The DCIT, Circle-1(2),, Baroda v. M/s. Liberty Phosphate Ltd.,, Baroda

ITA 2997/AHD/2009 | 2004-2005
Pronouncement Date: 18-01-2010 | Result: Partly Allowed

Appeal Details

RSA Number 299720514 RSA 2009
Bench Ahmedabad
Appeal Number ITA 2997/AHD/2009
Duration Of Justice 2 month(s) 9 day(s)
Appellant The DCIT, Circle-1(2),, Baroda
Respondent M/s. Liberty Phosphate Ltd.,, Baroda
Appeal Type Income Tax Appeal
Pronouncement Date 18-01-2010
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted D
Tribunal Order Date 18-01-2010
Assessment Year 2004-2005
Appeal Filed On 09-11-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD DBENCH BEFORE DR. O.K. NARAYANAN VICE-PRESIDENT (AZ) AND SHRI MAHAVIR SINGH JUDICIAL MEMBER ITA NO.2997/AHD/2009 [ASSTT.YEAR:2004-05] DCIT CIRCLE-1(2) VS. M/S. LI BERTY PHOSPHATE LTD. BARODA 70 1-702 A WING ALKAPURI ARCADE OPP-WELCOME HOTEL ALKAPURI BARODA-390007 PAN NO.AAACL3600N REVENUE BY: SHRI C.K. MISH RA SR. DR ASSESSEE BY: SHRI DIVYAKANT PARIKH AR DATE OF ORDER RESERVED: 07/01/10 O R D E R PER MAHAVIR SINGH JUDICIAL MEMBER:- THIS APPEAL BY THE REVENUE IS ARISING OUT OF THE O RDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-I BARODA IN APPEAL NO.CAB/ I/159/08-09 DATED 04-08- 2009. THE ASSESSMENT WAS FRAMED BY THE ITO WARD-1[ 4] BARODA U/S. 143(3) R.W.S. 147 OF THE INCOME-TAX ACT 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 05-12-2008 FOR THE ASSESSMENT YEAR 2004-05. 2. THE ONLY ISSUE IN THIS APPEAL OF THE REVENUE IS AGAINST THE ORDER OF CIT(A) IN DELETING THE DISALLOWANCE ON ACCOUNT OF D IRECTORS REMUNERATION. 3. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSI NG OFFICER DURING THE ITA NO.2997/AHD/2009 A.Y. 2004-05 DCIT CIR-1 [4] BARODA V. M/S.LIBERTY PHOSPHATE LTD . P AGE 2 COURSE OF ASSESSMENT PROCEEDINGS DISALLOWED DIRECTO RS REMUNERATION AMOUNTING TO RS.5.82 LAKHS AND HE OBSERVED THE REMU NERATION PAID TO DIRECTORS AMOUNTED TO RS.18.39 LAKH AS AGAINST RS.1 0.91 LAKHS IN THE PRECEDING YEAR. IT WAS FURTHER NOTED THAT THE SALE S INCREASED BY 12.14% WHEREAS THE REMUNERATION TO DIRECTOR WAS INCREASED BY 68.56% AND IN HIS OPINION INCREASE IN REMUNERATION TO THE EXTENT OF 20% WAS REASONABLE AND THE REST WAS EXCESSIVE. ACCORDINGLY AO ALLOWED DI RECTORS REMUNERATION TO THE EXTENT OF RS.13.09 LAKHS AND DISALLOWED THE BAL ANCE OF RS.5.82 LAKHS. THE CIT(A) DELETED THE ADDITION BY GIVING FOLLOWING FINDING IN PARA-6.3 OF HIS APPELLATE ORDER:- 6.