Anand Petrochem Pvt. Ltd., Ahmedabad V. The Dy.CIT, Circle-1, Ahmedabad

ITA 1002/AHD/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 6073 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 21-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Assessee Lawyers: C N SHAH

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD .., , BEFORE SHRI S.S. GODARA, JUDICIAL MEMBER & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ I.T.A. NO.1002/AHD/2016 ( / ASSESSMENT YEAR : 2012-13) ANAND PETROCHEM PVT.LTD. 16, 1 ST FLOOR, NIRAV COMPLEX NR.NAVRANG HIGH SCHOOL NARANPURA AHMEDABAD / VS. THE DCIT CIRCLE-1 AHMEDABAD $ ./ ./ PAN/GIR NO. : AADCA 7659 K ( $' / APPELLANT ) .. ( ($' / RESPONDENT ) $') / APPELLANT BY : SHRI C.N. SHAH, AR ($'*) / RESPONDENT BY : SHRI V.K. SINGH, SR.DR +,*- / DATE OF HEARING 21/02/2018 ./0*- / DATE OF PRONOUNCEMENT 23 / 02 /2018 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTAN CE OF THE ASSESSEE AGAINST THE APPELLATE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-1, AHMEDABAD [CIT(A) IN SHORT] DATED 26/02/2016 ARISING IN THE ASSESSMENT ORDER PASSED UNDER S.143(3) OF T HE INCOME TAX ITA NO.1002/AHD /2016 ANAND PEWTROCHEM PVT.LTD. VS. DCIT ASST.YEAR 2012-13 - 2 - ACT, 1961 (HEREINAFTER REFERRED TO AS 'THE ACT') D ATED 04/02/2015 RELEVANT TO ASSESSMENT YEAR (AY) 2012-13. 2. THE CAPTIONED APPEAL INVOLVES SOLITARY ISSUE T OWARDS DISALLOWANCE OF INCENTIVE COMMISSION RS.9,84,530/- PAID TO WORKING DIRECTORS AS A PART OF REMUNERATION PACKAGE BY INVO KING SECTION 36(1)(II) OF THE ACT. 3. BRIEFLY STATED, THE ASSESSEE, A PRIVATE LIMITED COMPANY, IS ENGAGED IN WHOLESALE TRADING IN BULK CHEMICALS. IN THE COU RSE OF THE SCRUTINY ASSESSMENT, THE AO FOUND THAT THE ASSESSEE HAS INTER-ALIA CLAIMED COMMISSION EXPENSES OF RS.9,84,530/- IN AGGREGATE W HICH HAS BEEN PAID TO DIRECTORS OF THE COMPANY OF VARIED AMOUNTS. THE ASSESSING OFFICER (AO) QUESTIONED AFORESAID CLAIM OF EXPENSES ON THE GROUND THAT THE ASSESSEE HAS FAILED TO PROVE RENDERING OF ANY SERVI CES FOR WHICH COMMISSION HAS BEEN PAID. THE AO NOTED THAT THE BO ARD RESOLUTION FILED BY THE COMPANY SHOWS THAT THE COMMISSION IS P AID @ 1.8% TO 3% OF NET PROFIT. THE AO ALLEGED THAT THERE IS NO COR RELATION BETWEEN THE PAYMENT OF COMMISSION AND RENDERING THE SPECIFIC SE RVICES. THE PAYMENT IS ALSO NOT RELATED TO INCREASE IN TURNOVER OR NET PROFIT. THE AO ACCORDINGLY RESORTED THE DISALLOWANCE OF COMMISSION AMOUNTING TO RS.9,84,530/- AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. ITA NO.1002/AHD /2016 ANAND PEWTROCHEM PVT.LTD. VS. DCIT ASST.YEAR 2012-13 - 3 - 4. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A) WITHOUT ANY SUCCESS. 5. FURTHER AGGRIEVED, THE ASSESSEE IS IN APPEAL BEF ORE THE TRIBUNAL. 6. THE LD.AR FOR THE ASSESSEE SUBMITTED AT THE OUTS ET THAT THE COMMISSION PAYMENT HAS BEEN MADE TO THE DIRECTORS W HICH IS PART OF REMUNERATION OF THE DIRECTORS. THE PAYMENT HAS BEE N MADE AS PER THE BOARD RESOLUTION FOR DISCHARGING DIVERSE MANAGERIAL FUNCTIONS INVOLVED AND THEREFORE CANNOT BE LINKED TO ANY SPECIFIC SERV ICES. THE LD.AR THEREAFTER ADVERTED TO THE FINANCIAL STATEMENT OF T HE ASSESSEE AND SUBMITTED THAT THE ASSESSEE HAS CLOCKED A TURNOVER OF RS.54.36 CRORES DURING THE YEAR AS AGAINST THE TURNOVER OF RS.48.84 CRORES IN THE PREVIOUS YEAR. SIMILARLY, NET PROFIT HAS BEEN RETURNED AT R S.69.18 LAKHS AS COMPARED TO 54.27 LAKHS IN THE EARLIER YEARS. THIS GROWTH IN TURNOVER AND PROFITS AMPLIFIES SEAMLESS EFFORTS OF THE DIRECTORS AND JUSTIFIES THE COMMISSION PAYMENT. THE LD.AR THEREAFTER ADVERTED OUR ATTENTION TO THE FACT THAT THE COMMISSION PAYMENT HAS NO RATIONAL CO NNECTION TO THE SHAREHOLDING PATTERN OF THE RESPECTIVE DIRECTORS. THE LD.AR FINALLY REFERRED TO THE DECISION OF HONBLE SUPREME COURT I N THE CASE OF SHAHZADA NAND & SONS VS. CIT 97 AIR 1182 (SC) FOR T HE PROPOSITION THAT SECTION 36(1)(II) DOES NOT POSTULATE THAT THE RE SHOULD BE ANY EXTRA SERVICES RENDERED BY AN EMPLOYEE BEFORE PAYMENT OF COMMISSION TO HIM ITA NO.1002/AHD /2016 ANAND PEWTROCHEM PVT.LTD. VS. DCIT ASST.YEAR 2012-13 - 4 - CAN BE JUSTIFIED AS AN ALLOWABLE EXPENDITURE. WHAT IT REQUIRED IS ONLY THAT COMMISSION PAID TO AN EMPLOYEE SHOULD BE FOR SOME S ERVICES RENDERED BY HIM. THE LD.AR SUBMITTED THAT THE COMMISSION PAYME NT ARE OF VERY SMALL AMOUNT RANGING BETWEEN RS.1.8 LAKHS TO RS.3 L AKHS P.A. PER DIRECTOR AND AN AGGREGATE COMMISSION (RS.9.04 LAKHS) IS ALSO VERY MEAGER AND REASONABLE AND THUS DOES NOT CALL FOR APPLICATION O F SECTION 36(1)(II) OF THE ACT IN THE FACTS OF THE CASE. 7. THE LD.DR, ON THE OTHER HAND, VEHEMENTLY SUPPORT ED THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE COMMIS SION PAYMENT IS PROPORTIONATE TO THE SHAREHOLDING PATTERN AND PAID IN LIEU OF DIVIDEND TO AVOID THE CLUTCHES OF DIVIDEND DISTRIBUTION TAX. T HE LD.DR FURTHER SUBMITTED THAT THE ASSESSEE HAS FAILED TO BRING ANY MATERIAL ON RECORD TOWARDS SERVICES RENDERED TO JUSTIFY THE PAYMENT OF COMMISSION. 