ACIT, New Delhi V. M/s. Convertech Equipment Pvt. Ltd, New Delhi

ITA 4734/DEL/2009

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7102 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 1 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 14-12-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 15-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: V K GARG
• Keywords: Business income; Depreciation
• Section: 143(3); 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND MS. SUCHITRA KAMBLE : JUDICIAL MEMBER ITA NO. 4734/DEL/2009 ASSTT. YR: 2006-07 ACIT, CIRCLE 3(1), VS. M/S CONVERTECH EQUIPMENT PVT. LTD., NEW DELHI. F-90/6, OKHLA INDL. AREA, PHASE-I, NEW DELHI. PAN: AAACC 0815 E AND ITA NO. 213/DEL/2010 ASSTT. YR: 2006-07 M/S CONVERTECH EQUIPMENT PVT. LTD., VS. ACIT, CIR CLE 3(1), F-90/6, OKHLA INDL. AREA, PHASE-I, NEW DELHI. NEW DELHI. ( APPELLANT ) (RESPONDENT) DEPARTMENT BY : SHRI NEEHAR RANJAN PANDEY SR . DR ASSESSEE BY : SHRI V.K. GARG DATE OF HEARING : 14/12/2015. DATE OF ORDER : 08/02/2016. O R D E R PER S.V. MEHROTRA, A.M: THESE ARE CROSS APPEALS, PREFERRED BY THE REVENUE AS WELL AS THE ASSESSEE AGAINST THE ORDER PASSED BY THE LD. CIT( A)-VI, NEW DELHI RELATING TO A.Y. 2006-07. 2 2. THE ASSESSEE COMPANY, IN THE RELEVANT ASSESSMENT YEAR, WAS ENGAGED IN THE BUSINESS OF MANUFACTURING OF DOCTORS BLADES , WHICH WERE USED IN PRINTING MACHINES. IT HAD FILED ITS RETURN OF INCOM E DECLARING INCOME OF RS. 1,64,41,160/-. THE ASSESSMENT WAS COMPLETED AT RS. 2,54,73,380/-, INTER ALIA, MAKING FOLLOWING DISALLOWANCES: I. DISALLOWANCE U/S 36(1)(II) RS. 88,52,536/- II. DEPRECIATION ON COMPUTER PERIPHERALS RS. 19,620/- 3. LD. CIT(A) PARTLY ALLOWED THE ASSESSEES APPEAL. BEING AGGRIEVED WITH THE ORDER OF LD. CIT(A) BOTH THE ASSESSEE AND THE DEPARTMENT ARE IN APPEAL BEFORE US. RESPECTIVE GROUNDS TAKEN ARE AS U NDER: REVENUES APPEAL: 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDIT ION OF RS. 8852536/- MADE BY AO ON ACCOUNT OF BONUS AND COMMIS SION PAID TO DIRECTORS OF THE COMPANY EVEN THOUGH IT WAS NOT AN ALLOWABLE EXPENDITURE WITHIN THE MEANING OF SECTIO N 36(1 )(II) OF THE I.T.ACT,1961. 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN LAW AND ON FACTS BY ALLOWING THE D EPRECIATION @ 60% ON COMPUTER PERIPHERALS AND ACCESSORIES AMOUN TING TO RS. 19620/- THOUGH THE I.T. RULES ALLOWS 60% DEPREC IATION ONLY ON COMPUTER AND COMPUTER SOFTWARE. 3. THE APPELLANT CRAVES LEAVE FOR RESERVING THE RI GHT TO AMEND, MODIFY, AFTER, ADD OR FOREGO ANY GROUND( S) OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEA L. 3 ASSESSEES APPEAL: 1. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) [LD. CIT (A)] HAS ERRED ON FACTS AND IN LAW IN REST RICTING THE ALLOWANCE OF COMMISSION PAID TO THE DIRECTORS @ 3% OF TOTAL SALES AS AGAINST 4% OF TOTAL SALES CLAIMED BY ASSES SEE. AS SUCH THE LD. CIT (APPEALS) HAS ERRED IN SUSTAINING A DIS ALLOWANCE OF RS.926567 COMPUTED AT 1 % OF SALES OF RS. 92656710/ -. 2. THAT THE DISALLOWANCE OF COMMISSION AS CONFIRMED BY THE LD.CIT(A) IS BASED ON ERRONEOUS VIEWS AND / OR NON- APPRECIATION OF THE FACTS AND LAW INVOLVED INCLUDIN G NON- APPRECIATION OR PROPER REBUTTAL OF THE DETAILED SUB MISSIONS WITH CASE LAW PLACED ON RECORD. 3. THAT CONSEQUENTIAL RELIEF IS LIABLE TO BE ALLOWE D IN RESPECT OF INTEREST LEVIED UNDER SECTION 234B AND U NDER SECTION 234D. 4. THAT THE ASSESSMENT AS MADE AND THE ORDER OF THE LD. CIT (APPEALS) ARE AGAINST LAW AND FACTS OF THE CASE INV OLVED 5. THAT THE GROUNDS OF APPEAL AS HEREINABOVE ARE WI THOUT PREJUDICE TO EACH OTHER. 6. THAT THE ASSESSEE RESPECTFULLY CRAVES LEAVE TO A DD, AMEND, ALTER AND/OR FORGO ANY GROUND(S) AT OR BEFOR E THE TIME OF HEARING. 4. BRIEF FACTS APROPOS REVENUES APPEAL AND GROUND NO. 1 OF ASSESSEES APPEAL ARE THAT IN COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT ASSESSEE HAD PAID SALARY AND OTHER ALLOWANCES TO IT S DIRECTORS AS PER THE BOARDS RESOLUTION. THE PAYMENT ALSO INCLUDED COMMI SSION AND BONUS OF RS. 74,12,536/- AND RS. 14,40,000/- RESPECTIVELY PAID T O ITS TWO DIRECTOR OF THE 4 COMPANY NAMELY MR. TARUN SANON AND MR. RAVI SANON. THE AO OBSERVED THAT AS PER THE PROVISION OF THE ACT, BONUS OR COMM ISSION PAID TO ITS EMPLOYEE IS ALLOWABLE AS DEDUCTION, IF AND ONLY IF IT IS NOT PAYABLE AS PROFIT OR DIVIDEND. HE POINTED OUT THAT IN THE CASE OF ASS ESSEE COMPANY PROFIT OF RS. 1,61,90,588/- HAD BEEN DECLARED. THUS, IT WAS C LEAR THAT IN CASE OF DIRECTOR OF THE COMPANY, THE SUM PAID AS COMMISSION AND BONUS SHOULD HAVE BEEN PAID AS PROFIT OR DIVIDEND, WHICH WAS NOT THE CASE HERE. ACCORDINGLY, HE SHOW CAUSED THE ASSESSEE. THE ASSESSEES REPLY H AS BEEN REPRODUCED AT PAGES 3 & 4 OF ASSESSMENT ORDER. THE ASSESSEE, INTE R ALIA, POINTED OUT THAT THE COMMISSION BEING PAID WAS BASED ON AGREEMENT WITH THE DIRECTORS THROUGH THE COMPANYS RESOLUTION COMPUTED AT 3% OF SALES. I T WAS FURTHER POINTED OUT THAT THE SAME RATE OF COMMISSION HAD BEEN PAID AND ACCEPTED IN THE IMMEDIATELY PRECEDING YEAR A BORNE OUT FROM THE REC ORD. THIS HAS BEEN ACCEPTED VIDE ORDER U/S 143(3). SIMILAR DISALLOWANC E MADE IN AY 2004-05 AND 2005-06 WAS DELETED BY LD. CIT(A). AO, HOWEVER, DID NOT ACCEPT ASSESSEES CONTENTION, INTER ALIA, POINTING OUT THA T SINCE THE LANGUAGE OF SECTION 36(1)(II) WAS PLAIN AND UNAMBIGUOUS, THEREF ORE, NO INTERPRETATION/ OUTSIDE MEANING COULD BE ATTACHED TO IT. HE POINTED OUT THAT THE ASSESSEE COMPANY COULD HAVE PAID THE AMOUNT AS PROFIT/ DIVID END INSTEAD OF BONUS/ COMMISSION SINCE THE PAYMENT WAS BEING MADE TO DIRE CTORS OF THE COMPANY. 5 HOWEVER, COMPANY DECLARED DIVIDEND ONLY TO THE EXTE NT OF RS. 3,05,500/- AND ON THE OTHER HAND IT HAD PAID COMMISSION AND BO NUS OF RS. 88,52,536/-. HE FURTHER OBSERVED THAT IN THE INSTANT CASE COMPAN Y WAS AVOIDING TAX TO THE EXTENT OF 20% APPROXIMATELY (AROUND 13.5% AS DIVIDE ND DISTRIBUTION TAX AND BECAUSE INDIVIDUAL INCOME-TAX IS LOWER THAN CORPORA TE TAX BY 5%, EVEN AFTER ACCEPTING THE ARGUMENT OF THE ASSESSEE THAT DIRECTO RS WERE PAYING TAX ON COMMISSION RECEIVED BY IT BY RESORTING TO SUCH MEAN S). HE, ACCORDINGLY, MADE ADDITION OF RS. 88,52,536/-. 5. BEFORE LD. CIT(A) IT WAS SUBMITTED THAT THE ISSU E WAS COVERED IN FAVOUR OF THE ASSESSEE BY ORDER OF THE CIT(A) AND T HE TRIBUNAL FOR EARLIER YEARS I.E. 2004-05 AND 2005-06. LD. CIT(A) OBSERVED FROM THE DECISION OF THE TRIBUNAL THAT THE SAME WAS BASED ON CERTAIN FAC TS IN THE RELEVANT YEARS. HE, THEREFORE, REQUIRED THE AO TO MAKE NECESSARY VE RIFICATION REGARDING THE FACTS FOR THIS YEAR AS WELL. AO SUBMITTED ITS REPOR T WHEREIN IT WAS SUBMITTED THAT THE DEPARTMENT HAD FILED FURTHER APPEAL BEFORE THE HONBLE DELHI HIGH COURT ON THIS ISSUE FOR EARLIER YEARS. IT WAS FURTH ER POINTED OUT THAT DURING THE YEAR UNDER CONSIDERATION THE COMMISSION HAD BEEN RA ISED TO 4% AS COMPARED TO 3% IN EARLIER YEARS. LD. CIT(A), AFTER CONSIDERI NG ALL THE ASPECTS OBSERVED THAT THE ISSUE WAS COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2004-05 AND 2005-06. HE, THEREFORE, ALLOWED 6 ASSESSEES CLAIM TO THE EXTENT OF 3% OF TOTAL SALES AND NOT 4% AS CLAIMED BY ASSESSEE. 6. LD. COUNSEL SUBMITTED THAT THE ISSUE IS COVERED BY THE ORDER OF THE HONBLE DELHI HIGH COURT IN ASSESSEES OWN CASE FOR AY 2002-03 AND 2003- 04 VIDE ITA NO. 669 & 670 OF 2012. HE FURTHER REFER RED TO THE DECISION OF THE TRIBUNALS ORDER DATED 6.2.2009 FOR AY 2004-05 AND DATED 13.2.2009 FOR AY 2005-06, CONTAINED IN PB 2 FILED BY ASSESSEE, WH EREIN ALSO ON THE SAME ISSUE THE DEPARTMENTS APPEAL HAD BEEN DISMISSED. 7. LD. DR SUBMITTED THAT THERE IS NO BASIS FOR INCR EASING THE COMMISSION FROM 3% TO 4% AND ASSESSEE HAS NOT FILED ANY RESOLU TION TO THAT EFFECT. ON THE CONTRARY BEFORE AO THE ASSESSEE SPECIFICALLY PL EADED THAT THE COMMISSION HAD BEEN PAID ON EARLIER YEARS BASIS. 8. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES AND HAVE PERUSED THE RECORD OF THE CASE. AS FAR AS COMMISSIO N AND BONUS PAID TO THE DIRECTORS TO THE EXTENT OF 3% ON TURNOVER IS CONCER NED, THE ISSUE IS SQUARELY COVERED BY THE EARLIER YEARS ORDERS. THE HONBLE DELHI HIGH COURT VIDE ITS ORDER DATED 3.12.2012 RENDERED IN ITA NOS. 669 AND 670 OF 2012 (IN ASSESSEES OWN CASE FOR AY 2002-03 AND 2003-04) DIS MISSED THE REVENUES APPEAL ON THE ISSUE IN QUESTION BY OBSERVING IN PAR A 6 OF ITS ORDER AS UNDER: 6. SO FAR AS THE MERITS OF THE DISALLOWANCE UNDER S ECTION 36(1)(II) ARE CONCERNED FOR THE ASSESSMENT YEAR 200 2-03, THE 7 TRIBUNAL'S REASONING IS TO BE FOUND IN PARAGRAPH 2 AND 3 OF THE IMPUGNED ORDER. IN PARA 2, THE TRIBUNAL HAS REPRODU CED ITS EARLIER ORDERS IN ITA NO.3473/DEV2007 FOR THE ASSES SMENT YEAR 2004-05 AND AFTER CONSIDERING THE SAME, HELD AS FOL LOWS: - '3. WHEN THE SIMILAR ISSUE AROSE IN A Y 2005-06, TH E ITAT AGAIN FOLLOWING ITS OWN ORDER FOR A Y 2004-05, UPHELD THE ORDER OF THE LEARNED CIT(A) DELETING THE DISALLOWANCE OF COMMISSION PAID TO DIRECTORS. ADMITTEDLY, THE FACTS OF THE YEAR UNDER CONSIDERATI ON ARE IDENTICAL. THEREFORE, RESPECTFULLY FOLLOWING THE AB OVE DECISION OF ITAT IN ASSESSEE'S OWN CASE, WE UPHOLD THE ORDER OF LEARNED CIT(A) AND DISMISS THE REVENUES APPEAL. 9. WE FIND THAT THE ITAT VIDE ITS ORDER DATED 13.2. 2009 RENDERED IN ITA NO. 1450/DEL/2008, IN ASSESSEES OWN CASE FOR AY 2 005-06, IN PARA 5 HAS OBSERVED AS UNDER: WITH THE ASSISTANCE OF LEARNED REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY AND FOUND THAT IN ASSE SSMENT YEAR 2003-04, ASSESSEE HAS PAID COMMISSION @ 3% OF TOTAL SALES TO THE DIRECTORS. THIS COMMISSION WAS ALLOWED TO THE A SSESSEE BY THE ASSESSING OFFICER IN AN ASSESSMENT MADE UNDER S EC. 143(3) ON 30 TH NOVEMBER, 2005. IN THIS YEAR, THE TURNOVER OF ASSE SSEE HAS INCREASED AND IT HAS PAID THE COMMISSION ON THE SAME LINE. THERE IS NO CHANGE OF CIRCUMSTANCE WHICH CAN PERSUA DE THE ASSESSING OFFICER TO DISALLOW THE CLAIM OF ASSESSEE . THEREFORE, AFTER GOING THROUGH THE ORDER OF THE LEARNED CIT(AP PEALS) ON THIS ISSUE, WE DO NOT SEE ANY GOOD REASON TO INTERF ERE IN THE FINDINGS OF THE LEARNED IST APPELLATE AUTHORITY. TH IS GROUND OF APPEAL IS REJECTED. 10. THUS, WE SEE NO REASON TO INTERFERE IN THE ORDE R OF THE CIT(A) ON THE ISSUE IN QUESTION AND THE SAME IS UPHELD. 8 11. NOW COMING TO THE ASSESSEES APPEAL REGARDING I NCREASE IN REMUNERATION TO 4% AS AGAINST 3% PAID IN EARLIER YE ARS, THE ASSESSEE HAS NOT DEMONSTRATED AS TO HOW THE INCREASE IN REMUNERATION WAS JUSTIFIED INASMUCH AS NO BOARDS RESOLUTION HAD BEEN FILED BEFORE LOWE R REVENUE AUTHORITIES TO JUSTIFY ITS CLAIM. FURTHER, IT IS PERTINENT TO NOTE THAT BEFORE AO THE ASSESSEES PLEADINGS WERE THAT IT HAD PAID THE COMMISSION AS I N THE EARLIER YEARS. IT WAS ONLY AT THE CIT(A)S LEVEL THAT IT TRANSPIRED THAT THE COMMISSION HAD BEEN PAID @ 4% AND NOT 3%. IN THE ABSENCE OF ANY PROPER EXPLANATION FOR THE INCREASE, WE ARE CONSTRAINED TO RESTRICT THE COMMIS SION @ 3% OF TURNOVER. IN THE RESULT, ASSESSEES GROUND ON THE ISSUE IN QUES TION IS DISMISSED. 12. BRIEF FACTS APROPOS GROUND NO.2 OF DEPARTMENTS APPEAL ARE THAT ASSESSEE HAD CLAIMED DEPRECIATION @ 60% ON ADDITION S MADE TO FIXED ASSETS UNDER THE HEAD COMPUTER. THE ASSESSEE EXPLAINED THA T PRINTER AND OTHER COMPUTER ACCESSORIES FORMED PART OF COMPUTER AND TH E FUNCTION OF COMPUTER IS INCOMPLETE WITHOUT PRINTER ETC. THE AO, HOWEVER, DID NOT ACCEPT THE ASSESSEES CONTENTION AND RESTRICTED THE DEPRECIATI ON TO 15%. LD. CIT(A) DELETED THE ADDITION FOLLOWING THE DECISION OF THE ITAT IN ASSESSEES OWN CASE FOR AY 2004-05 AND 2005-06. 13. AFTER HEARING BOTH THE PARTIES, WE FIND THAT TH ERE IS NO DISPUTE THAT THE DEPRECIATION @ 60% WAS CLAIMED BY ASSESSEE ON THE C OMPUTER PERIPHERALS 9 WITH PRINTERS. THIS ISSUE IS SQUARELY COVERED BY TH E DECISION OF THE HONBLE DELHI HIGH COURT I THE CASE OF BSES YAMUNA POWER LT D. 358 ITR 47, WHEREIN IT HAS BEEN HELD THAT ON COMPUTER ACCESSORI ES AND PERIPHERALS ASSESSEE IS ENTITLED TO HIGHER RATE OF DEPRECIATION @ 60%. RESPECTFULLY FOLLOWING THE DECISION OF HONBLE HIGH COURT THIS G ROUND IS DISMISSED. 14. CHARGING OF INTEREST U/S 234B & 234D IS CONSEQU ENTIAL. 15. IN THE RESULT, ASSESSEES APPEAL AS WELL AS REV ENUES APPEALS ARE DISMISSED. ORDER PRONOUNCEMENT IN OPEN COURT ON 08/02/2016. SD/- SD/- (SUCHITRA KAMBLE ) (S.V. MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 08/02/2016. *MP* COPY OF ORDER TO: 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI.