M/s JCB India Limited, New Delhi V. ACIT, New Delhi

CO 306/DEL/2011

• Counselvise Citation: [2011] 122 COUNSELVISE.COM (IT) 6413 (ITAT-DELHI)
• Duration Of Justice: 1 month(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 30-09-2011
• Appeal Filed By: Assessee
• Bench Allotted: D
• Assessment Year: 2005-2006
• Appeal Filed On: 30-08-2011
• Court: TRIBUNAL
• Assessee Lawyers: Y KAKKAR
• Keywords: Rectification of order; Wholly owned subsidiary
• Section: 143(3); 6; 154

Judgement Text

ITA NO. 3625/D/2011 & CO 306/D/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D NEW DELHI BEFORE SHRI C.L. SETHI, JUDICIAL MEMBER AND SHRI A.N. PAHUJA, ACCOUNTANT MEMBER ITA NO.3625/DEL/2011 ASSTT. YEAR: 2005-06 ASSTT. COMMISSIONER OF INCOME TAX, VS JCB INDIA LIMITED, CIRCLE-4(1), ROOM NO. 407, B-1/1-1, 2 ND FLOOR, C.R. BUILDING, I.P. ESTATE, MOHAN COOPERATIVE INDL. AREA, NEW DELHI. MATHURA ROAD, NEW DE LHI. C.O. NO.306/DEL/2011 (IN ITA NO. 3625/DEL/2011) ASSTT. YEAR: 2005-06 JCB INDIA LIMITED, VS ACI T, CIRCLE 4(1), NEW DELHI. NEW DELHI. (PAN NO. AAACE0078P) (APPELLANT) (RESPONDENT) APPELLANT BY: MS Y. KAKKAR, DR RESPONDENT BY: S/SHRI TARNDEEP SINGH, VINAY SINGH AL, MANEESH UPNEJA O R D E R PER SHRI C.L. SETHI, J.M. THE REVENUE IS IN APPEAL AGAINST THE ORDER DATED 3 1.5.2011 PASSED BY LD. CIT(A) IN THE MATTER OF AN ORDER PASSED U/S 154 OF THE INCOME TAX ACT, 1961 FOR ASSTT. YEAR 2005-06. 2. THE ASSESSEE HAS ALSO FILED CROSS OBJECTION IN R ELATION THERETO. 3. THE ONLY ISSUE RAISED BY THE DEPARTMENT IN THIS APPEAL IS AS UNDER:- ITA NO. 3625/D/2011 & CO 306/D/2011 2 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE AD DITION OF RS.36,87,606/- MADE U/S 36(1)(II) ON ACCOUNT OF BONUS PAID TO THE EMPLOYEES. 2.1 THE LD. CIT(A) IGNORED THE FINDING RECORDED BY THE AO AND THE FACT THAT THE ASSESSEE DID NOT FILE THE NECESSARY EVIDENCE TO SUBSTANTIATE ITS CLAIM DURING THE COURSE OF ASSESSMENT PROCEEDINGS DESPITE HAVING BEE N PROVIDED NUMBER OF OPPORTUNITIES. 4. IN THE CROSS OBJECTION, THE ASSESSEE HAS TAKEN A GROUND AS UNDER:- THAT ON THE FACTS OF THE CASE AND IN LAW, THE ORD ER OF THE LD. ASSESSING OFFICER (LD. AO) PASSED UNDER SECTION 154/143(3) OF THE ACT, IS WITHOUT JURISDICT ION AS THERE IS NO MISTAKE APPARENT FROM THE RECORD NOR SU CH ADDITIONS COULD BE PERMISSIBLE UNDER SECTION 154 OF THE ACT. 5. IN THIS CASE, A REGULAR ASSESSMENT U/S 143(3) OF THE ACT WAS PASSED BY THE AO ON 30.12.2008, DETERMINING TOTAL INCOME AT R S.177,48,80,110/-. THEREAFTER, IT WAS REVEALED TO THE AO THAT AS PER 3 CD AUDIT REPORT, AN AMOUNT OF RS.36,87,606/- WAS PAID TO AN EMPLOYEE A S BONUS, WHICH WAS NOT ALLOWABLE AS DEDUCTION AS PER PROVISIONS OF SECTION 36(1)(II) OF THE ACT. THE AO, THEREFORE, PROPOSED TO DISALLOW THE AFORESAID D EDUCTION OF RS.36,87,606/-, AND HE, ACCORDINGLY, ISSUED A NOTIC E U/S 154/155 OF THE ACT ON 27.7.2010 TO THE ASSESSEE. IN RESPONSE TO THE S AID NOTICE, THE ASSESSEE ITA NO. 3625/D/2011 & CO 306/D/2011 3 SUBMITTED ITS REPLY VIDE LETTER DATED 5.8.2010. IN REPLY, IT WAS SUBMITTED BY THE ASSESSEE AS UNDER:- SECTION 36(1)(II) OF THE ACT PROVIDES THAT ANY BONUS OR COMMISSION PAID TO AN EMPLOYEE FOR ANY SERVICES RENDERED IS AN ALLOWABLE EXPENDITURE WITH AN EXCEPTION FOR THOSE PAYMENTS WHICH ARE DISTRIBUTED AS PROFITS OR DIVIDEND. THEREFORE, IN CASE ANY SHAREH OLDER IS ALSO AN EMPLOYEE OF THE COMPANY, ANY BONUS OR COMMISSION PAID TO HIM MIGHT BE COVERED WITHIN THE PROVISIONS OF SECTION 36(1)(II) OF THE ACT RESULTI NG IN AN DISALLOWANCE EXPENSE FOR THE COMPANY. IN THIS REGARD, YOUR GOODSELFS KIND ATTENTION IS DRAWN TO SCHEDULE H (POINT NO. 14) OF RETURN OF INC OME, WHERE IT IS REPORTED THAT THE ENTIRE SHARE CAPITAL OF THE COMPANY IS HELD BY JC BAMFORD EXCAVATORS LTD. (JCB UK). THEREFORE, THE ENTIRE RIGHT TO RECEIVE DIVIDE NDS OR PROFITS OF THE COMPANY VESTS WITH JCB UK. THUS, TH IS IS A MATTER ALREADY ON RECORD THAT THERE IS NO POSSIBILI TY OF PAYING ANY DIVIDEND OR DISTRIBUTING ANY PROFITS TO ANY DIRECTOR OR ANY EMPLOYEE OF THE COMPANY. 6. THE REPLY OF THE ASSESSEE WAS EXAMINED AND CONSI DERED BY THE AO BUT FOUND BY HIM TO BE NOT ACCEPTABLE FOR THE REASON TH AT THE TAX AUDITOR IN THEIR REPORT HAVE CLEARLY MENTIONED THAT THE SAID AMOUNT WAS NOT ALLOWABLE AS DEDUCTION UNDER THE PROVISIONS OF SECTION 36(1)(II) OF THE ACT. THE AO, THEREFORE, ADDED THE AFORESAID AMOUNT OF RS.36,87,6 06/- TO THE TOTAL INCOME BY WAY OF HIS ORDER PASSED U/S 154 OF THE ACT, DATE D 31.1.2011. 7. BEING AGGRIEVED, THE ASSESSEE PREFERRED AN APPEA L BEFORE THE LD. CIT(A). ITA NO. 3625/D/2011 & CO 306/D/2011 4 8. AFTER CONSIDERING THE AOS RECTIFICATION ORDER P ASSED U/S 154 OF THE ACT AND ASSESSEES SUBMISSION, THE LD. CIT(A) DELET ED THE ADDITION BY OBSERVING AS UNDER:- 5.2 I HAVE CONSIDERED THE WRITTEN SUBMISSION ON BEHALF OF THE APPELLANT, THE FINDINGS OF THE ASSESS ING OFFICER AND THE FACTS ON RECORD. THE ASSESSING OFF ICER HAS BEEN GUIDED ONLY BY THE REMARKS OF THE AUDITORS UNDER CLAUSE 16(A) OF THE TAX AUDIT REPORT WHILE MA KING THE IMPUGNED ADDITION OF RS.36,87,606/- IN TERMS OF SECTION 36(1)(II) OF THE ACT. THE REMARKS UNDER CL AUSE 16(A) OF THE TAX AUDIT REPORT ONLY STATED THAT THE AMOUNT PAID TO AN EMPLOYEE AS BONUS OR COMMISSION FOR SERV ICES RENDERED, WHERE SUCH SUM WAS OTHERWISE PAYABLE TO H IM AS PROFITS OR DIVIDEND WAS NIL. HOWEVER, THE ASSES SEE COMPANY HAS DEBITED RS.36,87,606/- TO ITS PROFIT AN D LOSS ACCOUNT ON ACCOUNT OF EX-GRATIA AND YEARLY BONUS OF EMPLOYEES UNDER THE PAYMENT OF BONUS ACT, 1965 FOR EMPLOYMENT SERVICES RENDERED DURING THE YEAR, OUT O F WHICH, AN AMOUNT OF RS.6,56,307/- DEBITED TO THE PR OFIT AND LOSS ACCOUNT REMAINED UNPAID BY THE DUE DATE OF FILING RETURN OF INCOME FOR THE ASSESSMENT YEAR 200 5-06. THEREFORE, THE AMOUNT OF RS.6,56,307/- WAS ADDED BA CK TO THE TOTAL INCOME WHILE COMPUTING TAXABLE INCOME FOR THE ASSESSMENT YEAR 2005-06 AND THERE WAS NO REASON FOR ANY DISALLOWANCE IN TERMS OF SECTION 36(1)(II) OF T HE ACT EVEN ACCORDING TO THE AUDITORS. THEREFORE, CONSIDE RING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, I AM OF THE CONSIDERED VIEW THAT THE AO WAS NOT JUSTI FIED IN MAKING DISALLOWANCE OF RS.36,87,606/- UNDER SECTION 36(1)(II) OF THE ACT AND THE SAME IS HEREBY DELETED . 9. HENCE, THE REVENUE IS IN APPEAL BEFORE THE TRIBU NAL. 10. THE ASSESSEE HAS ALSO FILED CROSS OBJECTION, RA ISING A GROUND THAT THE ORDER PASSED BY THE AO U/S 154 WAS BEYOND JURISDICT ION INASMUCH AS THERE ITA NO. 3625/D/2011 & CO 306/D/2011 5 WAS NO MISTAKE APPARENT FROM RECORD WHICH COULD BE RECTIFIED U/S 154 OF THE ACT. 11. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. 12. ON PERUSAL OF PROVISIONS OF SECTION 36(1)(II) O F THE ACT, IT IS CLEAR THAT THE CONDITIONS IMPOSED BY SECTION 36(1)(II) FOR ALL OWABILITY OF AMOUNT PAID TO AN EMPLOYEE AS BONUS OR COMMISSION FOR SERVICES RENDERED IS THAT ANY SUCH SUM PAID TO THE EMPLOYEES SHOULD NOT HAVE BEEN PAYABLE TO HIM AS PROFIT OR DIVIDEND IF IT HAD NOT BEEN PAID AS BONUS OR COMMISSION. IN OTHER WORDS, UNLESS ANY SUM, AS IS PAID TO AN EMPLOYEE BY WAY OF BONUS OR COMMISSION, WOULD OTHERWISE HAVE BEEN PAYABLE TO TH E EMPLOYEE AS PROFITS OR DIVIDEND, THE ASSESSEE CANNOT BE DEPRIVED OF THE BENEFITS OF THIS CLAUSE. IN THE PRESENT CASE, THE ASSESSEE COMPANY IS A WHOLLY OWNED SUBSIDIARY OF JC BAMFORD EXCAVATORS LIMITED, UK (JCBE, UK). THE ENT IRE SHARE CAPITAL OF THE COMPANY IS HELD BY JCBE, UK. THE PAYMENT OF BO NUS OF RS.36,87,606 HAS NOT BEEN MADE TO JCBE, UK BUT HAS BEEN PAID TO REGULAR EMPLOYEES OF THE ASSESSEE UNDER THE PAYMENT OF BONUS ACT, 1965 F OR SERVICES RENDERED BY THEM DURING THE YEAR UNDER CONSIDERATION. THE EMPL OYEES CONCERNED, WHO WERE PAID BONUS, WERE NOT ENTITLED TO ANY DIVIDEND OR PROFITS INASMUCH AS THEY WERE NOT THE SHAREHOLDERS OF THE ASSESSEE COMP ANY. THEREFORE, THE ITA NO. 3625/D/2011 & CO 306/D/2011 6 PROVISIONS OF SECTION 36(1)(II) ARE NOT APPLICABLE TO THE PAYMENT OF BONUS OF RS.36,87,606, WHICH HAS NOT BEEN PAID TO ANY SHAREH OLDER BUT HAS BEEN PAID TO REGULAR EMPLOYEES UNDER THE PAYMENT OF BONUS ACT . THE REMARK OF THE AUDITOR UNDER CLAUSE 16(A) OF THE AUDIT REPORT READ S AS UNDER:- 16. (A) ANY SUM PAID TO AN EMPLOYEE AS NIL, EXCEPT BONUS AS PER PAYMENT OF BONUS OR COMMISSION FOR SERVICES BONUS ACT, 1965 (INCLUDING EX- RENDERED, WHERE SUCH SUM WAS OTHERWISE GRA TIA OF RS.30,31,299) PAYABLE TO PAYABLE TO HIM AS PROFITS OR DIVIDEND EMPLOYEES AND DEBITED TO PROFIT & {SECTION 36(1)(II)} LOSS ACCOUNT RS.36,87,606. 13. THE AFORESAID REMARK WAS CLARIFIED BY THE AUDIT OR IN HIS CLARIFICATION NOTE SUBMITTED BY THE ASSESSEE DURING THE COURSE OF THE PROCEEDINGS INITIATED U/S 154 OF THE ACT WHERE IT WAS CLARIFIED AS UNDER: - IN THIS REGARD, WE WOULD LIKE TO CLARIFY THAT THE AMOUNT STATED AGAINST THE CLAUSE IS NIL. HOWEVER, THE COMPANY HAS DEBITED RS.36,87,606 TO ITS PROFIT AND LOSS ACCOUNT ON ACCOUNT OF EX-GRATIA AND YEARLY BONUS OF EMPLOYEES UNDER THE PAYMENT OF BONUS ACT, 1965 FOR EMPLOYMENT SERVICES RENDERED DURING THE YEAR. OF T HIS, AN AMOUNT OF RS.6,56,307 DEBITED TO THE PROFIT AND LOSS ACCOUNT REMAINED UNPAID BY THE DUE DATE OF FILING R ETURN OF INCOME FOR THE FINANCIAL YEAR 2004-05 AND WAS THEREFORE INCLUDED IN APPENDIX X OF OUR REPORT IN F ORM NO. 3CD DATED OCTOBER 27, 2005. 14. IN THE LIGHT OF THE FACTS DISCUSSED ABOVE, WE A RE, THEREFORE, OF THE CONSIDERED VIEW THAT THE LD. CIT(A) HAS RIGHTLY HEL D THAT AO WAS NOT JUSTIFIED IN MAKING THE DISALLOWANCE OF RS.36,87,60 6 U/S 36(1)(II) OF THE ACT. ITA NO. 3625/D/2011 & CO 306/D/2011 7 SINCE THE ADDITION MADE BY THE AO IN HIS ORDER PASS ED U/S 154 OF THE ACT HAS BEEN DELETED BY THE LD. CIT(A) AND WHICH HAS BEEN C ONFIRMED BY US, AFTER CONSIDERING THE MERIT OF THE ISSUE, WE ARE NOT INCL INED TO DECIDE THE LEGAL POINT RAISED BY THE ASSESSEE IN THE CROSS OBJECTION THAT THE ORDER PASSED BY THE AO U/S 154 OF THE ACT WAS WITHOUT JURISDICTION INASMUCH AS THERE WAS NO MISTAKE APPARENT FROM THE RECORD THAT COULD BE RECT IFIED U/S 154 OF THE ACT AS THE SAME HAS BECOME REDUNDANT AT THIS STAGE. 15. IN THE LIGHT OF THE DISCUSSION MADE ABOVE, THE ORDER OF THE CIT(A) IS UPHELD. 16. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND CROSS OBJECTION OF THE ASSESSEE IS TREATED AS REDUNDANT. PRONOUNCED IN THE OPEN COURT ON 30 TH SEPTEMBER, 2011. SD/- SD/- ( A.N. PAHUJA ) ( C.L. SETHI ) ACCOUNTANT MEMBER JUDICIAL MEMBER DT. 30TH SEPTEMBER, 2011 GS COPY FORWARDED TO: 1. ACIT, CIRCLE 4(1), NEW DELHI. 2. JCB INDIA LTD., NEW DELHI. 3. CIT(A)-VII, NEW DELHI. 4. CIT 5. DR BY ORDER DY. REGISTRAR ITA NO. 3625/D/2011 & CO 306/D/2011 8