Banspani Iron Ltd, Keonjhar V. DCIT, Sambalpur

ITA 10/CTK/2012

• Counselvise Citation: 1022114 RSA 2012
• Duration Of Justice: 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 16-02-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 06-01-2012
• Court: TRIBUNAL
• Department Lawyers: PARAMITA TRIPATHY
• Assessee Lawyers: S C BHADRA

Judgement Text

IN THE INC O ME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE : SHRI K.K.GUPTA, AM , AND SHRI K.S.S.PRASAD RAO, JM ITA NO. 010/CTK/2012 AND STAY PETITION NO.02/CTK/2012 (ASSESSMENT YEAR 2008 - 09) BANSPANI IRON LTD., BONEIKALA,JODA,KEONJHAR,ORISSA PAN: AAACB 9152 B VERSUS DY.COMMISSIOENR OF INCOME - TAX, CIRCLE 1(1), SAMBALPUR. (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI S.C.BHADRA, AR FOR THE RESPONDENT SMT. PARAMITA TRIPATHY, DR DATE OF HEARING : 16.02.2012 DATE OF PRONOUN CEMENT : 14.03.2012 ORDER SHRI K.K.GUPTA, AM : THE ASSESSEE HAS FILED THE APPEAL AGAINST THE ORDER DT.21.11.2011 OF THE COMMISSIONER OF INCOME - TAX (APPEALS) FOR THE ASSESSMENT YEAR 2008 - 09. ALSO THE ASSESSEE FILED THE STAY PETITION SEEKING STAY OF THE DEMANDED DUES PERTAINING TO THE ASSESSMENT YEAR UNDER CONSIDERATION. 2. THE ONLY ISSUE RAISED BY THE ASSESSEE IN ITS APPEAL RELATES TO DISALLOWANCE OF EXPENDITURE OF RES.3,08,41,544 CLAIMED BY THE ASSESSEE UNDER THE HEAD COMMISSION PAID TO THE MANAGING DIRECTOR AN D WHOLE TIME DIRECTOR ON THE GROUND THAT THE SAME WAS PAID IN THE SUBSEQUENT YEAR. 3. THE RELEVANT FACTS ARE THAT THE ASSESSEE - COMPANY DERIVES INCOME FROM MANUFACTURING, PROCESSING OF IRON ORE, HIRING AND RENTING OF EQUIPMENT AND WIND POWER GENERATION. DU RING THE COURSE OF ASSESSMENT U/S.143(3), THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS DEBITED TO THE PROFIT & LOSS ACCOUNT 1,54,20,772 ON ACCOUNT OF COMMISSION TO M.D. @5% OF NET PROFIT AND 1,54,20,772 ON ACCOUNT OF COMMISSION TO WHOLE TIME DIRECTOR @5% ON THE NET PROFIT , BOTH TOTALLING TO 3,08,41,544 BUT NOT ACTUALLY PAID DURING THE FINANCIAL YEAR 2007 - 08 RELEVANT TO TH E ASSESSMENT YEAR UNDER CONSIDERATION . ITA NO.010/CTK/2012 AND STAY PETITION NO.02/CTK/2012 2 THE ASSESSEE EXPLAINED THAT COMMISSION @5% OF NET PROFIT WAS PAYABLE TO THE MANAGING DIRECTOR AND WHOLE TIME DIRECTOR SUBJECT TO APPROVAL OF THE MEMBERS AT THE FORTHCOMING ANNUAL GENERAL MEETING OF THE COMPANY. ON THE OBSERVATION THAT THE ASSESSEE FAILED TO SUBSTANTIATE THE CLAIM OF PAYMENT TOWARDS SUCH COMMISSION TO MANAGING DIRECTOR AND WHOLE TIME DIRECTOR AND IN ABSENCE OF ANY MATERIAL EVIDENCE TO PROVE THAT THE SAME WERE INCURRED FULLY AND EXCLUSIVELY FOR THE PURPO SE OF BUSINESS, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF DEDUCTION OF 3,08,41,544 AND ADDED THE SAME TO THE TOTAL INCOME. AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE COMMISSIONER OF INCOME - TAX (APPEALS). 4. THE LEARNED CIT(A) OBSERVED THAT THE C OMMISSION IN QUESTION WAS NOT ACTUALLY PAI D DURING THE PREVIOUS YEAR 2007 - 08 RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION, BUT A PROVISION WAS MADE IN THE BOOKS OF ACCOUNT SUBJECT TO APPROVAL OF FORTHCOMING ANNUAL GENERAL MEETING OF THE COMPANY. THE SAID AMOUNT WAS PAID ON 23.9.2008 AFTER THE SAME WAS APPROVED IN ANNUAL GENERAL MEETING HELD ON 22.9.2008. OBSERVING SO AND PLACING RELIANCE ON THE DECISION OF ITAT, NAGPUR BENCH IN THE CASE OF SECL V. JT. CIT (2003) 260 ITR (AT) 1, THE LEARNED CIT(A) UPH ELD THE DISALLOWANCE OF DEDUCTION AS MADE BY THE AO IN RESPECT OF COMMISSION TO MANAGING DIRECTOR AND WHOLE TIME DIRECTOR. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5. THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT PROVISION FOR DIRECTORS C OMMISSION MADE IN THE ACCOUNT ON ACCOUNT OF SERVICE RENDERED DURING THE YEAR IS WITHIN THE LIMIT CONTAINED IN THE COMPANIES ACT 1956. THIS KIND OF PROVISION IS MADE IN THE ACCOUNT FOR LAST SO MANY YEARS FOR WHICH THE LIABILITY IS KNOWN. HE CONTENDED THAT T HE LIABILITY WHICH CAN BE DEDUCTED FOR THE INCOME TAX PURPOSE SHOULD HAVE BEEN ASCERTAINED DURING THE RELEVANT PREVIOUS YEAR, WHICH MEANS THAT SAME HAS BECOME CERTAIN WITH NO POSSIBILITY ITA NO.010/CTK/2012 AND STAY PETITION NO.02/CTK/2012 3 OF EXTINCTION OR SUBSTANTIAL VARIATION. THE LIABILITY CAN BE RECOGNIZ ED AS HAVING ACCRUED IN THE MANNER OF A PRUDENT BUSINESS MAN ON THE BASIS OF SPECIFIC KNOWLEDGE WHICH CAN LEAD TO THE ESTIMATION OF SUCH LIABILITY WITH A REASONABLE CERTAINTY. I F THE BUSINESS LIABILITY HAS DEFINITELY ARISEN AND BECOME ASCERTAINABLE IN THE ACCOUNTING YEAR, A DEDUCTION IS ALLOWABLE, EVEN THOUGH, THE LIABILITY MAY HAVE TO BE QUANTIFIED AND DISCHARGED AT THE FUTURE DATE. THE COMPANY IS PROVIDING COMMISSION FOR SERVICE RENDERED BY THE DIRECTORS CONTINUOUSLY IN THE PRECEDING YEARS, WITHIN THE LIM IT PRESCRIBED UNDER THE COMPANIES ACT. THE LEARNED AR OF THE ASSESSEE POINTED OUT THAT ON THE VERY SAME FACTS THE ITAT,CUTTACK BENCH HAS ALLOWED COMMISSION TO THE DIRECTORS IN THE CASE OF PATNAIK MINERALS (P) LTD (A SISTER CONCERN OF THE ASSESSEE) IN ITA N O.130/280/CTK/2010 DATED THE 19 TH NOVEMBER, 2010 . 6. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED THE IMPUGNED ORDERS OF THE AUTHORITIES BELOW. SHE CONTENDED THAT SINCE THE EXPENSES WERE NOT ACTUALLY INCURRED DURING THE PREVIOUS YEAR, THE SAME IS NOT DEDU CTIBLE FROM THE PROFIT & LOSS ACCOUNT IN THE ASSESSMENT YEAR UNDER CONSIDERATION. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. I N THE CASE OF DCIT V. M/S. PATNAIK MINERALS PVT. LTD., IN I.T.A.NO.130 & 280 /CTK/2010 , THE ITAT,CUTTACK BENCH VIDE ITS ORDER DT. 19.11.2010 HAS DECIDED A SIMILAR ISSUE AS IN THE PRESENT CASE AND CONFIRMED THE ORDER OF THE LEARNED CIT(A) AND DISMISSED THE GROUND RAISED BY THE REVENUE IN THIS REGARD BY RELYING ON ITS EARLIER DECISION IN THE CASE OF DCIT V. M/S. BANSPANI IRON LIMITED IN ITA NO.297/CTK/2010 , WHEREIN THE TRIBUNAL HAS OBSERVED AS UNDER : WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE RECORD OF THE CASE. A PERUSAL OF THE ORDER OF THE CIT (A) SHOWS THAT THE CIT (A) HAS RECOGNIZED THE FACT THAT EVEN THE DIRECTORS OF THE ASSESSEE ARE ASSESSED AT THE HIGHEST RATE BRACKET AND CONSEQUENTLY THERE IS NO BENEFIT TO THE ASSESSEE COMPANY BY ITA NO.010/CTK/2012 AND STAY PETITION NO.02/CTK/2012 4 SHOWING ANY INCOME IN THE HANDS OF THE DIRECTORS TO AVOID TAX. IT IS ALSO NOTICED THAT T HE CIT (A) HAS RECOGNIZED THE FACT THAT IF THE MONEY HAD BEEN PAID TO THE MD OR THE DIRECTORS AS COMMISSION, THE SAME WOULD HAVE BEEN PAID AS DIVIDEND. IT IS ALSO NOTICED THAT THE CIT (A) HAS FOLLOWED THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF BONY POLYMERS PVT LTD REFERRED SUPRA. IT IS ALSO NOTICED THAT THE HONBLE SUPREME COURT IN THE CASE OF GESTENER DUPLICATORS PVT. LTD REFERRED SUPRA HAS CATEGORICALLY HELD THAT THE COMMISSION PAID AS FIXED PERCENTAGE OF TURNOVER IS NOTHING BUT ASSESSABLE AS SALARY. IT IS FURTHER NOTICED THAT THOUGH THE CIT (A) HAS RECOGNIZED THAT THIS COMMISSION HAS BEEN OFFERED TO TAX IN THE HANDS OF THE MANAGING DIRECTOR AND DIRECTORS UNDER THE HEAD SALARY TAXED AT A HIGHER RATE AND HAS ALSO BEEN PAID. IT IS ALSO NOTICED THAT THE COMMISSION PAID IS WELL WITHIN THE TOTAL MANAGERIAL REMUNERATION PAYABLE WHICH HAS BEEN FIXED AT 11% OF THE PROFITS UNDER THE COMPANIES ACT. IN THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THERE IS NO ERROR IN THE FINDINGS OF THE CIT (A) WHICH CALL FOR ANY INTERFERENCE. ACCORDINGLY, WE DISMISS THE APPEAL OF THE REVENUE. IN THE PRESENT CASE, IT IS THE CLAIM OF THE ASSESSEE THE DIRECTORS HAD RENDERED SERVICE DURING THE RELEVANT PREVIOUS YEAR AND THE COMMISSION IS BASED ON A F IXED PERCENTAGE OF PROFIT PERTAINING TO THE RELEVANT PREVIOUS YEAR. THE ASSESSEE COMPANY MAINTAINS ACCOUNT ON MERCANTILE BASIS. THE EXPENDITURE HAS ARISEN AND ACCRUED IN THE PREVIOUS YEAR AND A CHARGE ON THE INCOME OF THE RELEVANT PREVIOUS YEAR IS AS PER L AW AND MATCHING CONCEPT. WE DO NOT FIND ANY MATERIAL ON RECORD NEGATING THE ABOVE CLAIM OF THE ASSESSEE. THEREFORE, C ONSISTENT WITH THE PRECEDENT, THE FACTS BEING SIMILAR IN THE PRESENT CASE ON HAND, WE HOLD THAT THE DISALLOWANCE OF 3,08,41,544 MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LEARNED CIT(A) ON THE GROUND THAT THE SAME WAS PAID IN THE SUBSEQUENT YEAR IS NOT ALL JUSTIFIED. WE, THEREFORE, SET ASIDE THE IMPUGNED ORDERS OF THE AUTHORITIES BELOW AND DIRECT THE DELETION OF THE DISALLOWANCE/ADDITION MADE IN THIS REGARD. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. 9. THE APPEAL OF THE ASSESSEE HAVING BEEN DISPOSED OF AS ABOVE, THE STAY PETITION FILED BY THE ASSESSEE NOW BECOMES INFRUCTUOUS AND AS SUCH REQUIRES ITA NO.010/CTK/2012 AND STAY PETITION NO.02/CTK/2012 5 NO DELIBERATION. THE STAY PETITION OF THE ASSESSEE IS THEREFORE, DISPOSED OF ACCORDINGLY. S D/ - S D/ - (K.S.S.PRASAD RAO) JUDICIAL MEMBER (K.K.GUPTA) ACCOUNTANT MEMBER DATE: 14.03.2012 H.K.PADHEE, SENIOR PRIVATE SECRETARY. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT: BANSPANI IRON LTD., BONEIKALA,JODA,KEONJHAR,ORISSA 2. THE RESPONDENT: DY.COMMISSIOENR OF INCOME - TAX, CIRCLE 1(1), SAMBALPUR. 3. THE CIT, 4. THE CIT(A), 5. THE DR, CUTTACK 6. GUARD FILE (IN DUPLICATE) TRUE COPY, BY ORDER, SENIOR PRIVATE SECRETARY.