ARUN TECH INDUSTRIAL SERVICES PVT. LTD.,CHENNAI V. ITO, CORPORATE WARD, CHENNAI

ITA 1788/CHNY/2024

AI Insights

The case involves M/s. Arun Tech Industrial \\u2013 Services Pvt. Ltd., which appealed against the order of the Learned Commissioner of Income Tax (Appeals)/NFAC, Delhi, which had disallowed a sum of Rs.4 lakhs paid as a performance bonus to its director-shareholders for the Assessment Year 2018-19. The company argued that the bonus was part of a resolution passed in 2016, contingent upon achieving a turnover of Rs.1 crore, which was met in the relevant financial year. The Assessing Officer had initially disallowed the bonus citing section 36(1)(ii) of the Income Tax Act, 1961, but the Tribunal reversed this decision, allowing the deduction and directing the deletion of the addition of Rs.4 lakhs.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 107110 (ITAT-CHENNAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2018-2019
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GOUTHAMI MANIVASAGAM
• Assessee Lawyers: J. VIGNESH

Judgement Text

"आयकर अपीलीय अिधकरण, ‘बी’ \u0001यायपीठ, चे ई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH: CHENNAI \u0001ी एबी टी. वक , ाियक सद\u0011 एवं एवं एवं एवं \u0001ी अिमताभ शु\u0018ा, लेखा सद क े सम\u001b BEFORE SHRI ABY T. VARKEY, JUDICIAL MEMBER AND SHRI AMITABH SHUKLA, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.1788/Chny/2024 िनधा\u000eरण वष\u000e/Assessment Year: 2018-19 M/s.Arun Tech Industrial – Services Pvt. Ltd., No.1, Palat Madhavan Road, Mahalingapuram, Chennai-600 034. v. The ITO, Corporate Ward-1(1), Chennai. [PAN: AAICA 6675 L] (अपीलाथ\u0016/Appellant) (\u0017\u0018यथ\u0016/Respondent) अपीलाथ\u0016 क\u001a ओर से/ Appellant by : Mr. J. Vignesh, CA \u0017\u0018यथ\u0016 क\u001a ओर से /Respondent by : Ms. Gouthami Manivasagam, JCIT सुनवाईक\u001aतारीख/Date of Hearing : 04.11.2024 घोषणाक\u001aतारीख /Date of Pronouncement : 08.01.2025 आदेश / O R D E R PER ABY T. VARKEY, JM: This is an appeal preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)/NFAC, (hereinafter in short \"the Ld.CIT(A)”), Delhi, dated 28.05.2024 for the Assessment Year (hereinafter in short \"AY”) 2018-19. ITA No.1788/Chny/2024 (AY 2018-19) M/s.Arun Tech Industrial Services Pvt. Ltd. :: 2 :: 2. The main grievance of the assessee is against the action of the Ld.CIT(A) disallowing the sum paid to Director shareholders amounting to Rs.4 lakhs. 3. The brief facts are that the assessee company filed its return of income (RoI) for AY 2018-19 declaring total income of Rs.32,66,910/- which was processed u/s.143(1) of the Income Tax Act, 1961 (hereinafter in short \"the Act”) on 01.10.2019 at a total income of Rs.33,14,980/-. Later, the return was selected for scrutiny under the limited category through CASS. The AO noted that a sum of Rs.4 lakhs was paid as normal performance bonus to both the Directors (Mr. M.Dharma Raj & Mrs. Senthil Rani) [Rs.2 lakhs each] in the end of the year (28.03.2018) and that each of them holds 50% of share in the company. The AO asked the assessee as to the allowability of such payment of bonus and the assessee submitted that both are whole time employee-directors and as per the Resolution passed by it dated 16.08.2016 [Page No.62 of the paper book] it was decided that the Directors of the company shall be entitled to performance bonus of Rs.2 lakhs each, if the targeted turnover of Rs.1 Cr was achieved. Since the company has attained its target of Rs.1 Cr. turnover as on 31.03.2018, the Directors where entitled to such ‘performance bonus’ and hence was given a payment of Rs.2 lakhs each and therefore, allowable as deduction. However, the AO relying on ITA No.1788/Chny/2024 (AY 2018-19) M/s.Arun Tech Industrial Services Pvt. Ltd. :: 3 :: section 36(1)(ii) of the Act denied the same and made an addition of Rs.4 lakhs. 4. Aggrieved, the assessee preferred an appeal before the Ld.CIT(A) who was pleased to dismiss the same. 5. It is noted that the assessee company was incorporated in the year 2010 and the Board of Directors have passed a Resolution dated 16.08.2016 found placed at Page No.62 of the Paper Book, wherein, it was resolved by the Board that if the assessee company exceeds turnover of Rs.1 Cr. as on 31.03.2018, Rs.2 lakhs would be paid to the whole time Directors. It is noted that both Mr. M.Dharma Raj & Mrs. Senthil Rani are Directors of the assessee company holding 50% of the share and are whole time employee-Directors who are working whole time for the company; and it is noted that turnover of the assessee has reached Rs.1 Crs. only in the relevant Financial Year 2017-18 i.e. [AY 2018-19] to the tune of Rs.1,26,44,204/- after 8 years of incorporation and both the Directors were only drawing monthly remuneration of Rs.22,000/- each [total Rs.5,28,000/-] for both the Directors. It has been brought to our notice that both the Directors are the main technical and administrative resources of the company and based on their efforts new orders were received which shows that special services were rendered by both to achieve the target as per the resolution dated 16.08.2016 which was an ITA No.1788/Chny/2024 (AY 2018-19) M/s.Arun Tech Industrial Services Pvt. Ltd. :: 4 :: event 15 months before the assessee was able to breach the turnover of Rs.1 Cr. Therefore, we are of the opinion that the ‘performance bonus’ was directly linked with duties performed by them and therefore, the claim of the assessee need to be allowed and we order accordingly. Therefore, the AO is directed to delete addition of Rs.4 lakhs. And charging of interest u/s.234B & 234C of the Act is consequential in nature, which does not require any adjudication. 6. In the result, appeal filed by the assessee is allowed. Order pronounced on the 08th day of January, 2025, in Chennai. Sd/- (अिमताभ शु\u0018ा) (AMITABH SHUKLA) लेखा सद\u0003य/ACCOUNTANT MEMBER Sd/- (एबी टी. वक ) (ABY T. VARKEY) \u0005याियक सद\u0003य/JUDICIAL MEMBER चे ई/Chennai, !दनांक/Dated: 08th January, 2025. TLN, Sr.PS आदेश क\u001a \u0017ितिलिप अ$ेिषत/Copy to: 1. अपीलाथ /Appellant 2. \u000e\u000fथ /Respondent 3. आयकरआयु\u0015/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय\u000eितिनिध/DR 5. गाड फाईल/GF "