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE LD. A R AND FACTS OF THE CASE. DIRECTORS REMUNERATION IS GOVERNED BY SCHEDU LE-XIII OF THE COMPANIES ACT. AS PER THE SAID SCHEDULE IN CASE OF A COMPANY HAVING CAPITAL EXCEEDING RS.5 CRORES THE DIRECTORS REMUN ERATION IS TO BE FIXED BY THE CENTRAL GOVERNMENT. IN CASE OF COMPANY HAVIN G CAPITAL LESS THAN RS.5 CRORES NO REFERENCE TO THE CENTRAL GOVERNMENT IS REQUIRED BUT THE REMUNERATION CAN BE FIXED BY A REMUNERATION COMMITT EE CONSTITUTED BY THE BOARD OF DIRECTORS. THE APPELLANTS SHARE CAPIT AL AMOUNTED TO RS.4.12 CRORES DURING THE YEAR. HENCE THE REMUNERA TION WAS REQUIRED TO BE FIXED BY THE REMUNERATION COMMITTED ONLY. IN THE CASE OF A PROFIT MAKING COMPANY THE MAXIMUM REMUNERATION PAYABLE TO A DIRECTOR HAS BEEN FIXED AT 5% OF THE NET PROFITS OF THE COMPANY FOR THE YEAR. DURING THIS YEAR NET PROFIT OF THE COMPANY WAS RS.2 76 67 612/- AND 5% THEREOF COMES TO RS.13 83 381/-. AGAINST THIS THE COMPANY HAS PAID ONLY RS.10 LACS. IT IS ALSO WORTH NOTING THAT EVEN IN TH E CASE OF A LOSS MAKING COMPANY SCHEDULE-XIII FOR THE COMPANIES ACT PERMIT S MONTHLY REMUNERATION UP TO RS.1 LAC. IT IS ALSO NOTEWORTHY THAT THE DIRECTOR ACCEPTED A CUT IN REMUNERATION WHEN THE COMPANY WAS NOT FARING WELL. IT IS THEREFORE NOT UNREASONABLE FOR THE COMPANY TO GRANT HIM AN INCREASE IN HIS REMUNERATION WHEN THE COMPANY START ED MAKING PROFITS AGAIN. WHEN COMPARED TO THE REMUNERATION PAID TO TH E SAME DIRECTOR FIVE YEARS BACK (RS.72 000) THE INCREASED REMUNER ATION OF RS.1 LAC PER MONTH DOES NOT APPEAR TO BE EXCESSIVE. I AM THEREFO RE OF THE OPINION THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAK ING THE DISALLOWANCE OF RS.5 82 000/- WHICH IS DIRECTED TO BE DELETED. WE FIND THAT REMUNERATION PAID TO DIRECTORS AMOUNTI NG TO RS.18.39 LAKHS AS AGAINST RS.10.19 LAKHS IN PRECEDING YEAR WAS APPROV AL HIGHER THAN THE INCREASE IN SALES WHICH IS 12.14% AS AGAINST EARLIE R YEARS WHEREAS DIRECTORS ITA NO.2997/AHD/2009 A.Y. 2004-05 DCIT CIR-1 [4] BARODA V. M/S.LIBERTY PHOSPHATE LTD . P AGE 3 REMUNERATION WAS INCREASED TO 68.05% AND CIT(A) ACC ORDINGLY THE ASSESSING OFFICERS OPINION WAS THAT THE 20% INCREASE WAS REA SONABLE AND THE REST WAS EXCESSIVE. THE ASSESSING OFFICER ALLOWED REMUNERAT ION TO THE EXTENT OF 13.39 LAKHS AND WE ARE OF THE VIEW THAT THERE IS EXCESSIV E REMUNERATIONS TO THE DIRECTOR TO THE EXTENT OF RS.1 LAKH WHICH WE FEEL IS EXCESSIVE AND ACCORDINGLY WE RESTRICT THE DISALLOWANCE AT RS.1 LAKH AND THE B ALANCE 17.39 LAKHS WE ALLOW. ACCORDINGLY TO THAT EXTENT CIT(A)S ORDER IS AMENDED AND THIS ISSUE OF THE REVENUES APPEAL IS PARTLY ALLOWED. 4. IN THE RESULT REVENUES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS DAY OF 18 TH JANUARY 2010 SD/- SD/- (DR.O.K.NARAYANAN) (MAHAVIR SINGH) (VICE PRESIDENT) (JUDICIAL MEMBER) AHMEDABAD DATED :18/01/2010 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)-I BARODA 4. THE CIT CONCERNS. 5. THE DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD