ACIT, New Delhi V. M/s KL Steels Private Limited, New Delhi

ITA 3785/DEL/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2166 (ITAT-DELHI)
• Duration Of Justice: 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 16-12-2009
• Assessment Year: 2006-2007
• Appeal Filed On: 07-09-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANUSHA KHURANA
• Keywords: Depreciation; Salary income; Non-deduction of tax; TDS
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D : NEW DELHI BEFORE SHRI RAJPAL YADAV, JM AND SHRI R.C.SHARMA, A M ITA NOS.2733/DEL/2009 & 3785/DEL/2009 ASSESSMENT YEARS : 2005-06 & 2006-07 DY.COMMISSIONER OF INCOME TAX, CIRCLE-5(1), NEW DELHI. VS. M/S K.L.STEELS PVT.LTD., Z-18, NARAINA, NEW DELHI 110 028. PAN NO.AAACK0237C. (APPELLANT) (RESPONDENT) APPELLANT BY : MS.ANUSHA KHURANA, SR.DR. RESPONDENT BY : SHRI ASHWANI KUMAR, CA. ORDER PER R.C.SHARMA, AM : THESE ARE THE APPEALS FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) DATED 27.3.2009 FOR THE AY 2005-06 & 2006-07. 2. FIRST COMMON ISSUE IN BOTH THE YEARS PERTAINS TO DELETING DISALLOWANCE OF COMMISSION PAID TO THE MANAGING DIRECTOR. 3. FACTS IN BRIEF ARE THAT COMMISSION OF RS.41,98,0 00/- WAS CLAIMED AS PAID TO SHRI RAJ KUMAR BARDEJA, MANAGING DIRECTOR OF THE CO MPANY DURING AY 2005-06 WHICH WAS DISALLOWED BY THE AO MAINLY ON THE FOLLOW ING GROUNDS:- (A) THE INCOME TAX RETURN OF SHRI RAJ KUMAR BARDEJA FOR AY 2005-06 MENTIONS INCOME FROM SALARY OF RS.45,69,053/- AND I N THE COMPUTATION OF INCOME OF SHRI RAJ KUMAR BARDEJA IN THE DETAILS OF TDS DED UCTED IT IS MENTIONED THAT RS.15,09,396/- HAS BEEN DEDUCTED BY M/S K.L.STEEL ( P) LTD. ON SALARY. HOWEVER COMMISSION INCOME FROM THE ASSESSEE COMPANY IS NOT SHOWN IN THE SAID RETURN. ITA-2733 & 3785/D/2009 2 (B) COMMISSION OF RS.36,28,000/- FOR THE F.Y. 2003- 04 WAS PAID IN FY 2004- 05. SALARY, COMMISSION ALONGWITH PERQUISITES AGGRE GATES TO RS.45,89,053/- ON WHICH TAX HAS BEEN DEDUCTED AT SOURCE UNDER THE HEA D SALARY OF RS.15,09,396/-. AS PER SECTION 40(IA) OF THE IT ACT, ANY COMMISSION OR BROKERAGE FOR CARRYING OUT OF ANY WORK ON WHICH TAX IS DEDUCTIBLE HAS NOT BEEN PA ID DURING THE PREVIOUS YEAR OR SUBSEQUENT YEAR BEFORE THE EXPIRY OF TIME PRESCRIBE D U/S 200(1), THE AMOUNT SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME FROM PROFIT AND GAINS OF BUSINESS OR PROFESSION. IN CHAPTER XVII-B IN SECTION 194H, IT IS CLEARLY MENTIONED THAT TDS @ 10% IS TO BE DEDUCTED AT THE TIME OF CREDIT OF AN Y INCOME OF COMMISSION OR BROKERAGE OR AT THE TIME OF PAYMENT OF SUCH INCOME WHICHEVER IS EARLIER. IN THE INSTANT CASE OF THE ASSESSEE, AMOUNT OF RS.41,98,00 0/- HAS BEEN SHOWN AS PAYABLE TO THE MANAGING DIRECTOR BUT NO TDS HAS BEEN MADE O N THIS AMOUNT. (C) THE ASSESSEE HAS FAILED TO SUBSTANTIATE THE SER VICES RENDERED BY THE MANAGING DIRECTOR FOR EARNING SUCH COMMISSION. IN FACT THE SERVICES RENDERED WERE ONLY IN THE NATURE OF GENERAL MANAGEMENT OF AF FAIRS OF THE COMPANY FOR WHICH SALARY HAS ALREADY BEEN PAID TO THE MANAGING DIRECTOR. ACCORDING TO THE AO, IT APPEARS TO BE AN ARRANGEMENT JUST TO AVOID T HE RESTRICTION OF MAXIMUM PERMISSIBLE REMUNERATION AS PER SCHEDULE XIII, PART -II, SECTION-II, SUB-SECTION (1)(B) OF THE COMPANIES ACT WHICH SAY THAT THE MONT HLY REMUNERATION PAYABLE TO A DIRECTOR SHALL NOT EXCEED RS.2,50,000/- I.E. RS.30 LAKHS PER ANNUM WHERE THE EFFECTIVE CAPITAL OF THE COMPANY IS RS.5 CRORES OR MORE BUT LESS THAN RS.25 CRORES WHICH APPLIES IN THE CASE OF THE ASSESSEE. 4. BY THE IMPUGNED ORDER, CIT(A) DELETED THE DISALL OWANCE BY OBSERVING THAT PROVISIONS OF SECTION 40(IA) IS NOT APPLICABLE INSO FAR AS COMMISSION PAID TO THE MD IS LIABLE TO BE TAXED UNDER THE HEAD SALARY. HE ALSO RECORDED A FINDING TO THE EFFECT THAT SHRI BARDEJA HAS RENDERED SERVICES WHO WAS HAVING EXPERIENCE OF TWO DECADES OF WORKING IN THE COMPANY. APART FROM ACTI NG AS MANAGING DIRECTOR, HE LOOKS AFTER THE DAY TO DAY AFFAIRS OF THE COMPANY I NCLUDING ADMINISTRATION, ITA-2733 & 3785/D/2009 3 ACCOUNTS, PURCHASE AND PRODUCTION ACTIVITIES AT FAC TORY, PROVIDES BROAD DIRECTIONS AND POLICY FRAMEWORK TO THE ACTIVITIES OF THE COMPA NY. 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND GON E THROUGH THE ORDERS OF THE AUTHORITIES BELOW. FROM THE RECORD, WE FOUND T HAT SHRI BARDEJA, MD OF THE COMPANY WAS DRAWING SALARY AND COMMISSION FOR THE S ERVICES RENDERED AS MD, LOOKING AFTER DAY TO DAY AFFAIRS OF THE COMPANY INC LUDING ADMINISTRATION, ACCOUNTS, PURCHASE AND PRODUCTION ACTIVITIES, POLICY MATTERS OF THE COMPANY ETC. HE WAS HAVING EXPERIENCE OF TWO DECADES FOR RENDERING SUCH SERVICES. THE AO HAS ALSO MADE THE BASIS OF NON-DEDUCTION OF TAX U/S 40(IA) T HEREON, WHILE CREDITING SUCH INCOME IN MDS ACCOUNT. AS PER OUR CONSIDERED VIEW , THE EXPRESSION COMMISSION OR BROKERAGE WHICH HAS BEEN DEFINED IN EXPLANATION-1 BELOW SECTION 40(IA) COVERS THE COMMISSION PAID FOR RENDE RING OF SERVICES ON BEHALF OF ANOTHER PERSON OR IN RELATION TO THE RENDERING OF S ERVICES IN THE COURSE OF BUYING OR SELLING OF GOODS. IN THE INSTANT CASE, THE AMOUNT PAID TO SHRI BARDEJA, MD OF THE COMPANY, TOWARDS COMMISSION DOES NOT FALL WITHIN TH E AMBIT OF THIS EXPLANATION-1 BECAUSE HE WAS NOT ACTING ON BEHALF OF OTHERS BUT H AS RENDERED SERVICES TO THE ASSESSEE COMPANY ON HIS OWN BEHALF. THE SAID PAYME NT WAS ALSO NOT FOR ANY SERVICES RENDERED IN THE COURSE OF BUYING OR SELLIN G OF GOODS OR IN RELATION TO ANY TRANSACTION RELATING TO ANY ASSETS, VALUABLES, ARTI CLE OR THING. SHRI BARDEJA HAD ALSO INCLUDED THE INCOME IN ITS TAXABLE RETURN ON ITS RE CEIPT. THE DETAILED FINDING RECORDED BY THE CIT(A) AT PARA 2 HAS NOT BEEN CONTR OVERTED BY THE LEARNED DR. WE THEREFORE DO NOT FIND ANY REASON TO INTERFERE WI TH THE SAME. IN THE RESULT, THIS GROUND OF REVENUE IN BOTH THE YEARS ARE DISMISSED. 6. NEXT COMMON GROUND IN BOTH THE YEARS RELATES TO DELETING DISALLOWANCE OF DEPRECIATION IN RESPECT OF MERCEDES CAR. ITA-2733 & 3785/D/2009 4 7. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. WITH REGARD TO DISALLOWANCE OF CLAIM OF DEPRECIATION ON MERCEDES B ENZ CAR, THE OBJECTION OF THE AO WAS AS UNDER:- (A) THERE IS NO PROPER INVOICE FOR THE PURCHASE OF THE SAID CAR, (B) NO REGISTRATION WAS MADE EVER IN THE NAME OF TH E APPELLANT COMPANY OF THE SAID CAR; (C) THE EVIDENCE OF SALE ALSO COULD NOT BE SUBSTANT IATED AS NO ADDRESS OF M/S CIVTECH ENGINEERS PVT.LTD. HAS BEEN GIVEN IN THE DELIVERY RECEIPTS TO WHOM THE CLAIM OF SUBSEQUENT S ALE WAS MADE. (D) EVEN THE SAID COMPANY I.E. M/S CIVTECH ENGINEER S PVT.LTD. HAS RECEIVED THE VEHICLE FROM KALAMANDIR AND NOT FR OM THE APPELLANT COMPANY. (E) THIS DELIVERY RECEIPT DOES NOT BEAR ANY DATE. (F) THE PAYMENT OF LOAN OF ICICI BANK STATES ONLY T HE PAYMENT TO VEHICLE LOAN A/C IN RESPECT OF MERCEDES BENZ CAR WHEREAS FOR FINANCING ANOTHER CAR OF THE APPELLANT WHICH IS HON DA CITY CAR THE AMOUNT WAS PAID DIRECTLY TO CAPITAL CAR PVT.LTD., T HE DEALER OF THE CAR WHICH IS REFLECTED IN THE BANK STATEMENT. NO S UCH DIRECT PAYMENT TO ANY PARTY HAD BEEN SHOWN FOR THIS CAR. (G) THE ASSESSEE HAS BEEN CHANGING THE STATEMENT FR EQUENTLY AND ON 28.12.2007, IT WAS CLAIMED THAT THE PAYMENT HAS BEEN MADE TO M/S TAIPAN TRADERS, LUDHIANA. (H) NO SATISFACTORY EVIDENCE COULD BE PRODUCED FOR USE OF THE SAID CAR IN THE BUSINESS. (I) IDENTITY OF M/S KALAMANDIR FROM WHOM THE PURCHA SE WAS MADE COULD NOT BE SUBSTANTIATED IN THE LIGHT OF ITI ENQUIRY. 8. BY THE IMPUGNED ORDER, CIT(A) DELETED DISALLOWAN CE OF DEPRECIATION BY RECORDING DETAILED FINDING NOT ONLY WITH REGARD TO OWNERSHIP OF THE CAR WITH THE ASSESSEE, SOURCE FROM WHICH THE COST OF THE CAR WAS MADE I.E. LOAN FROM ICICI BANK, USE OF CAR IN THE BUSINESS AND IDENTITY OF M/ S KALAMANDIR FROM WHOM THE PURCHASE WAS MADE. 9. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND GON E THROUGH THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE REMAND REPORT CALLED BY CIT(A) WITH REGARD TO OWNERSHIP OF THE CAR, LOAN RAISED FROM ICICI BANK, PAYMENT MADE FOR ACQUISITION ITA-2733 & 3785/D/2009 5 OF CAR TO M/S TAIPAN TRADERS FROM WHOM THE CAR WAS PURCHASED. DETAILED FINDING RECORDED BY THE CIT(A) WITH REGARD TO OWNERSHIP, US E OF CAR FOR THE PURPOSE OF BUSINESS HAS NOT BEEN DISPUTED. EVEN THE REMAND RE PORT SENT BY THE AO SUPPORTS THE CONCLUSION OF THE CIT(A). ALL THE CONDITIONS O F SECTION 32 WITH REGARD TO ALLOWING CLAIM OF DEPRECIATION WAS SATISFIED, WE TH EREFORE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A) AND THE FINDING S RECORDED BY HIM WHICH REMAIN UNCONTROVERTED BY THE LEARNED DR DURING THE COURSE OF HEARING BEFORE US. 10. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 18 TH DECEMBER, 2009. SD/- SD/- (RAJPAL YADAV) (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 18.12.2009. VK. COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT DEPUTY REGISTRAR ITA-2733 & 3785/D/2009 6