DCIT, New Delhi V. M/s Micron Instuments Pvt. Ltd., New Delhi

ITA 4286/DEL/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 9824 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2006-2007
• Appeal Filed On: 05-11-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: G S SAHOTA
• Keywords: Opportunity of being heard
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E DELHI BEFORE SHRI C.L. SETHI AND SHRI K.G. BANSAL ITA NO. 4286(DEL)/2009 ASSESSMENT YEAR: 2006-07 DEPUTY COMMISSIONER OF INCOME M/S MICRON INSTRUMENTS PVT. TAX, CIRCLE 6(1), NEW DELHI. VS. LTD., 4/90, CONNAUGHT PLACE, NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI G.S. SAHOTA, SR. DR RESPONDENT BY: NONE ORDER PER K.G. BANSAL ; AM THE APPEAL OF THE REVENUE EMANATES FROM THE ORD ER OF THE CIT(APPEALS)-IX, NEW DELHI, PASSED ON 24.8.2009 IN APPEAL NO. 48/08-09, AND IT PERTAINS TO ASSESSMENT YEAR 2006-07. THE CORRESPONDING ASSESSMENT ORDER WAS FRAMED BY THE DEPUTY COMM ISSIONER OF INCOME- TAX, CIRCLE 6(1), NEW DELHI ON 25.11.2008 UND ER THE PROVISIONS OF SECTION 143(3) OF THE INCOME-TAX ACT, 1961. THE REVENUE HAS TAKEN TWO SUBSTANTIVE GROUNDS IN THE APPEAL TO THE EFFECT T HAT THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 19,66,316/-, MADE BY THE AO U/S 36(1)(II) OF THE INCOME-TAX ACT, 1961. IT IS ALSO MENTIONED THAT SHE FAILED TO ITA4286(DEL)/2009 2 APPRECIATE THAT THE COMMISSION PAID TO THE DIRECT ORS IS COVERED UNDER THE AFORESAID PROVISION AS MENTIONED IN THE TAX A UDIT REPORT. 2. THE FINDING OF THE LD. CIT(A) IN THIS MATTER IS CONTAINED IN PARAGRAPH 4.6 OF HER ORDER, IN WHICH IT IS MENT IONED THAT COMMISSION HAS BEEN PAID TO THE DIRECTORS AT DIFFERENT RATES O N DOMESTIC AND EXPORT SALES. SHRI VIKRAM SEHGAL HAD BEEN PAID COMMISSION @ 0. 5% ON DOMESTIC SALES AND 1% ON EXPORT SALES, WHILE SHRI ARJU N SEHGAL HAD BEEN PAID COMMISSION @ 0.2% ON DOMESTIC SALES AND 0.5% ON EXPORT SALES. THEREFORE, IT CANNOT BE SAID THAT THE COMMISSION S WERE OTHERWISE PAYABLE AS PROFIT OR DIVIDEND. THESE TWO PERSONS WERE THE ONLY FULL TIME WORKING DIRECTORS AND NO OTHER DIRECTOR WAS PAID ANY R EMUNERATION. IN PAST, NO DISALLOWANCE WAS MADE ON THIS GROUND FOR ASSESS MENT YEARS 2004-05 AND 2005-06. THUS, IT WAS HELD THAT THE PAY MENT HAD NO CONNECTION WITH SHARE HOLDINGS AND IT WAS NOT COVERED U/S 36(1)(II). THE CASE OF THE LD. DR WAS THAT THE AUDITORS HAD CERTIFI ED THAT THE COMMISSION WAS COVERED U/S 36(1)(II), AS MENTIONED IN THE AS SESSMENT ORDER. RELIANCE WAS ALSO PLACED ON THE DECISION OF HONBLE BOM BAY HIGH COURT IN THE CASE OF LOYAL MOTOR SERVICE CO. VS. CIT, 14 IT R 647, IN WHICH IT WAS HELD THAT THE PROFITS OF THE BUSINESS CANNOT BE ALLOWED TO BE DWINDLED ITA4286(DEL)/2009 3 BY DESCRIBING THE PAYMENTS AS BONUS OR COMMI SSION IF THEY WERE ACTUALLY IN LIEU OF DIVIDEND OR PROFIT. IT WA S FURTHER AGITATED THAT THE MATTER OUGHT TO HAVE BEEN EXAMINED WHETHER ANY SERVICE WAS RENDERED BY THE DIRECTORS, WHICH JUSTIFIED PAYMENT OF COM MISSION ON BOTH DOMESTIC AND EXPORT SALES. ONLY SUCH A FIND ING COULD HAVE LED TO THE EXCLUSION OF THE PROVISION U/S 36(1)(II) BY TAK ING THE PAYMENTS NOT IN LIEU OF DIVIDEND OR PROFIT. A NOTICE OF HEARING WAS ISSUED TO THE ASSESSEE ON 9.12.2009, TO WHICH THERE WAS NO COMPLIANCE ON ITS PART. 3. WE HAVE CONSIDERED THE FACTS OF THE CASE AN D SUBMISSIONS MADE BEFORE US. WE FIND THAT ALL THE FACTS OF THE CASE HAVE NOT BEEN TAKEN INTO ACCOUNT BEFORE COMING TO THE CONCLUSION THAT TH E IMPUGNED COMMISSION PAID TO TWO DIRECTORS WAS DEDUCTIBLE IN FULL I N COMPUTING THE TOTAL INCOME. SUCH A CONCLUSION REQUIRES THE CONSIDE RATION OF SHARE-HOLDINGS OF THE DIRECTORS AND THE SERVICES RENDERED BY TH EM IN PROMOTING SALES OF THE ASSESSEE COMPANY. NONE OF THESE MATTERS HA VE BEEN LOOKED INTO BY THE LD. CIT(APPEALS). IN THESE CIRCUMSTANCES, W E THINK IT FIT TO RESTORE THE MATTER TO THE FILE OF THE AO FOR RE-CONSIDE RATION OF THE WHOLE MATTER AND DECIDING THIS ISSUE AS PER LAW AFTER GIV ING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. NEEDLESS TO SAY THAT BOTH THE PARTIES WILL BE ITA4286(DEL)/2009 4 AT LIBERTY TO BRING THE EVIDENCE, AS THOUGHT FIT , ON RECORD IN THE DE-NOVO PROCEEDINGS BEFORE THE AO. 4. IN THE RESULT, THE APPEAL IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. THE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 8 JANUARY, 2010. SD/- SD/- (C.L. SETHI) (K.G.BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER: 8TH JANUARY, 2010. SP SATIA COPY OF THE ORDER FORWARDED TO:- 1. M/S MICRON INSTRUMENTS PVT. LTD., NEW DELHI. 2. DY. CIT, CIRCLE 6(1), NEW DELHI. 3. CIT 4. CIT(A), NEW DELHI. 5. THE DR, ITAT, NEW DELHI. ASSISTANT REGISTRAR.