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Income Tax Appellate Tribunal, “C ” BENCH, CHENNAI
Before: SHRI A.MOHAN ALANKAMONY & SHRI. G. PAVAN KUMAR
आदेश / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER:
These two appeals are filed by the assessee are directed against order of Commissioner of Income-tax (Appeals)-2, Tiruchirapalli, dt 06.05.2015 for the assessment year 2006-07 passed u/s.143(3) r.w.s 263 of the Act and assessment year 2007-08 passed u/s.143(3) r.w.s. 147 and 250 of the Income Tax Act, 1961. Since the ITA Nos.2044 &2045/Mds/15 :- 2 -: issue in these appeals are common in nature, these appeals are clubbed, heard together, and disposed of by this common order for the sake of convenience. We take up of assessment year 2006-07 for adjudication.
The assessee has raised only one substantive ground that Commissioner of Income Tax (Appeals) erred in confirming the findings of the Assessing Officer on disallowance of expenditure land and professional income is treated on par with salary income of the assessee.
The Brief facts of the case, the assessee is a Managing Director of M/s.Geeco Enercon (P) Ltd, Trichy and filed return of income on 25.04.2007 for the assessment year 2006-07. The assessee disclosed gross salary from the Geeco Enercon (P) Ltd �3,24,000/- and separately disclosed professional receipts of �21,66,939/- and form 16 was issued for salary income and form 16A was issued for professional income. The ld. Assessing Officer found that the assessee has claimed expenditure of �13,05,119/- in the profit and loss account and net professional income offered to tax �8,61,820/-. The return of income was processed u/s.143(1) of the Act and as per scrutiny norms notice u/s.143(2) was issued and Assessing Officer considered the ITA Nos.2044 &2045/Mds/15 :- 3 -:
information and the submissions of the assessee and completed assessment u/s.143(3) of the Act by disallowing 10% of expenditure being �24,358/- due to non availability of any supporting evidence.
Subsequently, the Commissioner of Income Tax-II, Trichy passed Revision order Sec.263 dated 20.03.2013 in C.No.7143(2)/CIT- II/TRY/2012-13 and set aside the assessment u/s.143(3) of the Act dated 02.12.2011. The Commissioner of Income Tax observed that the assessment order was erroneous and prejudicial to the interest of Revenue, as the professional receipts of the assessee �21,66,939/- has to considered as salary income. The assessee is drawing salary from the company as Managing Director and also received professional income. The ld. Commissioner of Income Tax referred and relied on the provisions of Sec. 17(1)(iv) of the Act. The Commissioner of Income Tax is of the opinion that professional receipts are to be considered as salary income and the assessee is not eligible to claim any expenditure and set aside the order. In compliance to the directions, the Assessing Officer issued notice u/s.142(1) of the Act and called for the details. The ld. Authorised Representative of the assessee appeared on various dates and submitted the details and explained that the assessee is maintaining separate office for his profession and incurring establishment expenditure for running the professional office. Further assessee is also a Managing Director of ITA Nos.2044 &2045/Mds/15 :- 4 -:
Company and received salary income of �3,24,000/-. The ld. Assessing Officer considered that the submissions of ld. Authorised Representative but consolidated the professional income as salary income under provisions of Sec. 17(1)(iv) of the Act and disallowed the expenditure claimed and completed the assessment. The Assessing Officer has deputed Inspector to verify the claim of the assessee for professional consultancy and obtain the report of the Inspector referred at page 3 of the order as under:-
"I have visited the office of the Shri V. Rajagopal in 100, , IV Cross Street, BHELPUR, Tiruverumbur, Trichy-13 on 28/11/2013 which is the residence of the assessee In the upstairs first floor, the office is situated. There is no board displaying an office in that building. Shri. V. Rojagopal is not present at the time of my visit. The enquiry is for verifying the consultancy f fees received' by the assessee from M/S Geecc Enncon Pvt Ltd of which Mr. Rajgagopal is the Managing Director. The consultancy fees was received by the assessee from the company for consultancy done for various customer concerns of M/s Geeco Enercon Pvt. Ltd; at various places for which the assessee stated to have raised Invoice with M/s.Geeco Enercon Pvt. Ltd. It is stated that the consultancy done by the assessee on behalf of the company is for product development fat ,energy savings devising methods for fuel efficient systems and for modification of existing machinery for improving the conservation of power etc. for boilers. It is stated that there is no agreement of terms between the company and Mr. RaJagopol for the consultancy work done by him. During my visit, in the office threeemployeii5 were present. Regarding, those employees claimed to have been employed in the office duing the financial year 2005-06, it is found that there were eight employees only os per the acquaintance register against the ossessee's claim of 10. It is stated that nobody is presently __ employed with the office nor there been any records evidencing their identity" educational qualification, their employment orders, nature of job done, P.F records, ESI records and PtofessianC'l1 Tax records
