ITO,Ward-9(1), Kolkata, Kolkata V. M/s M.P. Jewellers & Co.(1945) Pvt. Ltd., Kolkata

ITA 1784/KOL/2016

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 2392 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 9 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 07-09-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Revenue expenditure; Capital expenditure; TDS; Set aside
• Section: 250; 12

Judgement Text

1 ITA NO 1784/KOL/2016 M/S. M. P. JEWELLERS & CO. (1945) (P) LTD., AY-2009-10 , C , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: KOLKATA ( ) BEFORE . . , /AND . , ) [BEFORE SHRI A. T. VARKEY, JM & SHRI M. BALAGANESH, AM] I.T.A. NO. 1784/KOL/2016 ASSESSMENT YEAR: 2009-10 INCOME-TAX OFFICER, WD-9(1), KOLKATA VS. M/S. M. P. JEWELLERS & CO. (1945) (P) LTD. (PAN: AAECM2612D) APPLICANT RESPONDENT DATE OF HEARING 01.04.2019 DATE OF PRONOUNCEMENT 21.06.2019 FOR THE APPLICANT SHRI SANKAR HALDER, JCIT, SR. DR FOR THE RESPONDENT SHRI A. BISWAS, FCA ORDER PER SHRI A.T.VARKEY, JM THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A)-8, KOLKATA DATED 23.05.2016 FOR AY. 2009-10. 2. FIRST GROUND OF APPEAL OF REVENUE IS AGAINST THE ACTION OF THE LD. CIT(A) IN DELETING THE DISALLOWANCE ON ACCOUNT OF CONSULTANCY FEES TO THE TUNE OF RS.25,68,000/-. 3. BRIEF FACTS OF THE CASE AS NOTED BY THE AO ARE THAT THE ASSESSEE HAS MADE PAYMENT ON ACCOUNT OF CONSULTANCY FEES TOTALLING RS.25,68,000/- WHICH WAS PAID TO TWO SONS OF THE DIRECTOR OF THE ASSESSEE COMPANY. WHEN CONFRONTED BY THE AO, THE ASSESSEE REPLIED THAT BOTH THE CONSULTANTS THOUGH WERE THE SONS OF THE DIRECTOR OF THE ASSESSEE COMPANY, THEY WERE SPECIALIST / SUBJECT EXPERTS IN THE FIELD OF GEMS & JEWELLERY AND, THEREFORE, THEY HAD BEEN INVOLVED RIGHT FROM BEGINNING I.E. TO IDENTIFY, SELECT AND PURCHASE OF THE GEMS WHICH WERE MAINLY USED FOR ASTROLOGICAL PURPOSES. ACCORDING TO LD. AR EVEN THOUGH THE ASSESSEE HAD PROVIDED THE EDUCATIONAL QUALIFICATION OF SHRI CHANDRAKANTA ROYCHOUDHURY, WHO HAD POST GRADUATE DIPLOMA FROM GEMS & JEWELLERY EXPORT PROMOTION COUNCIL AND HAD EXPERTISE IN SORTING AND GRADING DIAMOND AND COLOUR GEMSTONE AND HAVING DEALT WITH 2 ITA NO 1784/KOL/2016 M/S. M. P. JEWELLERS & CO. (1945) (P) LTD., AY-2009-10 DIFFERENT PRIVATE DIAMOND AND COLOUR GEMSTONE DEALERS IN MUMBAI AND SURAT, THE AO DID NOT AGREE THAT SHRI CHANDRAKANTA ROYCHOUDHURY DESERVES CONSULTANCY FEES FOR THE EXPERTISE IN RENDERING SERVICE TO ASSESSEE. LIKEWISE IN RESPECT OF SHRI SOUMIK ROYCHOUDHURY THOUGH IT WAS BROUGHT TO HIS NOTICE THAT HE HAD A POST GRADUATE DIPLOMA FROM THE GOA INSTITUTE OF MANAGEMENT WITH MARKETING AS THE MAJOR SUBJECT AND HAD WORKING EXPERIENCE WITH THE GEMS & JEWELLERY FIELD, THE AO WAS NOT SATISFIED WITH THE EXPERIENCE AND EXPERTISE OF SHRI SOUMIK ROYCHOWDHURY AND WAS PLEASED TO DISALLOW THE CLAIM MADE BY THE ASSESSEE ON THE GROUND THAT THE ASSESSEE FAILED TO SHOW THAT THESE TWO SONS OF THE DIRECTOR OF THE ASSESSEE HAD RENDERED ANY SERVICES TO THE ASSESSEE COMPANY. ON APPEAL, THE LD. CIT(A) WAS PLEASED TO GRANT THE SAME. AGGRIEVED, THE REVENUE IS BEFORE US. 4. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. THE FACTS NARRATED ABOVE ARE NOT DISPUTED, SO WE DO NOT REPEAT THE SAME FOR THE SAKE OF BREVITY. WE NOTE THAT THE AO HAS DISALLOWED THE CLAIM OF REMUNERATION ON THE REASON THAT THE ASSESSEE FAILED TO BRING ON BOARD ANY CREDIBLE AND TANGIBLE EVIDENCE OF RENDITION OF SERVICE BY THE SONS OF THE DIRECTORS, SO HE DISALLOWED THE EXPENDITURE ON THIS COUNT AND MADE THE ADDITION OF RS.25,68,000/-. WE NOTE THAT THE DIRECTORS SONS SHRI CHANDRAKANTA ROYCHOUDHURY AND SHRI SOUMIK ROYCHOUDHURY HAVE BEEN RENDERING THEIR SERVICES FROM AY 2006-07 ONWARDS FOR REMUNERATION AND THAT CLAIM WAS ACCEPTED BY THE DEPARTMENT. IN THIS ASSESSMENT YEAR BOTH THE CONSULTANTS HAD BEEN PAID RS.12,84,000/- EACH AND TDS OF RS.1,45,476/- FROM EACH OF THE PARTY HAS BEEN DEDUCTED. WE NOTE THAT THE ASSESSEE IS INTO GEMS AND JEWELLERY BUSINESS AND THAT SHRI CHANDRAKANTA ROYCHOUDHURY HAS POST GRADUATE DIPLOMA FROM GEMS & JEWELLERY EXPORT PROMOTION COUNCIL AND IS ALSO MEMBER OF THE ALL INDIA GEMS & JEWELLERY TRADE FEDERATION. HE HAS GATHERED PRACTICAL EXPERIENCE IN SORTING AND GRADING DIAMONDS AND COLOUR GEMSTONES HAVING DEALT WITH DIFFERENT PRIVATE DIAMOND AND COLOUR GEMSTONE DEALERS IN MUMBAI AND SURAT. IT WAS BROUGHT TO OUR NOTICE THAT HE WAS ONE OF THE FIRST IN THE CITY TO INTRODUCE QUALITY CONTROL MEASURES IN THIS INDUSTRY OF GEMS AND JEWELLERY. ACCORDING TO LD. AR, NOW-A-DAYS THE THIRD PARTY CERTIFICATION IS IMPORTANT FOR THE CUSTOMERS SATISFACTION. IT WAS ALSO BROUGHT TO OUR NOTICE THAT THE GEM STONES ARE 3 ITA NO 1784/KOL/2016 M/S. M. P. JEWELLERS & CO. (1945) (P) LTD., AY-2009-10 USED FOR ASTROLOGICAL PURPOSES AND THE VALUE OF THE SAME IS BASED ON CARAT, COLOUR, CUTS, LIGHT REFLECTION, CLARITY, NO BUBBLES ARE THERE ETC. AND TO CORRECTLY IDENTIFY THE GEM STONES AS PER REQUIREMENT OF THE CUSTOMER / ASTROLOGY REQUIRES EXPERTISE AND IS A SPECIALIZED SUBJECT. THE GEMS USED FOR THE ORNAMENTS AND FOR ASTROLOGICAL PURPOSE ARE DIFFERENT AND NEEDS IN DEPTH UNDERSTANDING OF THE SAME OR WOULD CAUSE HUGE LOSS TO ASSESSEE IF NOT DONE PROPERLY. WE NOTE THAT BOTH SHRI CHANDRAKANTA ROYCHOUDHURY AND SHRI SOUMIK ROYCHOUDHURY HAVE INCLUDED THIS AMOUNT IN THEIR RETURNS OF INCOME AND HAS PAID TAX AT THE HIGHEST SLAB. THE AO HAS NOT QUESTIONED THE GENUINENESS OF THE PAYMENT BUT ONLY WITH REGARD TO THE RENDITION OF SERVICES. FURTHER, WE NOTE THAT SHRI SOUMIK ROYCHOUDHURY HAD POST GRADUATE DIPLOMA FROM GOA INSTITUTE OF MANAGEMENT WITH MARKETING AS THE MAJOR SUBJECT. HE HAS ACQUIRED THE EXPERTISE IN GEMS & JEWELLERY AND IS A MEMBER OF GIF, LEADING NATIONAL BODY FOR THE BENEFIT OF THE GEMS & JEWELLERY TRADE IN INDIA AND ALSO IS A MEMBER OF THE GEMOLOGICAL INSTITUTE, NAMELY GIA. IT WAS ALSO BROUGHT TO OUR NOTICE THAT SHRI SOUMIK ROYCHOUDHURY WITH HIS KNOWLEDGE OF MARKETING AS WELL AS IN GEMS & JEWELLERY WAS OF GREAT HELP TO THE ASSESSEE FOR NEGOTIATING WITH THE BANKS FOR GETTING BANK LOANS ETC. IT WAS BROUGHT TO OUR NOTICE THAT BOTH THESE INDIVIDUALS WERE LOOKING AFTER THE FOREIGN EXCHANGE TRANSACTION WITH BANK FOR BULLION PURCHASE. IT WAS ALSO BROUGHT TO OUR NOTICE THAT THESE TWO INDIVIDUALS HELPED THE ASSESSEE COMPANY IN FINDING OUT PROPERTIES / SHOWROOMS AND ARRANGING FOR M. P. JEWELLERS START VARIOUS BRANCH SHOWROOM WITHIN AND OUTSIDE WEST BENGAL. THUS, THE ASSESSEE COMPANY HAS BENEFITED FROM THE EXPERIENCE, KNOWLEDGE IN PROCURING GEMS FOR ASTROLOGICAL AS WELL AS FOR ORNAMENTS SERVICE AND IN OPENING VARIOUS BRANCHES / SHOWROOMS WITHIN STATE OF WEST BENGAL & OUTSIDE. THUS, WE CONCURR WITH THE LD. CIT(A) ON THIS ISSUE AND NOTE THAT THE ASSESSEE HAD DISCHARGED THE ONUS ON IT TO PROVE THAT BOTH THE INDIVIDUALS HAD RENDERED SERVICES TO THE ASSESSEE COMPANY, THEREFORE, THE DISALLOWANCE OF RS.25,68,000/- FOR BOTH THE INDIVIDUALS WAS NOT WARRANTED AND WE CONFIRM THE ORDER OF THE LD. CIT(A). THEREFORE, THIS GROUND OF APPEAL OF REVENUE IS DISMISSED. 5. GROUND NO. 2 OF THE REVENUES APPEAL IS AGAINST THE ACTION OF THE LD. CIT(A) IN DELETING THE DISALLOWANCE OF RS.50,000/- ON ACCOUNT OF EXPENDITURE OF ROC FEES. 4 ITA NO 1784/KOL/2016 M/S. M. P. JEWELLERS & CO. (1945) (P) LTD., AY-2009-10 6. BRIEF FACTS OF THE CASE ARE THAT THE AO NOTED THAT DURING THE RELEVANT YEAR, THE AUTHORISED SHARE CAPITAL OF THE ASSESSEE HAS INCREASED FROM RS.50,00,000/- TO RS. 5,00,00,000/- WHICH ENTAILED ROC FEE OF RS. 2,50,000/-. THE ASSESSEE DECIDED TO CLAIM THE EXPENDITURE OF RS.2,50,000/- OVER A PERIOD OF FIVE YEARS AS DEFERRED REVENUE EXPENDITURE OF RS.50,000/- EACH YEAR. ACCORDING TO AO, THE EXPENDITURE IS CAPITAL IN NATURE SINCE IT IS DIRECTLY RELATED TO THE INCREASE IN AUTHORISED SHARE CAPITAL. THUS, HE DID NOT ALLOW THE CLAIM AND ADDED BACK RS.50,000/-. ON APPEAL, THE LD. CIT(A) ALLOWED THE CLAIM. AGGRIEVED, THE REVENUE IS BEFORE US. 7. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE NOTE THAT THE ASSESSEE HAD INCURRED AN AMOUNT OF RS.2,50,000/- DURING THE AY 2008-09 BEING THE SUM PAID TO THE REGISTRAR OF COMPANIES AS FEE FOR INCREASING AUTHORISED SHARE CAPITAL OF THE COMPANY FROM RS.50,00,000/- TO RS. 5,00,00,000/-. THE COMPANY INSTEAD OF DEBITING THE ENTIRE AMOUNT OF RS.2,50,000/- IN THAT PRECEDING YEAR PREFERRED TO SPREAD THE EXPENDITURE FOR FIVE YEARS. ACCORDING TO THE ASSESSEE, THE PAYMENT OF FEES PAID TO ROC HAS GOT NO BEARING WITH THE OWNING OF PROPERTY AND AS SUCH IT CANNOT BE TREATED AS CAPITAL EXPENDITURE. ON APPEAL, THE LD. CIT(A) HAS NOTED THAT THE AMOUNT IN QUESTION WAS A STATUTORY FEES THAT WAS PAID BY THE ASSESSEE TO ROC FOR INCREASING THE AUTHORISED SHARE CAPITAL. THE EXPENDITURE WAS INCURRED IN THE PRECEDING ASSESSMENT YEAR AND THE LD. CIT(A) TOOK NOTE THAT SEC. 35D(2)(C)(III) ALLOWS FOR DEDUCTION OF EXPENDITURE BY WAY OF FEES FOR REGISTERING THE COMPANY UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 AND WAS OF THE OPINION THAT THE STATUTORY FEES PAID FOR INCREASING THE AUTHORISED SHARE CAPITAL IS NOTHING BUT A COROLLARY TO THE PROVISION AND, THEREFORE, THE ASSESSEE IS ENTITLED TO ONE-FIFTH DEDUCTION AND, THEREFORE, HE DELETED THE ADDITION. WE NOTE THAT THE ISSUE BEFORE US IS NO LONGER RES INTEGRA. THE FEES PAID OF RS.2,50,000/- TO THE REGISTRAR OF COMPANIES FOR INCREASING ITS AUTHORISED SHARE CAPITAL IS CAPITAL IN NATURE AND THE LD. CIT(A) ALLOWED THE DEDUCTION OF EXPENDITURE U/S. 35D(2)(C)(III) OF THE ACT ON A WRONG FOOTING AS HELD BY THE HONBLE DELHI 5 ITA NO 1784/KOL/2016 M/S. M. P. JEWELLERS & CO. (1945) (P) LTD., AY-2009-10 HIGH COURT IN THE CASE OF CIT VS. HINDUSTAN INSECTICIDES LTD. REPORTED IN (2001) 250 ITR 338 WHEREIN THE HONBLE HIGH COURT HAS HELD AS UNDER: COMING TO THE QUESTION REFERRED AT THE INSTANCE OF THE REVENUE IT WOULD BE NECESSARY TO QUOTE THE PROVISION AS IT STOOD AT THE RELEVANT POINT OF TIME: 35D. (1) . . . (2) THE EXPENDITURE REFERRED TO IN SUB-SECTION (1) SHALL BE THE EXPENDITURE SPECIFIED IN ANY ONE OR MORE OF THE FOLLOWING CLAUSES, NAMELY :- . . . (C) WHERE THE ASSESSEE IS A COMPANY, ALSO EXPENDITURE-. . . (III) BY WAY OF FEES FOR REGISTERING THE COMPANY UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 (1 OF 1956) ; IT HAS TO BE NOTED THAT THE TRIBUNAL REFERRED TO SCHEDULE X TO THE COMPANIES ACT, 1956 (IN SHORT, THE COMPANIES ACT). THE SAID SCHEDULE REFERS TO THE TABLE OF FEES TO BE PAID TO THE REGISTRAR IN RESPECT OF A COMPANY HAVING A SHARE CAPITAL. ITEM 1 OF THE SCHEDULE INDICATES RS. 200 AS PRESCRIBED FEES PAYABLE FOR REGISTRATION OF A COMPANY WHOSE NOMINAL SHARE CAPITAL DOES NOT EXCEED RS. 20,000. ITEM 2 OF THE SCHEDULE INDICATES AN ADDITIONAL FEE FOR REGISTRATION OF A COMPANY WHOSE NOMINAL SHARE CAPITAL EXCEEDS RS. 20,000. THE TRIBUNAL WAS OF THE VIEW THAT ITEM 3 WAS THE RELEVANT ITEM. THE SAID ITEM READS AS FOLLOWS : (3) FOR FILING A NOTICE OF ANY INCREASE IN THE NOMINAL SHARE CAPITAL OF A COMPANY THE DIFFERENCE BETWEEN THE FEES PAYABLE ON THE DATE OF FILING THE NOTICE FOR THE REGISTRATION OF A COMPANY WITH A NOMINAL SHARE CAPITAL EQUAL TO THE INCREASED SHARE CAPITAL AND THE FEES PAYABLE, ON SUCH DATE, FOR THE REGISTRATION OF A COMPANY WITH A SHARE CAPITAL EQUAL TO THE NOMINAL SHARE CAPITAL OF THE COMPANY FILING THE NOTICE IMMEDIATELY BEFORE THE INCREASE. WITH REFERENCE TO THE SAID ITEM, THE TRIBUNAL HELD THAT THE ADDITIONAL FEE IS A REGISTRATION FEE ON THE DIFFERENCE IN THE NOMINAL SHARE CAPITAL AND THE INCREASED SHARE CAPITAL OF THE COMPANY AND IS COVERED BY THE SAID ITEM. FOR COMING TO SAID CONCLUSION THE TRIBUNAL OBSERVED THAT IT HAS TO BE KEPT IN VIEW THAT THE WHOLE AMOUNT, WHICH BECOMES THE AUTHORISED SHARE CAPITAL, WOULD HAVE ATTRACTED PAYMENT OF FEE AT A PARTICULAR FIGURE AT THE POINT OF TIME OF ORIGINAL REGISTRATION OF THE COMPANY. MERELY BECAUSE THE SHARE CAPITAL IS INCREASED SUBSEQUENTLY AS PERMISSIBLE UNDER SECTION 81 OF THE COMPANIES ACT, THE FEE PAID ON THE INCREASED CAPITAL DOES NOT CEASE TO BE REGISTRATION FEE. LEARNED COUNSEL FOR THE REVENUE WITH REFERENCE TO THE VARIOUS PROVISIONS OF THE COMPANIES ACT SUBMITTED THAT ITEM 3 OF SCHEDULE X HAS NO APPLICATION TO THE FACTS OF THE CASE. THERE IS A CONCEPTUAL DIFFERENCE BETWEEN REGISTRATION OF THE COMPANY AND ACTION TAKEN FOR INCREASE OF THE SHARE CAPITAL. PART II OF THE COMPANIES ACT DEALS WITH INCORPORATION OF A COMPANY AND MATTERS INCIDENTAL THERETO. SECTION 12 DEALS WITH MODE OF FORMING AN INCORPORATED COMPANY. SECTIONS 33 AND 34 DEALS WITH REGISTRATION OF MEMORANDUM AND ARTICLES AND EFFECT OF REGISTRATION RESPECTIVELY. SECTION 97 DEALS WITH THE REQUIREMENT OF NOTICE OF INCREASE OF THE SHARE CAPITAL OR OF MEMBERS. SECTION 611 DEALS WITH THE FEES PAYABLE UNDER SCHEDULE X. SUB-SECTION (1) OF SECTION 34 TO WHICH WE HAVE MADE REFERENCE EARLIER STIPULATES THAT ON THE REGISTRATION OF THE MEMORANDUM OF A COMPANY, THE REGISTRAR SHALL CERTIFY UNDER HIS HAND THAT THE COMPANY IS INCORPORATED AND, IN THE CASE OF A LIMITED COMPANY, THAT THE COMPANY IS LIMITED. THEREFORE, ON THE REGISTRATION OF THE MEMORANDUM OF A COMPANY THE COMPANY BECOMES INCORPORATED. A READING OF SCHEDULE X WOULD GO TO SHOW THAT ITEMS 1 AND 2 6 ITA NO 1784/KOL/2016 M/S. M. P. JEWELLERS & CO. (1945) (P) LTD., AY-2009-10 DEAL WITH REGISTRATION OF A COMPANY DEPENDING ON THE NOMINAL SHARE CAPITAL, IN RESPECT OF A COMPANY HAVING A SHARE CAPITAL. ITEM 3, ON THE OTHER HAND, DEALS WITH FEES PAYABLE FOR FILING A NOTICE FOR INCREASE IN THE NOMINAL SHARE CAPITAL OF THE COMPANY. THE FIRST TWO ITEMS AND THE THIRD ITEM OPERATE IN CONCEPTUALLY AND CONTEXTUALLY DIFFERENT FIELDS. THIS IS ALSO CLEAR FROM A READING OF ITEM 4 WHICH PROVIDES THAT FOR REGISTRATION OF ANY EXISTING COMPANY, EXCEPT SUCH COMPANIES AS ARE BY THE COMPANIES ACT EXEMPTED FROM PAYMENT OF FEES IN RESPECT OF REGISTRATION UNDER THE COMPANIES ACT, THE SAME FEE AS IS CHARGED FOR REGISTERING A NEW COMPANY IS PAYABLE. SECTION 35D(2)(C)(III) DEALS WITH EXPENDITURE INCURRED BY WAY OF FEES FOR REGISTRATION OF A COMPANY UNDER THE ACT. AS THE ANALYSIS OF THE POSITION ABOVE WOULD GO TO SHOW, FEES PAID UNDER ITEM 3 OF SCHEDULE X CANNOT BE STATED TO BE FEES PAID FOR REGISTERING A COMPANY. THAT BEING THE POSITION SECTION 35D(2)(C)(III) HAS NO APPLICATION TO THE FACTS OF THE CASE. THE QUESTION REFERRED AT THE INSTANCE OF THE REVENUE IS, THEREFORE, ANSWERED IN THE NEGATIVE, IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. THE REFERENCES STAND DISPOSED OF. RESPECTFULLY FOLLOWING RATIO OF THE ABOVE DECISION RENDERED BY THE HONBLE HIGH COURT ON THE ISSUE IN HAND, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND ALLOW THIS GROUND OF APPEAL OF REVENUE. 8. NEXT GROUND OF APPEAL OF REVENUE IS AGAINST THE ACTION OF LD. CIT(A) IN DELETING THE ADDITION OF RS.1,47,91,000/- MADE BY THE AO ON ACCOUNT OF PAYMENT OF COMMISSION. 9. BRIEF FACTS AS NOTED BY THE AO ARE THAT THE ASSESSEE COMPANY PAID SALARY AS WELL AS COMMISSION TO THE FIVE DIRECTORS TO THE TUNE OF RS.1,37,91,000/-. THE AO NOTED THAT THE PAYMENT OF COMMISSION WAS FOR THE FIRST TIME AND WAS ON THE BASIS OF RESOLUTION DATED 07.04.2008 WHEREIN IT WAS RESOLVED TO PAY COMMISSION @ 2% OF THE TURNOVER ACHIEVED BY THE ASSESSEE COMPANY SINCE THE DIRECTORS WILL BE RENDERING EXTRA LABOUR AND TIME. IT WAS NOTED BY THE AO THAT THE AMOUNT AS STATED ABOVE AS COMMISSION WAS SHARED BY THE DIRECTORS EQUALLY. THE AO TAKING NOTE OF THE RESOLUTION PASSED ON 07.04.2018 WONDERED AS TO HOW THE DIRECTORS AS EARLY AS IN APRIL, 2008 WAS ABLE TO PREDICT SUBSTANTIAL INCREASE IN THE COMPANYS TURNOVER AND, THEREFORE, ACCORDING TO HIM, IT IS NOTHING BUT AN AFTERTHOUGHT DECISION AND THE RESOLUTION IS ANTE-DATED TO PROVIDE FOR THE ALLEGED COMMISSION PAYMENTS. THOUGH IT WAS BROUGHT TO THE NOTICE OF THE AO THAT FROM THE EARLIER ASSESSMENT YEARS, THE ASSESSEE COMPANY HAD INCREASED ITS TURNOVER QUITE IMPRESSIVE IN THIS YEAR, HOWEVER, ACCORDING TO AO, THE COMMISSION TO THE DIRECTORS IS ABOUT 51.74% OF THE PROFIT AND THIS IS 7 ITA NO 1784/KOL/2016 M/S. M. P. JEWELLERS & CO. (1945) (P) LTD., AY-2009-10 NOTHING BUT SIPHONING OFF THE WINDFALL GAIN MADE BY THE ASSESSEE COMPANY ON THE SUDDEN INCREASE OF GOLD PRICES IN THE DOMESTIC AND INTERNATIONAL MARKETS. ACCORDING TO AO, THE DIRECTORS ARE ALL BROTHERS OF THE SAME FAMILY AND THE PROFIT EARNED COULD HAVE BEEN DISCLOSED AS DIVIDEND. HOWEVER, IN ORDER TO SAVE THE LIABILITY OF DIVIDEND DISTRIBUTION TAX, THE ASSESSEE COMPANY HAS GIVEN IT IN THE FORM OF COMMISSION AND, THEREFORE, BY RELYING ON THE DECISION OF THE SPECIAL BENCH OF THIS TRIBUNAL IN M/S. DALAL BROCHA STOCK BROKING (P) LTD. VS. ADDL. CIT (ITA NO. 5792/MUM/2009 DATED 22.06.2011) DISALLOWED THE CLAIM OF ASSESSEE. ON APPEAL, THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE. AGGRIEVED, THE REVENUE IS BEFORE US. 10. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE NOTE THAT THE PAYMENT OF 2% COMMISSION ON THE TURNOVER EQUALLY TO FIVE DIRECTORS OF THE ASSESSEE COMPANY IS ON THE STRENGTH OF THE RESOLUTION DATED 07.04.2008. WE NOTE THAT THE COMMISSION PAID AT FIXED PERCENTAGE OF TURNOVER IS NOTHING BUT SALARY AND IN THE PRESENT CASE ADMITTEDLY THE COMMISSION PAID TO THEM HAVE BEEN ASSESSED IN THEIR RESPECTIVE HANDS UNDER THE HEAD SALARIES AND TAXES HAVE BEEN PAID BY ALL THESE DIRECTORS AT THE MAXIMUM RATE AND TDS HAS ALSO BEEN COMPLIED WITH. WE ALSO NOTE THAT THERE ARE NO LOSS TO THE REVENUE BY MAKING PAYMENT OF THE COMMISSION TO THE DIRECTORS OF THE COMPANY. THE ASSESSEE COMPANY WAS PAYING TAX AT THE HIGHEST RATE AND THE DIRECTORS AS WELL WERE PAYING INCOME TAX AT THE HIGHEST RATE. INCOME ASSESSED AT THE HANDS OF THE ASSESSEE WAS TO THE TUNE OF RS.2,88,76,020/- AND THE TAX THEREOF WAS @ RS.98,15,300/- AND IF THIS COMMISSIONS WERE NOT PAID THE TOTAL INCOME OF THE ASSESSEE WOULD HAVE BEEN RS.4,36,68,020/- AND THE TAX THEREOF WOULD HAVE BEEN RS.1,48,42,760/- AND THE DIFFERENCE OF TAX SHOULD HAVE BEEN RS.50,27,460/- (RS.1,48,42,760 RS.98,15,300) WHICH COULD HAVE BEEN TAKEN AS THE REVENUE LOSS. IN ORDER TO SHOW THAT THERE WAS NO REVENUE LOSS, IT WAS BROUGHT TO OUR NOTICE THAT THE DIRECTORS HAVE PAID ON COMMISSION INCOME OF RS.1,47,91,000/- TAX EQUIVALENT TO RS.50,27,460/- FOR THEIR INCOME FROM COMMISSION WHICH COMPUTATION HAS BEEN EXTRACTED BY THE LD. CIT(A) AT PAGE 15 OF THE PAPER BOOK. FROM A PERUSAL OF THE SAME, WE NOTE THAT THE TOTAL TAX PAID ON THE COMMISSION INCOME BY EACH DIRECTORS COMES TO RS.10,05,492/- AND TOTAL 8 ITA NO 1784/KOL/2016 M/S. M. P. JEWELLERS & CO. (1945) (P) LTD., AY-2009-10 COMES TO RS.50,27,460/-. THUS WE NOTE THAT THE COMMISSION PAID ON THE STRENGTH OF THE RESOLUTION MADE ON 07.04.2008 WHEREIN TDS HAS BEEN DULY DEDUCTED AND WHEN THERE IS NO LOSS OF REVENUE SINCE ALL THE DIRECTORS HAVE PAID TAXES ON THE SAME, THE AO ERRED IN CONCLUDING THAT THE COMMISSION EXPENDITURE WAS TO REDUCE THE TAX LIABILITY OF THE ASSESSEE. THE AOS APPREHENSION THAT THIS ACTION OF THE ASSESSEE WAS NOT TO GIVE DIVIDEND DISTRIBUTION TAX ON THIS AMOUNT ALSO IS NOT VALID FOR THE SIMPLE REASON THAT DIVIDEND DISTRIBUTION TAX IS ONLY @ 15% WHEREAS THE ASSESSEE COMPANY AND THE DIRECTORS ARE TAXED AT 30% TAX SLAB. THEREFORE, THE ACTION OF THE AO IS MERELY ON SUSPICION AND CONJECTURE AND, THEREFORE, THE REASONING GIVEN BY THE AO TO DISALLOW THE CLAIM ON THE FACTS DISCUSSED ABOVE CANNOT BE SUSTAINED. THEREFORE, WE UPHOLD THE ORDER OF THE LD. CIT(A) AND DISMISS THIS GROUND OF APPEAL OF THE REVENUE. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 21 JUNE, 2019. SD/- SD/- (M. BALAGANESH) (ABY. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 21 JUNE, 2019 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1. APPELLANT ITO, WARD-9(1), KOLKATA. 2 RESPONDENT M/S. M. P. JEWELLERS & CO. (1945) (P) LTD., P-227, CIT ROAD, SCHEME-VIM, KOLKATA-700 054. . 3. 4. CIT(A)-8, KOLKATA (SENT THROUGH E-MAIL) CIT- , KOLKATA. 5. DR, ITAT, KOLKATA. (SENT THROUGH E-MAIL) 9 ITA NO 1784/KOL/2016 M/S. M. P. JEWELLERS & CO. (1945) (P) LTD., AY-2009-10 / TRUE COPY, BY ORDER, ASSISTANT REGISTRAR