Income Tax Appellate Tribunal - Patna
Acit, Patna vs Renovision Exporters Pvt. Ltd., Patna on 6 April, 2017
1 IN THE INCOME TAX APPELLATE TRIBUNAL, PATNA BENCH:PATNA Before Shri Aby T. Varkey, Judicial Member and Shri Waseem Ahmed, Accountant Member ITA No. 250/Pat/2013 Assessment Year:2010-11 Assistant Commissioner of बनाम M/s. Renovision Exports Pvt.
Income-tax, Cirle-2, Patna Ltd., REPL Plaza,
/
Phulwarisharif, Patna
V/s.
PAN: AABCR7100A
अपीलाथ /Appellant .. यथ /Respondent
&
C.O. No.01/Pat/2014
In ITA No. 250/Pat/2013
Assessment Year:2010-11
M/s. Renovision Exports Pvt. बनाम Assistant Commissioner of Ltd Income-tax, Cirle-2, Patna / V/s.
Assessee/Cross Objector .. यथ /Respondent
अपीलाथ क ओर से/By Revenue Shri S. K. Paul, DR
यथ क ओर से/By Assessee Shri S. K. Narayan,
Advocate
सुनवाई क तार ख/Date of Hearing 06-04-2017
घोषणा क तार ख/Date of Pronouncement 06-04-2017
आदे श /O R D E R
PER Bench:
This appeal filed by the revenue and the Cross Objection filed by the assessee are arising out of order of Commissioner of Income-tax(Appeal), Dhanbad dated 30-09-2013 for AY 2010-11. Since both the appeal and the cross objection have been heard together we dispose of the same by this consolidated order for the sake of convenience.
2. The first and second grounds of appeal of revenue is against the action of Ld. CIT(A) in deleting the disallowance made by the AO taking note that the directors' 2 ITA No. 250/Pat/2013 Renovision Exports Pvt. Ltd., AY 2010-11 remuneration is excessive u/s. 40A(2) of the Income-tax Act, 1961 (hereinafter referred to as the "Act").
3. At the outset itself, it was pointed out by the Ld. Counsel for the assessee that in the statement of facts filed along with the grounds of appeal, the AO has stated that the order of the Ld. CIT(A) is acceptable on the issue of deletion of addition of Rs.46,32,000/- made under the head 'part disallowance of directors' remuneration'. So, revenue has accepted the Ld. CIT(A)'s order. However, the Ld. DR relied on the order of the AO and assailed the order of the Ld. CIT(A) in deleting the disallowance made u/s. 40A(2) of the Act by the AO.
4. Brief facts of the case is that the AO noted that the directors' drew the following remuneration:
i) Ashfaque Rehman Rs.48,00,000/-
ii) Tanweer Fatma Rs.24,00,000/-
iii) Sultana Bano Rs. 2,16,000/-
Thus, the total amount of Rs.74,16,000/- was shown as expenses towards payment of remuneration to the directors. According to AO, the remuneration was quite excessive and after taking note of the reply given by the assessee disallowed an amount of Rs.46,32,000/- by drawing chart as under:
Name of the Director Remuneration claimed Remuneration held to be Balance to be added to allowable Total income Ashfaque Rehman 48,00,000 24,00,000 24,00,000 Tanweer Fatma 24,00,000 2,40,000 21,60,000 Sultana Bano 2,16,000 1,44,000 72,000 Total disallowance u/s. 46,32,000 40A(2) Aggrieved, the assessee preferred an appeal before the Ld. CIT(A), who was pleased to delete the same by taking note of the order of his predecessor for AY 2007-08 wherein the similar disallowance was deleted by the Ld. CIT(A). The Ld. CIT(A) has deleted the disallowance by holding as under:3 ITA No. 250/Pat/2013
Renovision Exports Pvt. Ltd., AY 2010-11 "I have considered the facts of the case. The appellant is a Private Limited .1 Company and no express limit has been placed on it either by the Income Tax Act or Companies Act or any other law as far as payment of Director's remuneration is concerned. Similar issue came up in A.Y. 2007-08 in the case of the appellant itself. The same was decided vide order dated 29.07.2011 in appeal No. 121/CIT(A)- Il/CO/PAT/2009-10. For reference, the relevant part is being reproduced hereunder:-
"10. 1 have considered the above matter. In the world of business, education qualification is no guarantee for remuneration and vice-versa. Similarly, the education or the lack of it, is also not a determining factor for success in business.
Further, salary of directors cannot be compared with the salary of employees as it is the directors in a private limited company who are responsible for any profit or loss of the company and their involvement and personal commitment is incomparable. The AO has not mentioned. whether these lady directors were actually involved on day to day basis with the company and the extent of services rendered by them. Case law relied upon by the AO is also not applicable to the facts of the case. Unlike in the case of a firm, there is no limit also in the income-tax or the company's Act regarding payment of salary to directors. Therefore, facts brought out by the AO are insufficient to disturb the accepted position in A. Y. 2004-05. Thus, addition.of Rs.5,82,000/- on this account is deleted."
5. We have heard rival submissions and gone through the facts and circumstances of the case. We take note that the assessee is a private limited company and all its affairs are managed by the directors who are responsible for the growth of the company. We note that the turnover for the immediate preceding year i.e. AY 2009-10 was Rs.7.74 cr. and it has increased to Rs.10.75 cr. in the instant assessment year. The assessee has shown the net income of Rs.94,46,520/-. We note that unlike partnership firm there is no statutory restriction in respect to Private Limited Co. to fix the remuneration of its directors. It was brought to our notice that out of the three directors the main director Ashfaque Rehman mostly goes on tour out of Patna to promote the sale and for procurement of raw material and the other work. Lady directors looks after the manufacturing unit and work of local office at Patna. The remuneration of all the directors were assessed to tax. The AO has not found fault with the books of account maintained by the assessee and has not found any fault with the assessee in maintaining its books. It is not the case of the AO that the lady directors have not rendered any services to the assessee company. Without bringing any adverse material to substantiate that the lady directors are not rendering any services to the company, on assumptions and surmises the disallowance of the remuneration given to the directors ought not to have made by the AO. The Ld. CIT(A) has rightly observed that 4 ITA No. 250/Pat/2013 Renovision Exports Pvt. Ltd., AY 2010-11 there is no limit neither in the Income Tax Act nor in the Companies Act regarding payment of salary to the directors. Therefore, we do not find any infirmity in the order passed by the Ld. CIT(A) and so, we refrain from interfering in the said order and, therefore, we dismiss these grounds of appeal of revenue.
6. Third ground is in respect of deletion of addition of Rs.13,25,078/- under the head "Sales promotion" by violation of Rule 46A of the Income-tax Rules, 1962 (hereinafter referred to as the "Rules").
7. Brief facts of the case as noted by the Ld. CIT(A) are that the AO observed that the assessee has claimed an amount of Rs.13,82,738/- as 'sales promotion expenses' which was for purchase of items like diaries, calendars and other stationery items which were given to dealers. According to the AO, normally such items purchases and handed over to dealers percolate down to the doctors to allure them to prescribe medicines of a particular company. So, according to the AO, the same was unethical as per guidelines of MCI and the said expenditure was in violation of law. Accordingly, it was disallowed. On appeal, the Ld. CIT(A) gave partial relief to the assessee by sustaining the disallowance of Rs.28,825/- out of Rs.13,82,738/- by AO. Aggrieved, the revenue is before us by preferring this appeal and assessee has preferred a cross objection against sustenance of addition of Rs.28,825/-.
8. We have heard rival submissions and gone through the facts and circumstances of the case. We note that the assessee is engaged in manufacturing of ayurvedic products. So the question of MCI guidelines does not apply in the case of assessee. MCI guidelines are for allopathic Doctors and the assessee is dealing with ayurvedic products. Therefore, the very premise on which the AO held that the expenditure for purchase of items like diaries, calendars and other stationery items for dealers are violative of law, cannot be sustained and the Ld. CIT(A) rightly held so. Moreover, we note that the assessee's case is that these items are given to dealers for promoting their ayurvedic products. We note that these items are calendar, stickers, paper weights etc. However, according to AO, items percolate Doctors, which finding is not based upon any material on record, so the finding of AO is perverse and so, the Ld. CIT(A) has rightly deleted and partial relief given to assessee. The Ld. CIT(A) has given the details of the expenditure from page 4 to 6 of his impugned 5 ITA No. 250/Pat/2013 Renovision Exports Pvt. Ltd., AY 2010-11 order. We note that the expenditure includes payment made by assessee to Department of Ayush and FICCI. Hotel room and fooding charges were to the tune of Rs.65,991/- which have been incurred for dealers and other persons connected with the business of the assessee on visiting Patna from outside. Rs.5,14,194/- has been paid to M/s. God Prints for printing of stickers and posters. Amount of Rs.3,77,451/- has been paid to M/s. Vishal Industries for supply of pouches and paper weights with the name and details of products manufactured by the assessee duly engraved on it. From the aforesaid facts, the Ld. CIT(A) was correct in concluding that the AO has not examined the details of the expenditure properly and that the AO erred in coming to the conclusion that there is violation of law. We agree with the opinion of the Ld. CIT(A) and find no infirmity in the order passed by the Ld. CIT(A). Therefore, we dismiss the revenue's ground of appeal.
9. Coming to the Cross Objection against the addition sustained by the Ld. CIT(A) in respect to the expenditure claimed by the assessee for the expenditure of Rs.27,325/- for purchase of watches and of Rs.1500/- for purchase of mobile phone for one Dr. Mukesh Kumar (non-allopathic doctor). At the time of hearing, Ld. Counsel for the assessee does not want to press this ground of appeal considering the smallness of the amount. Therefore, we dismiss this ground of assessee's cross objection taking note of the smallness of the amount involved.
10. In the result, both the appeal of the revenue as well as the Cross Objection of assessee are dismissed.
Order is pronounced in open court.
Sd/- Sd/-
(Waseem Ahmed) (Aby. T. Varkey)
Accountant Member Judicial Member
Date: 6th April, 2017
Jd. Sr. PS
6
ITA No. 250/Pat/2013
Renovision Exports Pvt. Ltd., AY 2010-11
आदे श क त ल प अ े षत / Copy of Order Forwarded to:-
1. अपीलाथ / Appellant
2. यथ / Respondent
3. संबं धत आयकर आयु"त / Concerned CIT
4. आयकर आयु"त- अपील / CIT (A)
5. #वभागीय &त&न ध, आयकर अपील य अ धकरण / DR, ITAT, Patna
6. गाड( फाइल / Guard file.
By order/आदे श से, Assistant Registrar, ITAT, Patna,