Sri Prialakshmi Spinners P Ltd., CHENNAI V. ACIT, Coimbatore

ITA 2240/CHNY/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4343 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 10-12-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS
• Assessee Lawyers: S SRIDHAR
• Keywords: Depreciation; Principle of natural justice
• Section: 40A(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: CHENNAI . . . , !.. $ , ) BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S.SUNDER SINGH, ACCOUNTANT MEMBER ./ ITA NO.2240/MDS/2015 * * /ASSESSMENT YEAR: 2011-12 SHRI PRIYALAKSHMI SPINNERS P. LTD., SF NO.119/4, MYVADI VILLAGE, UDUMAPLET 642 203. VS. THE ASST. COMMISSIONER OF INCOME TAX, SALARY CIRCLE-I, COIMBATORE. [PAN: AAFCS 0700 H ] ( - /APPELLANT) ( ./- /RESPONDENT) ./ ITA NO.43/MDS/2016 * * /ASSESSMENT YEAR: 2011-12 THE DY. COMMISSIONER OF INCOME TAX, CIRCLE-2, 121, SIXTY FEET ROAD, TIRUPUR-641 602. VS. SHRI PRIYALAKSHMI SPINNERS P. LTD., SF NO.119/4, MYVADI VILLAGE, UDUMAPLET 642 203. [PAN: AAFCS 0700 H ] ( - /APPELLANT) ( ./- /RESPONDENT) - 0 / APPELLANT BY : MR.S.SRIDHAR, ADV. ./- 0 /RESPONDENT BY : MR.SHIVA SRINIVAS, JCIT 0 /DATE OF HEARING : 11.04.2017 0 /DATE OF PRONOUNCEMENT : 08.06.2017 ITA NO.2240/MDS/2015 & ITA NO.43/MDS/2016 :- 2 -: / O R D E R PER D.S.SUNDER SINGH , ACCOUNTANT MEMBER : THESE CROSS APPEALS ARE APPEAL FILED BY THE ASSES SEE AND THE REVENUE AGAINST ORDER DATED 15.09.2015 OF COMMISSIO NER OF INCOME TAX (APPEALS)-3, CHENNAI, IN ITA NO.36/2014-15 FOR THE AY 2011-12. ITA ITA NO.43/MDS/2016 AY 2011-12 [REVENUES APPEAL] 2.0 DELAY: THE REVENUE HAS FILED THE APPEAL WITH DELAY OF 14 D AYS AND FILED THE AFFIDAVIT EXPLAINING THE REASONS FOR FILING THE APP EAL BEYOND DUE DATE. THE LD.AR DID NOT MAKE ANY OBJECTIONS FOR CO NDONING THE DELAY. THEREFORE, THE DELAY IS CONDONED. 3.0 ALL THE GROUNDS OF THE APPEAL ARE RELATED TO THE ADDITION MADE IN RESPECT OF DEDUCTION U/S.80IA. DURING THE ASSESSME NT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAS CLAIMED THE DEDUCTIO N OF RS.39,14,827/- FOR THE INCOME GENERATED FROM THE WIND MILLS U/S.80 IA. THE ASSESSEE HAS ERECTED THE WIND MILLS AND COMMENCED THE POWER GENE RATION DURING THE ASSESSMENT YEAR 2003-04 BUT CLAIMED THE DEDUCTION F IRST TIME IN THE YEAR UNDER CONSIDERATION. ACCORDING TO THE ASSESSEE THE INITIAL ASSESSMENT YEAR IN THE BLOCK OF TEN ASSESSMENT YEARS OUT OF FI RST FIFTEEN ASSESSMENT YEARS FROM THE DATE OF ESTABLISHMENT OF THE ELIGIBL E UNIT SHOULD BE RECKONED FROM THE FIRST YEAR OF CLAIM OF SUCH DEDUC TION BY THE ASSESSEE AND NOT BASED ON THE ESTABLISHMENT OF THE ELIGIBLE UNIT. THE ASSESSEE HAS CLAIMED THE DEDUCTION U/S.80IA TREATING THE AY 2010 -11 AND RECKONED THE ITA NO.2240/MDS/2015 & ITA NO.43/MDS/2016 :- 3 -: SAME AS THE INITIAL ASSESSMENT YEAR OF THE CLAIM FO R ITS WIND ENERGY GENERATED FROM THE WIND MILL. 4.0 ACCORDING TO THE AO, AS PER SEC.80IA(5) OF IT ACT , THE UNIT OF WIND MILL HAS TO BE TREATED AS SEPARATE AND INDEPENDENT UNIT, FOR COMPUTING THE INCOME AND SET OFF OF LOSSES AS IF SUCH ELIGIBL E BUSINESS IS ONLY THE SOURCE OF INCOME. RIGHT FROM THE COMMENCEMENT OF TH E BUSINESS, THE BUSINESS LOSSES, DEPRECIATION AND THE INVESTMENT AL LOWANCE IF ANY OF EARLY YEARS WHICH WERE SET OFF AGAINST THE EARLIER INCOME OF OTHER UNITS SHOULD BE TAKEN INTO ACCOUNT FOR DETERMINING THE QUANTUM O F DEDUCTION ADMISSIBLE U/S.80IA. EVEN THOUGH THEY MIGHT HAVE BEEN SET OFF AGAINST THE PROFITS OF THE TAX PAYER FROM THE OTHER SOURCES . THE SAME SHOULD BE BROUGHT FORWARD NOTIONALLY AND TO BE SET OF AGAINST THE INCOME OF 80IA UNIT AND THE BALANCE SHOULD BE ALLOWED AS DEDUCTION U/S.80IA. ACCORDINGLY, THE AO WAS OF THE VIEW THAT THE AMOUNT OF RS.39,14,827/- CLAIMED BY THE ASSESSEE AS DEDUCTION U/S 80IA WAS I NCORRECT CLAIM AND REQUIRED TO BE DISALLOWED. DURING THE ASSESSMENT PR OCEEDINGS, THE ASSESSEE RELIED ON THE DECISION OF THE HONBLE JURI SDICTIONAL HIGH COURT IN THE CASE OF SRI VELAYUDHA SWAMY SPINNING MILLS PVT. LTD. 231 ITR 368(MAD). THE AO MADE THE ADDITION STATING THAT TH E ISSUE HAS NOT REACHED FINALITY SINCE THE DEPARTMENT IN APPEAL BEF ORE THE HONBLE SUPREME COURT. ITA NO.2240/MDS/2015 & ITA NO.43/MDS/2016 :- 4 -: 5.0 AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WEN T ON APPEAL BEFORE THE LD.CIT(A) AND THE LD.CIT(A) ALLOWED THE ASSESSEES APPEAL FOLLOWING THE HONBLE JURISDICTIONAL HIGH COURT DEC ISION CITED SUPRA. AGGRIEVED BY THE ORDER OF THE LD.CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 6.0 WE HEARD BOTH THE PARTIES AND PERUSED THE MATERIA L PLACED BEFORE US.ON IDENTICAL FACTS THE HONBLE JURISDICTIONAL HI GH COURT DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE IN THE CASE LAW CIT ED SUPRA WHICH WAS RELIED UPON BY THE ASSESSEE AS WELL AS THE LD.CIT(A ). RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONA L HIGH COURT, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A) AN D THE SAME IS UPHELD. 7.0 IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMIS SED. ITA NO.2240/MDS/2015 AY 2011-12 [ASSESSEES APPEAL] 8.0 IN ASSESSEES APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEA LS) 3, COIMBATORE DATED 15.09.2015 IN L.T.A.NO.36/2014-15 FOR THE ABOVE MENTIONED ASSES SMENT YEAR IS CONTRARY TO LAW, FACTS, AND IN THE CIRCUMSTANCES OF THE CASE. 1. THE CIT (APPEALS) ERRED IN CONFIRMING THE DISALLOWAN CE OF FREIGHT PAYMENTS AS PER SECTION 40A(3) OF THE ACT IN COMPUTATION OF TAXABLE TOTAL INCOME WITHOUT ASSIGNING PROPER REASONS AND JUSTIFICATION. 2. THE CIT (APPEALS) WENT WRONG IN RECORDING THE FINDIN GS IN THIS REGARD IN PARA 6.2.1 OF THE IMPUGNED ORDER WITHOUT ASSIGNING PROPER REAS ONS AND JUSTIFICATION. 3. THE CIT (APPEALS) ERRED IN SUSTAINING THE DISALLOWAN CE OF COMMISSION PAID IN INVOKING SECTION 36(1) (II) OF THE ACT IN THE COMPUT ATION OF TAXABLE TOTAL INCOME WITHOUT ASSIGNING PROPER REASONS AND JUSTIFICATION. 4. THE CIT (APPEALS) WENT WRONG IN RECORDING THE FINDIN GS IN THIS REGARD IN PARAS 6.3.2 AND 6.3.3. OF THE IMPUGNED ORDER WITHOUT ASSIGNING PROPER REASONS AND JUSTIFICATION. ITA NO.2240/MDS/2015 & ITA NO.43/MDS/2016 :- 5 -: 5. THE CIT (APPEALS) FAILED TO APPRECIATE THAT THE DECI SION RELIED UPON WAS APPLIED OUT OF CONTEXT AND OUGHT TO HAVE APPRECIATED THAT THE P ROVISIONS OF SECTION 36(1)(II) HAD NO APPLICATION TO THE FACTS OF THE CASE THEREBY VITITING THE DECISION RENDERED. 6. THE CIT (APPEALS) FAILED TO APPRECIATE THAT IN ANY E VENT THE FACTUAL FINDINGS IN PARA 6.3.2 WERE PERVERSE AND SUPPORTED BY MATERIAL EVIDE NCE AVAILABLE ON RECORD. 7. THE CIT (APPEALS) FAILED TO APPRECIATE THAT THERE WA S NO PROPER OPPORTUNITY GIVEN BEFORE PASSING OF THE IMPUGNED ORDER AND ANY ORDER PASSED IN VIOLATION OF THE PRINCIPLES NATURAL JUSTICE WOULD BE NULLITY IN LAW. 8. THE APPELLANT CRAVES LEAVE TO FILE ADDITIONAL GROUN DS/ARGUMENTS AT THE TIME OF HEARING. 9.0 ALL THE THE ABOVE GROUNDS ARE RELATED TO TWO ADDI TIONS I.E. DISALLOWANCE U/S.40A(3) AND THE DISALLOWANCE OF COM MISSION U/S.36(I)(II) OF IT ACT. 10.0 THE FIRST ISSUE IS RELATED TO THE DISALLOWANCE OF RS.2,80,620/- U/S.40A(3) OF IT ACT. THE AO DURING THE ASSESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSEE HAS MADE THE PAYMENT OF RS.2,80,620/- IN VIOLATION OF THE PROVISIONS OF SEC.40A(3) OF IT AC T EXCEEDING RS.20000/-. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE EXP LAINED BEFORE THE AO THAT THE PAYMENTS WERE MADE TOWARDS THE FREIGHT CHA RGES AND IN RESPECT OF FREIGHT CHARGES, THE ACT HAS BEEN AMENDED ENHANC ING THE LIMIT UP TO RS.35,000/- W.E.F. 01.10.2009 AND NO PAYMENT WAS MA DE IN EXCESS OF RS.35000/- HENCE NO ADDITION IS CALLED FOR. HOWEVE R, THE AO FOUND FROM THE PROFIT & LOSS A/C FROM THE SCHEDULE OF PURCHASE OF RAW MATERIAL, THE ASSESSEE HAS SHOWN SEPARATELY THE COTTON PURCHASE INTERSTATE RS.9,98,98,969/- AND THE CARRIAGE INWARD COTTON RS.19,00,300/- AND THE SAID CASH PAYMENT OF MORE THAN RS.20,000/- WERE FOUND TO BE INCLUDED IN THE PARTY WISE PURCHASE LEDGER ACCOUNT FOR COTTON PURCHASES ITA NO.2240/MDS/2015 & ITA NO.43/MDS/2016 :- 6 -: INTERSTATE. HENCE, THE AO VIEWED THAT SINCE THE PA YMENT FOR FREIGHT CHARGES WERE ALREADY INCLUDED IN PURCHASES ACCOUNT THE ASSESSEES CONTENTION THAT THE PAYMENT WAS MADE FOR FREIGHT WA S NOT CORRECT AND ACCORDINGLY, DISALLOWED THE SUM OF RS.2,80,620/- U/ S.40A(3) OF IT ACT. 11.0 AGGRIEVED BY THE ORDER OF THE LD.CIT(A), THE ASSES SEE WENT ON APPEAL BEFORE THE LD.CIT(A) AND THE LD.CIT(A) ACCEP TED THE FINDING OF THE AO THAT THE COTTON PURCHASES- INTERSTATE RELATES TO THE EXCLUSIVE PURCHASES MADE BY THE ASSESSEE WHICH INCLUDED IN TH E CASH PAYMENTS FOR THE FREIGHT AND THE PAYMENT OF RS.2,80,620/- WAS RE LATED TO THE COTTON PURCHASES IN CASH AND ACCORDINGLY, CONFIRMED THE AD DITION MADE BY THE AO. 12.0 AGGRIEVED BY THE ORDER OF THE LD.CIT(A) THE ASSESS EE IS IN APPEAL BEFORE US. DURING THE APPEAL, THE LD.AR ARGUED THAT THE PAYME NTS MADE IN CASH WERE RELATED TO THE LORRY HIRE PAYMENTS TOWARD S THE CARRIAGE INWARDS. THE LORRY DRIVERS DO NOT ACCEPT THE CHEQU E PAYMENTS AND THEY ONLY ACCEPT THE CASH PAYMENTS. THE ENTIRE PAYMENT WAS MADE TOWARDS THE LORRY HIRE AND EACH PAYMENT DID NOT EXCEED RS.3 5,000/-. THE DATE WISE DETAILS OF PAYMENTS WITH INVOICES WERE FURNISH ED BY THE ASSESSEE. THE LD.AR HAS TAKEN US TO PAPER BOOK PAGE NO.203 WH EREIN IN THE DISPATCH ADVICE, THE LORRY FARE WAS SEPARATELY MENT IONED BY THE SUPPLIER ITA NO.2240/MDS/2015 & ITA NO.43/MDS/2016 :- 7 -: ADVISING THE ASSESSEE TO MAKE PAYMENT ON DELIVERY. THE LD.AR SUBMITTED THAT THE COTTON PURCHASE INTERSTATE CONSISTS OF THE PAYMENT FOR PURCHASES AS WELL AS THE SEPARATE PAYMENT FOR LORRY FREIGHT. ALL THE VOUCHERS WERE PRODUCED BEFORE THE AO AT THE TIME OF ASSESSMENT BU T THE AO INCORRECTLY CONCLUDED THAT THE CASH PAYMENTS WERE MADE FOR PURC HASES WHICH IS NOT CORRECT. ON THE OTHER HAND, THE LD.DR RELIED ON TH E ORDERS OF THE LOWER AUTHORITIES. 13.0 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL PLACED BEFORE US. THE ASSESSEE MADE THE COTTON PURCHASE INTERSTATE A ND RAISED THE BILLS FOR GOODS PURCHASED FROM THE SUPPLIER AS WELL AS FOR THE FREIGHT SEPARATELY BY THE SUPPLIER. ON DISPATCH OF THE GOO DS, THE SUPPLIER ADVISED THE ASSESSEE TO MAKE THE FREIGHT PAYMENT SEPARATELY . EACH PAYMENT WAS LESS THAN RS.30,000/-. W.E.F. 01.10.2009, THE CASH PAYMENTS FOR FREIGHT IS PERMITTED UP TO RS.35,000/- ON EACH OCCASION. SINC E THE CASH PAYMENTS WERE MADE LESS THAN RS.35,000/- AND PERMITTED BY TH E LAW, WE DO NOT FIND ANY VIOLATION OF THE PROVISIONS OF SEC.40A(3) AND THE ADDITION MADE BY THE AO IS DELETED AND THE ORDERS OF THE LOWER AUTHO RITIES ARE SET-ASIDE. THE APPEAL OF THE ASSESSEE ON THIS GROUND IS ALLOW ED. ITA NO.2240/MDS/2015 & ITA NO.43/MDS/2016 :- 8 -: 14.0 THE NEXT ISSUE IN THE APPEAL OF THE ASSESSEE IS TH E DISALLOWANCE OF COMMISSION U/S.36(I)(II) OF IT ACT. THE AO DISALLO WED A SUM OF RS.52,94,460/- PAID TO TWO DIRECTORS VIZ., SHRI R.V ENKATAPATHI & SHRI V.RAJENDRAN. BOTH OF THEM ARE THE DIRECTORS OF THE COMPANY. THE AMOUNT OF RS.59,94,960/- WAS PAID AS A COMMISSION @ 10% ON NET PROFIT. THE AO CALLED FOR THE EXPLANATION FROM THE ASSESSEE AS TO WHY THE COMMISSION SHOULD NOT BE DISALLOWED AND THE ASSESSE E SUBMITTED REPLY TO THE AO STATING THAT ALL THE MANAGERIAL ADMINISTRATI VE AND MARKETING FUNCTIONS OF THE COMPANY ARE BEING HANDLED BY BOTH THE DIRECTORS. THE AO NOT BEING IMPRESSED BY THE EXPLANATION OF THE AS SESSEE, MADE THE DISALLOWANCE OF THE COMMISSION OBSERVING THAT THE C OMMISSION IS PAID IN LIEU OF DIVIDEND TO THE DIRECTORS. THE AO FURTHER S TATED THAT THE COMPANY BEING A PVT. LTD. COMPANY, IF THE DIVIDEND IS PAID, THE COMPANY HAS TO PAY THE DIVIDEND TAX AND TO EVADE THE DIVIDEND TAX, PR OFITS OF THE COMPANY WERE REDUCED BY WAY OF PAYMENT OF COMMISSION TO TH E DIRECTORS. THE COMPANY HAS NOT ESTABLISHED THE SERVICES RENDERED B Y THE DIRECTORS AND HENCE THE AO DISALLOWED THE COMMISSION PAID TO THE DIRECTORS. 15.0 THE ASSESSEE WENT ON APPEAL TO THE COMMISSIONER A ND THE LD.CIT(A) CONFIRMED THE ADDITION MADE BY THE AO STATING THAT DR. RAJENDRAN ONE OF THE DIRECTORS IS A PROFESSIONAL AND EARNING INCOME OF RS.43.60 LAKHS AND HAS LITTLE TIME TO LOOK AFTER THE COMPANY AFFAIRS. SIMILARLY, SHRI VENKATAPATHI, CHAIRMAN IS 70 YEARS OLD AND CANNOT S PARE THE TIME FOR THE ITA NO.2240/MDS/2015 & ITA NO.43/MDS/2016 :- 9 -: COMPANY. THEREFORE, THE LD.CIT(A) WAS OF THE VIEW THAT THE ASSESSEE HAS NOT BROUGHT ON RECORD ANY EVIDENCE TO ESTABLISH THA T BOTH THE DIRECTORS HAVE RENDERED THE SERVICES TO THE ASSESSEE COMPANY AND ACCORDINGLY, CONFIRMED THE ADDITION MADE BY THE AO. 16.0 AGGRIEVED BY THE ORDER OF THE LD.CIT(A), THE ASSES SEE IS IN APPEAL BEFORE US. APPEARING FOR THE ASSESSEE, DURING THE APPEAL, THE LD.AR ARGUED THAT THE AO HAS INVOKED THE PROVISIONS OF SEC.36(1) (II) OF THE IT ACT, WHICH IS MADE APPLICABLE IN THE CASE OF THE EMPLOYE ES BUT NOT APPLICABLE IN THE CASE OF THE DIRECTORS. BOTH THE DIRECTORS A RE INCOME TAX ASSESSEES REGULARLY FILING THE RETURNS. THE INCOME RECEIVED IN THE FORM OF COMMISSION IS OFFERED TO TAX. IN THE COMPANY, NO S ENIOR OFFICIALS ARE APPOINTED IN THE TOP LEVEL TO TAKE THE POLICY DECIS IONS AND TO LOOK AFTER DAY-TO-DAY RUNNING OF THE AFFAIRS. BOTH THE DIRECT ORS ARE RENDERING THE SERVICES TO THE COMPANY AND BECAUSE OF THE DIRECTOR S CONTINUOUS DEDICATED SERVICE, THE COMPANY IS RUNNING WITHOUT A NY IMPEDIMENT AND SMOOTHLY. SINCE THE DIRECTORS HAVE OFFERED THE INC OME IN THEIR HANDS AND ITS TAXED IN THE HANDS OF THE DIRECTORS THE CONTENT ION OF THE AO THAT THE COMMISSION PAYMENT WAS MADE WITH AN INTENTION TO AV OID DIVIDEND DISTRIBUTION TAX IN MISINTERPRETATION OF THE FACT. THEREFORE, THE LD.AR CONTENDED THAT THE COMMISSION PAID IS GENUINE AND R EASONABLE WHICH SHOULD BE ALLOWED AS DEDUCTION. ITA NO.2240/MDS/2015 & ITA NO.43/MDS/2016 :- 10 -: 17.0 ON THE OTHER HAND, THE LD.DR ARGUED THAT ONE OF TH E DIRECTOR IS DRAWING SALARY FROM THE COMPANY AND HE IS EMPLOYEE OF THE COMPANY AND SEC.36(1)(II) IS APPLICABLE TO THE EMPLOYED DIRECTO R. ANOTHER DIRECTOR CANNOT PERFORM THE FUNCTIONS EFFECTIVELY AND PARTIC IPATE DUE TO OLD AGE. FURTHER IT WAS ARGUED THAT DR.RAJENDRAN IS FULLY EN GAGED IN PROFESSION, HAVE LITTLE TIME TO SPARE FOR COMPANYS AFFAIRS. T HEREFORE, THE LD.DR ARGUED THAT AS OBSERVED BY THE AO, THE COMMISSION I S PAID WITH AN INTENTION TO AVOID THE DIVIDEND DISTRIBUTION TAX AN D VERY MUCH WITHIN THE PROVISIONS OF SEC.36(1)(II) OF IT ACT AND THE AO HA S RIGHTLY DISALLOWED THE COMMISSION PAID AND NO INTERFERENCE IS CALLED FOR. 18.0 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL PLACED BEFORE US. SHRI RAJENDRAN & SHRI VENKATA CHALAPATHI BOTH OF T HEM ARE THE DIRECTORS OF THE COMPANY AND HAVING SUBSTANTIAL SHA REHOLDING. THE DIRECTORS ARE BEING PAID COMMISSION @10% ON THE PRO FITS DERIVED BY THE COMPANY, WHICH IS APPROVED BY THE ANNUAL GENERAL ME ETING OF THE COMPANY AND SPECIAL RESOLUTION WAS PASSED AUTHORIZI NG THE COMPANY TO MAKE THE PAYMENTS OF COMMISSION. BOTH OF THEM ARE WELL EXPERIENCED IN THE SPINNING MILL AND THE SPINNING MILL INVOLVES TI MELY PROCUREMENT OF COTTON, YARN SALES, POLICIES, ETC. THE COTTON YARN PRICES ARE HIGHLY VOLATILE AND TIMELY DECISION HAS TO BE TAKEN TO KEEP TAB WIT H THE FLUCTUATION OF ITA NO.2240/MDS/2015 & ITA NO.43/MDS/2016 :- 11 -: PRICES OF COTTON. THERE ARE LOT OF OTHER MANAGERIA L AND ADMINISTRATIVE FUNCTIONS INVOLVED IN RUNNING THE COMPANY WHICH REQ UIRE QUICK DECISION MAKING PROCESS MANAGERIAL, ADMINISTRATIVE, MARKETIN G FUNCTIONS AT THE TOP LEVEL. THE COMPANY IS A PVT. LTD. COMPANY FOUNDED A ND PROMOTED BY THE DIRECTOR AND CHAIRMAN WHO IS HAVING VAST EXPERIENCE IN THIS LINE OF TRADE. THE LD.AR HAS SUBMITTED PAPER BOOK CONTAINING THE D ETAILS OF SALARIES AND WAGES PAID AND THERE WERE NO SENIOR MANAGERIAL FUNC TIONARIES APPOINTED IN THIS COMPANY EXCEPT THE STAFF AT THE LEVEL OF SU PERVISORS, FACTORY ASSISTANTS AND ACCOUNTING PERSONS. THE COMPANY HAS ACHIEVED THE SALES OF RS.1506.65 LAKHS IN THE YEAR UNDER CONSIDERATION . IN 2001-02, THE SALES WERE RS.416.34 LAKHS AND NET PROFIT WAS RS.1. 24 LAKHS AND THE SALES HAVE RAISED TO RS.1506.65 LAKHS FOR THE AY 2011-12 AND THE PROFITS ARE INCREASED TO RS.209.79 LAKHS. FROM THE FINANCIALS OF THE COMPANY AND THE SUBMISSIONS MADE BY THE ASSESSEE AND WORK FLOW CHAR T, WE AGREE WITH THE LD.AR THAT BOTH THE DIRECTORS ARE SPENDING SUFFICIE NT TIME AND ENERGY IN DAY TO DAY RUNNING OF THE COMPANY AND IMPROVING THE PERFORMANCE. 18.1 NEITHER THE AO NOR THE LD.CIT(A) HAVE BROUGHT ON R ECORD ANY EVIDENCE TO HOLD THAT THOUGH MR.VENKATA CHALAPATHI IS 70 YEARS OLD, INCAPABLE OF RUNNING THE COMPANY. SIMILARLY, THOUG H MR. RAJENDRAN IS A PROFESSIONAL HAVING INCOME OF RS.43.63 LAKHS THERE IS NO EVIDENCE TO SHOW THAT HE IS NOT SPARING THE TIME IN RUNNING THE COMP ANY. THE AO HAS NOT GIVEN ANY FINDING REGARDING WHO IS RUNNING A COMPAN Y, WHO IS TAKING THE ITA NO.2240/MDS/2015 & ITA NO.43/MDS/2016 :- 12 -: CRUCIAL MANAGERIAL DECISIONS AND WHO ARE CONTROLLIN G AND MANAGING THE AFFAIRS OF THE COMPANY. AS PER THE EVIDENCES PLACE D BEFORE US WE HOLD THAT BOTH THE DIRECTORS ARE CONTROLLING AND MANAGIN G THE AFFAIRS OF THE COMPANY AND RENDERING THE SERVICES WHICH REQUIRED T O BE REMUNERATED PROPERLY. 18.2 THE CONTENTION OF THE AO THAT THE COMMISSION IS PA ID IN LIEU OF DIVIDEND IS ALSO NOT ACCEPTABLE, SINCE BOTH THE DIR ECTORS ARE IN THE HIGH TAX BRACKET AND ADMITTED THE INCOME AND PAID THE TAXES. IF THE DIVIDEND IS TAXED IN THE HANDS OF THE COMPANY, THE SAME IS EXEM PT IN THE HANDS OF THE RECIPIENT. THE ASSESSEE RELIED ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF AMD METPLAST V. DCIT (201 2) 341 ITR 0563 WHEREIN THE HONBLE DELHI HIGH COURT IN PARA NO.11 UPHOLDING THE PAYMENT OF THE COMMISSION HELD AS UNDER: 11. WE FAIL TO UNDERSTAND HOW THE AFORESAID OBSERVA TIONS ASSIST AND HELP THE REVENUE IN THE FACTUAL MATRIX OF THE PRESENT CASE. ASHOK GUPTA IS THE MANAGING DIRECTOR AND IN TERMS OF THE BOARD RESOLUTION IS ENTITLED TO RECEIVE COMM ISSION FOR SERVICES RENDERED TO THE COMPANY. IT IS A TERM OF EMPLOYMENT ON THE BASIS OF WHICH HE HAD RENDERED SERVICE. ACCORDINGLY, HE WAS ENTITLED TO THE SAID AMOUNT. CO MMISSION WAS TREATED AS A PART AND PARCEL OF SALARY AND TDS HAS BEEN DEDUCTED. ASHOK G UPTA WAS LIABLE TO PAY TAX ON BOTH THE SALARY COMPONENT AND THE COMMISSION. PAYMENT OF DIV IDEND IS MADE IN TERMS OF THE COMPANIES ACT, 1956. DIVIDEND HAS TO BE PAID TO ALL SHAREHOLDERS EQUALLY. THIS POSITION CANNOT BE DISPUTED BY THE REVENUE. DIVIDEND IS A RE TURN ON INVESTMENT AND NOT SALARY OR PART THEREOF. HEREIN THE CONSIDERATION IN THE FORM OF COMMISSION WHICH WAS PAID TO ASHOK GUPTA WAS FOR SERVICES RENDERED BY HIM AS PER TERMS OF APPOINTMENT AS A MANAGING DIRECTOR. 18.3 IN THE INSTANT CASE, THE COMMISSION IS PAID FOR TH E SERVICES RENDERED BY THE DIRECTORS. THE LD.DR HAS DEMONSTRATED DURIN G THE APPEAL, THAT THE COMPANY IS RUNNING BUT FOR THE DIRECTORS AND THE CR UCIAL DECISIONS AND KEY FUNCTIONS ARE BEING DISCHARGED BY THE CHAIRMAN AND DIRECTORS. THEREFORE, ITA NO.2240/MDS/2015 & ITA NO.43/MDS/2016 :- 13 -: WE ARE OF THE CONSIDERED OPINION THAT THE CASE LAW RELIED UPON BY THE ASSESSEE IS SQUARELY APPLICABLE IN THE ASSESSEES C ASE AND THE PAYMENT OF COMMISSION IS REASONABLE WHICH CANNOT BE DENIED BY THE REVENUE. THE REVENUE HAS NOT DEMONSTRATED THAT THE PAYMENT OF CO MMISSION IS EXCESSIVE OR UNREASONABLE. THEREFORE, WE ALLOW THE APPEAL OF THE ASSESSEE AND DELETE THE ADDITION MADE BY THE AO. T HE ASSESSEES APPEAL ON THIS GROUND IS ALLOWED. 19.0 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOW ED. 20.0 IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMIS SED AND THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH JUNE, 2017, AT CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( ! . . $ ) (D.S.SUNDER SINGH) /ACCOUNTANT MEMBER /CHENNAI, 5 /DATED: 8 TH JUNE, 2017. TLN 0 .$6 76 /COPY TO: 1. - /APPELLANT 4. 8 /CIT 2. ./- /RESPONDENT 5. 6 . /DR 3. 8 ( ) /CIT(A) 6. * /GF