DCIT, New Delhi V. M/s. Botil Oil Tools India Pvt. Ltd., New Delhi

ITA 2500/DEL/2015

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5554 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 11 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-04-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2010-2011
• Appeal Filed On: 29-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Depreciation; Rule of consistency
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: F NEW DELHI BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBE R & SHRI P. MAHARISHI, ACCOUNTANT MEMBER ITA NO.-2500/DEL/2015 ( ASSESSMENT YEAR: 2010-11) DCIT CIRCLE 5(1) NEW DELHI. VS BOTIL OIL TOOLS INDIA PVT. LTD. 4 TH FLOOR, MOHTA BUILDING, 4, BHIKAJI CAMA PLACE, NEW DELHI. PAN NO. AAACB0222G ASSESSEE BY SH. ANIL BHALLA, CA REVENUE BY SH. ATIQ AHMAD, SR. DR ORDER PER JOGINDER SINGH, J.M. THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDER DATE D 28.01.2015 OF THE LD. FIRST APPELLATE AUTHORITY, NE W DELHI. THE FIRST GROUND RAISED BY THE REVENUE PERTAINS TO DELETING T HE ADDITION OF RS. 94,52,764/- MADE ON ACCOUNT OF AMOUNT PAID TO DIREC TORS OF THE COMPANY AS COMMISSION AND EXGRATIA EVEN THOUGH IT I S NOT ALLOWABLE EXPENDITURE WITHIN THE MEANING OF SECTION 36(1)(II) AS WELL AS SECTION 37(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT). 2. DURING HEARING, SHRI ATIQ AHMED LD. SR. DR DEFEN DED THE ADDITION MADE BY THE ASSESSING OFFICER BY INVITING OUR ATTENTION TO THE DATE OF HEARING 02.04.2018 DATE OF PRONOUNCEMENT 02.04.2018 ITA NO. 250 0/DEL/2015 BOT IL OIL TOOLS INDIA P. LTD. 2 OBSERVATION MADE IN THE ASSESSMENT ORDER. THE CRUX OF THE ARGUMENT IS IDENTICAL TO THE GROUND RAISED. 2.1 ON THE OTHER HAND, SHRI ANIL BHALLA, LD. COUNSE L FOR THE ASSESSEE DEFENDED THE IMPUGNED ORDER BY CLAIMING TH AT THE ISSUE IN HAND IS COVERED BY THE DECISION OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE ITSELF FOR AY 2008-09 FOR WHICH OUR ATTENT ION WAS INVITED TO PAPER BOOK PAGES 18 TO 23 OF THE PAPER BOOK. THIS FACTUAL MATRIX WAS NOT CONTROVERTED BY THE LD. SR. DR. 2.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL AVAILABLE ON RECORD. IN VIEW OF THE ABOVE , WE ARE REPRODUCING HEREUNDER THE ORDER OF THE TRIBUNAL IN ITA NOS. 6452 & 6453/DEL/2015 FOR AY 2011-12 ORDER DATED 31.08.2017 FOR READY REFERENCE AND ANALYSIS: SINCE COMMON QUESTIONS OF FACTS AND LAW HAVE BEEN RAISED IN BOTH THE AFORESAID APPEALS, THE SAME ARE BEING DISP OSED OFF BY WAY OF CONSOLIDATED ORDER TO AVOID REPETITION OF DI SCUSSION. 2. APPELLANT, ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE 5 (1), NEW DELHI (HEREINAFTER REFERRED TO AS 'THE REV ENUE'), BY FILING THE PRESENT APPEALS SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 31.08.2015 PASSED BY THE COMMISSIONER O F INCOME-TAX (APPEALS)- 2, NEW DELHI, FOR THE ASSESSM ENT YEARS 2011-12 & 2012-13 ON THE GROUNDS INTER ALIA THAT 'ASSESSMENT YEAR 2011-12 '1. ON THE FACTS AND IN TH E CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) H AS ERRED IN DELETING THE ADDITION OF RS.1,08,82,886/- U/S 36(1) (II) OF THE INCOME TAX ACT , 1961. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT (A) IS NOT JUSTIFIED IN DELETING THE ADDITI ON U/S 36(1)(II) OF THE INCOME TAX ACT , 1961 WITHOUT APPRECIATING THE FACT THAT THE PAYMENT HAS BEEN MADE TO DIRECTORS AS COMMISSION AN D EX GRATIA WITHOUT DEEMING THE SAME AS DIVIDEND OR PROF IT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT (A) HAS ERRED IN DELETING THE ADDITION OF R S.1,08,933/- MADE ON ACCOUNT OF CLUB EXPENSES. ITA NO. 250 0/DEL/2015 BOT IL OIL TOOLS INDIA P. LTD. 3 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT (A) IS NOT JUSTIFIED IN DELETING THE DISALL OWANCES MADE ON ACCOUNT OF CLUB EXPENSES WITHOUT APPRECIATING THE F ACT THAT THE CLUB EXPENSES ARE NOT RELATED TO THE BUSINESS OF TH E ASSESSEE.' ASSESSMENT YEAR 2012-13 '1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) H AS ERRED IN DELETING THE ADDITION OF RS.1,71,57,311/- U/S 36(1) (II) OF THE INCOME TAX ACT , 1961. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT (A) IS NOT JUSTIFIED IN DELETING THE ADDITI ON U/S 36(1)(II) OF THE INCOME TAX ACT , 1961 WITHOUT APPRECIATING THE FACT THAT THE PAYMENT HAS BEEN MADE TO DIRECTORS AS COMMISSION AN D EX GRATIA WITHOUT DEEMING THE SAME AS DIVIDEND OR PROF IT.' 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : DURING SCRUTINY PROCEEDIN GS, ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS PAI D 'COMMISSION' AND 'EX- GRATIA' ALLOWANCES TO ITS DIR ECTORS, NAMELY, SHRI H.L. KHUSHALANI, SHRI VIVEK KHUSHALANI , MRS. RAKSHA WALIA AND MR. K.N. SHARMA TO THE TUNE OF RS.1,41,65,711/0 & RS.29,91,600/- FOR AY 2011-12 AN D RS.1,41,65,711/0 & RS.29,91,600/- FOR AY 2012-13 RE SPECTIVELY. BEING DIS-SATISFIED WITH THE EXPLANATION FURNISHED BY THE ASSESSEE, AO INVOKED THE PROVISIONS CONTAINED U/S 3 6(1)(II) OF THE INCOME-TAX ACT , 1961 (FOR SHORT 'THE ACT') AND PROCEEDED TO CONCLUDE THAT THE BONUS/COMMISSION PAID TO AN EMPLO YEES IS NOT ALLOWABLE DEDUCTION, RATHER IT COULD HAVE BEEN PAID AS PROFIT OR DIVIDEND AND THEREBY MADE AN ADDITION OF RS.1,08 ,82,886/- & RS.1,71,57,311/- FOR AYS 2011-12 & 2012-13 RESPECTI VELY. 3. ASSESSEE CARRIED THE MATTER BY WAY OF FILING APP EALS BEFORE THE LD. CIT (A) WHO HAS DELETED THE ADDITION OF RS. 1,08,82,886/- & RS.1,71,57,311/- FOR AYS 2011-12 & 2012-13 RESPEC TIVELY MADE BY THE AO BY ACCEPTING THE APPEALS FILED BY TH E ASSESSEE. FEELING AGGRIEVED, THE REVENUE HAS COME UP BEFORE T HE TRIBUNAL BY WAY OF CHALLENGING THE IMPUGNED ORDER P ASSED BY LD. CIT. 4. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN THE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. GROUNDS NO.1 & 2 IN AYS 2011-12 & 2012-13 5. LD. DR FOR THE REVENUE CONTENDED THAT THE LD. CI T (A) HAS ERRED IN DELETING THE ADDITION OF RS.1,08,82,886/- & RS.1,71,57,311/- FOR AYS 2011-12 & 2012-13 RESPECTI VELY AND RELIED UPON THE ORDER PASSED BY THE AO. 6. HOWEVER, TO REPEL THE ARGUMENTS ADDRESSED BY THE LD. DR, THE LD. AR FOR THE ASSESSEE CONTENDED THAT THE ISSU E IN CONTROVERSY HAS ALREADY BEEN DECIDED IN FAVOUR OF T HE ASSESSEE IN AY 2008-09 BY THE HON'BLE DELHI HIGH COURT. 7. UNDISPUTEDLY, THE ASSESSEE COMPANY HAS PAID COMM ISSION AND EX-GRATIA TO ITS DIRECTORS TO THE TUNE OF RS.1, 71,57,311/- IN AY 2012-013 RESPECTIVELY, DETAILS OF WHICH ARE AS U NDER :- ITA NO. 250 0/DEL/2015 BOT IL OIL TOOLS INDIA P. LTD. 4 COMMISSION EX-GRATIA TOTAL (RS.) MR. H.L. KHUSHALAN I 88,53,569 13,50,000 102,03,569 MR. VIVEK KHUSHALANI 35,41,428 8,10,000 43,51,428 MS. RAKSHA KHUSHALANI 17,70,714 5,67,000 23,37,714 MR. K.N. SHARMA NIL 2, 64,600 2,64,600 TOTAL 1,41,65,711 29,91,600 171,57,311 8. UNDISPUTEDLY, THE ISSUE IN CONTROVERSY HAS ALREA DY BEEN DECIDED BY THE REVENUE IN FAVOUR OF ASSESSEE IN AYS 2004-05, 2005-06, 2006-07, 2007-08 AND 2008-09 AND ALL THE S AID ORDERS HAVE BEEN AFFIRMED BY THE COORDINATE BENCH OF THE T RIBUNAL. 9. IN AY 2008-09, THE COORDINATE BENCH OF THE TRIBU NAL IN ITA NO.2922/DEL/2013 ORDER DATED 23.09.2015 IN ASSESSEE 'S OWN CASE WHILE DECIDING THE IDENTICAL ISSUE RETURNE D CATEGORICAL FINDINGS BY RELYING UPON THE CASE OF HON'BLE HIGH C OURTS IN METPLAST PVT. LTD. VS. DCIT - (2012) 341 ITR 563 (D EL.) AND LOYAL MOTORS SERVICES COMPANY LTD. VS. CIT - (1946) 14 ITR 647 (MUMBAI) HELD THAT, 'COMMISSION PAID FOR SE RVICES RENDERED BY THE DIRECTOR AS PER THE TERMS OF THE AP POINTMENT COULD NOT BE SAID TO BE DISTRIBUTION OF DIVIDEND OR PROFITS IN THE GUISE OF COMMISSION AND THE PROVISIONS OF SECTION 36(1)(II) WOULD NOT APPLY.' 10. MOREOVER, WHEN UNDISPUTEDLY PAYMENT MADE TO THE DIRECTORS ON ACCOUNT OF COMMISSION AND EX-GRATIA AR E IN THE NATURE OF REMUNERATION THE SAME CANNOT BE SAID TO B E DISTRIBUTION OF DIVIDENDS OR PROFITS UNDER THE GARB OF COMMISSION AND AS SUCH, PROVISIONS CONTAINED U/S 36(1)(III) AR E NOT ATTRACTED. 11. SO, IN VIEW OF THE DECISIONS RENDERED BY HON'BL E JURISDICTIONAL HIGH COURT IN CASE OF METPLAST PVT. LTD. (SUPRA) AND IN VIEW OF THE RULE OF CONSISTENCY BEING APPLIE D BY THE REVENUE IN ASSESSEE'S OWN CASES, WE FIND NO ILLEGAL ITY OR PERVERSITY IN THE FINDINGS RETURNED BY LD. CIT (A) IN DELETING THE ADDITION OF RS.1,08,82,886/- & RS.1,71,57,311/- FOR AYS 2011-12 & 2012-13 RESPECTIVELY ON ACCOUNT OF PAYMENT MADE T O THE DIRECTORS AS COMMISSION AND EX-GRATIA. SO, GROUNDS NO.1 & 2 IN BOTH THE APPEALS ARE DETERMINED AGAINST THE REVENUE . GROUND NO.3 & 4 IN AY 2011-12 12. AO DISALLOWED AN AMOUNT OF RS.1,08,933/- CLAIME D AS CLUB EXPENDITURE BY THE ASSESSEE ON THE GROUND THAT THE SAME ARE NOT INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PU RPOSE. HOWEVER, LD. CIT (A) DELETED THE ADDITION ON THE GR OUND THAT SIMILAR ADDITION HAS BEEN DELETED IN ASSESSEE'S OWN CASE IN AY 2010-11. MOREOVER, WHEN THE ASSESSEE HAS COME UP WI TH SPECIFIC PLEA THAT EXPENSES WHICH ARE IN THE NATURE OF SUBSCRIPTION FEE AND COST OF SERVICES PAID TO VARIO US CLUBS AS INCURRED BY THE ASSESSEE COMPANY FOR ENTERTAINING T HE CUSTOMERS AT VARIOUS MEETINGS IN THE COURSE OF ITS BUSINESS BY THE DIRECTORS, DISALLOWANCE OF THE SAME BY THE AO W ITHOUT RECORDING ANY REASON AS TO HOW THE SAME IS NOT BUSI NESS EXPENSES, IS NOT SUSTAINABLE. SO, AGAIN, WE FIND NO ILLEGALITY OR PERVERSITY IN THE FINDINGS RETURNED BY THE LD. CIT (A) ON THIS ISSUE. HENCE, GROUNDS NO.3 & 4 IN AY 2011-12 IS DET ERMINED IN AGAINST THE REVENUE. ITA NO. 250 0/DEL/2015 BOT IL OIL TOOLS INDIA P. LTD. 5 13. RESULTANTLY, BOTH THE APPEALS OF THE REVENUE AR E DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 31ST DAY OF AUGUST, 2017. 2.3 IT IS NOTED THAT ON IDENTICAL ISSUE THE TRIBUNA L FOR AY 2011-12 DISCUSSED THE ISSUE WITH RESPECT TO DISALLOWING THE COMMISSION AND EXGRATIA PAYMENT TO THE DIRECTORS OF THE ASSESSEE C OMPANY INVOKING THE PROVISION OF SECTION 36(1)(II) OF THE ACT. SO IDENTICALLY, AS CLAIMED BY THE ASSESSEE THE TRIBUNAL VIDE ITA NO. 3821/DEL/ 2008 AND 2281/DEL/2009 FOR AY 2004-05 AND 2005-06 AND THEREA FTER FOR AY 2006-07 AND 2007-08 (ITA NO. 973/DEL/2010, 9382/DEL /2013 AND THEREAFTER FOR AY 2008-09 (ITA NO. 2922/DEL/2013) C ONSIDERED THE ISSUE AND FINALLY DECIDED IN FAVOUR OF THE ASSESSEE . NO CONTRARY DECISION WAS BROUGHT TO OUR NOTICE BY EITHER SIDE A ND MORE SPECIFICALLY THE REVENUE. THERE IS OBSERVATION IN THE AFORESAID ORDERS THAT THE AO HAS NOT ESTABLISHED THAT SUCH CO MMISSION OR EXGRATIA PAID TO DIRECTORS, WHO ARE ALSO SHAREHOLDE RS, WAS PAYABLE AS PROFITS OR DIVIDEND OF THE COMPANY, THEREFORE, THE SAME CANNOT BE DISALLOWED U/S 36(1)(II) OF THE ACT. THERE IS NO C HANGE IN THE PRESENT ASSESSMENT YEAR ALSO, THEREFORE, WE ARE EXPECTED TO FOLLOW THE ORDERS OF EARLIER YEARS, RESULTANTLY, WE FIND NO INFIRMITY IN THE CONCLUSION DRAWN BY THE LD. CIT(A), CONSEQUENTLY, THIS GROUND OF THE REVENUE IS DISMISSED. ITA NO. 250 0/DEL/2015 BOT IL OIL TOOLS INDIA P. LTD. 6 3. THE NEXT GROUND RAISED BY THE REVENUE PERTAINS T O DELETING THE ADDITION OF RS. 5,18,641/- MADE ON ACCOUNT OF BEING THE PROFIT RECEIVED BY THE ASSESSEE ON SALE OF CAR, IGNORING T HE FACT THAT SECTION 50(1) OF THE ACT CLEARLY STATE THAT ANY RECEIPT ARI SING FROM THE TRANSFER OF SHORT TERM CAPITAL ASSET SHALL BE DEEMED TO BE T HE CAPITAL GAINS. 3.1 THE CRUX OF ARGUMENT ADVANCED BY THE LD. SR. DR IS IN SUPPORT OF THE ADDITION MADE BY THE LD. AO, WHEREAS THE LD. COUNSEL FOR THE ASSESSEE DEFENDED THE IMPUGNED ORDER. 3.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS IN BRIEF A RE THAT FROM THE COMPUTATION OF INCOME, SUBMITTED BY THE ASSESSEE, I T WAS OBSERVED THAT THE ASSESSEE HAS DEDUCTED RS. 5,18,641/- AS PR OFIT ON SALE OF VEHICLE FROM ITS BUSINESS INCOME AND DID NOT SHOWN IT AS SHORT TERM CAPITAL GAIN AS PER THE PROVISIONS OF SECTION 50 OF THE ACT. THE STAND OF THE REVENUE IS THAT AS PER SECTION 50 OF THE ACT THE PROFIT ON SALE OF DEPRECIABLE ASSET SHOULD BE TREATED AS SHORT TER M CAPITAL GAIN. CONSEQUENTLY, THE ADDITION WAS MADE. ON APPEAL BEF ORE THE LD. CIT (A) THE BLOCK OF ASSET WAS PERUSED BY THE LD. CIT ( A) AND FINALLY IT WAS FOUND THAT THE ASSESSEE HAS DEDUCTED THE SALE V ALUE OF THE VEHICLE FROM THE WRITTEN DOWN VALUE OF THE CONCERNE D BLOCK OF ASSET AND DULY COMPLIED WITH THE PROVISION OF THE ACT AND , THEREFORE, CLAIMED LESSER DEPRECIATION ON SUCH BLOCK IN THE YE AR. WE FIND NO ITA NO. 250 0/DEL/2015 BOT IL OIL TOOLS INDIA P. LTD. 7 INFIRMITY IN THE CONCLUSION DRAWN BY THE LD. CIT (A ) MORE SPECIFICALLY WHEN THE ASSESSEE CORRECTLY COMPUTED SHORT TERM CAP ITAL GAIN AS RS. NIL IN THE CASE OF DEPRECIABLE ASSET AS PER THE PRO VISION OF SECTION 50 OF THE ACT. WE FIND NO MERIT IN THE APPEAL OF THE REVENUE FOR THIS GROUND ALSO, CONSEQUENTLY, DISMISSED. THE APPEAL OF THE REVENUE IS DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT, AT THE CONCLUSION OF THE HEARING, IN THE PRESENCE OF LD. COUNSEL FROM BOTH SIDES ON 02.04.2018. SD/- SD/- (P. MAHARISHI) (JOGINDER S INGH) ACCOUNTANT MEMBER JUDICIAL M EMBER DATED: 02.04.2018 *KAVITA ARORA COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT TRUE COPY ASSISTANT REGISTRAR ITAT NEW DELHI ITA NO. 250 0/DEL/2015 BOT IL OIL TOOLS INDIA P. LTD. 8 THIS ORDER WAS DIRECTLY DICTATED ON COMPUTER TO THE P.S. 02.04.2018 DRAFT DICTATED ON 02.04.2018 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 02.04.2018 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. 02.04.18 APPROVED DRAFT COMES TO THE SR.PS/PS 03.04.18 KEPT FOR PRONOUNCEMENT ON 02.04.18 FILE SENT TO THE BENCH CLERK 03.04.18 DATE ON WHICH FILE GOES TO THE AR DATE ON WHICH FILE GOES TO THE HEAD CLERK. DATE OF DISPATCH OF ORDER.