Ima Pg India P.Ltd ( Formelry Known As ... vs Assessee

सी खंडपीठ मुंबई INCOME TAX APPELLATE TRIBUNAL,MUMBAI - C BENCH सव ौी वजयपाल राव , याियक सदःय एवं राजे ि, लेखा सदःय Before S/Sh. Vijay Pal Rao,Judicial Member & Rajendra,Accountant Member आयकर अपील सं/.ITA No.6577/Mum/2012,िनधा िनधा रण वष /Assessment Year-2009-10 M/s IMA PG India Pvt. Ltd. ACIT Range 5(2), (Formerely known as Precision Aaykar Bhavan,M K Road, Gears Ltd.), Plot No.R-677, MIDC Vs Mumbai-20 TTC Indl. Area,ThaneBelapur Road, Rabale, Navi Mumbai-400701 PAN:AAACP6442Q (अपीलाथ% /Assessee) (ू'यथ% / Respondent) िनधा (रती ओर से/Assessee by :Shri. Nishit Gandhi राजःव क+ ओर से/ Revenue by :Shri Premanand J.

सुनवाई क+ तार,ख/ Date of Hearing :03- 03 -2015 घोषणा क+ तार,ख / Date of Pronouncement :25-03-2015 आ यकर अ िधिनयम, िधिनयम 1961 क+ धारा 254 ( 1 ) के अ तग त आदे श Order u/s.254(1)of the Income-tax Act,1961(Act) Per Rajendra,AM ले खा सदःय राजे ि के अनु सार: ार Challenging the order dt.24.08.2012 of the CIT(A)-9,Mumbai,assessee-company has raised following Grounds of Appeal:

(1) The learned CIT (A) erred in law as well in facts in confirming disallowance made by A.O.for alleged excess remuneration of Rs. 66,77,919 paid to the Directors. (2) The C.I. T. (A) erred in not appreciating that the A.O. made the disallowance simply relying on the erroneous Remark in Auditors' Report, without verifying the facts. (3) The C.I.T. (A) has not appreciated the Auditor's remark in correct perspective, which clearly mentions in the report that application for sanction of additional remuneration has been made to the Central Govt. and sanction is awaited.

(4) The C.I.T.(A) has overlooked the ITAT's order in appellant's own case in earlier years re:

allow ability of remuneration duly sanctioned by the Central Government under the provisions of the Companies Act.

(5) The C.I.T. (A) erred in not appreciating that the Central Government's sanction was duly received before the assessment was made, and therefore, the A.O. ought not to have made the said disallowance and the C.I. T. (A) ought not to have confirmed the said disallowance.

2. Disallowance u/s. 40(a)(ia) of Rs. 18,72,166:

(1) The C.I.T. (A) erred in law and in fact as well as confirming disallowance of Rs. 18,72,166 u/s. 40(a)(ia) of I. Tax Act, 1961.

(2) The C.I.T. (A) erred in not appreciating that the A.O. made the disallowance simply by relying on the erroneous Remark in Auditor's Report, without verifying the facts. (3) The C.I.T. (A) erred in not accepting additional evidences submitted by the Appellant in respect of the said disallowance.

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(4) The C.I.T.(A) erred in not appreciating the fact that composite common challans were prepared for TDS payments made for both AY 2009-10 and AY 2010-11. (5) The C.I.T.(A) erred in not appreciating that the Addl. CIT-V started the assessment Proceedings much late ,and due to paucity of time at his disposal to complete the assessment, did not to allow the appellant further time to submit the year wise bifurcation of TDS payments, through composite common challans and therefore, such details submitted as additional evidences at appeal stage ought to have been accepted by him. (6) The C.I.T. (A) erred in simply relying on the Remand Report without looking in the case records of the AO to verify whether the evidences submitted as additional evidences were in fact not in the assessment records.

(7) The C.I.T. (A) erred in not appreciating that the appellant deducted TDS before the year end from the provision made for relevant expenses and paid the TDS in various installment before due date for filing the Return of Income i.e. 30th Sept., 2009, and the Auditors Report was erroneous to that extent.

(8) The C.I.T. (A) erred in not appreciating that amendment in Sec.40(a)(ia) in 1. Tax Act, 1961 made by Finance Act, 2010 has retrospective effect.

3. The appellant craves leave to alter, amend, expand or change the grounds of appeal as may be advised.

Assessee-company,engaged in the business of manufacture,exports and domestic sales of Blister packaging & Allied Machines, filed its return of income on 25.09.2009,decIaring total income of Rs.8,95,21,216/-.The AO completed the assessment u/s.143(3) of the Act on 29.12. 2011, determining the income of the assessee at Rs.9,90,74,910/-.

2.First ground of appeal is about excess remuneration paid to the Director.We find that the identical issue had arisen in the earlier AY.also.While deciding the appeal for that year(ITA/ 378/Mum/2012-dt. 13.03.2015,we have decided the issue as under:

"6.Next ground of appeal is about excess remuneration, amounting to Rs. 36.40 lakhs, paid to Director.During the assessment proceedings, the AO found that the auditor inform no.3CB, vide note no.3,had reported that the assessee had paid Rs.36,40,038/- in excess of limits prescribed under the Companies Act. He asked the assessee to show cause as to why such excessive remuneration paid in contravention to the provisions of the companies Act should not be disallowed uls.37(1) of the Act. After considering the submission of the assesse,the AO held that there was no dispute about the total remuneration debited and the remarks made by the auditors, that the assessee had failed to prove that working given by the auditors was incorrect. Invoking the provisions of explanation to 37(1) of the Act,the AO disallowed the excessive remuneration of Rs. 36.40 lakhs and added back to the total income of the assessee.

7.Aggrieved by the order of the AO the assessee preferred an appeal before the FAA. Before him, it was contended that the auditors had not considered schedule 13 of the Companies Act while working out the remuneration,that an application was made in Form NO.25A to the Central Government for approval of excess remuneration which was sanctioned vide letter dated 14.04.2010,that the excess remuneration paid to the Directors was an allowable expenditure. After considering the submissions of the assessee and the assessment order,the FAA held that assesse's own auditor had reported the payment of excess remuneration, that a copy of sanctioned letter granted by the Central Government for excessive remuneration paid was filed before him.The FAA called for a remand report from the AO with regard to the additional evidence submitted by the assessee in form of the sanction letter of the Central government.After considering the remand report,dated 11.02.11,the FAA held that the provisions of section 309(5A) and 309(5B) of the Companies Act were applicable to the case under consideration.that the assessee was not entitled to get deduction of the excessive remuneration paid, that the excessive remuneration was not allowable u/s. 37(1) of the Act, that it was paid over and above the prescribed limits of the Companies Act.He confirmed the disallowance made by AO.

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8.Before us, the AR argued that the Central government had allowed payment of excess remuneration to the Directors.that sanction letter was made available to the FAA,that provisions of Explanation to section 37(1) were not applicable with regard to the payment. He referred to the page no.38 of the paper book.He also relied upon the order of the Tribunal delivered for the year 2001-02 to 2004-05 wherein alleged excessive remuneration to the Directors disallowed u/s. 40A (2) (b)of the was deleted.DR supported the order of the FAA.

9.We have heard the rival submissions and perused the material before us. We find that the assessee had made excessive payment of remuneration to the Director.but same was approved by the central government, as required by the Companies Act.1n these circumstances, we are of the opinion that there was no contravention of the provisions of the Act. Therefore, reversing the order of the FAA, we decide ground no. 2 in favour of the assessee. "

3.At page no.7-9 of the paper book is the approval of the Central Government allowing the assessee to pay excess remuneration to the Director.As the facts and circumstances of the year under appeal are similar to the facts of the earlier year,therefore, following the order for that year,we are deciding ground no.1 in favour of the assessee.

4.Next ground of appeal deals with disallowance of Rs.18.72 lakhs uls.40(a)(ia)of the Act. During the assessment proceedings,the AO found that TDS had not been deducted on Rs. 18.72 lakhs,that the said amount was not added in computation of income.He issued a show cause notice to the assessee in that regard.ln its reply,the assessee stated that TDS payment of Rs.18.72 lakhs had been made before September,2009,that all the expenses were allowable.The AO held that as per the audit report tax was not deducted for the amount in question and hence same was not allowable.

5.Aggrieved by the order of the AO,the assessee preferred an appeal before the First Appellate Authority (F AA).Before him it was contented that the auditors had not erred in not considering the Proviso to section 40(a)(ia)of the Act,that TDS payment was made next year,that composite challan was prepared for the A Y .s.2009-1 0 and 201O-11.Before the F AA,the assessee filed additional evidences.He called for Remand Report(RR)from the AO.After considering the material available,he held that amended provisions of the section were applicable w.e.f. 01.04. 2010,that there were many a discrepancies in TDS reconciliations,that the assessee had not deducted the prescribed tax which was deductible at source under chapter XVIIB of the Act.The additional evidences were not admitted by the F AA.Finally,he upheld the order of the AO and dismissed the appeal filed by the assessee.

6.Before us,Authorised Representative (AR) stated that the assessee had paid the tax deducted at source before filing of return,that proviso tot the section was retrospective,that bifurcation of taxes paid at source was not possible.He referred to page no.26-29 and 65 of the paper book.He relied upon the case of Naresh Kumar(362ITR562)of Hon'ble Delhi High Court.Departmental Representative(DR)supported the order of the FAA.

7. We have heard the rival submissions and perused the material before us. We find that the assessee had filed additional evidences,that same were not admitted by the F AA,that the assessee had filed composite certificate of deducting taxes. It is found that Hon'ble Delhi High Court has in the matter of Naresh Kumar(supra) has held that the proviso was applicable with retrospective effect.Following is the decision of the Hon'ble Court:

Provisions relating to deduction of tax at source are important as this ensures that tax so deducted gets deposited with the Government and non-taxpayers/filers can be identified. The deductees do not suffer and are not deprived of credit of deduction made from their income. Section 40(a)(ia) of the Income-tax Act, 1961is a provision incorporated with that objective and purpose in mind. It is not basically a penal provision as when the tax deducted at source is deposited, the amount on which deduction was made is allowed as an expenditure incurred in the 3 ITA/6577/MUM/2012,AY.2009-10IMPGIPL

previous year in which the payment of tax deducted at source is made. Thus, it results in shifting of the year in which the expenditure can be claimed, even if payment has been made to the recipient and is to be allowed as expenditure in another year. The principle of matching, i.e., matching of receipts with expenditure to the extent indicated in section 40(a)(ia), therefore, gets affected. The provision can work harshly and may be very stringent in some cases. The legislative purpose and the object is to ensure payment and deposit of tax deducted at source with the Government. Tax deducted at source results in collection of tax. The Legislature can and does experiment and intervene from time to time when it feels and notices that the existing provision is causing and creating unintended and excessive hardship to citizens and subjects or has resulted in great inconvenience and uncomfortable results. The amendments made in 2010 were a step in this direction and this aspect has to be kept in mind when examining and considering whether the amendment should be given retrospective effect or not. One important consideration in construing a machinery section is that it must be so construed as to effectuate the liability imposed by the charging section and to make the machinery workable. However, when the machinery section results in unintended or harsh consequences which were not intended, the remedial or correction action taken is not to be disregarded but given due regard. Section 40(a)(ia) has to be given full play keeping in mind the object and purpose behind the section. At the same time, the provision can be and should be interpreted liberally and equitably so that an assessee should not suffer unintended and deleterious consequences beyond what the object and purpose of the provision mandates. The amendments made to section 40(a)(ia)of the Act by the Finance Act,2010, should be given retrospective effect.

Considering the peculiar facts and circumstances of the case and the above mentioned judgment, we are of the opinion that matter needs further verification.Therefore,in the interest ofjustice,we are remitting the matter to the file of the AO for fresh adjudication.He will afford a reasonable opportunity of hearing to the assessee. Ground no.2 is allowed in favour of the assessee, in part.

As a result,appeal filed by the assessee stands partly allowed. फलतः िनधा (रती ;ारा दा<खल क+ गई अपील अंशतः मंजूर क+ जाती है .

Order pronounced in the open court on 25th,March,2015.

आदे श क+ घोषणा खुले यायालय मA Bदनांक 25 माच ,2015 को क+ गई ।

Sd/- Sd/- ( वजयपाल राव/Vijay Pal Rao) राजे ि/Rajendra) (राजे ि याियक सदःय /JUDICIAL MEMBER लेखा सदःय /ACCOUNTANT MEMBER ,मुंबई/Mumbai,Bदनांक/Date: 25.03.2015. SK आदे श क+ ूितिल प अमे षत/Copy षत of the Order forwarded to : 1. Assessee /अपीलाथ% 2. Respondent /ू'यथ%

3. The concerned CIT(A)/संबH अपीलीय आयकर आयुI,4.The concerned CIT /संबH आयकर आयुI

5. DR "C" Bench, ITAT, Mumbai / वभागीय ूितिनिध lh खंडपीठ,आ.अ. याया.मुब ं ई

6. Guard File/गाड फाईल स'या पत ूित //True Copy// आदे शानुसार/ BY ORDER,

उप/सहायक पंजीकार Dy./Asst. Registrar आयकर अपीलीय अिधकरण, मुंबई /ITAT, Mumbai.

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