ITA Nos.2044 &2045/Mds/15 :- 5 -: evidencing their employment produced. Except for an acquaintance register ( with no date in the signature for the period from D1/04/2005 to 31/3/2006, for salary payment for eight persons, viz, Shri. S. Haridas, V. Kumar, L. Chandrasekar, R. Sukumor, P. Selvam, P. Subramanian, , B Subbash and. R. Baskar,. who the assessee claimed were not presently employed in his office. Neither the assessee furnished any address of those employees who worked during the period 2005-06 nor their Identification details furnished for verification. Subsequently on being directed on 10/3/2014, I hove verified the three employees presently working in the office in writing. Shri R. Rajarajan; on being enquired stated that he is working as commercial Manager from 2008 with salary of Rs.20,OOO/- per mensem: The' other employee Shrj C. Jaisankar, an M,Com., graduate stated that he is working from 2008 said he is looking after accounts and is. getting salary of Rs.15,OOO/- per month. Shr.N. Viswanothan, DME stated that he is working from 2001, ., but has not given any designation and has not furnished any appointment order for his employment stated in his letter that h'e is getting salary of Rs.8,OOO/- p.m,. Further, the assessee has confirmed that presently there (are three employees are only working in his office by his letter dated ll/3/20I4. From this" it Is clear that this claim personnel employment lacks any credible proof to prove the claim.
But, it is stated that none of them have any PF, ESI account or they have any appointment order for their employment. Further for the said consultancy for product development for energy savings, devising methods for fuel efficient systems and for modification of existing machinery for improving the conservation of power ne; for boilers as claimed by the assessee in the office, there Is no machineries / tools, gadgetries s for any trials, testing etc. The assessee has not shown any separate £8 connection for the said consultancy office and nor claimed any Ea charges in P&L account also. Hence; in the absence of credible proof of evidence for personnel's employment is his office, the claim of the assessee is not verifiable’’ In the course of assessment, after report of Inspector was obtained the assessee filed letter dt 28.12.2013 with the copy of minutes of Geeco Enercon Pvt. Ltd for services to be rendered by the assessee to ITA Nos.2044 &2045/Mds/15 :- 6 -: the company. The scope of work allocated to the assessee to offer consultancy in designing air pre-heaters, modification to the existing pre-heaters, the inspection of boilers at various sites and give advice on the latest technology for manufacture of boilers. The ld. Assessing Officer found that the invoices raised by the assessee for consultancy services charges includes travelling expenses, accommodation and local conveyances. The ld. Assessing Officer is of the opinion that the invoices are prepared for supporting the claim of the assessee and cannot be relied to support the actual consultancy work. The ld. Assessing Officer has overlooked the contentions of the assessee to maintain confidentiality in the consultancy involving design & methods for boilers. The expenditure does not bear the details of bills raised with the companies and no TDS details were furnished. The Assessing Officer assumed arbitrarily as the assessee is a Managing Director is receiving salary and professional income and treated entire receipts as salary income and passed the order. Aggrieved by the order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals).
In the appellate proceedings, the ld. Authorised Representative of the assessee argued on the grounds raised that Assessing Officer treated the entire consultancy fees as salary income
ITA Nos.2044 &2045/Mds/15 :- 7 -: wereas TDS was deducted by the company u/s.194J of the Act and form 16A was issued. The terms and condition as per minutes of the company is on professional consultancy basis for rendering technical services in the field of product development related to energy savings, devising methods for fuel efficient system, and modification of existing machinery for improving the conservation of power and is purely on assessee’s knowledge and experience. The product working of the company is based on the advice of the assessee expertise.
Further technology has to be upgraded and there is also a separate consultancy setup to develop engineering and design with unique networks with the consultancy. The knowledge product has created a demand in the export market and improved the global image of the company and exposure to international business opportunities. The salary was paid to the assessee as Managing Director only for the Administrative works. The Assessing Officer contended that any fees, commission, perquisite or profit received in addition to salary has to be considered as salary income. The assessee being a technical person is in receipt of dual income under income from salary and income from professional. The ld. Assessing Officer considered working system and application of intellectual guidance of the assessee to increase the business opportunities and demand for the product. The Managing Director is appointed as per the provisions of Companies Act and ITA Nos.2044 &2045/Mds/15 :- 8 -: salary is determined based on the managerial remuneration provided under the law. The assessee has two different roles as Administrator and Consultant. In the appellate proceeding, the ld. Authorised Representative substantiated his arguments with the decisions and objected to consideration of professional receipts as salary income and professional expenditure was not allowed b y the Assessing Officer.
