RICHMOND REALTY P.LTD,MUMBAI vs. ITO 10(2)(2), MUMBAI

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ITA 5595/MUM/2012Status: DisposedITAT Mumbai03 March 2016AY 2009-104 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The tribunal set aside the disallowance under Section 14A for fresh adjudication due to a change in legal precedent. The disallowance of director remuneration was upheld as the assessee failed to justify the quantum.

What were the facts?

The assessee appealed against disallowances made under Section 14A and for remuneration paid to directors. The assessee did not appear for the hearing, and the appeal was decided ex parte.

What were the issues?

Whether disallowance under Section 14A is justified when dividend income is nil, and whether remuneration paid to directors is excessive and requires disallowance.

Which sections of the Income-tax Act were involved?

Section 14A,Section 40A(2)(a)

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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI

Before: SHRI B.R. BASKARAN (AM) & SHRI RAM LAL NEGI (JM)

For Respondent: Shri B.S. Bist (Sr. DR)
Hearing: 03.03.2016Pronounced: 03.03.2016

PER B.R. BASKARAN, AM :- The assessee has filed this appeal challenging the order dt. 28.6.2012 passed by Ld. CIT(A)-22, Mumbai for Assessment Year 2009-10 on the following issues – (a) disallowance made u/s 14A of the Act. (b) disallowance of part of remuneration paid to the Directors.

2.

None appeared on behalf of the assessee. We noticed that the assessee has filed this appeal way back in September, 2012.

2 M/s. Richmond Realty Pvt. Ltd.

1.

Subsequently in 2015, the notice was sent by Registered Post to the address given in Form No. 36 but the same was returned by the postal department with the noting that the assessee did not collect the tapal despite notice given by them to the assessee two times. Since the appeal is an old one, we prefer to dispose of the appeal, ex parte, without the presence of the assessee.

3.

We heard the Ld. DR and perused the record. The first issue relates to disallowance made u/s 14A of the Act. The assessee has held investments in shares to the tune of Rs. 13.70 crores. The assessee did not receive any dividend income. However, the AO took the view that the disallowance is required to be made as per Rule 8D, and accordingly computed the disallowance of Rs.4,78,890/- under Rule 8D(2)(iii) of the Income Tax Rules. The Ld CIT(A) also confirmed the same by following the decision rendered by the Delhi Special Bench of the Tribunal in the case of Chem Investments Ltd. (124 TTJ 577).

4.

We heard the Ld. DR on this issue. The decision rendered by the Special Bench in the case of Chem Investments Ltd. has since been reversed by the Hon’ble Delhi High Court. Hence, we are of the view that this issue requires afresh adjudication. Accordingly, we set aside the order of the Ld. CIT(A) on this issue and restore the same to his file with the direction to adjudicate the same afresh after hearing the assessee.

5.

The next issue relates to disallowance of part of remuneration paid to the Directors. The AO noticed that the assessee declared income of Rs. 10 lacs only against which it had claimed Rs. 4.31 lacs towards various expenses. Besides the above, the assessee had also 3 M/s. Richmond Realty Pvt. Ltd.

paid remuneration to its Directors to the extent of Rs. 17.00 lacs. The AO considered the same to be on the higher side and accordingly disallowed 60% thereof. The Ld. CIT(A) also confirmed the same.

6.

We heard the Ld. DR on this issue and perused the record. We noticed that the Ld. CIT(A) has confirmed the order of the AO on this issue by placing reliance on the decision rendered by the jurisdictional Bombay High Court in the case of CIT v. Sathrunjay Diamond (261 ITR 258) and also the decision rendered by the Hon’ble Supreme Court in the case of Nund & Samont Co. Pvt. Ltd. (78 ITR 268).

7.

We heard the Ld. DR on this issue and perused the record. We noticed that the remuneration paid to the Directors have been tested under the provisions of Sec. 40A(2)(a) of the Act. We noticed that the assessee has failed to justify the quantum of remuneration paid to its Directors. Under these set of facts, we do not find any infirmity in the order passed by the Ld. CIT(A) on this issue.

8.

In the result, the appeal filed by the assessee is treated as partly allowed for statistical purposes.

Order has been pronounced in the Open Court on 03.03.2016.

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