ACIT - 16(1), MUMBAI V. PID PVT. LTD., MUMBAI

ITA 2901/MUM/2017

• Counselvise Citation: [2018] 112 COUNSELVISE.COM (IT) 5624 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 21-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H N SINGH
• Keywords: Question of law
• Section: 143(3); 201; 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C , MUMBAI BEFORE S HRI B.R. BASKARAN (AM) AND SHRI RAM LAL NEGI (JM) ITA NO. 2901 /MUM/2017 ASSESSMENT Y EAR: 2012 - 13 THE ACIT - 16(1), ROOM NO. 439, AAYAKAR BHAVAN, M.K. MARG, MUMBAI - 400020 VS. M /S PID PVT. LTD., FILMLAB, 27 CAMA INDUSTRIAL ESTATE, WALBHAT ROAD, GOREGAON (EAST), MUMBAI - 400053 PAN: AAACP7054Q (APPELLANT) (RESPONDENT) REVENUE BY : SHRI H.N. SINGH (CIT DR) ASSESSEE BY : SHRI RITESH JAIN (A R) DA TE OF HEARING: 30 /08 /201 8 DATE OF PRONOUNCEMENT: 20 / 11 /201 8 O R D E R PER RAM LAL NEGI, JM THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER DATED 30.01.2017 PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEAL S) (FOR SHORT THE CIT (A)) - 4 , MUMBAI , FOR THE A S S ESSMENT YEAR 2012 - 13 , WHEREBY THE LD. CIT (A) HAS PARTLY ALLOWED THE APPEAL FILED BY THE ASSESSEE AGAINST ASSESSMENT ORDER PASSED U/S 143 (3) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE A CT). 2. BRIEF FAC TS OF THE CASE ARE THAT THE ASSESSEE COMPANY E N GAGED IN THE BUSINESS OF TRADING IN CINEMATOGRAPHIC FILMS, LAMINATING FILMS, DATA STORAGE MEDIA, BETA VIDEO CASSETTES, CHEMICALS, ELECTRONIC AND INFORMATION PRODUCTS, FILED ITS RETURN OF INCOME FOR THE ASSESSM ENT YEAR UNDER CONSIDERATION DECLARING THE TOTAL INCOME OF RS.5,54,86,817/ - .THE AO COMPLETED THE ASSESSMENT U/S 143(3) OF THE ACT DETERMINING THE TOTAL INCOME AT RS.6,32,32,260/ - AFTER MAKING ADDITION OF RS.77,45,443/ - CLAIMED BY THE ASSESSEE U/S 36(1)(II) OF THE 2 ITA NO. 2901 / MUM/2017 ASSESSMENT YEAR: 2012 - 13 ACT. IN THE FIRST APPEAL, THE LD. CIT(A) DELETED THE ADDITION. THE REVENUE IS IN APPEAL AGAINST THE IMPUGNED ORDER PASSED BY THE LD. CIT(A). 3 . T HE REVENUE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL ON THE FOLLOWING EFFECTIVE GROUND S : - 1. WHETH ER ON THE FACTS, IN THE CIRCUMSTANCES OF THE CASE AND AS PER LAW, THE LD. CIT (A) HAS ERRED IN DIRECTING TO DELETE THE ADDITION/DISALLOWANCE OF RS. 77,45,443/ - MADE U/S 36(1)(II) OF THE I.T. ACT, WITHOUT APPRECIATING THAT THE NECESSITY AND REASONABLENESS O F COMMISSION PAYMENT WAS NEVER ESTABLISHED BY THE ASSESEE AND AS SUCH THE COMMISSION MERELY REPRESENT THE DIVERSION OF PROFIT FROM THE COMPANY TOWARDS THE DIRECTORS. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN DIRECTING TO DELETE THE ADDITION/DIS ALLOWANCE OF R S. 77,45,443/ - MADE U/S 36(1)(II) OF THE I.T. ACT, PARTICULARLY WHEN THE REASONABLENESS AND NECESSITY OF THE COMMISSION PAYMENT IS IN DOUBT. 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW , THE LD. CIT (A) HAS ERRED IN DIRECTING TO DELETE THE ADDITION/DISALLOWANCE OF RS. 77,45,443/ - MADE U/S 36(1)(II) OF THE I.T. ACT, WITHOUT APPRECIATING THAT COMMISSION WAS PAID NOT FOR ANY SERVICES BUT IN LIEU OF DIVIDEND. 4. BEFORE US, THE LD. DEPART MENTAL REPRESENTATIVE SUBMITTED THAT THE ASSESSEE COMPANY HAD PAID COMMISSION TO THE DIRECTORS IN LIEU OF DIVIDEND THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S 36(1)(II) OF THE ACT. HAD THE ASSESSEE PAID DIVIDEND, THE INCOME OF THE ASSESSEE COMPANY WOULD HAVE GONE UP BY RS. 77,45,443/ - ON WHICH TAX @ 30% WOULD HAVE BEEN PAYABLE APART FROM DIVIDEND DISTRIBUTION TAX . SINCE, THE REASONABLENESS AND THE NECESSITY OF COMMISSION PAYMENT IS IN DOUBT, THE LD. CIT(A) OUGHT TO HAVE CONFIRMED THE ACTION OF THE AO. 3 ITA NO. 2901 / MUM/2017 ASSESSMENT YEAR: 2012 - 13 5. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSESSEE RELYING ON THE DECISION OF THE LD. CIT(A) SUBMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE ITAT MUMBAI RENDERED IN THE ASSESSEES OWN APPEAL FOR THE ASSESSMENT YEAR 2009 - 10. SINCE, THE FINDINGS OF THE LD. CIT(A) ARE BASED ON THE DECISION OF THE TRIBUNAL, THERE IS NO MERIT IN THE APPEAL OF THE REVENUE AND THE SAME IS LIABLE TO BE DISMISSED. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE ONLY GRIEVANCE OF THE REVENUE IS THAT THE LD. CIT(A) HAS WRONGLY DELETED THE ADDITION MADE BY THE AO WITHOUT CONSIDERING THE FACT THAT THE ASSESSEE HAS FAILED TO ESTABLISH THE NECESSITY AND REASONABLENESS OF PAYMENT OF THE COMMISSION IN QUESTION. THE CONTENTION OF THE ASSESSEE BEFORE US IS THAT THE CIT(A) HAS DECIDED THE IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE IN THE ASSESSEES OWN APPEAL FOR THE ASSESSMENT YEAR 2010 - 11, AND THE ITAT HAS CONFIRMED THE SAME, THEREFORE , THE PRESENT APPEAL HAS NO MERIT. AS POINTED OUT BY T HE LD. COUNSEL, THE LD. CIT(A) HAS DECIDED THE IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY HOLDING AS UNDER: 3.2 I HAVE CONSIDERED THE FINDINGS OF THE ASSESSING OFFICER AND RIVAL SUBMISSION OF THE APPELLANT, CAREFULLY. I FIND THAT THIS ISSUE WAS DECIDED BY MY LD. PREDECESSOR AGAINST THE DEPARTMENT. THE RELEVANT PART OF DECISION IS AS UNDER: - KEEPING IN VIEW THE RATIO OF THE ABOVE REASON, I AM UNABLE TO CONCUR WITH THE AO THAT IN THE INSTANT CASE, THE COMMISS ION PAID TO THE TWO DIRECTORS IS IN LIEU OF DIVIDEND FOR THE FOLLOWING REASONS: A) IN THE PRESENT CASE, COMMISSION HAS BEEN PAID AS PART OF REMUNERATION PACKAGE TO MR. SANJAY K PATEL AND MS ANITA S PATEL. THIS IS EVIDENCED BY BOARD RESOLUTION IN BOTH THE CAS ES. AS PER THE BOARD RESOLUTION IN CASE OF MY SANJAY PATEL, DATED 29.03.2010, HE WOULD BE ENTITLED TO A COMMISSION OF UPTO 5% OF THE NET TURNOVER/SALES WITH EFFECT FROM FY 2009 - 10. THIS IS IN ADDITION TO BASIC SALARY OF RS. 3,75,000/ - PER MONTH PLUS HOUSE RENT 4 ITA NO. 2901 / MUM/2017 ASSESSMENT YEAR: 2012 - 13 ALLOWANCE, CONVEYANCE ALLOWANCE, EDUCATION ALLOWANCE AND MEDICAL REIMBURSEMENT AS PER BOARD RESOLUTION DATES 11.04.2007,. LIKEWISE MS. ANITA PATEL IS ENTITLED TO A COMMISSION OF UPTO 1% OF NET TURNOVER/SALES AS PER BOARD RESOLUTION DATED 29.03.2010, APART FROM THE BASIC SALARY OF RS. 50,000/ - PER MONTH AND OTHER ALLOWANCES. AS PER DETAILS SUPPLIED BY THE APPELLANT, DURING THE YEAR COMMISSION HAS BEEN PAID AS PER ANNEXURE. THUS THE COMMISSION PAID IS IN ACCORDANCE WITH THE BOARD RESOLUTION AT THE RATE OF 3% OF THE TURNOVER TO SHRI SANJAY K PATEL AND AT THE RATE OF 0.75% OF TURNOVER TO MS. ANITA PATEL. IT IS ALSO CLEAR THAT THE COMMISSION IS PERFORMANCE RELATED . HENCE THE COMMISSION CANNOT BE SAID TO HAVE BEEN PAID IN LIEU OF DIVIDEND. THIS IS IN KEEP ING WITH THE RATIO OF DECISION OF THE DELHI HIGH COURT IN CASE OF AMD METPLAST PVT. LTD., CITED SUPRA. B) SHRI SANJAY PATEL HAS BEEN WORKING WITH THE ASSESSEE COMPANY SINCE 1981. UNDER THIS GUIDANCE, THE COMPANY WAS FIRST TO INSTALL CINEVATOR IN SOUTH ASIA, WHICH IS A PIONEERING TECHNOLOGY TO CONVERT DIGITAL INPUTS INTO PRINTS. SHRI SANJAY PATEL WAS ALSO INSTRUMENTAL IN STARTING FUJI FILMS IN INDIA. UNDER HIS LEADERSHIP, THE COMPANY HAS EARNED NATIONAL AWARD FOR BEST LABORATORY FOR THE YEARS 2008 AND 2010. C) BOTH THE DIRECTORS HAVE BEEN RECEIVING COMMISSION SINCE THE FY 2001 - 02. THE CASE OF THE COMPANY WAS SCRUTINIZED U/S 143 (3) FOR AYS 2003 - 04 AND 2004 - 05. IT IS ONLY FOR THE FIRST TIME IN AY 2010 - 11 THAT COMMISSION PAID TO DIRECTORS HAS BEEN DISALLOWED. IN F ACT, AS THE ASSESSEE HAS POINTED OUT, IN THE ORDER U/S 147 FOR AY 2008 - 09, WHICH WAS PASSED ON 08.11.2012 I.E. AFTER THE IMPUGNED ORDER, NO DISALLOWANCE OF COMMISSION HAS BEEN MADE. THE DELHI HIGH COURT IN ITA NO. 1672/2010, HAD HELD AS FOLLOWS: ON THE F ACTS OF THIS CASE, THE ITAT HAS ALLOWED PAYMENT OF BONUS OF COMMISSION TOO THE EMPLOYEE - DIRECTORS OF THE ASSESSEE COMPANY UNDER SECTION 36(1) (II) OF THE INCOME TAX ACT AND ONE OF THE REASONS GIVEN BY THE TRIBUNAL, WHICH IS SPECIFICALLY WEIGHED WITH ITS, I S THAT IN THE PAST SIMILAR COMMISSION WAS PAID TO THE WORKING DIRECTORS AND IT WAS NEVER DISALLOWED. MR. AGGARWAL, LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT SUCH A DEDUCTION IS ALLOWED 5 ITA NO. 2901 / MUM/2017 ASSESSMENT YEAR: 2012 - 13 UNDER SECTION 36(1)(II) OF THE ACT FOR THE PAST 30 YEARS. IN VIEW OF THIS, WE ARE OF THE OPINION THAT NO QUESTION OF LAW ARISES. THIS APPEAL IS DISMISSED. THEREFORE, EVEN FROM THAT POINT OF VIEW, THE DISALLOWANCE OF COMMISSION IN THE INSTANT YEAR CANNOT BE UPHELD. D) ON PERUSAL OF THE BALANCE SHEET OF THE APPELLANT FOR THE YEAR ENDING 31.03.2010,. IT IS SEEN THAT THE ENTIRE SHARE CAPITAL AND RESERVE AMOUNTING TO RS. 4.74 CRORES HAS BEEN APPROPRIATED TOWARDS FIXED ASSETS, INVESTMENTS AND CURRENT ASSETS AND ONLY A SUM OF RS. 6.28 CRORES IS LYING IN CASH AND BANK ACCOUNTS. EVEN HERE THE AUDITED ACCOUNTS CARRY THE NOTE THAT DEPOSITS IN THE SCHEDULED BANKS AMOUNTING TO RS. 4.38 CRORES ARE GIVEN AS MARGIN AGAINST BANK GUARANTEE AND LETTER OF CREDITS ISSUED BY BANKS. THUS IT IS QUITE CLEAR THAT THERE ARE NO SURPLUS FUNDS WHICH THE COMPANY COULD HAVE DISTRIBUTED AS DIVIDEND. E) SHRI SANJAY PATEL IS HAVING 89.52% OF THE SHAREHOLDING. THE CURRENT YEARS PROF IT AFTER TAXES IS RS. 6.47 CROR ES. THEREFORE, HYPOTHETICALLY SPEAKING, DIVIDEND TO SHRI SANJAY PATEL SHOULD HAVE BEEN 5.82 CRO RES. INSTEAD SHRI SANJAY PATEL HAS RECEIVED COMMISSION OF RS. 1,82,42,65/ - . LIKEWISE MS. ANITA PATEL IS A SHAREHOLDER OF 10.13% BY WHICH RATIO SHE SHOULD HAVE RECEIVED A DIVIDEND OF RS. 60 LACS, INSTEAD SHE HAS RECEIVED A COMMISSION OF RS. 45,60,664/ - . THU S, IT IS SEEN THAT THE COMMISSION RECEIVED BY THE DIRECTORS IS NOT IN LIEU OF DIVIDEND. THIS VIEW IS SUPPORTED BY THE DELHI HIGH COURT IN CASE OF CAREER LAUNCHER INDIA LTD. CITED SUPRA. F) THE DECISION OF THE SPECIAL BENCH IN THE CASE OF DALAL BROACHA STOCK B ROKING PVT. LTD., APART FROM BEING A DECISION OF FACTS, IS SUPERSEDED BY THE DECISIONS OF THE DELHI HIGH COURT, CITED SUPRA IN CASE OF AMD METPLAST PVT. LTD. AND CAREER LAUNCHER INDIA PVT. LTD. IN GODAVARI DEVI SARAF 113 ITR 589, THE BOMBAY HIGH COURT PIT HILY OBSERVED THAT THE TRIBUNAL, BEING AN ALL INDIA BODY HAD TO FOLLOW THE LAW LAID DOWN BY THE HIGH COURT OF ANY STATE. A NON - JURISDICTIONAL HIGH COURT JUDGMENT WAS ALSO BINDING ON THE TRIBUNAL. THIS PRINCIPLE WAS FOLLOWED BY THE TRIBUNAL IN TEJ 6 ITA NO. 2901 / MUM/2017 ASSESSMENT YEAR: 2012 - 13 INTERNAT IONAL 69 TTJ (DEL) 650, AURANGABAD HOLIDAY RESORTS 118 ITD 1 (PUNE) AND WAS ALSO ECHOED BY THE SPECIAL BENCH IN RISHI ROOP CHEMICAL 36 ITD 35 (DELHI). IN ALL THESE, NON - JURISDICTIONAL HIGH COURT JUDGMENTS WERE FOLLOWED IN PREFERENCE TO SPECIAL BENCH JUDGME NT. RESPECTFULLY FOLLOWING THE ABOVE DECISION AND WITH A VIEW TO MAINTAIN JUDICIAL CONSISTENCY, ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITION/DISALLOWANCE OF RS. 77,45,443/ - MADE U/S 36(1)(II), OF THE INCOME TAX. 7. WE NOTICE THAT THE LD. CIT(A) HAS DECIDED THE ISSUE INVOLVED IN THE PRESENT APPEAL IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE DECISION OF HIS PREDECESSOR IN THE ASSESSEES OWN CASE FOR THE A.Y. 2010 - 11. FURTHER, AS POINTED OUT BY THE LD. COUNSEL FOR THE ASSESSEE, THE COORDINATE BENCH HAS UPHELD THE FINDINGS OF THE LD. CIT (A) IN THE ASSESSEES APPEAL ITA NO. 6122/MUM/2014 PERTAINING TO THE A.Y. 2010 - 11. THE CONCLUDING PARA OF THE DECISION OF THE COORDINATE BENCH READS AS UNDER: - WE HAVE SEEN THAT THE LD. CIT (A) EXAMINED THE ROLES OF DIRECTOR, THE BALANCE - SHEET OF THE ASSESSEE - COMPANY, SHARE HOLDING OF DIRECTOR AND THE AMOUNT OF COMMISSION PAID TO ITS DIRECTORS AND THE PAST HISTORY OF THE ASSESSEE COMPANY AND GRANTED THE RELIEF TO THE ASSESSEE. THUS, IN VIEW OF ABOVE DISCUSSED FACTU AL AND LEGAL POSITION, WE DO NOT FIND ANY INFIRMITY OR ILLEGALITY IN THE ORDER IN THE ORDER PASSED BY THE LD. CIT (A). 8. SINCE, THE FINDINGS OF THE LD.CIT (A) ARE IN ACCORDANCE WITH THE DECISION OF THE COORDINATE BENCH RENDERED IN THE ASSESSEES OWN C ASE FOR THE ASSESSMENT YEAR 2010 - 11 AND SINCE THE FACTS AND ISSUES INVOLVED IN THE PRESENT CASE ARE IDENTICAL TO THE FACTS AND THE ISSUES INVOLVED IN THE ASSESSEES CASE PERTAINING TO THE ASSESSMENT YEAR 2010 - 11, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT (A). WE ACCORDINGLY UPHOLD THE 7 ITA NO. 2901 / MUM/2017 ASSESSMENT YEAR: 2012 - 13 DECISION OF THE LD. CIT (A) AND DISMISS THE SOLE GROUND OF APPEAL OF THE REVENUE. IN THE RESULT, APPEAL FILED BY THE REVENUE FOR A SSESSMENT YEAR 2012 - 20 13 IS DISMISSED. ORDER PRONOUNC ED IN THE OPEN COURT ON 20TH NOVEMBER , 2018 . SD/ - SD/ - ( B.R. BASKARAN ) ( RAM LAL NEGI ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; D ATED: 20 / 11 / 201 8 ALINDRA, PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / C IT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI