ACIT, New Delhi V. M/s Salora International Ltd., New Delhi

ITA 4982/DEL/2012

• Counselvise Citation: 498220114 RSA 2012
• Duration Of Justice: 1 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 22-10-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 21-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NIDDI SRIVASTAVA
• Assessee Lawyers: P N MEHTA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: G NEW DELHI BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO. 4982/DEL/2012 ASSESSMENT YEAR: 2007-08 ACIT VS. M/S SALORA INTERNATIONAL LTD. CIRCLE- 7 (1), D-13/04, OKHLA INDUSTRIAL AREA, ROOM NO. 312, 3 RD FLOOR PHASE-II, C.R. BUILDING NEW DELHI. NEW DELHI- PAN: AAACS3041G (APPELLANT) (RESPONDENT) REVENUE BY : SMT. NIDDI SRIVASTAVA, SR. DR. ASSESSEE BY : SHRI. P. N. MEHTA, FCA. ORDER PER RAJPAL YADAV, JM : THE REVENUE IS IN APPEAL BEFORE US AGAINST THE ORDE R OF LD. CIT (A), DATED 29.6.2012 PASSED FOR AY 2007-08. 2. THE SOLITARY GRIEVANCE OF REVENUE IS THAT LD. CI T (A) HAS ERRED IN DELETING THE ADDITION OF RS.74.08 LAC WHICH HAS BEE N ADDED BY THE AO BY MAKING A DISALLOWANCE U/S 36(1) (II) OF THE IT ACT. 2 3. THE LD. COUNSEL FOR THE ASSESSEE AT THE VERY OUT SET SUBMITTED THAT DISALLOWANCE HAS BEEN MADE BY THE AO, OUT OF THE AL LEGED BONUS PAID TO THE DIRECTORS. THE SIMILAR DISALLOWANCE HAS BEEN MADE B Y THE AO IN EARLIER YEAR. THE DISPUTE TRAVELED UPTO THE HONBLE DELHI HIGH CO URT, THE TRIBUNAL HAS DELETED THE DISALLOWANCE AND APPEAL OF THE REVENUE HAS BEEN DISMISSED BY THE HONBLE DELHI HIGH COURT. HE PLACED ON RECORD C OPY OF THE TRIBUNALS ORDER AS WELL AS COPY OF THE HONBLE HIGH COURTS D ECISION IN ITA NO. 966/2011. 4. THE LD. DR ON THE OTHER HAND RELIED UPON THE ORD ER OF THE AO. WE HAVE DULY CONSIDERED THE RIVAL CONTENTION AND GONE THROUGH THE RECORD CAREFULLY. THE LD. AO HAS RECORDED FOLLOWING FINDIN G WHILE MAKING THE ADDITION: 3.2 THE AFORESAID DETAILS SHOW THAT THE COMMISSION HAS BEEN PAID TO THE DIRECTORS WHO ARE ALSO SHAREHO LDERS. SECTION 36(1)(II) HAS BEEN SPECIALLY INSERTED TO IN SURE THAT COMPANIES DO NOT AVOID TAX BY DISTRIBUTING THE IR PROFITS TO THEIR SPECIFIC MEMBERS/SHARE HOLDERS AS BONUS OR COMMISSION INSTEAD OF DIVIDEND. IN THE INSTANT C ASE, IT IS CLEAR THAT PROFIT WHICH WOULD HAVE BEEN OTHERWIS E PAID TO THE AFORESAID DIRECTORS AS DIVIDEND HAS BEEN DIV ERTED IN THE FORM OF COMMISSION. BY DIVERTING THE SUM OF RS.74.08 LACS AS COMMISSION TO DIRECTORS, THE ASSES SEE HAS ONLY REDUCED THE CORPUS AVAILABLE FOR DISTRIBUT ION AS DIVIDEND. THE COMMISSION HAS BEEN WORKED OUT AS A 3 CERTAIN PERCENTAGE OF THE TURNOVER AND SO IT CANNOT BE SAID TO BE A PART OF SALARY. THUS, IT IS CLEAR THAT THE COMMISSION PAID TO THE DIRECTORS WAS OTHERWISE PAYA BLE TO HIM AS PROFIT OR DIVIDEND AND THIS COMMISSION OF RS.74.08 LACS IS NOT ALLOWABLE AS PER THE PROVISION S OF SECTION 36(1)(II) OF THE INCOME TAX ACT, 1961. THER EFORE, THE SUM OF RS.74.08 LACS IS DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE. THE ASSESSEE HAVING CONSCIO USLY TRIED TO REDUCE ITS TAXABLE INCOME BY CLAIMING EXTR A DEDUCTION HAD FURNISHED INACCURATE PARTICULARS THER EBY CONCEALING INCOME. I AM THEREFORE SATISFIED THAT PE NALTY PROCEEDINGS U/S 271(1) (C) OF THE I.T. ACT ARE ATTR ACTED IN THIS CASE AND THEREFORE PENALTY PROCEEDINGS U/S 271 (1) (C) ARE INITIATED SEPARATELY. (ADDITION: RS.74.08 LACS) 5. THE CONTENTION OF THE ASSESSEE BEFORE AO WAS THA T BONUS WAS PAID AT FIX PERCENTAGE OF TOTAL TURN OVER. IN THIS YEAR, IT WAS PAID AT 1% OF THE NET PROFIT. WE FIND THAT A SIMILAR DISALLOWANCE WAS MAD E IN AY 2006-07 AND THE TRIBUNAL HAS ALLOWED THE CLAIM OF THE ASSESSEE. THE FINDING RECORDED BY THE TRIBUNAL READ AS UNDER: 14. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS A ND PERUSED RECORDS. WE FIND THAT IT IS THE SUBMISSION OF THE ASSESSEE THAT COMMISSION @ 1% HAS BEEN PAID TO DIRECTORS FROM 1995 AND HAS BEEN ALLOWED AS SUCH. MOREOVER, THE MANAGERIAL REMUNERATION PAID INCLUDIN G THE COMMISSION DOES NOT EXCEED THE LIMIT LAID DOWN BY 4 THE COMPANIES ACT. FURTHER, IT HAS BEEN NOT BROUGHT ON RECORD AS TO HOW THE COMMISSION PAID AS PART OF REMUNERATION TO DIRECTORS WOULD FALL U/S 36(1)(II). THIS SECTION PROVIDES THAT DISALLOWANCE OF ANY SUM PAID TO EMPLOYEE AS BONUS OR COMMISSION FOR SERVICES RENDER ED WHERE SUCH SUM WOULD NOT HAVE BEEN PAYABLE TO HIM A S PROFITS OR DIVIDEND, IF IT HAD NOT BEEN PAID AS BON US OR COMMISSION. WE FIND THAT THE PAYMENTS DURING THE YE AR HAVE BEEN PAID FROM 1995 AND IT HAS BEEN ALLOWED AS SUCH. MOREOVER THE PAYMENT IS WITHIN THE LIMITS AS SPECIFIED BY COMPANIES ACT. THERE IS ALSO A REQUISI TE BOARD RESOLUTION ALSO FOR THIS PURPOSE. FURTHER AS NOTED IN TRIBUNALS ORDER AS ABOVE, HONBLE APEX COURT IN THE CASE OF GESTETNER DUPLICATORS P. LTD. VS. CIT (1979 ) 117 ITR TAXMAN 1 HAS HELD THAT COMMISSION PAID AS FIXED PERCENTAGE ON TURNOVER IS NOTHING BUT ASSESSABLE AS A SALARY. UNDER THE CIRCUMSTANCES FOLLOWING THE PRECE DENT AS ABOVE AND IN THE BACKGROUND OF DISCUSSION AS ABO VE, WE HOLD THAT SECTION 36(1)(II) IS NOT APPLICABLE IN THE PRESENT CASE AND COMMISSION PAID TO DIRECTORS IS ALLOWABLE EXPENDITURE. 14.1 IN THE RESULT THIS APPEAL BY THE ASSESSEE STAN DS ALLOWED. 6. THIS ORDER OF THE TRIBUNAL HAS BEEN UPHELD BY TH E HONBLE DELHI HIGH COURT IN ITA NO. 966/2011 THE ORDER DATED 22.2.2012 READ AS UNDER: CORAM: HONBLE MR. JUSTICE SANJIV KHANNA HONBLE MR. JUSTICE R.V. EASWAR 5 ORDER 22.02.2012 IN VIEW OF THE ORDER IN AMD METPLAST PVT. LTD. V. DEPUTY COMMISSIONER OF INCOME TAX, ITA 650/2011 DECIDED ON 16.12.2011 AND IN CIT VS. BONY POLYMERS PVT. LTD., ITA NOS. 69/2011 AND CONNECTED MATTERS ON 18.01.2012, THE PR ESENT APPEAL FILED BY THE REVENUE HAS TO BE DISMISSED. NO COSTS. SD/- SANJIV KHANNA, J SD/- R. V. EASWAR, J 7. WE DO NOT FIND ANY DISPARITY ON FACTS; THE LD. F IRST APPELLATE AUTHORITY HAS FOLLOWED THE ORDER OF THE ITAT AS WELL AS OF TH E HONBLE DELHI HIGH COURT. CONSIDERING ALL THESE FACTS, WE DO NOT FIND ANY MERIT IN THIS APPEAL OF THE REVENUE, IT IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 25/10/2013. SD/- SD/- ( T. S. KAPOOR ) (RAJP AL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBE R DATED: 25/10/2013 *AK VERMA* COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(APPEALS) 5.DR: ITAT ASSISTANT REGISTRAR