 of the paper book, which is a copy of M/s Boots Piramal Healthcare Pvt Ltd.
notes to the financial statement showing the calculation of the remuneration. As the remuneration was in excess of the limits prescribed under the Companies Act, assessee company further applied to the Government of India for approval of remuneration and the Government of India approved the same on 8-6-2001 and in this regard he filed the copy of the approval letter. He argued that mere disallowance of expenditure cannot lead to automatic levy of penalty. In the case before us genuineness of remuneration for rendering of services by the Managing Director has not been doubted by the Department. The Shareholders Agreement was not changed because it required lots of formalities and could have taken many months because certain approvals were also required.
On the other hand, Ld.DR strongly supported the order of the CIT(A) and pointed out that it was clearly found by the AO that as per Shareholders Agreement the other partner of the joint venture i.e. M/s. Boots Company, PLC was required to pay the remuneration and, therefore, there was no justification for claiming this expenditure when assessee was not at all responsible for making such payments. He strongly relied on the decision of the Hon’ble Supreme Court in the case of Dharmendra Textile Processors 212 CTR (SC) 432 and the decision of the Hon’ble Madras High Court in the case of Thirupathy Kumar Khemka & Another vs. CIT [291 ITR 122].
We have considered the rival submissions carefully and find that, admittedly, the Managing Director was to be appointed by M/s. Boots Company, PLC as per the Shareholders Agreement and, in fact, the appointment was made accordingly. However, the representative of M/s. Boots Company, PLC, Mr. Khoo Seng Chee Joseph resigned and later on the representative of the assessee company Mr. Tarun Pasricha was appointed as the Managing Director. His appointment as well as the fact of resignation of Mr. Khoo Seng Chee Joseph has been duly reported in the Directors Report. The fact of appointment of Mr. Tarun Pasricha has not been doubted. Further, we find that remuneration paid to Mr. Tarun Pasricha came to Rs.13,83,3336/-, whereas he could have been paid only a sum of Rs.10,14,343/- [see page 21 of the calculation of the M/s Boots Piramal Healthcare Pvt Ltd.
managerial remuneration] in terms of sec.349 of Companies Act and, accordingly, even approval of the Government of India for such excess payment was sought and the same was approved vide letter dated 8-6-2001 by Ministry of Law & Justice and Company Affairs, Department of Company Affairs, Government of India. Therefore, it is clear that salary was definitely paid to Mr. Tarun Pasricha which was duly approved by the government and even his services have not been doubted. Merely, because a foreigner who was earlier the managing director resigned and then a nominee of the Indian company was appointed, then it is not necessary for the joint venture partner to amend the Shareholders Agreement which involves lots of time and expenditure which may not have been feasible because of the smallness of the item of the expenditure. We further find that in the case of Dharmendra Textiles Processors [supra], the main issue was whether mens rea is required for levy of penalty or not and the Hon’ble court held that while dealing with the civil penalty statutory provisions are enough and no mens rea is required. But it does not mean that in all cases where addition has been made penalty has to be levied. Similarly, in the case of Thirupathy Kumar Khemka & Another vs. CIT [supra], the assessee had not disclosed the amount of interest u/s.244A received on the refund of income tax in his income. Further some credits were also not explained and that is why levy of penalty was confirmed by the Hon’ble High Court. Whereas in the case before us, the genuineness of the expenditure is not doubted. The only problem is that originally the assessee was not to bear this expenditure. However, because of business necessity or legal complications to change the terms of Shareholders Agreement, assessee chose to make the payment of the Managing Director, it cannot be said that assessee has filed any inaccurate particulars or concealed any income. If a legitimate claim has been made, then disallowance of the same would not lead to the penal consequence and as pointed out by the Ld. counsel of the assessee even the Hon’ble Supreme Court has held accordingly in the case of CIT vs. Reliance Petro Products Pvt. Ltd. 322 ITR 158. In these circumstances, we are of the view, that this is not a fit case for levy of penalty and, accordingly, we delete the same.
M/s Boots Piramal Healthcare Pvt Ltd.
In the result, appeals of the assessee are allowed.” Considering the aforesaid order dated 07/01/2011 and the decision from Hon’ble Apex Court in CIT vs Reliance Petro Products Pvt. Ltd. (2010) 322 ITR 158 (SC), wherein, on the issue whether merely because, the assessee has claimed expenditure, which was not accepted or was not acceptable to the Revenue that by itself would not attract penalty, clearly favours the claim of the assessee. Respectfully following the order from the Coordinate Bench and the binding decision from Hon’ble Apex Court and further uncontroverted factual matrix contained in the order of the Tribunal on the same issue, we direct the Ld. Assessing Officer to delete the penalty.
Finally, the appeal of the assessee is allowed.
This order was pronounced in the open court in the presence of Ld. representative from both sides at the conclusion of the hearing on 25/04/2016.