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. THE SHORT ISSUE INVOLVED IN THE PRESENT APPEAL IS WHETHER THE DISALLOWANCE OF COMMISSION PAYMENT TO DIRECTORS WHO ARE ALSO SHAREH OLDERS OF THE COMPANY IS JUSTIFIED IN THE BACKDROP OF SECTION 36( 1)(II) OF THE ACT. WE STRAIGHTAWAY FIND THAT THE DIRECTORS HAVE BEEN PAID FIXED SALARY AS WELL AS COMMISSION RELATABLE TO THE PROFITS EARNED. THE JU STIFICATION FOR SALARY PAYMENT HAS NOT BEEN DISPUTED BY THE REVENUE. THUS , THE FACT OF ITA NO.1002/AHD /2016 ANAND PEWTROCHEM PVT.LTD. VS. DCIT ASST.YEAR 2012-13 - 5 - RENDERING SERVICES BY THESE DIRECTORS AS EMPLOYEE S CANNOT BE DENIED ON A WHOLESOME BASIS. THE LIMITED ASPECT THEREFORE REMAINS IS WHETHER ADDITIONAL COMM ISSION OVER AND ABOVE SALARY PAYMENT IS JUSTIFIED OR NOT. THE ASSE SSEE AS A BUSINESS ORGANIZATION HAS SHOWN BOARD RESOLUTION REFLECTING THE WISDOM OF THE BOARD FOR SUCH COMMISSION PAYMENT. THE INCREASE IN TURNOVER, COMMENSURATE INCREASE IN PURCHASES AND INCREASE IN PROFITABILITY OF THE COMPANY IMPLIEDLY JUSTIFIES THE EXTRA EFFORTS OF TH E DIRECTORS IN THIS DIRECTION. MERELY BECAUSE THE DIRECTORS ALSO HAPPE NS TO BE SHAREHOLDERS OF THE COMPANY CANNOT RAISE ESTOPPELS FOR PAYMENT O F COMMISSION FOR DISCHARGE OF PROFITABLE SERVICES. COUPLED WITH THI S, WE ALSO NOTE THAT THE COMMISSION PAYMENT IS NOT FOUND TO HAVE ANY NEXUS T O THE PROPORTIONATE SHAREHOLDING OF THE RESPECTIVE DIRECTORS. THUS, THE COMMISSION PAYMENT IS NOT COMMENSURATE WITH THE RESPECTIVE SHAREHOLDIN G OF DIRECTORS. WE ALSO FIND MERIT IN THE CLAIM OF THE ASSESSEE HAVING REGARD TO THE SUBSTANTIAL WORKING SHOWN IN THE COMPANY AS PER ITS FINANCIAL STATEMENT. NOTWITHSTANDING AFORESAID, EXTRA SERVICES IS NOT AL WAYS NECESSARY TO JUSTIFY PAYMENT OF COMMISSION TO EMPLOYEE AS HELD B Y THE HONBLE SUPREME COURT IN THE CASE OF SHAHZADA NAND & SONS(S UPRA). THEREFORE, WEIGHING THE ISSUE FROM ANY ANGLE, WE FIND LITTLE M ERIT IN THE ACTION OF THE REVENUE FOR SUCH DISALLOWANCE. THEREFORE, THE DISAL LOWANCE OF COMMISSION OF RS.9,84,530/- REQUIRES TO BE REVERSED AND DELETED. ITA NO.1002/AHD /2016 ANAND PEWTROCHEM PVT.LTD. VS. DCIT ASST.YEAR 2012-13 - 6 - 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . THIS ORDER PRONOUNCED IN OPEN COURT ON 23 / 02/2018 SD/- SD/- (..) ( ) ( S.S. GODARA ) ( PRADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 23/ 02/2018 4..+,.+../ T.C. NAIR, SR. PS !'#$%$' / COPY OF THE ORDER FORWARDED TO : 1. $' / THE APPELLANT 2. ($' / THE RESPONDENT. 3. 567- 8- / CONCERNED CIT 4. 8- ( ) / THE CIT(A)-1, AHMEDABAD 5. 9:-+67 , 670 , 5 / DR, ITAT, AHMEDABAD 6. <, / GUARD FILE. / BY ORDER, (9-- //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 21.2.18 (DICTATION-PAD 17- PAGES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 22.2.18 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.23.2.18 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 23.2.18 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER