THE BOOTS PIRAMAL HEALTHCARE LTD ( NOW MERGED WITH PIRAMAL HEALTHCARE LTD), MUMBAI v. M/S. ACIT CIR 6(1), MUMBAI

ITA 4128/MUM/2008 | 1999-2000
Pronouncement Date: 07-01-2011 | Result: Dismissed

Appeal Details

RSA Number 412819914 RSA 2008
Bench Mumbai
Appeal Number ITA 4128/MUM/2008
Duration Of Justice 2 year(s) 6 month(s) 27 day(s)
Appellant THE BOOTS PIRAMAL HEALTHCARE LTD ( NOW MERGED WITH PIRAMAL HEALTHCARE LTD), MUMBAI
Respondent M/S. ACIT CIR 6(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 07-01-2011
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 07-01-2011
Date Of Final Hearing 21-10-2010
Next Hearing Date 21-10-2010
Assessment Year 1999-2000
Appeal Filed On 10-06-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI B BENCH BEFORE SHRI T.R.SOOD ACCOUNTANT MEMBER AND SHRI R.S.PADVEKAR JUDICIAL MEMBER I.T.A.NO.4128/MUM/2008 A.Y 1999-2000 I.T.A.NO.3154/MUM/2007 A.Y 2001-2002 1) BOOTS PIRAMAL HEALTHCARE LTD.[NOW MERGED WITH PIRAMAL HEALTHCARE LTD.] NICHOLAS PIRAMAL TOWER GANPATRAO KADAM MARG LOWER PAREL MUMBAI 400013 2) NICHOLAS PIRAMAL CONSUMERS PRODUCTS PVT. LTD. [EARLIER KNOWN AS BOOTS PIRAMAL HEALTHCARE P.LTD. MUMBAI 400 013 PAN: AACB 5803 B VS. 1) ASST. COMMISSIONER OF I.T. 6(1) MUMBAI. 2) JT. CIT (OSD) RANGE 6(1) MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI J.P.BAIRAGRA. RESPONDENT BY : SHRI HARI GOVIND SINGH. O R D E R PER T.R.SOOD AM: IN BOTH THESE APPEALS THE ORDERS OF THE LD. CIT(A) HAVE BEEN CHALLENGED FOR CONFIRMING THE LEVY OF PENALTY U/S.2 71[1][C] AMOUNTING TO ` `` ` .4 84 167/- AND ` `` ` .5 LAKHS FOR A.YRS. 1999-2000 AND 2001-02. 2. IN THE GROUNDS OF APPEAL FOR A.Y 1999-2000 THE A MOUNT OF PENALTY HAS BEEN SHOWN AT ` `` ` .6 20 064/- BUT THE LD.COUNSEL OF THE ASSESSEE POINTED OUT THAT THIS AMOUNT WAS ACTUALLY ` `` ` .4 84 167/- BECAUSE PENALTY IN RESPECT OF DEPRECIATION ON VEHIC LE WAS DELETED BY THE CIT(A) HIMSELF WHEREAS THE TOTAL AMOUNT WAS ME NTIONED IN THE GROUND IS ` `` ` .6 20 064/-. IN THIS REGARD HE HAS ALSO FILED A LET TER THAT THIS 2 AMOUNT SHOULD BE TAKEN AT ` `` ` .4 84 167/- AND THEREFORE FOR ADJUDICATION OF THE APPEAL FOR A.Y 1999-2000 WE ARE CONSIDERING THE AMOUNT OF ` `` ` .4 84 167/- ONLY. 3. IN BOTH THESE CASES DURING ASSESSMENT PROCEEDIN GS THE SALARY PAID TO THE MANAGING DIRECTOR WAS DISALLOWED MAINLY ON THE BASIS THAT ASSESSEE COMPANY WAS NOT RESPONSIBLE TO MAKE SUCH P AYMENTS IN TERMS OF SHAREHOLDERS AGREEMENT. THE ADDITIONS WERE CONFIRMED BY THE CIT(A) AND ACCORDINGLY AO INVOKED EXPLANATION 1 T O SECTION 271[1][C] AND LEVIED PENALTY @ 100%. 4. THE ACTION OF THE AO HAS BEEN CONFIRMED BY THE L D. CIT(A). 5. BEFORE US LD.COUNSEL OF THE ASSESSEE REFERRED TO PAGE-54 OF THE PAPER BOOK WHICH IS A COPY OF THE SHAREHOLDERS AGR EEMENT BETWEEN THE ASSESSEE COMPANY AND BOOTS COMPANY PLC WHO WAS A FOREIGN PARTNER IN THE JOINT VENTURE. HE INVITED OUR ATTENT ION TO CLAUSE 9.13 THROUGH WHICH IT WAS AGREED THAT BOOTS COMPANY PLC I.E. JOINT VENTURE PARTNERSHIP WAS RESPONSIBLE FOR PAYMENT OF SALARIES AND OTHER EXPENSES IN RELATION TO THE MANAGING DIRECTOR. HE S UBMITTED THAT IN FACT THE MANAGING DIRECTOR WAS TO BE APPOINTED BY BOOTS COMPANY PLC BECAUSE THE JOINT VENTURE PARTNERS WANTED ITS OWN REPRESENTATIVE AS THY WERE 51% SHAREHOLDERS IN THE JOINT VENTURE O F THE ASSESSEE COMPANY. HOWEVER LATER ON THEIR REPRESENTATIVE MR. KHOO SENG CHEE JOSEPH RESIGNED AND THEREFORE ASSESSEE COMPANY PR OPOSED THE NAME OF MR. TARUN PASRICHA TO BE APPOINTED AS THE MANAGI NG DIRECTOR AND THIS PROPOSAL WAS ACCEPTED BY THE FOREIGN PARTNER. IN THIS REGARD HE 3 REFERRED TO PAGES 55 TO 57 OF THE PAPER BOOK WHICH IS A COPY OF THE BOARDS RESOLUTION ACCEPTING THE RESIGNATION OF MR. KHOO SENG CHEE JOSEPH AND APPOINTMENT OF MR. TARUN PASRICHA. SINCE THE REPRESENTATIVE OF THE ASSESSEE COMPANY WAS APPOINTE D AS THE MANAGING DIRECTOR ASSESSEE ALSO VERBALLY AGREED TO PAY THE REMUNERATION WHICH WAS IN EXCESS OF THE LIMITS PRES CRIBED UNDER SECTIONS 198/349 OF THE COMPANIES ACT AND IN THIS R EGARD HE REFERRED TO PAGE-21 OF THE PAPER BOOK WHICH IS A COPY OF NO TES TO THE FINANCIAL STATEMENT SHOWING THE CALCULATION OF THE REMUNERATI ON. AS THE REMUNERATION WAS IN EXCESS OF THE LIMITS PRESCRIBED UNDER THE COMPANIES ACT ASSESSEE COMPANY FURTHER APPLIED TO THE GOVERNMENT OF INDIA FOR APPROVAL OF REMUNERATION AND THE GOVER NMENT OF INDIA APPROVED THE SAME ON 8-6-2001 AND IN THIS REGARD HE FILED THE COPY OF THE APPROVAL LETTER. HE ARGUED THAT MERE DISALLOWAN CE OF EXPENDITURE CANNOT LEAD TO AUTOMATIC LEVY OF PENALTY. IN THE CA SE BEFORE US GENUINENESS OF REMUNERATION FOR RENDERING OF SERVIC ES BY THE MANAGING DIRECTOR HAS NOT BEEN DOUBTED BY THE DEPARTMENT. TH E SHAREHOLDERS AGREEMENT WAS NOT CHANGED BECAUSE IT REQUIRED LOTS OF FORMALITIES AND COULD HAVE TAKEN MANY MONTHS BECAUSE CERTAIN APPROV ALS WERE ALSO REQUIRED. 6. ON THE OTHER HAND LD.DR STRONGLY SUPPORTED THE ORDER OF THE CIT(A) AND POINTED OUT THAT IT WAS CLEARLY FOUND BY THE AO THAT AS PER SHAREHOLDERS AGREEMENT THE OTHER PARTNER OF THE JOI NT VENTURE I.E. M/S. BOOTS COMPANY PLC WAS REQUIRED TO PAY THE REMUNERA TION AND 4 THEREFORE THERE WAS NO JUSTIFICATION FOR CLAIMING THIS EXPENDITURE WHEN ASSESSEE WAS NOT AT ALL RESPONSIBLE FOR MAKING SUCH PAYMENTS. HE STRONGLY RELIED ON THE DECISION OF THE HONBLE SUP REME COURT IN THE CASE OF DHARMENDRA TEXTILE PROCESSORS 212 CTR (SC) 432 AND THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE C ASE OF THIRUPATHY KUMAR KHEMKA & ANOTHER VS. CIT [291 ITR 122]. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND FIND THAT ADMITTEDLY THE MANAGING DIRECTOR WAS TO BE A PPOINTED BY M/S. BOOTS COMPANY PLC AS PER THE SHAREHOLDERS AGREEMEN T AND IN FACT THE APPOINTMENT WAS MADE ACCORDINGLY. HOWEVER THE REPRESENTATIVE OF M/S. BOOTS COMPANY PLC MR. KHOO SENG CHEE JOSE PH RESIGNED AND LATER ON THE REPRESENTATIVE OF THE ASSESSEE COMPANY MR. TARUN PASRICHA WAS APPOINTED AS THE MANAGING DIRECTOR. HI S APPOINTMENT AS WELL AS THE FACT OF RESIGNATION OF MR. KHOO SENG CH EE JOSEPH HAS BEEN DULY REPORTED IN THE DIRECTORS REPORT. THE FACT OF APPOINTMENT OF MR. TARUN PASRICHA HAS NOT BEEN DOUBTED. FURTHER WE FI ND THAT REMUNERATION PAID TO MR. TARUN PASRICHA CAME TO ` `` ` .13 83 3336/- WHEREAS HE COULD HAVE BEEN PAID ONLY A SUM OF ` `` ` .10 14 343/- [SEE PAGE 21 OF THE CALCULATION OF THE MANAGERIAL REMUNE RATION] IN TERMS OF SEC.349 OF COMPANIES ACT AND ACCORDINGLY EVEN APP ROVAL OF THE GOVERNMENT OF INDIA FOR SUCH EXCESS PAYMENT WAS SOU GHT AND THE SAME WAS APPROVED VIDE LETTER DATED 8-6-2001 BY MIN ISTRY OF LAW & JUSTICE AND COMPANY AFFAIRS DEPARTMENT OF COMPANY AFFAIRS GOVERNMENT OF INDIA. THEREFORE IT IS CLEAR THAT SA LARY WAS DEFINITELY 5 PAID TO MR. TARUN PASRICHA WHICH WAS DULY APPROVED BY THE GOVERNMENT AND EVEN HIS SERVICES HAVE NOT BEEN DOUB TED. MERELY BECAUSE A FOREIGNER WHO WAS EARLIER THE MANAGING DI RECTOR RESIGNED AND THEN A NOMINEE OF THE INDIAN COMPANY WAS APPOIN TED THEN IT IS NOT NECESSARY FOR THE JOINT VENTURE PARTNER TO AMEN D THE SHAREHOLDERS AGREEMENT WHICH INVOLVES LOTS OF TIME AND EXPENDITU RE WHICH MAY NOT HAVE BEEN FEASIBLE BECAUSE OF THE SMALLNESS OF THE ITEM OF THE EXPENDITURE. WE FURTHER FIND THAT IN THE CASE OF DH ARMENDRA TEXTILES PROCESSORS [SUPRA] THE MAIN ISSUE WAS WHETHER MENS REA IS REQUIRED FOR LEVY OF PENALTY OR NOT AND THE HONBLE COURT H ELD THAT WHILE DEALING WITH THE CIVIL PENALTY STATUTORY PROVISIONS ARE ENO UGH AND NO MENS REA IS REQUIRED. BUT IT DOES NOT MEAN THAT IN ALL CASES WHERE ADDITION HAS BEEN MADE PENALTY HAS TO BE LEVIED. SIMILARLY IN T HE CASE OF THIRUPATHY KUMAR KHEMKA & ANOTHER VS. CIT [SUPRA] THE ASSESSEE HAD NOT DISCLOSED THE AMOUNT OF INTEREST U/S.244A R ECEIVED ON THE REFUND OF INCOME TAX IN HIS INCOME. FURTHER SOME CR EDITS WERE ALSO NOT EXPLAINED AND THAT IS WHY LEVY OF PENALTY WAS CONFI RMED BY THE HONBLE HIGH COURT. WHEREAS IN THE CASE BEFORE US THE GENU INENESS OF THE EXPENDITURE IS NOT DOUBTED. THE ONLY PROBLEM IS THA T ORIGINALLY THE ASSESSEE WAS NOT TO BEAR THIS EXPENDITURE. HOWEVER BECAUSE OF BUSINESS NECESSITY OR LEGAL COMPLICATIONS TO CHANGE THE TERMS OF SHAREHOLDERS AGREEMENT ASSESSEE CHOSE TO MAKE THE PAYMENT OF THE MANAGING DIRECTOR IT CANNOT BE SAID THAT ASSESSEE HAS FILED ANY INACCURATE PARTICULARS OR CONCEALED ANY INCOME. IF A LEGITIMATE CLAIM 6 HAS BEEN MADE THEN DISALLOWANCE OF THE SAME WOULD NOT LEAD TO THE PENAL CONSEQUENCE AND AS POINTED OUT BY THE LD.COUN SEL OF THE ASSESSEE EVEN THE HONBLE SUPREME COURT HAS HELD AC CORDINGLY IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS PVT. LTD. 3 22 ITR 158. IN THESE CIRCUMSTANCES WE ARE OF THE VIEW THAT THIS IS NOT A FIT CASE FOR LEVY OF PENALTY AND ACCORDINGLY WE DELETE THE SAME. 8. IN THE RESULT APPEALS OF THE ASSESSEE ARE ALLOW ED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 7 TH DAY OF JANUARY 2011. SD/- SD/- (R.S.PADVEKAR) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 7 TH JANUARY 2011. P/-*