Anand Petrochem Pvt. Ltd., Ahmedabad V. The Dy.CIT, Circle-1, Ahmedabad

ITA 2931/AHD/2014

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8581 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-04-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 05-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Assessee Lawyers: C N SHAH
• Keywords: Business expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH BEFORE: SHR I MAHAVIR PRASAD , JUDICIAL MEMBER AND SHRI MANISH BORAD , ACCOUNTANT MEMBER ANAND PETROCHEM PVT. LTD. AHMEDABAD - 14 PAN: AADCA7659K (APPELLANT) VS THE DCIT, CIRCLE - 1, AHMEDABAD (RESPONDENT) REVENUE BY : S H RI V.K. SINGH , SR. D . R. ASSESSEE BY: S H RI C.N . SHAH, A .R. DATE OF HEARING : 05 - 04 - 2 018 DATE OF PRONOUNCEMENT : 09 - 04 - 2 018 / ORDER P ER : MANISH BORAD , ACCOUNTANT MEMBER : - THIS ASSESSEE S APPEAL PERTAINING TO ASSESSMENT YEAR 2010 - 11 IS DIRECTED AGAINST THE ORDER OF CIT(A) - 6 , AHMEDABAD DATED 3 RD SEP, 2014 WHICH ARIS ES OUT OF THE ORDER U/S. 143(3) OF THE INCOME TAX A CT ( HEREINAFTER REFERRED TO AS THE ACT ) FRAMED ON 22 - 03 - 2013 BY DCIT, CIRCLE - I, AHMEDABAD. 2. ASSESSEE HAS RAIS ED VARIO US GROUNDS OF APPEAL WHICH ARE DESCRIPTIVE AND ARGUMENTATIVE IN NATURE. HOWEVER, THE SOLE I T A NO . 2931/AHD/2014 A SSESSMENT YEAR 20 10 - 11 I.T.A NO. 2931/AHD/ 2014 A.Y. 2010 - 11 PAGE NO ANAND PETROCHEM PVT. LTD. VS. DCIT 2 GRIEVANCE IS AGAINST THE ADDITION TOWARDS DISALLOWANCE OF COMMISSION EXPENSES OF RS. 10 ,02, 482/ - CONFIRMED BY LD. CIT(A). 3 . BRIEF FACT RELATING TO THE ISSUE IS THAT THE ASSESSEE DEBITED RS. 15 , 48 , 164/ - AS A COMMISSION EXPENDITURE OUT OF WHICH RS. 10,02,482/ - WAS PAID TO THE DIRECTOR S . IT WAS CONTENDED BEFORE BOTH THE LO WER AUTHORITIES BY THE ASSESSEE THAT THE COMMISSION PAYMENT WAS IN ADDITION TO THE R EMUNERATIO N PAID TO DIRECTORS AND THE SAME NEEDS TO BE ALLOWED AND FURTHER IT WAS BASED ON THE BOARD RESOLUTION AND THERE IS NO MAJOR INCREASE IN COMMISSION EXPENDITURE IN TERMS OF PERCENTAGE OF THE TURNOVER IF COMPARED TO THE PRECEDING YEARS. LD. COUNSEL ALSO SUBMI TTED THAT T HE ISSUE IS SQUARELY COVERED IN FAVO U R OF THE ASSESSEE BY THE DECISION OF CO - ORDINATE BENCH IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2012 - 13 VIDE ITA NO. 1002/AHD/2016 DATED 23 - 02 - 2018 WHEREIN THE ALLEGED COMMISSION PAID TO DIRECTORS WAS HELD TO BE JUSTIFIED AND THE IMPUGNED DISALLOWANCE WAS DELETED. 4. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY ARGUED SUPPORTING THE ORDERS OF BOTH THE LOWER AUTHORITIES. 5 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS PLACED BEFORE US. THE SOLE GRIEVANCE OF THE ASSESSEE IN THIS APPEAL REVOLVES AROUND THE ISSUE OF DISALLOWANCE OF COMMISSION/REMUNERATION PAID TO THE DIRECTORS TO THE TUNE OF RS. 10 , 02 , 482/ - . THE LD. CIT(A) CONFIRMED THE DISALLOWANCE ON THE BASIS OF A FINDING T HAT THE ASSESSE FAILED TO DEMONSTRATE BEFORE THE I.T.A NO. 2931/AHD/ 2014 A.Y. 2010 - 11 PAGE NO ANAND PETROCHEM PVT. LTD. VS. DCIT 3 ASSESSING OFFICER THAT T HE PAYMENT OF COMMISSION TO THE DIRECTORS WAS WITH REFERENCE TO RENDERING OF ANY SPECIFIC SERVICES. 6. IT IS OBSERVED THAT THE ALLEGED COMMISSION PAID TO DIRECTORS AT RS. 10 , 02 , 48 2/ - WAS IN FACT FORMING PART OF OVERALL REMUNERATION PACKAGE AN D THE QUANTUM OF THE SAME WAS DECIDED IN THE BOARD S MEETING AND THE CERTIFIED COPY OF BOARD S RESOLUTION HAS BEEN PLACED BEFORE THE LOWE R AUTHORITIES. IT IS ALSO NOT THE CASE OF THE REVENUE THAT THERE IS AN EXCEPTIONAL INCREASE IN THE COMMISSION EXPENDITURE FOR THE YEAR UNDER APPEAL WHICH COULD HAVE SUPPORTED THE VIEW OF ASSESSING OFFICER TO SOME EXTENT. 7. WE FIND THAT THERE IS A MEAGER INCREASE OF AROUND 0.08% IN THE OVERALL COMMISSION EXPENDITURE. WE ALSO FIND THAT THIS VERY ISSUE OF THE JUSTIFICATION /GENUINENESS OF THE COMMISSION /REMUNERATION PAID TO THE DIRECTORS CAME UP BEFORE THE CO - ORDINATE BENCH IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2012 - 13 IN ITA NO. 1 002/AHD/2016 WHERE IT WAS HELD IN FAVOUR OF ASSESSEE DESERVED AS FOLLOWS: - 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. THE SHORT ISSUE INVOLVED IN THE PRESENT APPEAL IS WHETHER THE DISALLOWANCE OF COMMISSION PAYMENT TO DIRECTORS WHO ARE ALSO SHAREHOLDERS OF THE COM PANY IS JUSTIFIED IN THE BACKDROP OF SECTION 36(1)(II) OF THE ACT. WE STRAIGHTAWAY FIND THAT THE DIRECTORS HAVE BEEN PAID FIXED SALARY AS WELL AS COMMISSION RELATABLE TO THE PROFITS EARNED. THE JUSTIFICATION FOR SALARY PAYMENT HAS NOT BEEN DISPUTED BY TH E REVENUE. THUS, THE FACT OF RENDERING SERVICES BY THESE DIRECTORS AS EMPLOYEES CANNOT BE DENIED ON A WHOLESOME BASIS. THE LIMITED ASPECT THEREFORE REMAINS IS WHETHER ADDITIONAL COMMISSION OVER AND ABOVE SALARY PAYMENT IS JUSTIFIED OR NOT. THE A SSESSEE AS A BUSINESS ORGANIZATION HAS SHOWN BOARD RESOLUTION REFLECTING THE WISDOM OF THE BOARD FOR SUCH COMMISSION PAYMENT. THE INCREASE IN TURNOVER, COMMENSURATE INCREASE IN PURCHASES AND INCREASE IN PROFITABILITY OF THE COMPANY IMPLIEDLY JUSTIFIES THE EXTRA EFFORTS OF THE I.T.A NO. 2931/AHD/ 2014 A.Y. 2010 - 11 PAGE NO ANAND PETROCHEM PVT. LTD. VS. DCIT 4 DIRECTORS IN THIS DIRECTION. MERELY BECAUSE THE DIRECTORS ALSO HAPPENS TO BE SHAREHOLDERS OF THE COMPANY CANNOT RAISE ESTOPPELS FOR PAYMENT OF COMMISSION FOR DISCHARGE OF PROFITABLE SERVICES. COUPLED WITH THIS, WE ALSO NOTE THAT THE COMMISSION PAYMENT IS NOT FOUND TO HAVE ANY NEXUS TO THE PROPORTIONATE SHAREHOLDING OF THE RESPECTIVE DIRECTORS. THUS, THE COMMISSION PAYMENT IS NOT COMMENSURATE WITH THE RESPECTIVE SHAREHOLDING OF DIRECTORS. WE ALSO FIND MERIT IN THE CLAIM OF THE ASS ESSEE HAVING REGARD TO THE SUBSTANTIAL WORKING SHOWN IN THE COMPANY AS PER ITS FINANCIAL STATEMENT. NOTWITHSTANDING AFORESAID, EXTRA SERVICES IS NOT ALWAYS NECESSARY TO JUSTIFY PAYMENT OF COMMISSION TO EMPLOYEE AS HELD BY THE HON BLE SUPREME COURT IN THE CASE OF SHAHZADA NAND & SONS(SUPRA). THEREFORE, WEIGHING THE ISSUE FROM ANY ANGLE, WE FIND LITTLE MERIT IN THE ACTION OF THE REVENUE FOR SUCH DISALLOWANCE. THEREFORE, THE DISALLOWANCE OF COMMISSION OF RS.9,84,530/ - REQUIRES TO BE REVERSED AND DELETED. 8. WE FIND THAT ISSUE DEALT WITH BY THE T RIBUNAL IS A VERY SAME AS THE ONE BEFORE US IN THIS APPEAL AND LD. DEPARTMENTAL REPRESENTATIVE FAILED TO BRING ANY C ONTRARY FACT TO THE SAME . WE THEREFORE RESPECTFULLY FOLLOWING THE DECISION OF THE CO - ORDINATE BENC H S DECISION AS REFERRED ABOVE AS WELL AS IN THE GIVEN FACTS AND CIRCUMSTANCES ARE OF THE VIEW THAT THE EXPENDITURE OF RS. 10 , 02 , 482/ - WAS A GENUINE BUSINESS EXPENDITURE PAID TO THE DIRECTORS AS PART OF THE REMUNERATION FOR THE SERVICES PROVIDED BY THEM TO THE COMPANY AND , THEREFORE, THE IMPUGNED DISALLOWANCE NEED S TO BE DELETED. 9 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 09 - 04 - 201 8 SD/ - SD/ - ( MAHAVIR PRASAD ) ( MANISH BORAD ) JUDICIAL MEMBER ACCOUNTANT MEMBER I.T.A NO. 2931/AHD/ 2014 A.Y. 2010 - 11 PAGE NO ANAND PETROCHEM PVT. LTD. VS. DCIT 5 AHMEDABAD : DATED 09 /04 /2018 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,