M/s. Acides Solutions Pvt. Ltd., Noida V. ITO, New Delhi

ITA 3133/DEL/2010

• Counselvise Citation: 313320114 RSA 2010
• Duration Of Justice: 4 year(s) 8 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 04-03-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 24-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y KAKKAR SENIOR
• Assessee Lawyers: SANJEEV SAPRA
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH A : NEW DELHI) BEFORE SHRI G.C. GUPTA, VICE PRESIDENT AND SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.3133/DEL./2010 (ASSESSMENT YEAR : 2007-08) M/S. ACIDAES SOLUTIONS PVT. LTD., VS. ITO, WARD 1 (2), C 5, SECTOR 39, NEW DELHI. NOIDA (UTTAR PRADESH). (PAN : AADCA1855F) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SANJEEV SAPRA, CA REVENUE BY : MS. Y. KAKKAR, SENIOR DR DATE OF HEARING : 04.03.2015 DATE OF PRONOUNCEMENT : 11.03.2015 ORDER PER B.C. MEENA, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE ASSESSEE EMANATES FROM THE ORDER OF CIT (APPEALS)-IV, NEW DELHI DATED 10.05.2010 FOR THE AS SESSMENT YEAR 2007- 08. 2. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PROVIDING SERVICES IN THE FIELD OF INFORMATION TECHNOLOGY, SO FTWARE SOLUTIONS AND PRODUCTS. 3. THE ASSESSEE RAISED FOUR GROUNDS OF APPEAL AND T HE ITAT, BENCH A PASSED AN ORDER ON 06.05.2011 WHEREIN ONLY GROUND N O.3 WAS DISPOSED OFF. THE GROUND NO.4 WAS GENERAL, HENCE, NO SPECIFIC ADJ UDICATION WAS REQUIRED. ITA NO.3133/DEL./2013 2 ON THE MISC. APPLICATION NO.203/DEL/2011, THE ITAT ALLOWED THE MISC. APPLICATION AND ORDER TO FIX FOR FRESH HEARING ON G ROUND NOS.1 & 2 WHICH READ AS UNDER :- 1. THAT THE AUTHORITIES BELOW HAD ERRED IN LAW AN D ON FACTS OF THE CASE IN DISALLOWING RS.4,50,000/- PAID BY THE APPELLANT CO. TO ITS WHOLE TIME DIRECTOR AS PER THE TERMS OF THE EMPLOYMENT BY INVOKING SECTION 36(1)(II) OF THE I.T. ACT. 2. THAT WITHOUT PREJUDICE TO GROUND NO.1 ABOVE, THE DISALLOWANCE AS MADE IS VERY EXCESSIVE. THE ONLY ISSUE INVOLVED IN THESE GROUNDS IS WITH RE GARD TO THE DISALLOWANCE OF RS.4,50,000/- PAID BY THE ASSESSEE COMPANY TO IT S WHOLE TIME DIRECTOR AS PER THE TERMS OF EMPLOYMENT BY INVOKING SECTION 36(1)(II) OF THE ACT. 4. WHILE PLEADING ON BEHALF OF THE ASSESSEE LD. AR SUBMITTED THAT THE ASSESSING OFFICER HELD THAT BONUS PAID TO DIRECTOR, SHRI NISHANT SINGH CANNOT BE ALLOWED IN TERMS OF SECTION 36(1)(II) OF THE ACT. LD. AR SUBMITTED THAT THE CIT (A) HAS CONFIRMED THE ADDITI ON MERELY SAYING THAT INCOME-TAX ACT, 1961 IS CLEAR ON THE ISSUE AS OBSER VED BY THE ASSESSING OFFICER. LD. AR SUBMITTED A COMPARATIVE CHART, PLA CED AT PAGE 6 OF THE PAPER BOOK, WHICH CLEARLY SHOWS THAT SUCH PAYMENT O F BONUS HAS BEEN ALLOWED IN THE PRECEDING YEARS BY THE ASSESSING OFF ICER BY FRAMING THE ORDERS U/S 143 (3) OF THE ACT. LD. AR SUBMITTED TH AT SHRI NISHANT SINGH WAS APPOINTED CHIEF EXECUTIVE OFFICER (CEO) VIDE LE TTER DATED 03.04.2006 AND THE DETAILS OF SALARY TO BE PAID WERE ALSO MENT IONED IN THIS LETTER. THERE WAS EMPLOYER EMPLOYEE RELATIONSHIP BETWEEN THE COMPANY AND ITA NO.3133/DEL./2013 3 WHOLE TIME DIRECTOR. THE POSITION OF SHRI NISHANT SINGH AS A WHOLE TIME DIRECTOR HAS BEEN FULLY ACCEPTED BY THE DEPARTMENT AS SALARY PAID BY THE COMPANY IS BEING ALLOWED AS DEDUCTIBLE EXPENDITURE IN THE HANDS OF THE COMPANY. THE DETAILS OF SERVICES RENDERED BY SHRI NISHANT SINGH WAS ALSO PROVIDED WHICH CLEARLY DEMONSTRATE THAT BONUS WAS S TRUCTURED TO BE PAID TO THE EMPLOYEE DIRECTOR FOR THE REWARD OF WORK DONE A ND IT WAS NOWHERE RELATED TO SHAREHOLDING OF THE DIRECTOR IN THE COMP ANY. SHRI NISHANT SINGH TO WHOM THIS BONUS WAS PAID WAS REGULARLY ASSESSED TO TAX AND PAID TAXES ACCORDINGLY. LD. AR ALSO SUBMITTED COPY OF THE BOAR D RESOLUTION IN THIS REGARD BEFORE THE AUTHORITIES BELOW. IT WAS ALSO S UBMITTED BEFORE US THAT SINCE SIMILAR PAYMENTS HAVE BEEN ALLOWED IN EARLIER YEARS WHEREIN ASSESSMENTS HAVE BEEN MADE U/S 143(3) OF THE ACT, T HEREFORE, SUCH EXPENDITURE IS ALLOWABLE IN THIS YEAR ALSO IN TERMS OF CONSISTENCY AS HELD BY HONBLE SUPREME COURT IN THE CASE OF RADHASOAMI SAT SANG VS. CIT 193 ITR 321. THE RELIANCE WAS ALSO PLACED ON THE DECIS ION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. ARG SECURITIES PR INTERS 264 ITR 276. LD. AR ALSO RELIED ON THE DECISION OF HONBLE JURIS DICTIONAL HIGH COURT IN THE CASE OF AMD METPLAST P. LTD. VS. DCIT 341 ITR 563 AND PLEADED THAT THIS ISSUE IS NOW COVERED BY THE DECISION OF H ONBLE JURISDICTIONAL HIGH COURT. 5. ON THE OTHER HAND, LD. DR RELIED ON THE ORDERS O F THE AUTHORITIES BELOW. ITA NO.3133/DEL./2013 4 6. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF AMD METPLA ST P. LTD., CITED SUPRA, HAS CONSIDERED THE SIMILAR ISSUE AND HELD AS UNDER :- HELD, ALLOWING THE APPEAL, THAT A WAS THE MANAGING DIRECTOR AND IN TERMS OF THE BOARD RESOLUTION WAS ENTITLED T O RECEIVE COMMISSION FOR SERVICES RENDERED TO THE COMPANY. IT WAS A TERM OF EMPLOYMENT ON THE BASIS OF WHICH HE HAD REN DERED SERVICE. ACCORDINGLY, HE WAS ENTITLED TO THE AMOUNT . COMMISSION WAS TREATED AS A PART AND PARCEL OF SALA RY AND TAX HAD BEEN DEDUCTED AT SOURCE. A WAS LIABLE TO PAY TA X ON BOTH THE SALARY COMPONENT AND THE COMMISSION. THE PAYMEN T OF DIVIDEND WAS MADE IN TERMS OF THE COMPANIES ACT, 19 56. THE DIVIDEND HAD TO BE PAID TO ALL SHAREHOLDERS EQUALLY . THIS POSITION COULD NOT BE DISPUTED BY THE REVENUE. DIVI DEND WAS A RETURN ON INVESTMENT AND NOT SALARY OR PART THERE OF. IN THE CASE OF DCIT VS. GOPSONS PAPER LTD., ITAT, C BENCH, DELHI IN ITA NO.1303(DEL)08, ORDER DATED 27.02.2009, HELD AS UNDER :- 12. HAVING HEARD THE PARTIES AND HAVING PERUSED TH E MATERIAL ON RECORD, AGAIN, WE DO NOT FIND ANY FORCE IN THE GRIEVANCE SOUGHT TO BE RAISED BY THE DEPARTMENT. AS PER THE NOTE S OF ACCOUNTS AND EVIDENCE FILED IN SUPPORT OF THE ASSESSEE'S CLAIM, THE MANAGEMENT OF THE ASSESSEE ID ENTIFIED S/SHRI SUNIL DUTT GOEL, ANIL GOEL, RATTAN LAL, NITI N GOEL, VASANT GOEL AND GAURAV GOEL AND SMT. SUMAN GOEL AS KEY MANAGEMENT PERSONNEL, BEING WHOLE-TIME DIRECTORS. O UT OF THESE PERSONS, FIVE, I.E., S/SHRI SUNIL DUTT GOEL, ANIL KUMAR GOEL, NITIN GOEL, VASANT GOEL AND GAURAV GOEL HAD B EEN PAID COMMISSION. FOR ASSESSMENT YEARS 2003-04 AND 2 004- 05, OUT OF THESE PERSONNEL, FOUR HAD BEEN PAID COMM ISSION, TOTALLING TO RS.27,81,734/- AND RS.34,04,878/-, RES PECTIVELY. THE TOTAL COMMISSION PAID FOR THE YEAR UNDER CONSID ERATION WAS RS.43,88,832/-. FOR THE PURPOSE, A BOARD RESOLU TION DATED 22.9.2004 WAS PASSED RESOLVING TO PAY 1.5% E ACH TO S/SHRI SUNIL DUTT GOEL AND ANIL KUMAR GAEL AND 1% E ACH TO S/SHRI NITIN GOEL, GAURAV GOEL AND VASANT GOEL, ON THE ASSESSEE'S PROFIT BEFORE TAX. THE COMMISSION HAD BE EN WORKED OUT IN TERMS OF SECTION 198 READ WITH SECTIO NS 349 ITA NO.3133/DEL./2013 5 AND 350 OF THE COMPANIES ACT. THE COMMISSION PAYAB LE TO THE MANAGING DIRECTOR AND OTHER DIRECTORS WAS NOT I N EXCESS OF THE AMOUNT DETERMINABLE U/S 198 READ WITH PART I I OF SCHEDULE XIII OF THE COMPANIES ACT WITH PART II OF SCHEDULE XIII OF THE COMPANIES ACT. ALL THESE FACTS WERE N OTICED BY THE LD. CIT (A). IT WAS SEEN THAT THE ASSESSEE VID E LETTER DATED 18.9.2007, BROUGHT ON RECORD BEFORE THE AO, AMENDED COPY OF THE REPORT IN FORM 3 CD WHICH SUSPENDED THE ONE WHICH WAS CONSIDERED BY THE AO. AS PER THIS REPORT, THE AUDITORS NOTED THAT THE AMOUNTS, INTER ALIA, OF COMMISSION P AID TO THE MANAGING DIRECTOR AND OTHER DIRECTORS, WERE NOT IN THE NATURE OF PROFIT OR DIVIDEND. THIS REPORT WAS WRON GLY IGNORED BY THE AO, WITHOUT RECORDING ANY REASON THEREFOR. IT WAS ON CONSIDERATION OF THIS, THAT SECTION 36(1)(II) WAS H ELD IN NOT APPLICABLE. THIS ORDER OF ITAT HAS BEEN UPHELD BY HONBLE DELHI HIGH COURT. THUS, ASSESSEES CASE IS ALSO COVERED BY THE RULE OF CONS ISTENCY. SHRI NISHANT SINGH, CEO OF THE ASSESSEE COMPANY WAS A SALARIED P ERSON OF THE COMPANY AND THERE IS A BOARD RESOLUTION WITH REGARD TO THE PAYMENT OF BONUS AS PER THE TERMS OF EMPLOYMENT, THEREFORE, IN OUR CONSIDER ED VIEW, THIS ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE AFO REMENTIONED DECISION OF HONBLE JURISDICTIONAL HIGH COURT. THEREFORE, WE A LLOW THESE GROUNDS OF ASSESSEES APPEAL. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 11 TH DAY OF MARCH, 2015. SD/- SD/- (G.C. GUPTA) (B.C. MEENA) VICE PRESIDENT ACCOUNTANT MEMBER DATED THE 11 TH DAY OF MARCH, 2015 TS ITA NO.3133/DEL./2013 6 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-IV, NEW DELHI 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.