ITA No. 166/Pat/2014. IN INCOME TAX APPELLATE TRIBUNAL, PATNA BENCH, PATNA. BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. (S.M.C.) I.T.A. No. 166/PAT/2014. Assessment Year : 2010-11. M/s Prashant Moters Pvt. Ltd., Dy. Commissioner of Income-tax, Lenin Chawk, Muzaffarpur. Vs. Circle-2, Muzaffarpur. Appellant. Respondent. Appellant by : S/Shri S.K. Rastogi, Rakesh Kumar & Ashish Agrawal. Respondent by : Shri R.K. Mishra. Date of Hearing : 03 -08-2016 Date of Pronouncement : 26th ept., 2016 ORDER This appeal by assessee is directed against order of learned CIT(Appeals)-I, Patna dated 07-07-2014 and pertains to assessment year 2010- 11. grounds of appeal read as under : 1. For that order of assessment passed by learned Assistant Commissioner of Income Tax, Circle-2, Muzaffarpur as well as appellate order passed by learned CIT(Appeals)-1, Patna maintaining some additions are bad in law and fact. 2. For that only basis of expenditure shown for construction of building treating it improper, rejection of books of account under section 143(3) of Act is arbitrary and unjustified. 3. For that learned CIT(Appeals)-1, Patna has erred in maintaining disallowance of 50% women s Directors remuneration invoking provisions of section 40A(2) of I.T. Act irrespective of fact that all case laws cited by appellant are fully relevant to this case. It is further stated that Dr. Moti Sinha is doing work as director finance and Dr. Nibha Kumari is doing work as director sales & 2 ITA No. 166/Pat/2014. service. Without accepting fact treating it as remuneration paid is excessive and estimating it that 50% remuneration paid to women Director, is arbitrary and unjustified. 4. For that learned CIT(Appeals)-1, Patna has erred in not considering allowance of transit damages of Rs.7,945/- which ought to be allowable under business expenditure. 5. For that learned CIT(Appeals)-1, Patna has erred in not considering allowance of late fee of Rs.5,168/- which ought to be allowable under business expenditure. 2. At outset in this case learned counsel of assessee submitted that he shall not be pressing ground Nos. 1,2,4 and 5. Accordingly these grounds are dismissed as not pressed. 3. Apropos ground No. 3: `On this issue AO made disallowance posing as under : perusal of papers submitted by assessee, it has been found that Dr. Nibha Kumari is employee of Government of Bihar and she was posted as Medical Officer at Marban P.H.C. during concerned period. Marban is far away from Muzaffarpur. Except it, she does private practice and has income from profession too. In such circumstances, it is humanly not possible for her to spare time. With above findings, assessee was requested to file his submission regarding time devoted by Dr. Nibha Kumari to company and nature of work done by her. But, Assessee failed to give any plausible explanation rather he remained silent on issue. It is quite clear that she is being paid without any work done for company. In view of above facts, entire remuneration paid to Dr. Nibha Kumari is disallowed u/s 40A(2) of Act. Further, Dr. Moti Sinha is also renowned gynecologist and Founder of Prashant Memorial Charitable Hospital. She is actively involved in day to day functioning of Prashant Hospital in capacity of H.O.D. of ODS and GYN Deptt. During course of hearing, assessee could not justify payment made to her. evidence for work done by her for company was not furnished. It is quite clear that she is being paid without any work for company. In view of above facts, remuneration paid to Dr. Moi Sinha is also disallowed u/s 40A(2) of Act. 3 ITA No. 166/Pat/2014. 4. Upon assessee s appeal learned CIT(Appeals) noted assessee s submission as under : appellant has submitted that Dr. Moti Sinha and Dr. Nibha Kumari had been associated with Prashant Motor Pvt. Ltd. right from is very inception and are involved in various matters related to day to day functioning of company. No evidence has been brought non recod to show that Dr. Moti Sinha had not worked in company. Similarly, Dr. Nibha Kumari has also been associated with day to day activities of company relating to sales and supervisory matters of workshop. It was further submitted that there is no bar in her continuing with her medical profession while also not being associated with day to day affairs of company. appellant also placed reliance on Walchand and Co Private Limited (1967) 65 ITR 381 (SC) in which Hon ble Supreme Court observed and held that where without assigning reasons Tribunal allowed deduction of only part of increase in remuneration of executive officers of respondent, order of tribunal disallowing claim was not supported by any evidence and could not be sustained. In case of CIT vs. Shriram Piston & Rings Ltd. 181 ITR 230 (Delhi) in which fact of case is that one D was son of director of assessee company and was paid remuneration which was approved by company law board. ITO passed order that remuneration which was paid to D was excessive and disallowed it u/s 40A(2). On appeal Commissioner (Appeals) held that proper provision was Section 40A(5) and case did not fall u/s 40A(2). He deleted entire disallowance. On second appeal tribunal held that provision of Section 40A(2) was not applicable and then on reference application before High Court, made by department u/s 256 was rejected and hence petition accordingly dismissed against revenue and in favour of assessee. In case of Deputy Commissioner of Income Tax, Circle 9(1), New Delhi vs. Spark Hotels Pvt. Ltd. (2012) 22 Taxman Com. 257 (Delhi) in which fact is that remuneration paid to director @ 3 lacs per month was held by Assessisng Officer that remuneration paid is exdessive and disallowed amount of Rs.30 lacs, invoking provision of Section 40A(2)(a) considering salary of Rs.50,000/- per month as reasonable. On appeal Commissioner (Appeal) deleted disallowance. On appeals by Revenue, Hon ble Tribunal held that where there was nothing o suggest that payment of remuneration to 4 ITA No. 166/Pat/2014. director was excessive having regard to either (a) fair market value of service or facilities or (b) legitimate need of business of assessee or (c) benefits derived by or accruing to assessee on receipt of such service or facilities, no disallowance could be made u/s 40A(2) of IT Act 1961. Tribunal held in favour of Assessee and against to Revenue. In instant case Assessing Officer disallowed remuneration without any evidence and disallowed u/s 40A(2) of I.T. Act which cannot be justified in view of judgment given above. Hence remuneration given to women Directors ought to be allowed. However, learned CIT(Appeals) was not convinced. He passed rather laconic order upholding AO s action partly as under : submissions of appellant and case laws cited have been considered. As facts of appellant s case are different from those in case laws cited, appellant would not benefit from decisions in case laws. reasonableness of payments to relatives has to be proved by assessee and not by department. requirements of Sec. 40A(2) are that expenditure should be considered with reference to: (a) fair market value of service or facilities, or (b)legitimate need of business of assessee, or (c) benefits derived by or accruing to assessee on receipt of such service facilities. In instant case Assessing Officer has clearly indicated that due to their other pre-occupation Dr. Moti Sinha and Dr. Nibha Kumari would not have time available to attend to normal day to day activities sof appellant s business. Further they did not have any requisite qualifications which would enable them to carry out functions which has been claimed to have been performed by them. At same time it has not been entirely disproved that Dr. Moti Sinha and Dr. Nibha Kumari were not concerned with activities of appellant company. Under these circumstances debt of commercial expediency is not considered to have been fully satisfied. ends of justice would be met if remuneration paid to Dr. Moti Sinha and Dr. Nibha Kumari is restricted to 50% of claim. disallowance made by Assessing Officer is accordingly restricted to 50%. 5. Against above order assessee is in appeal before ITAT. 5 ITA No. 166/Pat/2014. 6. I have heard both counsel and perused records. Upon careful consideration I find that lady Directors are well qualified persons. authorities below have drawn adverse inference that since they are occupied in other engagements also they cannot give time to this company. I find that this is totally untenable surmise and conjecture devoid of any cogency. If proposition advanced by Revenue is accepted then no person can be allowed to be engaged as Directors or otherwise gainfully engaged in more than one concern. authorities below have totally ignored submissions that these lady Directors have been engaged in functioning of company since inception. There is no presumption that ladies engaged in medical profession cannot be engaged as Directors in company. Moreover on what basis learned CIT(Appeals) has held that they be paid for only 50% of salary is also not comprehendible. It is not case that learned CIT(Appeals) has compared services rendered with prevailing market price. Dehorse any cogent basis, it is arbitrary order, which is not sustainable. case laws referred by assessee before CIT(Appeals) have been distinguished without any cogent reason. 7. In my considered opinion, as already expounded by Hon ble Apex Court, Revenue should not try to sit into shoes of businessman and decide how to conduct business. 8. Accordingly I find that lady Directors being well qualified persons and associated with company since earlier period cannot be disallowed remuneration of 50% as held by learned CIT(Appeals). Accordingly I set aside order of learned CIT(Appeals) on this issue and decide issue in favour of assessee. 6 ITA No. 166/Pat/2014. 9. In result, appeal by assessee is partly allowed. Order pronounced in Open Court on this 26th day of Sept., 2016. Sd/- ( SHAMIM YAHYA) ACCOUNTANT MEMBER. Dated: 26th Sept., 2016. Copy forwarded to : 1. M/s Prashant Motors Pvt. Ltd., Lenin Chawk, Muzaffarpur. 2. D.C.I.T., Circle-2, Muzaffarpur. 3. C.I.T.- Patna. 4. CIT(Appeals)-I, Patna. 5. D.R., ITAT, Patna. 6. Guard File True Copy By Order Assistant Registrar, Income Tax Appellate Tribunal, Patna Bench, Patna. Wakode. M/s Prashant Moters Pvt. Ltd. v. Dy. Commissioner of Income-tax, Circle-2, Muzaffarpur