Appeal details
Counselvise Citation
[2012] 140 COUNSELVISE.COM (IT) 61682 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 year(s) 1 month(s) 15 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
25-05-2012
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
B
Next Hearing Date
17-05-2012
Assessment Year
2005-2006
Appeal Filed On
09-04-2009
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH B NEW DELHI) BEFORE SHRI G.D. AGRAWAL, HONBLE VICE-PRESIDENT AN D SHRI RAJPAL YADAV: HONBLE JUDICIAL MEMBER ITA NO.1389/DEL/2009 ASSESSMENT YEAR: 2005-06 ITA NO.2648/DEL/2010 ASSESSMENT YEAR: 2007-0 8 COIL COMPANY PVT. LTD., VS. ASSISTANT COMMISSIONE R OF IT, A-21/24, NARAINA IND. AREA, CIRCLE 3(1), PHASE-II, NEW DELHI. NEW DELHI. (PAN: AAACC1195P) (APPELLANT) (RESPONDENT) ITA NO.452/DEL/2011 ASSESSMENT YEAR: 2006-07 DEPUTY CIT, VS. COIL COMPANY PVT. LTD., CIRCLE 3(1), A-21/24, NARAINA IND. AREA, NEW DELHI. PHASE-II, NEW DELHI. (PAN: AAACC1195P) (APPELLANT) (RESPONDE APPELLANT BY: SHRI CS AGGARWAL & RA VI MALL, ADV. DEPARTMENT BY: SHRI VIKAS SURYAV ANSHI, SR.DR ORDER PER RAJPAL YADAV: JUDICIAL MEMBER IN THIS BUNCH OF THREE APPEALS, ITA NO. 452/DEL/20 11 IN ASSESSMENT YEAR 2006-07 IS DIRECTED AT THE INSTANCE OF REVENUE AGAINST THE ORDER OF LEARNED CIT(APPEALS) DATED 18.11.2010. WHEREAS, IN ASSESSMENT YEARS 2005-06 AND 2007-08, ASSESSEE IS IN APPEAL AGAINST THE ORDERS OF LEARNED CIT(APPEALS) DATED 13.2.2009 AND 31.3.2010 RESPECTI VELY. THE MAJOR COMMON ISSUE INVOLVED IN ALL THESE APPEALS RELATES TO ALLOWABILITY OF THE COMMISSION PAID TO SHRI SUCHA SINGH, MANAGING DIREC TOR OF THE COMPANY 2 UNDER SECTION 36(1)(II) OF THE INCOME-TAX ACT, 1961 . IN THE APPEALS OF ASSESSEE, THIS IS THE ONLY ISSUE INVOLVED, WHEREAS IN THE APPEAL OF REVENUE APART FROM THIS ISSUE, TWO MORE GROUNDS OF APPEAL H AVE BEEN TAKEN, WHICH RELATES TO ALLOWANCE OF DEPRECIATION ON COMPUTER PE RIPHERAL @ 60% AND, DELETION OF RS.20,06,234, WHICH WAS ADDED BY THE AS SESSING OFFICER BY MAKING A DISALLOWANCE OUT OF MISCELLANEOUS EXPENSES . 2. FIRST, WE TAKE THE COMMON ISSUE INVOLVED IN ALL THE THREE APPEALS RELATING TO ALLOWABILITY OF COMMISSION PAID TO SARD AR SUCHA SINGH, MD OF THE ASSESSEE COMPANY UNDER SEC. 36(1)(II) OF THE IN COME-TAX ACT, 1961. 3. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE I S A PRIVATE LIMITED COMPANY ENGAGED IN BUSINESS OF MANUFACTURING AND SA LE OF FAN, COIL UNITS, CHILD WATER COILS, FLUID COOLER, AIR COOLING UNIT A ND OTHER ITEMS. IN THE YEAR 1995, THE COMPANY HAS 20 SHARE, HAVING CAPITAL OF R S.100 EACH. THESE SHARES WERE HELD BY TWO INDIVIDUALS, NAMELY, JAGJIT SINGH & SUCHA SINGH IN EQUAL SHARES. ON MARCH 31, 2003, THE TOTAL SHARE CAPITAL OF THE ASSESSEE WAS 4002000. THE TOTAL NUMBER OF SHARES ARE 40020. THES E SHARES WERE RETAINED BY FOUR INDIVIDUALS AND ONE COMPANY, NAMELY, SUCHA SINGH RS.25,000, HARJINDER KAUR RS.10,500, AMARDEEP SINGH 20, PRAMJE ET SINGH 500, COIL 3 COMPANY INC 4000. ON 10.3.2003, THE BOARD OF DIRECT ORS HAD PASSED A RESOLUTION THAT LOOKING TO THE ADVANTAGE OF GOOD BU SINESS RELATIONSHIP OF SARDAR SUCHA SINGH, MD, SALES PROMOTION COMMISSION @ 1% ON THE TOTAL TURNOVER OF THE COMPANY, BE PAID TO HIM W.E.F. IST OF APRIL 2003. UNDER THIS RESOLUTION, COMMISSIONS HAVE BEEN PAID TO SARDAR SU CHA SINGH. THE FOLLOWING TABLE WOULD DEPICT THE ASSESSMENT YEAR, A MOUNT OF COMMISSION PAID AND THE STATUS OF THE DISPUTE IN RESPECT OF TH AT AMOUNT: ASSESSMENT YEAR AMOUNT PAID TREATMENT O F A.O. CIT(A) ITAT 2003-04 10,62,540 ACCEPTED THE CLAIM NA NA 2004-05 14,76,793 -DO- NA NA 2005-06 22,28,872 DISALLOWED DISALLOWED PENDING 2006-07 24,07,220 DISALLOWED ALLOWED PENDING 2007-08 27,11,510 DISALLOWED DISALLOWED PENDING 4. AT THE END 31.3.2004, THE TOTAL SHARE CAPITAL OF THE ASSESSEE WAS RS.1,00,02,000. THE TOTAL NUMBER OF SHARES WERE 100 0200. THESE SHARES WERE POSSESSED BY FOUR INDIVIDUALS AND ONE COMPANY, NAMELY, SUCHA SINGH 40,000, HARJINDER KAUR 16,000, AMARDEEP SINGH 15,02 0, PARAMJEET SINGH 25,000, COIL COMPANY INC 4000. UP TO THE END OF MA RCH 31,2009, THIS 4 STATUS REMAINED AS IT IS. THE ONE MORE IMPORTANT FA CT REQUIRED TO BE NOTED HERE IS THAT TURNOVER OF THE COMPANY IN ASSESSMENT YEAR 2000-01 WAS RS.837,17,395 AND IT INCREASED TO RS.3112,09,597 IN ASSESSMENT YEAR 2007- 08. ACCORDING TO THE ASSESSING OFFICER, ASSESSEE HA S NOT DISTRIBUTED THE DIVIDEND FROM THE VERY INCEPTION AND THE AMOUNT OF COMMISSION PAID TO SARDAR SUCHA SINGH COULD BE PAID AS A PROFIT OR DIV IDEND INCOME AS PER SECTION 36(1)(II) OF THE ACT. HENCE, THE AMOUNT CAN NOT BE ALLOWED TO THE ASSESSEE AS A DEDUCTION. DISSATISFIED WITH THE DISA LLOWANCE, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED FIRST APPEL LATE AUTHORITY. IN ASSESSMENT YEARS 2005-06 AND 2007-08, LEARNED COMM ISSIONER HAS UPHELD THE DISALLOWANCE. HOWEVER, IN ASSESSMENT YEAR 2006- 07, LEARNED COMMISSIONER HAS DELETED THE DISALLOWANCE. THE ORDE R OF THE LEARNED CIT(APPEALS) IN ASSESSMENT YEAR 2006-07 IS SUBSEQUE NT TO THE ORDERS PASSED IN ASSESSMENT YEARS 2005-06 AND 2007-08. LEARNED CO MMISSIONER HAS OBSERVED THAT COMMISSION PAID TO SARDAR SUCHA SINGH WAS BASED ON THE BOARDS RESOLUTION PASSED IN MARCH 2003. THERE IS A PHENOMENAL INCREASE IN THE TURNOVER OF THE COMPANY AND HENCE IT WAS PAID B ECAUSE OF HIS CONTRIBUTION TOWARDS THE BETTER PERFORMANCE OF THE COMPANY. 5. THE LEARNED COUNSEL FOR THE ASSESSEE WHILE IMPUG NING THE ORDER OF THE LEARNED CIT(APPEALS) IN ASSESSMENT YEARS 200 5-06 AND 2007- 5 08 SUBMITTED THAT THE LEARNED FIRST APPELLATE AUTHO RITY HAS FAILED TO CONSTRUE THE PROVISIONS OF SECTION 36(1)(II) OF THE ACT IN RIGHT PERSPECTIVE. ACCORDING TO THE LEARNED COMMISSIONER, THE DEDUCTION OF COMMISSION PAID IS TO BE ALLOWED TO THE ASSESSEE ONLY IF IT WOULD NOT HAVE BEEN PAYABLE AS PROFITS OR DIVIDEND. IN HE R UNDERSTANDING, THIS AMOUNT COULD BE PAID AS A PROFIT IN THE SHAPE OF DIVIDEND. HE POINTED OUT THAT THE ISSUE IN DISPUTE IS SQUARELY C OVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HON'BLE DELHI HIGH COURT RENDERED IN THE CASE OF CIT VS. BONY POLYMERS PVT. LTD. PASSED IN ITA NO. 69/2011 AND OTHER APPEALS. HE PLACED ON RECORD COPY OF THE HONBLE HIGH COURT'S DECISION. HE FURTHER RELIED UPON THE O RDER OF THE ITAT PASSED IN THE CASE OF M/S. CREATIVE TRAVELS PVT. LT D. VS. ACIT IN ITA NO. 394/DEL/09 FOR ASSESSMENT YEARS 2005-06 AND 200 6-07 AND POINTED OUT THAT BOTH THESE ORDERS HAVE BEEN UPHELD BY THE HONBLE HIGH COURT. HE PLACED ON RECORD COPY OF THE HONBLE HIGH COURT'S DECISION IN THE CASE OF CIT VS. CREATIVE TRAVELS PA SSED IN ITA NO. 1283/2011. THE LEARNED COUNSEL FOR THE ASSESSEE FUR THER RELIED UPON THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CAS E OF AMD MET PLAST PVT. LTD. VS. DCIT RENDERED IN ITA NO. 650/DE L/2011. HE PLACED ON RECORD COPY OF THIS DECISION. 6. ON THE OTHER HAND, LEARNED DR RELIED UPON THE OR DER OF THE LEARNED ASSESSING OFFICER. 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND GON E THROUGH THE RECORD CAREFULLY. SEC.36(1)(II) OF THE ACT HAS A DI RECT BEARING ON THE 6 CONTROVERSY. THEREFORE, IT IS SALUTARY UPON US TO T AKE NOTE OF THIS CLAUSE. IT READS AS UNDER: THE DEDUCTIONS PROVIDED FOR IN THE FOLLOWING CLAUSES SHALL BE ALLOWED IN RESPECT OF THE MATTER DEALT WITH THEREIN IN COMPUTING THE INCOME REFERRED TO IN SEC. 28 OF THE ACT. SECTION 36(1) (I) X X X X X (IA) X X X X X (IB)X X X X X ANY SUM PAID TO AN EMPLOYEE AS BONUS OR COMMISSION FOR SERVICES RENDERED, WHERE SUCH SUM WOULD NOT HAVE BEEN PAYABLE TO HIM AS PROFITS OR DIVIDEND IF IT HAD NOT BEEN PAID AS BONUS OR COMMISSION. 8. THE PLAIN READING OF SEC. 36(1)(II) CONTEMPLATES TWO SITUATIONS. ACCORDING TO THE FIRST SITUATION, ANY SUM PAID TO A N EMPLOYEE AS A BONUS OR COMMISSION FOR SERVICES RENDERED WOULD BE ALLOWED T O THE ASSESSEE. THE SECOND PART EXHIBITS THE OTHER CONDITION THAT THE D EDUCTION MENTIONED IN THE FIRST SITUATION COULD BE ALLOWED, IF SUCH SUM WOULD HAVE NOT BEEN PAYABLE TO AN EMPLOYEE AS A PROFIT OR DIVIDEND MEANING THEREBY IF THE AMOUNT OF COMMISSION OR BONUS IS RECEIVABLE BY AN EMPLOYEE IN THE SHAPE OF PROFIT/DIVIDEND THEN SUCH COMMISSION PAID TO SUCH E MPLOYEE WOULD NOT BE ALLOWED AS A DEDUCTION. 7 8. WE HAVE ALREADY NOTICED THE SHAREHOLDING PATTERN OF THE ASSESSEE. IT IS PERTINENT TO OBSERVE THAT IN THE RELEVANT YEAR SARD AR SUCHA SINGH WAS HOLDING JUST 39.9% OF THE TOTAL SHAREHOLDING AND RE ST OF THE SHARES ARE BEING HELD BY OTHER INDIVIDUALS OR BY THE COMPANY. BEING A PRIVATE LIMITED COMPANY, CONTROLLED BY THE FAMILY MEMBERS, A RESOLU TION APPROVING THE PAYMENT OF COMMISSION TO THE WORKING DIRECTORS MAY NOT BE VERY DIFFICULT TASK BUT WHETHER THIS ARRANGEMENT INDICATES THAT IF THIS COMMISSION WAS NOT PAID TO THE WORKING DIRECTOR THEN IT WOULD BE RECEI VED IN THE SHAPE OF PROFIT/DIVIDEND. IF WE LOOK TOWARDS THE SHAREHOLDIN G PATTERN THEN ONLY 39.9% OF THIS COMMISSION PAID WOULD BE PAID TO SHRI SUCHA SINGH ON THE BASIS OF THE SHARES HELD BY HIM. THE OTHER SHAREHOLDERS, NAM ELY, HARJINDER KAUR, PARAMJEET SINGH WHO ARE HOLDING 25% AND 16% OF THE SHARES WOULD GET COMMISSION THOUGH THE BOARD HAS NOT RESOLVED FOR PA YMENT OF ANY EXTRA REMUNERATION TO THESE PERSONS. IT ONLY SUGGESTS THA T COMMISSION WAS NOT PAID TO SHRI SUCHA SINGH ON THE BASIS OF THE SHARES HELD BY HIM, RATHER IT IS PAID BY KEEPING IN VIEW HIS SERVICES TOWARDS THE CO MPANY. DISTRIBUTION OF DIVIDENDS IS ONE COMPONENT. IT DOES NOT GIVE THE ME ANING THAT IF AN ASSESSEE FAILED TO DISTRIBUTE THE DIVIDEND, THEN PAYMENT OF ANY COMMISSION WOULD TAKE THE COLOUR OF DIVIDEND. THE COMMISSION PAID TO SHRI SUCHA SINGH IS 8 LINKED WITH THE SALES TURNOVER OF THE ASSESSEE AND TO THE PERFORMANCE OF THE DIRECTORS. IT HAS NOTHING TO DO WITH THE SHAREHOLDI NG PATTERN. CONSIDERING THE AUTHORITATIVE PRONOUNCEMENT OF THE HON'BLE DELHI HI GH COURT IN THE CASES REFERRED BY THE LEARNED COUNSEL FOR THE ASSESSEE, W E ALLOW THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN ASSESSMENT YEARS 2 005-06 AND 2007-08. CONSEQUENTLY, WE REJECT THE GROUND NO.1 RAISED BY T HE REVENUE IN ASSESSMENT YEAR 2006-07. THE DISALLOWANCE MADE BY T HE ASSESSING OFFICER IN RESPECT OF COMMISSION PAID TO SHRI SUCHA SINGH I N ALL THE THREE YEARS IS HELD NOT TO BE JUSTIFIED. SUCH DISALLOWANCE IS DELE TED. 9. IN THE RESULT, APPEALS OF THE ASSESSEE FOR ASSES SMENT YEARS 2005-06 AND 2007-08 ARE ALLOWED. 10. GROUND NO.2 IN THE REVENUES APPEAL RELATES TO GRANT OF DEPRECIATION @ 60% ON COMPUTER PERIPHERAL. THE LEARNED COUNSEL F OR THE ASSESSEE AT THE OUTSET POINTED OUT THAT THIS ISSUE IS COVERED IN FA VOUR OF THE ASSESSEE BY THE DECISION OF HON'BLE DELHI HIGH COURT RENDERED IN TH E CASE OF BSES. 11. WITH THE ASSISTANCE OF LEARNED REPRESENTATIVE, WE HAVE GONE THROUGH THE RECORD CAREFULLY. LEARNED CIT(APPEALS) HAS ALLO WED THE DEPRECIATION ON 9 THE COMPUTER PERIPHERAL @ 60% BY PUTTING RELIANCE U PON THE ORDER OF THE HON'BLE DELHI HIGH COURT RENDERED IN THE CASE OF CI T VS. BSES RAJDHANI POWERS LTD. IN ITA NO. 1266/2010. LEARNED CIT(APPEA LS) ALSO MADE REFERENCE TO THE ORDER OF THE ITAT PASSED IN THE CA SE OF ITO VS. SIMRON MAJUMDAR REPORTED IN 98 ITD 119. CONSIDERING THE OR DER OF LEARNED CIT(APPEALS), WE ARE OF THE VIEW THAT THE LEARNED F IRST APPELLATE AUTHORITY HAS RIGHTLY PLACED ITS RELIANCE ON THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT AS WELL AS OF ITAT. WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL. IT IS REJECTED. 12. IN GROUND NO.3, GRIEVANCE OF THE REVENUE IS THA T LEARNED CIT(APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS.20,06,234. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE HAS DEBITED A SUM OF RS.87,79,514 UNDER THE HEAD MISCELLANEOUS EXPENSES. ASSESSING OFFICE R HAS OBSERVED THAT IN THE IMMEDIATELY PRECEDING YEAR, ASSESSEE HAS CLAIME D EXPENSES OF RS.47,66,865 UNDER THIS HEAD. THERE IS AN INCREASE OF 100% IN THE EXPENSES. HE DIRECTED THE ASSESSEE TO SUBMIT THE DETAILS OF A LL THESE EXPENSES ALONG WITH NARRATIONS EXHIBITING THE NATURE OF EXPENSES, AS WELL AS SUPPORTING DOCUMENTS. ASSESSING OFFICER ALSO DIRECTED THE ASSE SSEE TO SUBMIT JUSTIFICATION FOR INCURRING THESE EXPENSES. LEARNED ASSESSING OFFICER HAS 10 REPRODUCED THE DETAILS OF EXPENSES AND OBSERVED THA T MAJOR EXPENSES APPEAR TO BE CAPITAL IN NATURE. HE DISALLOWED A SUM OF RS. 20,06,324 OUT OF THE TOTAL EXPENSES. 13. ON APPEAL, ASSESSEE MOVED AN APPLICATION FOR PE RMISSION TO LEAD ADDITIONAL EVIDENCE AND PLACED ON RECORD DETAILS OF EXPENDITURE ALONG WITH EVIDENCE. LEARNED CIT(APPEALS) ISSUED NOTICE TO THE ASSESSING OFFICER INVITING HIS COMMENTS AS TO WHY ADDITIONAL EVIDENCE BE NOT TAKEN ON RECORD. ASSESSING OFFICER OPPOSED THE PRAYER OF THE ASSESSE E. HOWEVER, LEARNED FIRST APPELLATE AUTHORITY HAS ADMITTED THE ADDITIONAL EVI DENCE U/S. SUB-RULE (2) OF RULE 46A. ACCORDING TO THE LEARNED CIT(APPEALS), A SSESSING OFFICER HAS JUST GRANTED SEVEN DAYS TIME FOR SUBMITTING ITS EXP LANATION ON THIS ISSUE AND THE TIME WAS NOT SUFFICIENT. LEARNED FIRST APPELLAT E AUTHORITY HAS REPRODUCED THE ORDER SHEET ENTRIES OF THE ASSESSING OFFICER IN PARAGRAPH NO. 17, BEFORE ARRIVING AT A CONCLUSION THAT ASSESSEE WAS NOT PROV IDED SUFFICIENT OPPORTUNITY OF HEARING. LEARNED CIT(APPEALS) THEREAFTER GONE TH ROUGH THE EVIDENCE AND DELETED THE ADDITION. 14. WITH THE ASSISTANCE OF LEARNED REPRESENTATIVES , WE HAVE GONE THROUGH THE RECORD CAREFULLY. AS FAR AS ENTERTAINMENT OF AD DITIONAL EVIDENCE IS 11 CONCERNED, WE DO NOT FIND ANY ERROR IN THE ORDER OF THE LEARNED CIT(APPEALS). BUT SUB-RULE (3) OF RULE 46A SUGGESTS THAT LEARNED FIRST APPELLATE AUTHORITY SHALL NOT TAKE INTO CONSIDERATI ON ANY EVIDENCE PRODUCED UNDER SUB-RULE (1) OF RULE 46, UNLESS THE ASSESSING OFFICER HAS BEEN GIVEN AN OPPORTUNITY TO REBUT THE EVIDENCE TAKEN ON RECOR D. IN THE PRESENT CASE, LEARNED CIT(APPEALS) HAS GRANTED THE OPPORTUNITY TO THE ASSESSING OFFICER BEFORE ADMISSION OF ADDITIONAL EVIDENCE, WHICH WAS FOR THE PURPOSE TO SEEK THE COMMENTS OF THE ASSESSING OFFICER, AS TO WHY AD DITIONAL EVIDENCE BE NOT ADMITTED UNDER SUB-RULE(2) OF RULE 46A. AFTER THIS EXERCISE, LEARNED CIT(APPEALS) OUGHT TO HAVE GIVEN ONE MORE OPPORTUNI TY TO THE ASSESSING OFFICER FOR GIVING HIS COMMENTS ON THE MERIT OF EVI DENCE I.E. WHETHER ASSESSING OFFICER WANTS TO EXAMINE ANY WITNESS OR E VIDENCE PRODUCED BY THE ASSESSEE. THIS OPPORTUNITY WAS NOT GIVEN TO THE ASSESSING OFFICER BY THE LEARNED CIT(APPEALS). THEREFORE, WE SET ASIDE THE O RDER OF LEARNED CIT(APPEALS) ON THIS ISSUE AND RESTORE THIS ISSUE T O THE FILE OF THE ASSESSING OFFICER FOR READJUDICATION. THE ASSESSEE WILL BE AT LIBERTY TO PRODUCE ANY EVIDENCE IN SUPPORT OF ITS EXPLANATION. THE ASSESSI NG OFFICER SHALL READJUDICATE THE ISSUE AFTER PROVIDING DUE OPPORTUN ITY OF HEARING TO THE ASSESSEE. 12 15. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED WHEREAS THE APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATIST ICAL PURPOSES. DECISION PRONOUNCED IN THE OPEN COURT ON 25.05.201 2 SD/- SD/- ( G.D. AGRAWAL ) ( RAJPAL YADAV ) VICE-PRESIDENT JUDICIAL MEMBER DATED: 25/05/2012 MOHAN LAL COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR
