Case Law Details

Case Name : DCIT Vs Garhwal Mandal Vikas Nigam Ltd. (ITAT Delhi)
Appeal Number : ITA No. 1908/DEL/2015
Date of Judgement/Order : 10/07/2018
Related Assessment Year : 2011-12

DCIT  Vs Garhwal Mandal Vikas Nigam Ltd. (ITAT Delhi)

It was observed that as per the Memorandum of Association/Article of Association the Chairman is appointed by the governor of Uttarakhand for such period and upon such terms and on such remuneration, if any, by way of salary or honorarium as the governor may think fit. Furthermore, it was seen that the primary duty of the Chairman relate to chairing of meeting of the Board of Directors i.e. scheduled to take place once in every three months, for approving all the major decisions taken by or proposed by the, management of the company. The actual management of the company is done by a Managing Director. In view of the above as the honorarium in terms of service of the Chairman of the Board of Directors is determined as per the Memorandum/Article of Association of the company, any such remuneration whether by way of salary or honorarium and other perks that the governor of Uttarakhand may deem appropriate is sanction, is to be allowed as deductible business expenditure from the accounts of the company. Furthermore,- Board of Directors has a discretion to appoint and remove such Secretaries, Accountant, Officers, Clerks, Agents and Servants as they may, from time to time, think fit and to fix their salaries or emoluments. Therefore, to the extent that the people working in the Chairman section have been appointed with due approval of the Board of Directors to assist the Chairman in his functioning, their salaries were also have to be allowed as a regular business expenditure. In the circumstances, the Assessing Officer may verify the remuneration determined for the Chairman by the Governor of Uttarakhand and the whether the deployment of personnel to the Chairman’s section is duly approved as per the bye-laws of the company, and if the same are in order, allow the expenses on account of the Chairman’s honorarium and expenses on his staff as business expenses of the company.

FULL TEXT OF THE ITAT JUDGMENT

This appeal has been filed by the Revenue against the order dated 5/1/2015 passed by CIT(A)-Dehradun for Assessment Year 2011-12.

2. The grounds of appeal are as under:-

“1. The Ld.CIT(A) erred in law and on facts in allowing honorarium to the Chairman of the Company ignoring the fact that the post of Chairman is honorary/political and as such no honorarium or other expenses can be paid to the Chairman.

2. That the Ld.CIT(A) has erred in law and on facts in deleting the addition of Rs. 50,63,263/- on account of sale of fixed assets ignoring the fact that no explanation/evidences in this regard were furnished by the assessee before the A. O.

3. The order of Ld.CIT (A), be set aside and that of Assessing Officer be restored.”

3. The assessee is a Limited Company whose 100% equity is held by the Government of Uttarakhand. The assessee is involved in various business activities like marketing, Gas Agencies, Petrol Pumps, FL (Liquor), canteens and running Rest Houses. The assessee e-field its return of income on 30/09/2011 declaring loss of (-Rs.2,84,18,398/-). The case was selected for scrutiny and accordingly notice u/s 143(2) of the Income Tax Act, 1961 dated 7/8/20 12 was served upon the assessee through speed post. Notice u/s 142(1) of the Act dated 29/08/2013 along with questionnaire was served upon the assessee through speed post. In response to these notices, the Chartered Accountant of the assessee appeared from time to time and furnished requisite documents/information as well as books of accounts. The same was taken on record by the Assessing Officer. The Assessing Officer observed that the total balance sheet of the assessee as on 31/3/2011 was Rs. 1,55,36,02,641. The Assessing Officer made addition of Rs.33,31,360/- on account of expense towards honorarium paid to the Director and Chairman. The Assessing Officer observed that as the Chairman is an honorary/political post and is not of the roll of the Nigam. The said expenses have to be disallowed. The Assessing Officer further made addition of Rs.50,63,263/- in respect of sale of assets as the Assessing Officer observed that the assessee failed to submit proper documentary evidences.

4. Being aggrieved by the Assessment Order, the assessee filed appeal before the CIT (A). The CIT (A) allowed the appeal of the assessee.

5. As regards Ground No. 1, the Ld. DR submitted that since the Chairman is an honorary/political post and is not on the roll of the Nigam, the Assessing Officer rightly disallowed the said expenses. The Ld. DR further submitted that the CIT(A) erred in allowing the honorarium of the Chairman of the Company. As regards, Ground No. 2, the Ld. DR submitted that the CIT (A) ignored the fact that no explanation/evidence was furnished by the assessee on account of sale of fixed assets. Therefore, the Ld. DR submitted that the order of the CIT (A) be set aside and the Assessment Order be restored.

6. The Ld.AR submitted that the CIT (A) has righty allowed the appeal of the assessee and deleted additions made by the Assessing Officer. As regards Ground No. 1, the Ld. AR submitted that the CIT(A) has allowed the expenses of honorarium to the Chairman after considering the earlier years order passed by the CIT(A) for Assessment Year 2010-11 which is not challenged by the As relates to Ground No. 2, the Ld. AR submitted that the sale of fixed assets has been shown in the schedule to the final accounts and thereafter the cost of these assets have been reduced from the written down value of the block of assets to which these assets related to. Thus, the CIT (A) rightly allowed this issue and deleted the addition made by the Assessing Officer.

7. We have heard both the parties and perused the material available on record. As relates to Ground No. 1 of the Revenue’s appeal, the CIT(A) has followed his earlier order for Assessment Year 2010-11 which was not contested by the Revenue before the Tribunal. Therefore, the issue is settled in favour of the assessee for the earlier year and the same has been taken into account by the CIT(A) in present Assessment Year i.e. Assessment Year 2011- 12. The Ld.CIT (A) held as under:-

“8. I have duly considered the facts & circumstances of the case. The issue of Chairman Expenses was considered and decided by me in Appeal No. 21 6for the A. Y. 2010-11. In the said appeal I had held as under:-

“The assessee was also asked to submit a copy of the Memorandum of Association and the Articles of Association, of the assessee company to see whether such expenses were) sanctioned as per the same. It was observed that as per the Memorandum of Association/Article of Association the Chairman is appointed by the governor of Uttarakhand for such period and upon such terms and on such remuneration, if any, by way of salary or honorarium as the governor may think fit. Furthermore, it was seen that the primary duty of the Chairman relate to chairing of meeting of the Board of Directors i.e. scheduled to take place once in every three months, for approving all the major decisions taken by or proposed by the, management of the company. The actual management of the company is done by a Managing Director. In view of the above as the honorarium in terms of service of the Chairman of the Board of Directors is determined as per the Memorandum/Article of Association of the company, any such remuneration whether by way of salary or honorarium and other perks that the governor of Uttarakhand may deem appropriate is sanction, is to be allowed as deductible business expenditure from the accounts of the company. Furthermore,- Board of Directors has a discretion to appoint and remove such Secretaries, Accountant, Officers, Clerks, Agents and Servants as they may, from time to time, think fit and to fix their salaries or emoluments. Therefore, to the extent that the people working in the Chairman section have been appointed with due approval of the Board of Directors to assist the Chairman in his functioning, their salaries were also have to be allowed as a regular business expenditure. In the circumstances, the Assessing Officer may verify the remuneration determined for the Chairman by the Governor of Uttarakhand and the whether the deployment of personnel to the Chairman’s section is duly approved as per the bye-laws of the company, and if the same are in order, allow the expenses on account of the Chairman’s honorarium and expenses on his staff as business expenses of the company.

In view of the decision taken in the A. Y. 2010-11 and the additional fact that in the present year, the Chairman is also functioning as the Director of the company, the addition of Rs.33,31,360/- made in this respect by the A. O. cannot be sustained and is accordingly deleted.”

Therefore, there is no need to interfere with the findings of the CIT(A). Ground No. 1 of the Revenue’s appeal is dismissed.

8. As relates to Ground No. 2 of the Revenue’s appeal, it is pertinent to note that the profit on sale of fixed assets has been added back to the income of the in the computation of the income accompanying the return. The assessee claimed reduced depreciation on the block of assets which were reduced from the cost of the assets from the written down value. The CIT(A) held as under:-

“10. With regard to the issue of disallowance on sale of fixed assets, I have examined the final accounts of the assessee. It is seen that the assets that had been sold form part of the fixed assets schedule to the final accounts and the cost of these assets have been reduced from the written down value of the Block of Assets to which they relate to. Accordingly, the assessee has claimed reduced depreciation on these Block of Assets. It is also seen that the profit on sale of fixed assets has been added back to the income of the assessee in the computation of income accompanying the return. Accordingly, there does not appear to be any reason for the A. O. to make any addition on this account, especially when the block of assets on which the depreciation has been claimed is still in existence. Thus, the addition of Rs. 50,63,263/- on this account is deleted.”

There is no need to interfere with the findings of the CIT(A). Therefore, Ground No. 2 of the Revenue’s appeal is dismissed.

14. In result, the appeal of the Revenue is dismissed.

Order pronounced in the Open Court on 10th JULY, 2018. 

Download Judgment/Order

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