DCIT, New Delhi V. M/s. Charu Merchandising (P) Ltd., New Delhi

ITA 2077/DEL/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 6715 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 18-11-2010
• Assessment Year: 2007-2008
• Appeal Filed On: 05-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BANITA DEVI NAOREM
• Assessee Lawyers: BRIJESH MATHUR
• Keywords: Depreciation
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B DELHI BEFORE SHRI R.P. TOLANI AND SHRI K.G. BANSAL ITA NOS. 2076 & 2077(DEL)/2010 ASSESSMENT YEARS: 2006-07 & 2007-08 DEPUTY COMMISSIONER OF CHARU M ERCHANDISING (P) LTD., INCOME-TAX, CIRCLE 3(1), VS. 216A/1 1, GAUTAM NAGAR, NEW DELHI. NEW DELHI-110049. PAN-AAACC9804B (APPELLANT) (RESPONDENT) APPELLANT BY : MS. BANITA DEVI NAOREM, SR. D R RESPONDENT BY: SHR I BRIJESH MATHUR, C.A. ORDER PER K.G. BANSAL : AM THESE TWO APPEALS OF THE REVENUE INVOLVE A COMM ON GROUND REGARDING THE DEDUCTION OF COMMISSION PAID BY THE ASSESSEE-COMPANY TO THE TWO DIRECTORS. IT IS THE COMMON CASE OF BO TH THE PARTIES THAT THE ISSUE STANDS COVERED BY THE ORDER OF THE TRIBUNAL IN T HE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2005-06 IN ITA NO. 439(DEL)/200 9 DATED 11.12.2009, A COPY OF WHICH HAS BEEN PLACED IN THE PAPER BOOK ON PAGE NOS. 40 TO 47. THEREFORE, FOLLOWING THIS ORDER, IT IS HELD TH AT THE LD. CIT(APPEALS) WAS RIGHT IN ALLOWING THE DEDUCTION OF ` 10.00 LAKHS IN ASSESSMENT YEAR 2006- 07 AND ` 20.00 LAKHS IN ASSESSMENT YEAR 2007-08. FOR THE SAKE OF READY ITA NOS. 2076&2077(DEL)/2010 2 REFERENCE PARAGRAPH NOS. 6 AND 7 OF THE ORDER OF THE TRIBUNAL, REFERRED TO ABOVE, ARE REPRODUCED BELOW:- 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND GO NE THROUGH THE RECORD CAREFULLY. PLAIN READING OF SEC. 36(1)(II) CONTEMPLATES TWO SITUATIONS. ACCORDING TO THE FIRST SITUATION ANY SUM PAID TO AN EMPLOYEE AS BONUS OR COMMISSION FOR SERVICES RENDERED WOULD BE ALLOWABLE TO THE ASSESSEE. THE SE COND PART PROVIDES THAT A DEDUCTION MENTIONED IN THE FIRST CO NDITION COULD BE ALLOWED, IF SUCH SUM WOULD HAVE NOT BEEN PAYABLE TO AN EMPLOYEE AS A PROFIT OR DIVIDEND, IF SUCH SUM OR CO MMISSION WAS NOT PAID TO HIM AS SUCH I.E. 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 EMPLOYEE WOULD NOT BE ALLOWED AS A DEDUCTION. 7. FROM THE PERUSAL OF THE ASSESSMENT ORDER IT NOWH ERE REVEALS THAT HOW MUCH SHARES ARE BEING RETAINED BY THESE TWO DIRECTORS AND HOW THIS AMOUNT OF RS.20 LACS IS TO B E PAID TO THESE TWO DIRECTORS BECAUSE OF THEIR SHAREHOLDING P ATTERN. THE COMMISSION HAS BEEN PAID AS A PART OF REMUNERATION. IT IS LINKED WITH THE SALES REQUIRED TO BE ACHIEVED BY THE COMPA NY WITH A CEILING OF RS.10 LACS. THIS COMMISSION IS NOT SYNON YMOUS TO DIVIDEND WHICH HAS BEEN GIVEN BY THESE TWO DIRECTOR S BECAUSE OF THEIR PERCENTAGE OF SHARES HELD IN THE ASSESSEE COMPANY. AN ASSESSMENT UNDER SEC.143(3) MUST HAVE BEEN FRAMED I N ASSESSMENT YEAR 2003-04 BECAUSE IN THAT YEAR ALSO D ISPUTE TRAVELED UP TO THE ITAT IN ITA NO.3215/DEL/06 BUT N O SUCH ISSUE WAS TAKEN UP BY THE ASSESSING OFFICER. THE CO MMISSION WAS PAID IN THAT ASSESSMENT YEAR ALSO AS POINTED OU T BY THE ASSESSEE. IT INDICATES THAT THE COMMISSION PAID TO THE DIRECTORS ON ACCOUNT OF PERFORMANCE OF DUTIES HAS NOT BEEN DI SALLOWED. TAKING INTO CONSIDERATION THE PAST HISTORY AND THE FACTS AND CIRCUMSTANCES DISCUSSED ABOVE, WE ALLOW THIS GROUND OF APPEAL AND DELETE THE DISALLOWANCE OF RS. 20 LACS. ITA NOS. 2076&2077(DEL)/2010 3 2. THE APPEAL FOR ASSESSMENT YEAR 2007-08 ALSO INV OLVES GROUNDS REGARDING ALLOWANCE OF DEPRECIATION ON COMPUTERS PERIPHERALS AT 60% AND DEDUCTION OF INTEREST PAID ON ACCOUNT OF LATE PAYMENT OF SERVICE TAX. THE LD. CIT(APPEALS) ALLOWED HIGHER DEDUCTION OF DEP RECIATION BY RELYING ON THE ORDER OF THE TRIBUNAL IN THE CASE OF ACIT VS. NESTLE INDIA LTD., 111 TTJ 498. FURTHER, HE ALLOWED THE INTEREST BY H OLDING THAT THE PAYMENT IS COMPENSATORY IN NATURE AND NOT COVERED BY THE EXPL ANATION TO SECTION 37 OF THE INCOME-TAX ACT, 1961. IN RESPECT OF THESE GRO UNDS, THE LD. DR RELIED ON THE ORDER OF THE AO. ON CONSIDERATION OF THE FA CTS, WE FIND THAT THE LD. CIT(A) ALLOWED HIGHER DEPRECIATION BY FOLLOWING THE ORDER OF THE TRIBUNAL. HIS FINDING THAT THE INTEREST WAS CO MPENSATORY IN NATURE HAS NOT BEEN DISPLACED BY THE LD. DR. THEREFORE, WE ARE OF THE VIEW THAT HIS DECISION IN BOTH THE MATTERS IS CORRECT ON FA CTS AND IN LAW. 3. IN THE RESULT, BOTH THE APPEALS ARE DISMISSED . THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 2 6TH DAY OF NOVEMBER, 2010. SD/- SD/- (R.P. TOLANI) (K.G.BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER: 26 TH NOVEMBER, 2010. SP SATIA ITA NOS. 2076&2077(DEL)/2010 4 COPY OF THE ORDER FORWARDED TO: M/S CHARU MERCHANDISING PVT. LTD., NEW DELHI. DY. CIT, CIRCLE 3(1), NEW DELHI. CIT(A) CIT THE DR, ITAT, NEW DELHI. ASSISTANT REGISTRAR.