Income Tax Appellate Tribunal - Pune
Deputy Commissioner Of Income Tax,, ... vs M/S. Associate Dairy Fab Pvt.Ltd,, ... on 28 February, 2019
आयकर अपील य अ धकरण "बी" यायपीठ पण
ु े म ।
IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH, PUNE
BEFORE SHRI ANIL CHATURVEDI, AM AND
SHRI PARTHA SARATHI CHAUDHURY, JM
आयकर अपील सं. / ITA No. 563/PUN/2017
नधा रण वष / Assessment Year : 2012-13
The Deputy Commissioner of Income Tax,
Circle-1, Jalgaon.
.......अपीलाथ / Appellant
बनाम / V/s.
M/s. Associate Dairy Fab Pvt. Ltd.
B-5/1, MIDC Area,
Jalgaon-425 002.
PAN : AAECA3963F
...... यथ / Respondent
Assessee by : Shri Nikhil Pathak
Revenue by : Shri Abhijit Haldar
सन
ु वाई क तार ख / Date of Hearing : 28.02.2019
घोषणा क तार ख / Date of Pronouncement : 28.02.2019
आदे श / ORDER
PER PARTHA SARATHI CHAUDHURY, JM :
This appeal preferred by the Revenue emanates from the order of Ld. CIT(Appeal)-2, Nashik dated 09.12.2016 for the assessment year 2012-13 as per following grounds of appeal on record.
"1.On the facts and circumstances of the case, the Ld.CIT-A has erred in deleting the addition made on account of Service Charges and commission paid at Rs.28,69,850/-.2 ITA No.563 /PUN/2017
A.Y.2012-13
2. On the facts and circumstances of the case, the Ld. CIT-A has erred in deleting the addition made on account of Foreign Travelling Expenses at Rs.7,06,987/-, without considering the fact that the tours were not made for business purposes, since the assessee could not submit any plausible evidences.
3. On the facts and circumstances of the case, the Ld.CIT-A has erred in deleting the addition made on account of Excess Remuneration paid to Directors at Rs.1,00,00,000/-.
4. On the facts and circumstances of the case, the Ld.CIT-A has erred in deleting the addition made on account of Excess Interest payment of Rs.8,28,731/-.
5. The appellant craves leave to add, alter, modify, delete amend any of the grounds with prior permission of the Hon'ble Pr. CIT, as per the circumstances of the case.
5. The appellant prays to file any of the additional evidence, with the permission of Hon'ble Pr. CIT, appropriate to the grounds taken in appeal."
2. Ground No.1 is in respect of service charges and commission paid of Rs.28,69,850/-. The Ld. CIT(A) on the issue has held as under:
"8.2 I have carefully considered the facts of the case and rival contentions. On perusal of the same it has been noticed that the A.O. had disallowed service charges and commission expenses as he found the supporting evidence filed by the appellant to be inadequate. The A.O. has also stated that he appellant had not proved agents involvement and role in business. On the other hand the appellant has submitted that it had filed ledger extracts of service charges and commission paid, nature of services rendered for which commission was paid, invoices raised by the agents as well as complete list of sale made by the agents on which commission was payable to them. vide letter dated 06/01/2015. The appellant has also submitted that the commission and service charges paid are only 1.56% of total turnover and hence reasonable. The appellant company has also deducted and paid 10% TDS on the impugned payment and paid the same into Govt. treasury. The appellant has submitted that the A.O had not asked for further information in respect of the submission filed on 06/01/201 S. The appellant has filed detailed activities performs by commission agents. The appellant has further pointed out that the similar ground of disallowance in the case of the appellant for A.Y. 2011-12 was decided by CIT(A) vide order dated 17/06/2016 in favour of the appellant Company.
In view of the above facts and discussion, I am of the considered view that the AO is not justified in disallowing service charges and commission of Rs.28,69,850/-. The addition of Rs.28,69,850/- is therefore deleted. Ground No. 4 is allowed."3 ITA No.563 /PUN/2017
A.Y.2012-13
3. We observe that the Ld. CIT(A) has followed the decision in assessee's own case for the assessment year 2011-12 wherein the same issue was decided in favour of the assessee company.
3.1 The Ld. DR for the Revenue has placed strong reliance on the order of the Assessing Officer.
4. At the time of hearing the Ld. AR of the assessee also invited our attention to the order of Pune Bench of the Tribunal in ITA No.1914/PN/2016 in assessee's own case wherein the Revenue had preferred appeal before the Tribunal and on the issue while providing relief to the assessee, the Pune Bench of the Tribunal has held as under:
"4. Next ground is against deletion of addition on account of Services charges and commission paid at Rs.27,84,960/-.
5. The AO discussed this issue in Para No.4.2 of his order. He made addition of Rs.27.84 lakhs towards service charges and commission by observing that, except for invoices, there was no other evidence to substantiate the involvement of the persons in fetching the business. The ld. CIT(A) deleted such addition by relying on his order for A.Y. the 2009-
10.
6. We have gone through the order passed by the Tribunal in-assessee's own case for the A.Y. 2009-10 (supra) in which this issue has been discussed at Para No.28 onwards and eventually the ground of the Revenue was dismissed. Since facts and circumstances of the ground for the instant year are similar to those of the assessment year 2009-10, respectfully following the precedent, we uphold the deletion of addition."
We, therefore, respectfully following our decision in ITA No.1914/PUN/2016, sustain the relief provided to the assessee by the Ld. CIT(A). Hence, ground No.1 raised in appeal by the Revenue is dismissed.
5. Ground No.2 is in respect of Foreign Travel Expenses at Rs.7,06,987/-.
The Assessing Officer made this addition as appearing in Para 4.2 of the assessment order stating as under:
4 ITA No.563 /PUN/2017A.Y.2012-13 "4.2 Foreign travelling expenses:
On going through the details of Profit and Loss account, it is revealed that the assessee has claimed foreign travel expenses of Rs.14,13,974/-. The assessee company was requested to substantiate its claim in this regard with sufficient documentary evidences. In response the assessee has submitted few bills, but no such evidence like boarding passes, copy of Air Tickets and other expenses have been submitted. Further the details and supporting evidence filed is t00 inadequate. In the absence of any evidence to prove that the expenditure was incurred for the purpose of business, assessee's claim for deduction cannot be accepted. However considering the facts and circumstances of the case, the nature of the assessee's business, I hereby disallow 50% or the same which works out to Rs.7,06,987/- and add back to the total income of the assessee company."
6. Thereafter, the assessee during the course of First Appellate proceedings, filed detailed written submission which are on record and therein, the assessee provided the breakup of the foreign travel expenses as incurred by the assessee trip wise along with purpose of travels and therein, it is evident that only directors of the company has gone for the foreign travel and they were not accompanied by any family members. The Ld. CIT(A) on the issue has held as under:
"7.2 I have carefully considered the facts of the case and rival contentions. On perusal of the same it has been noticed that the AO. had disallowed foreign travelling expenses as he found the supporting evidence filed by the appellant to be inadequate and has also stated that the appellant had not proved that the expenditure was incurred for business purposes, On the other hand appellant has submitted that the complete details of foreign trips were filed on the record of the AO vide submission dated 11/02/2015. The appellant had filed detailed submission which is reproduced in the preceding para along with supporting evidence which is adequate. The appellant had also submitted the business purpose for which the foreign trips were undertaken by the company. The foreign trips were undertaken 'with the associates to whom the company had made substantial sale for visiting the factories in foreign country, carrying on related business, which is in the interest of the appellant company. In support of Ground No.3, the appellant has relied on the decision in the case of I.J. Tools & Castings (P) Ltd Vs. ACIT, 139 ITD 414 ( Ars-Trib.) which supports the appellant's contention.
It has also been noticed that the director of the company has made foreign travel with the business associates and related parties and not with his spouse or other family members. Therefore, no personal element of expenditure is found to have been incurred. The expenditure is also found to be of revenue nature and incurred for the purpose of 5 ITA No.563 /PUN/2017 A.Y.2012-13 business. Therefore, the impugned expenditure is allowable u/s. 37(1) of the I.T.Act.
In view of the above facts and discussion, I am of the considered view that the AO is not justified in disallowing foreign travelling expenses of Rs.7,06,987/-. The addition of Rs.7,06,987/- is therefore, deleted. Ground No.3 is allowed."
7. At the time of hearing the Ld. AR of the assessee submitted that this issue is also covered in their favour by the decision of Pune Bench of the Tribunal in assessee's own case for the assessment year 2011-12 in ITA No.1914/PUN/2016 wherein the Tribunal has provided relief to the assessee by observing as under:
"14. The assessee incurred Foreign Travel expenses at Rs.11,93,992/-. The AO disallowed the entire sum by holding that the assessee did not furnish any evidence to prove that the expenditure was incurred for the purpose of business. The ld. CIT(A) examined the details and came to hold that the assessee had furnished the evidence. He further noticed that the foreign travel expenses were incurred in respect of business visits undertaken by the Directors and other executives of the assessee company and no family member of such employees accompanied them on foreign visits. He, ergo, deleted the addition. This is how, the Revenue has come up in appeal before the Tribunal.
15. Having heard both the sides and gone through the material on record, it is observed from the factual position narrated in the impugned order that the foreign visits were undertaken only by the Employees/Directors of the assessee company for business purpose and no family member of such executives accompanied them. This has not been controverted on behalf of the Revenue. The Tribunal vide its aforesaid order for the preceding year has sustained the addition in respect of family members accompanying the Employees/Directors of the company. In so far as the other expenses towards foreign visits of the Directors/Employees are concerned, the same stood allowed. Since no family member of the Directors/Employees of the assessee company accompanied such visiting persons, in our considered opinion, no disallowance is warranted. The same is held to have been rightly deleted."
We observe that on perusal of the case records, the Ld. CIT(A) has provided relief to the assessee for assessment year 2011-12 and thereafter, the Revenue had preferred appeal before the Tribunal and on the issue again, it was decided by the Tribunal that findings of the Ld. CIT(A) was correct.
6 ITA No.563 /PUN/2017A.Y.2012-13 Respectfully, following our decision in ITA No.1914/PUN/2016, we allow the relief provided to the assessee by the Ld. CIT(A) in this relevant assessment year 2012-13 also. Hence, ground No.2 raised in appeal by the Revenue is dismissed.
8. Ground No.3 is with respect to excess remuneration paid to Directors at Rs.1,00,00,000/-. The Ld. CIT(A) on this issue has held as under:
"11.2 I have carefully considered the facts of the case and rival contentions. On perusal of the same it has been noticed that the AO has made this addition of Rs.1,00,00,000/- on account of disallowance of directions remuneration stating the following reasons:
1) The remuneration to directors consists of fixed payment and commission calculated on the basis of turnover achieved. In the year under appeal, the turnover of the company has decreased by Rs.2.32 Cr., whereas, the remuneration paid is Rs.1,46,42,106/-, which is excessive and unreasonable.
2) No proper and reasonable justification was submitted by the appellant for allowing remuneration of Rs.1,46,42,106/-
3) Considering the involvement and nature of services provided by directors, the remuneration is justified only to the extent of Rs.46,42,106/-
On the other hand the appellant has submitted the working of remuneration on the basis of fixed remuneration and variable remuneration at certain percentage of turnover. The appellant company has also submitted the services rendered by the directors and the justification for payment of remuneration to directors. The appellant submitted that the above facts were brought on record of the A.O. during assessment proceedings vide letter dated 29/12/2014. It has also been noticed the A.O. had impliedly made addition u/s.40A(2)(a) of the IT. Act. As per the said section if the Assessing Officer is of the opinion that such expenditure is excessive or unreasonable, having regard to the fair market value of the goods, services or facilities then only the disallowance can be made. Therefore, for making the disallowance, the A.O. has to bring on record the fair market value of services rendered by the directors and comparing the same with the remuneration paid to directors and then only, the 'disallowance can be made. The above proposition is supported by various decisions relied on by the appellant and reproduced in the preceding para. In the case under appeal, the A.O. has not brought on record the fair market value of the services rendered by the directors, considering their qualification and experience.
7 ITA No.563 /PUN/2017A.Y.2012-13 The A.R. of the appellant company has further pointed out that the appellant company and the directors are liable to tax at the same rate i.e. maximum marginal rate and hence there is no tax evasion in view of the decisions of Hon'ble Bombay High Court, in the cases of CIT Vs. V.S. Dempo & Co. Pvt. Ltd. and CIT Vs, Indo Saudi Services (Travels) P. Ltd. In these cases, it has been laid down that the provisions of section 40A(2)(b) should not have been applied as the sister concern to whom the commission has been paid at little higher rate is also assessed to tax at maximum rate. The Hon'ble court has also referred to the CBDT circular No.6-P dated 06/07/1968 wherein it is stated that no disallowance is to be made u/s. 40A(2) in respect of payments made to relatives and sister concerns where there is no attempt to evade tax. The ratio laid down by the above mentioned decisions are applicable to the case under appeal.
In view of the above facts and discussion, I am of the considered view that the AO is not justified in disallowing directors remuneration amounting to Rs.1,00,00,000/-. The addition of Rs.1,00,00,000/- is therefore deleted. Ground No.8 is allowed."
That on giving thoughtful consideration to the findings of the Ld. CIT(A), we find that the he relied on the decision of the Hon'ble Bombay High Court in the case of CIT Vs. Dempo & Co. Pvt. Ltd. and CIT Vs. Indo Saudi Services (Travels) P. Ltd. In these cases, it has been held that the provisions of section 40A(2)(b) should not have been applied as the sister concern to whom the commission has been paid at little higher rate is also assessed to tax at maximum rate. The Hon'ble court has also referred to the CBDT circular No.6-P dated 06/07/1968 wherein it is stated that no disallowance is to be made u/s. 40A(2) in respect of payments made to relatives and sister concerns where there is no attempt to evade tax. The Ld. AR also pointed out that in the Revenue's appeal in ITA No.1914/PUN/2016 for assessment year 2011-12, on this issue, the Tribunal has held as under:
"7. The next ground is against the deletion of addition of Rs.1,20,93,770/- made by the AO on account of excess remuneration paid to Directors.
8. The facts of this ground as recorded in Para No.4.9 of the assessment order are that the assessee paid remuneration to its two Directors at Rs.1.56 crore. The AO observed that although the turnover 8 ITA No.563 /PUN/2017 A.Y.2012-13 of the company for the instant year got reduced but the Directors' remuneration was increased by Rs.30.71 lakh. Allowing deduction for a sum of Rs.36 lakh, the AO made disallowance of Rs.1,20,93,770/- u/s.40A(2)(a) of the Act. The ld. CIT(A) deleted the addition.
9. We have heard the rival submissions and gone through the relevant material on record. It is seen that the assessee effected turnover of Rs.14.13 crore for the A.Y. 2009-10 and remunerated its Directors by Rs.1.36 crore. As against this, for the year under consideration, the assessee effected sales of Rs.17.40 crore and remunerated its Directors by Rs.1.56 crore. The addition made under similar circumstances for the A.Y. 2009-10 has been deleted. As there is an increase in the volume of turnover vis-à-vis the amount of remuneration to the Directors with reference to the A.Y. 2009-10, we are of the considered opinion that no disallowance is called for u/s.40A(2)(a) of the Act. It is further a matter of record that the amount of remuneration in the hands of the Directors has also been taxed at the maximum marginal rate. In that view of the matter also, the disallowance is not sustainable. We, therefore, uphold the deletion of addition."
Respectfully, following the same, we uphold the relief provided to the assessee by the Ld. CIT(A) for assessment year 2012-13 on this ground.
Hence ground No.3 raised in appeal by the Revenue is dismissed.
9. Ground No.4 relates to excess interest payment of Rs.8,28,731/-. The Ld. CIT(A) on this issue has held as under:
"5.2 I have carefully considered the facts of the case and rival contentions. On perusal of the same it has been noticed that AO had made addition of Rs.8,28,731/- on account of disallowance of interest paid in excess of 12% stating that all the depositors are persons specified u/s.40A(2)(b) of the Act and considering rate of borrowings from banks/financial institutions security offered etc. the allowable interest is 12% and hence interest to the extent of 3% is disallowable.
On the other hand the A.R. of the appellant has claimed that the interest on loan @ 15% is reasonable as in case of bank loan various time consuming formalities are to be complied with and security and bank guarantee is to be given. whereas, loans from private parties can be obtained on demand. Further, substantial processing ete. charges are to be paid to banks, whereas, no such charges are required to be incurred for obtaining loans from private parties. The contention of the appellant that the interest paid @ 15% is reasonable in view of market rate of borrowing from private parties and not excessive and hence no disallowance of interest is justified is supported by the following decisions:9 ITA No.563 /PUN/2017
A.Y.2012-13 a. Bansidhar Onkarmal Vs. CIT (1965) 58 ITR 462 ( Orissa) b. ACIT Vs. HH Patel & Company, ITA No. 2167/PN/2012 order dated 15/12/2014 c. Som Dutt Goes & Sons Vs. ITO 27 DTR 263 ( ITAT Delhi) d. Satyanarayan Keshoram P Ltd. Vs. DCIT (2009) 122 TTJ 839 ( Luc.) Further the contention of the appellant that on the facts of the case disallowance of interest is not justified is also supported by various decisions relied on by the appellant.
In view of the above facts and ratio laid down by the above decisions, I am of the considered view that the AO is not justified in making addition Rs.8,28,731/- on account of disallowance of interest u/s.40A(2)(b) of the Act. The addition of Rs.8,28,731/- is therefore deleted. The AO is directed accordingly. Ground No.1 is allowed."
10. That in the Revenue's appeal also in ITA No.1914/PUN/2016 for the assessment year 2011-12 on the issue, the Tribunal has held as under:
"10. Ground No.4 is against deletion of addition on account of excess interest payment of Rs.4,26,767/-.
11. The AO has discussed this issue in Para No.4.10 of his order. He noticed that the assessee paid interest to its depositors at Rs.21,33,833/- calculated @15% (sic 18%). All the persons to whom interest was paid were covered u/s. 40A(2)(b) of the Act. He restricted the interest payment at 12% and made disallowance for the remaining 3%, which came to Rs.4,26,767/-. The ld. CIT(A) deleted such addition.
12. After hearing the rival submissions and perusing the relevant material on record, we find from page 17 of the paper book, which is a copy of account statement issued by State Bank of India. Such statement depicts charging of interest from the assessee at Rs.15.75%. Since the assessee has paid interest to its depositors at the lower rate of 15%, in our considered opinion, no fault can be found by the ld. CIT(A) in deleting this addition.
The Ld. CIT(A) has provided relief to the assessee by placing reliance on binding judicial pronouncements as appearing in his order and similarly, in Revenue's appeal in ITA No.1914/PUN/2016 for the assessment year 2011-12, the Tribunal has decided the issue in favour of the assessee.
Respectfully, following our decision for the assessment year 2011-12, the 10 ITA No.563 /PUN/2017 A.Y.2012-13 relief provided to the assessee in assessment year 2012-13 is thereby sustained and ground No.4 raised in appeal by the Revenue is dismissed.
11. Ground Nos. 5, 6 and 7 are general in nature and hence, requires no adjudication.
12. In the result, appeal of the Revenue is dismissed.
Order pronounced on 28th day of February, 2019.
Sd/- Sd/- ANIL CHATURVEDI PARTHA SARATHI CHAUDHURY ACCOUNTANT MEMBER JUDICIAL MEMBER
पुणे / Pune; दनांक / Dated : 28th February, 2019. SB आदे श क! " त$ल%प अ&े%षत / Copy of the Order forwarded to :
1. अपीलाथ / The Appellant.
2. यथ / The Respondent.
3. The CIT(Appeals)-2, Nashik.
4. The Pr. CIT-2, Nashik.
5. "वभागीय %त%न&ध, आयकर अपील य अ&धकरण, "बी" ब*च, पण ु े / DR, ITAT, "B" Bench, Pune.
6. गाड- फ़ाइल / Guard File.
// True Copy // आदे शानस ु ार / BY ORDER, %नजी स&चव / Private Secretary आयकर अपील य अ&धकरण, पण ु े / ITAT, Pune.
11 ITA No.563 /PUN/2017A.Y.2012-13 Date 1 Draft dictated on 28.02.2019 Sr.PS/PS 2 Draft placed before author 28.02.2019 Sr.PS/PS 3 Draft proposed and placed JM/AM before the second Member 4 Draft discussed/approved by AM/JM second Member 5 Approved draft comes to the Sr.PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr.PS/PS 7 Date of uploading of order Sr.PS/PS 8 File sent to Bench Clerk Sr.PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order