The ld. Authorised Representative relied on the decision of P.
Ramajeyam vs. CIT (2004) 186 CTR Mad 477 . But the ld. Commissioner of Income Tax (Appeals) distinguished the decision based on contract of service or contract for service and relied on the decisions of Apex Court. In the assessment proceedings, the assessee could not establish the consultancy services rendered separately and no evidence was produced to substantiate the claim of expenditure. The ld. Commissioner of Income Tax (Appeals) concurred and confirmed the order of Assessing Officer and dismissed the assessee appeal. Aggrieved by the Commissioner of Income Tax (Appeals) order, the assessee assailed an appeal before Tribunal.
Before us, the ld. Authorised Representative reiterated the submissions of assessment and appellate proceedings and the provisions of law and judicial decisions. The facts being the assessee is a Managing Director in M/s. Geeco Enercon (P)Ltd and also ITA Nos.2044 &2045/Mds/15 :- 9 -:
rendering consultancy services and the salary is paid only for administrative work. The assessee disclosed consultancy charges in profit and loss account and claimed deduction of expenditure incurred for travelling and other establishment expenses. The assessee is a highly qualified engineer by profession and worked in national and international organizations further delivered lecturers on boilers and plant in India and foreign countries and specialized in selection of suitable air pre-heater or modification of the existing equipment. The ld. Authorised Representative argued that PF and ESI was not deducted as the strength of works are much below the limit. The contention of the Assessing Officer that the assessee has not paid electricity charges but it was explained that assessee render services in outstation projects and therefore electricity expenses of office are meager. The assessee receives professional income only from above company and due to consultancy services and opinions, the company is getting orders globally which is more than 60 crores and export turnover substantially increased. The ld. Authorised Representative relied on the decision of jurisdictional High Court in the case of P.
Ramajayam (supra) were the lordship has considered the salary received has to be treated as income from salary and commission for services is offered as income from business or profession. The assessee was appointed for administrative work and as consultant for &2045/Mds/15 :- 10 -: expertise opinion on boilers which increased the progress of the business and pleaded for allowing the appeal.
Contra, the ld. Departmental Representative relied on the orders of the lower authorities and vehemently opposed to the ground and prayed for dismissal the appeal.
We heard the rival submissions, perused the material on record and judicial decisions cited. The ld. Authorised Representative contention that the assessee has been appointed as Managing Director to look after administrative work and salary is payable for such company works and at the same time as per the decision of board of Directors, the assessee was appointed as consultant as he was qualified and worked at National and International units similar to the business of the assessee company. The assessee is eligible to receive consultancy fees and claim expenditure. The nature of expenditure being travelling, lodging, conveyance incurred at various places of Thermal power station, refinery and such expenditure was incurred wholly and exclusively for the purpose of profession and due to expertise opinion of the assessee, the company could fetch export orders and improved the brand image which is not disputed by the Assessing Officer. The ld. Assessing Officer relied on report of the &2045/Mds/15 :- 11 -:
Inspector that assessee does not make payments of ESI & PF on behalf of employees. The assessee being professional and employees are below the limit for applicability of ESI and PF provisions. The assessee most of time is out stations and electricity bills are meagre and claimed in his personal account. At the time of hearing ld. Counsel drew our attention to the statement of salary and professional income received for assessment year 2006-07 and 2007-08 explaining with comparable turnover of the company and export turnover. The assessee is rendering service for past several years and connected with the company and due to his efficient advice the company could able to increase its turnovers. We found as per the provisions of section 17 of the Act which includes certain items of receipts as salary but in order that a particular receipt is treated as salary, it is fundamental requisite that employee and employer are related by agreement and any income derives from connection is treated as salary. But in receipt of professional income of �21,66,939/-, the assessee is a consultant to the company as per the minutes of Board of Directors and form no.16A was issued on such terms and conditions agreed between them. Therefore, we are of the opinion that the assessee has provided expertise in product management of the business due to national and international experience in the field of Boilers and has rightly offered the income under the profession and &2045/Mds/15 :- 12 -: claimed establishment expenditure. Therefore, we direct the Assessing Officer to exclude the professional income clubbed in salary income and we allow the appeal of the assessee. 8. To sum up, the appeals of the assessee in & 2045/Mds/2015 for assessment years 2006-07 and 2007-08 are allowed.
Order pronounced on Tuesday, the 19th day of April, 2016 at Chennai.