ACIT, Chandigarh V. M/s Travelmatics Pvt. Ltd., Chandigarh

ITA 549/CHANDI/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81067 (ITAT-CHANDIGARH)
• Duration Of Justice: 4 year(s) 6 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 11-11-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 14-05-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DR AMA RVEER SINGH
• Keywords: Business expenditure; Cost of acquisition; Fair market value; Valuation report; Assessment record; Capital receipt
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES A CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.R. SOOD, ACCOUNTANT MEMBER ITA NO. 549/CHD/2010 ASSESSMENT YEAR: 2007-08 THE ACIT, VS. M/S TRAVELMATICS PVT. LTD. CIRCLE 1(1) H.NO. 152, SECTOR 9-B CHANDIGARH CHANDIGARH PAN NO.AABCT3498D (APPELLANT) (RESPONDENT) APPELLANT BY : DR.AMARVEER SINGH RESPONDENT BY : SHRI. ASHWANI KUMAR DATE OF HEARING : 11/11/2014 DATE OF PRONOUNCEMENT : 09/12/2014 ORDER PER T.R.SOOD, A.M. THE APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER DT 03/03/2010 OF CIT(A), CHANDIGARH. 2. IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLOW ING AMENDED GROUNDS:- 1. THE LD. CIT(A) HAD ERRED IN DELETION THE ADDITION O F RS. 48 LACS ON ACCOUNT OF COMMISSION / BROKERAGE TOWARD S SALE PROCEEDS PAID TO THE DIRECTORS OF THE ASSESSEE COMP ANY AS THE DIRECTORS WERE NOT THE PROPERTY DEALERS BUT SOMEHOW OWNER OF THE COMPANY . 2 . THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITIONS MADE BY THE ASSESSING OFFICER OF RS. 1,47,90,150/- IN TH E LONG TERM CAPITAL GAIN DECLARED BY THE ASSESSEE ON ACCOUNT OF ADOPTING THE VALUE OF INDUSTRIAL PLOT NO. C-19, INDUSTRIAL A REA, PHASE- 1, MOHALI AT RS. 138 PER SQ. YARD INSTEAD OF RS.600 PER SQ. YARD ADOPTED BY THE ASSESSEE COMPANY ON THE BASIS O F VALUATION REPORT OF THE APPROVED REGISTERED VALUER OF THE 2 INCOME TAX DEPARTMENT. THE ASSESSING OFFICER HAS RE LIED UPON THE RATE OF PLOT ALLOTTED BY PSIEC TO VARIOUS APPLI CANTS IN 1981. THE ASSESSEE HAD DECLARED THE LONG TERM CAPIT AL GAIN IN RS. 1,54,78,000/- . 3. IT IS PRAYED THAT THE ORDER OF THE LD. CIT(A) BE CANCELLED AND THAT OF THE ASSESSING OFFICER BE REST ORED. 3. AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS SOL D A PROPERTY ON WHICH CAPITAL GAIN WAS DETERMINED. HOWEVER, IT WAS NOTICED THAT A SSESSEE COMPANY HAS PAID HUGE AMOUNT TO THE DIRECTORS ON SUCH SALES, THEREFO RE, ASSESSEE WAS ASKED TO EXPLAIN AND JUSTIFY THE PAYMENT OF COMMISSION WHICH WERE CLAIMED AS TRANSFER EXPENSES. IN RESPONSE, IT WAS SUBMITTED AS UNDER:- 1. THE COMPANY HAS SOLD OUT A LAND AND BUILDING DU RING THE CURRENT ASSESSMENT YEAR. THE TOTAL CONSIDERATION WA S 400 LACS WHICH HAS BEEN RECEIVED AND DEPOSITED IN COMPANYS BANK ACCOUNT. THE COMPANY WAS IN THE PROCESS TO SELL THIS PROPERT Y FOR THE LAST MANY YEARS AND DIRECTORS WERE PUTTING THEIR BEST EF FORTS TO HAVE BEST DEALS FOR THE COMPANY. IT WILL NOT BE OUT OF PLACE TO MENTION THAT THE SALES AMOUNT WHICH THE COMPANY HAD GOT IS MORE THAN THE PREVAILING MARKET PRICE. THE QUANTUM OF SALE CONSIDERATION MAY BE VERIFIED FROM THE CONCERNED REGISTERING AUTHORITY I.E. GAMAD A. IN VIEW OF THIS, THE COMPANY HAD DECIDED TO AWARD THE DIRECTOR S FOR THEIR EXEMPLARY WORK DONE BY THEM WITH UTMOST CARE, DILIG ENCE AND SKILL WHICH HAS RESULTED INTO GOOD PROFIT TO THE COMPANY. ACCORDINGLY, THE COMMISSION HAS BEEN PAID TO THE DIRECTORS AFTER DEDUCTION OF TDS AS APPLICABLE. THE DIRECTOR HAS CONSIDERED THIS AS THEIR INCOME AND HAS PAID INCOME TAX @ 30% ON THIS PAYMENT. IN V IEW OF THIS, THERE IS NO LOSS OF TAX TO THE REVENUE. 2. THE COMPANY HAS CONSIDERED RS. 12,84,488/- AS SH ORT TERM CAPITAL GAIN WHILE COMPUTING THE TAX LIABILITY AND HAS PAID NORMAL TAX @ 30/- AS APPLICABLE TO THE COMPANY. THERE ARE SOME ERROR WHILE FILING THE REQUIRED COLUMNS IN THE RETURNS HO WEVER THE TAX 3 LIABILITY HAS BEEN WORKED OUT CORRECTLY IN THE RETU RN ITSELF WHICH MAY PLEASE BE VERIFIED. 3. THE PLOT WHICH HAS BEEN SOLD OUT WAS ACQUIRED BY THE COMPANY BEFORE 01.04.1981 HENCE THE FAIR MARKET VAL UE AS ON 01.04.1981 HAS BEEN ADOPTED IN ACCORDANCE WITH SECT ION 55(2) (THE COPY OF VALUATION DONE BY THE APPROVED VALUER IS AL READY ENCLOSED FOR REFERENCE). 4. THE TRANSFER EXPENSES AMOUNTING TO RS. 52,47,600 /- HAS BEEN DEDUCTED WHILE COMPUTING THE CAPITAL GAIN. THE DETA ILS OF EXPENSES ARE AS UNDER:- A) RS. 48,00,000/- AS COMMISSION TO DIRECTORS. B) RS. 3,00,000/- TO INDER MOHINI TOWARDS PROFESSIONAL CHARGES. C) RS. 1,47,600/- DEPOSITED WITH GMADA 4. THE ASSESSING OFFICER DID NOT FIND FORCE IN THES E SUBMISSIONS AND OBSERVED THAT DIRECTOR OF THE COMPANY CANNOT BE ACT ING AS PROPERTY BROKERS BECAUSE THEY BEING DIRECTORS AND OWNERS OF THE COMP ANY AND, THEREFORE, PAYMENT OF COMMISSION WERE NOT JUSTIFIED. THUS, HE DISALLO WED THE PAYMENT OF COMMISSION OF RS. 48 LAKHS. 5. ON APPEAL, IT WAS MAINLY SUBMITTED THAT FOR SELL ING PROPERTY, COMMISSION / BROKERAGE IS REQUIRED TO BE PAID. SINCE THE PROPERT Y DEALERS COULD NOT ARRANGE FOR THE SALE OF SAID PROPERTY FOR A LONG TIME, THER EFORE, BOARD OF DIRECTORS OF THE COMPANY WITHDREW THE OFFER FROM THE PROPERTY DEALER S AND ENTRUSTED THE JOB OF FINDING OF CUSTOMERS TO THE DIRECTORS. THE DIRECTOR S SUCCESSFULLY FOUND A CUSTOMER AND WERE ABLE TO GET MUCH BETTER PRICE BEC AUSE OF THIS FACT THE COMPANY DECIDED TO AWARD THE DIRECTORS. IN OTHER WO RDS, DIRECTORS WERE PAID FOR THEIR SERVICES. 4 6. THE LD. CIT(A) FOUND FORCE IN THE SUBMISSIONS AN D DECIDED THE ISSUE VIDE PARA 8, WHICH IS AS UNDER:- 8. I HAVE GONE THROUGH THE ASSESSMENT RECORDS, THE SUBMISSIONS OF THE COUNSEL AND THE ATTACHED ANNEXURES. IN MY VI EW, THE CONTENTION OF THE COUNSEL THAT COMMISSION WAS TO BE PAID TO PERSONS WHO ARRANGED THE SALE IS CORRECT. THE PERSO N WHO ARRANGES A SALE AND NEED NOT BE A PROPERTY DEALER AND THE DI RECTORS WHO ARE THE EMPLOYEES OF THE COMPANY ARE NOT BARRED FROM AC TING AS BROKERS. IN THE CIRCUMSTANCES, THE DIRECTORS OF THE COMPANY WHO ARRANGED THE SALE OF PROPERTY COULD DEFINITELY BE P AID COMMISSION. THE COMMISSION RECEIVED BY THEM HAS BEEN TAXED AS I NCOME IN THEIR PERSONAL RETURNS. IN VIEW OF THE FACTS & CIRCUMSTAN CES EXPLAINED. I AM SATISFIED THAT THE DISALLOWANCE OF COMMISSION PA ID TO DIRECTORS AT RS. 48 LACS WHILE COMPUTING LONG TERM CAPITAL GA IN IS NOT WARRANTED AND DIRECT THE ASSESSING OFFICER TO ALLOW FURTHER DEDUCTION OF RS. 48 LACS AS TRANSFER EXPENSES. THIS GROUND OF APPELLANT IS THEREFORE ALLOWED. 7. BEFORE US LD. DR SUBMITTED THAT DIRECTORS WERE B EING PAID NORMAL SALARIES, THEREFORE, THEY WERE DUTY BOUND TO DO EVE RY THING FOR THE COMPANY AND THERE IS NO JUSTIFICATION FOR PAYING EXTRA COMMISSI ON FOR SALE OF PROPERTY. MERELY PASSING OF A RESOLUTION WOULD NOT ENTITLE TH EM TO RECEIVED EXTRA REMUNERATION AND IN THIS REGARD HE RELIED ON THE DE CISION OF HON'BLE SUPREME COURT IN THE CASE OF SWADESHI COTTON MILLS CO. LTD, V CIT 63 ITR 57. FURTHER, COMPANIES MAINLY OWNED BY SHRI JAGMOHAN SINGH AND H IS WIFE AND OTHER FAMILY RELATIVES AND THEREFORE, RESOLUTION PASSED IS ONLY A SELF SERVING DOCUMENT AND RELIANCE CANNOT BE PLACED ON THE SAME. IN THIS REGA RD HE RELIED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT V DURGA P RASAD 82 ITR 540 . THERE IS NO EVIDENCE ON RECORD TO SHOW THAT EXTRA EFFORT HAS BEEN MADE BY THE DIRECTOR IN ARRANGING THE CUSTOMERS FOR THE SALE OF PROPERTY . HE ALSO SUBMITTED THAT NORMALLY IN CASE OF PROPERTY TRANSACTION, A BROKER AGE OF 1 OR 2% IS PAID WHEREAS IN THIS CASE BROKERAGE HAS BEEN PAID @ 12% WHICH ITSELF SHOWS THAT IT IS A WAY OF PASSING OF MONEY FROM THE COMPANY TO EVADE TAX. 5 HE ALSO SUBMITTED THAT IT IS SETTLED LAW THAT INCOM E HAS TO BE ASSESSED IN THE HANDS OF CORRECT PERSONS AND IN THIS REGARD HE REFE RRED TO THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF ITO V. CH. ATCHAIAH [1 996] 218 ITR 239 . THEREFORE, EVEN IF ENTRIES HAVE BEEN PASSED FOR THE COMMISSION THE INCOME STILL BELONGS TO THE ASSESSEE COMPANY. WHILE CONCLUDING HIS ARGUMENT HE SUBMITTED THAT PAYMENT OF THIS COMMISSION IS ALSO IN VIOLATIO N OF THE SECTION 36(1)(II) BECAUSE HAD THIS COMMISSION NOT BEEN PAID, THE EXTR A PROFIT WOULD HAVE BEEN PAYABLE AS DIVIDEND AND IN THIS REGARD HE RELIED ON THE DECISION OF SPECIAL BENCH OF DALAL BROACHA STOCK BROKING (P.) LTD. V. A CIT [2011] 131 ITD 36(MUM)(SB) 8. ON THE OTHER HAND, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSEE COMPANY WANTED TO SELL THE PROPERTY BUT WAS NOT GET TING GOOD CUSTOMERS, THEREFORE, IT WAS DECIDED THAT THE JOB MAY BE ENTRU STED TO DIRECTORS AND IN THIS REGARD A RESOLUTION WAS PASSED, COPY OF WHICH IS AV AILABLE AT PAGES 27 TO 31 INCLUDING THE TRANSLATED COPY OF THE RESOLUTION. DU RING THE BOARD MEETING, IT WAS DECIDED TO CONSIDER THE PAYMENT OF 10 TO 15% OF SALE CONSIDERATION AS COMMISSION AND COMMISSION WAS PAID ACCORDINGLY. TH EREFORE, COMMISSION HAS BEEN PAID FOR SPECIFIC SERVICES AND SHOULD BE ALLOW ED AS EXPENDITURE. HE FURTHER SUBMITTED THAT DIRECTORS HAVE SHOWN THIS CO MMISSION IN THEIR RETURN OF INCOME AND PAID TAX ON THE SAME. 9. LD. COUNSEL FURTHER SUBMITTED THAT PAYMENT OF CO MMISSION WAS CLAIMED U/S 48 AS AN EXPENDITURE INCURRED DIRECTLY RELATING TO TRANSFER OF THE ASSETS AND THEREFORE, SECTION 36(1)(II) IS NOT APPLICABLE. WH EN A PARTICULAR REMUNERATION HAS BEEN PAID FOR EXTRA SERVICES THEN PROVISIONS OF SECTION 36(1)(II) CANNOT BE ATTRACTED AND IN THIS REGARD HE RELIED ON THE DECIS ION IN AMB METPLAST P. LTD V DCIT 341 ITR 563 (DELHI) AND COMMISSIONER OF INCOM E-TAX VS CAREER LAUNCHER INDIA LTD. (DEL) 358 ITR 179 6 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND DO NOT FIND ANY FORCE IN THE SUBMISSIONS OF LD. COUNSEL FOR THE ASS ESSEE. FROM THE LIST OF SHARE HOLDERS FILED BEFORE US IT BECOMES QUITE CLEAR THAT IT IS A CLOSELY HELD COMPANY. THE TOTAL ISSUED AND PAID UP SHARES ARE 9000 OUT OF WHICH THE FOLLOWING SHARES WERE HELD BY THE FAMILY OF SHRI BIRINDER MOHAN SING H. S.NO NAME OF THE HOLDER NO. OF SHARES 1 BIRINDER MOHAN SINGH 4249 2 BIRINDER MOHAN SINGH (HUF) 404 3 MRS KIRAN B.M. SINGH W/O MR. B.M. SINGH 2300 4 MS. SIMRAN B.M. SINGH D/O MR. B.M. SINGH 1401 5 JAGMOHAN SINGH ( HUF) KARTA OF DR JAMIAT SINGH F/O B.M. SINGH 341 TOTAL 8695 THUS OUT OF TOTAL OF 9000 SHARES, 8695 SHARES ARE H ELD BY THE FAMILY OF SHRI BIRINDER MOHAN SINGH, WHICH MAKES IT CLEAR THAT THI S FAMILY HOLD THE SHARES TO THE EXTENT OF MORE THAN 96%. NOW THE COMMISSION HA S BEEN PAID OF RS. 24 LAKHS EACH OF SHRI BIRINDER MOHAN SINGH OR MRS KIRA N B.M. SINGH W/O BIRINDER MOHAN SINGH I.E. HUSBAND AND THE WIFE BOTH OF WHOM ARE DIRECTORS OF THE COMPANY. BEING A SUBSTANTIAL SHAREHOLDER TO THE EX TENT OF MORE THAN 96%, IT WAS VERY EASY TO PASS A RESOLUTION AND APPROPRIATE FUNDS OF THE COMPANY BY THE FAMILY MEMBERS. THEREFORE, THE BOARD RESOLUTION CLE ARLY IS A SELF SERVING DOCUMENT AND CANNOT BE RELIED ON FOR MAKING THE CLA IM FOR PAYMENT OF COMMISSION. 11. IT IS FURTHER TO BE NOTED THAT SHRI BIRINDER MO HAN SINGH WAS PAID SALARY OF RS. 3 LAKHS AND MRS. KIRAN B.M. SINGH W/O BIRINDER MOHAN SINGH WAS ALSO PAID REMUNERATION OF RS. 2,40,000/-. IT IS SETTLED POSI TION OF LAW THAT DIRECTORS 7 OCCUPY THE POSITION OF TRUST WITH RESPECT TO THE CO MPANY. THEIR POSITION IS OF FIDUCIARY NATURE WHICH MEANS THEY WERE SUPPOSED TO DO EVERYTHING IN THEIR CAPACITY AS DIRECTOR WHICH COULD HAVE BEEN DONE BY THEM WITH RESPECT TO THE ASSETS OF THE COMPANY WHICH WOULD INCLUDE ORGANIZIN G SUCCESSFUL SALE OF THE PROPERTY OF THE COMPANY IF REQUIRED WITHOUT ANY FUR THER REMUNERATION. SIMILAR SITUATION AROSE BEFORE THE HON'BLE SUPREME COURT IN THE CASE OF SWADESHI COTTON MILLS CO. LTD, V CIT (SUPRA)). IN THAT CASE THE ASSESSEE COMPANY WAS MANAGED BY THE MANAGING AGENTS WHOSE REMUNERATION W AS AN OFFICE ALLOWANCE OF RS. 5,000 PER MONTH AND 10% OF THE NET PROFITS O F THE COMPANY. UNDER ARTICLE 118 OF THE ARTICLES OF ASSOCIATION OF THE COMPANY I TS DIRECTORS WERE EACH ENTITLED TO A REMUNERATION OF RS. 100 PER MONTH. AT AN EXTRA ORDINARY GENERAL MEETING OF ITS SHAREHOLDERS ARTICLE 118 WAS AMENDED TO PROVIDE FOR THE PAYMENT TO THE DIRECTORS OF A COMMISSION OF 1% OF THE NET PROFITS OF THE COMPANY IN ADDITION TO THEIR MONTHLY REMUNERATION AND AS A RESULT THE FIVE DIRECTORS OF THE COMPANY BECAME ENTITLED TO A SUM OF RS. 28,218 EACH FOR THE CALENDAR YEAR 1948. THE TRIBUNAL FOUND THAT THE PAYMENT OF THE COMMISSION T O THE DIRECTORS WAS FOR EXTRA-COMMERCIAL REASONS ON THE GROUNDS, (I) THAT T HEY DID NOT RENDER ANY SPECIAL SERVICE IN THAT YEAR; (II) THAT THE MANAGEMENT OF T HE COMPANY WAS DONE BY THE MANAGING AGENTS AND VERY LITTLE WAS DONE BY THE DIR ECTORS; (III) THAT THE REMUNERATION OF RS. 100 PER MONTH WAS NOT CONSIDERE D BY THE DIRECTORS TO BE INADEQUATE IN EARLIER YEARS; (IV) THAT THE INCREASE IN THE COMPANY'S PROFITS BY ABOUT RS. 30 LAKHS WAS DUE TO THE CONTROL OF CLOTH HAVING BEEN LIFTED AND NOT TO ANY SPECIAL EXERTION OF THE DIRECTORS; AND DISALLOW ED THE PAYMENT OF THE COMMISSION AS IT WAS NOT INCURRED WHOLLY AND EXCLUS IVELY FOR THE PURPOSE OF ITS BUSINESS. 12. ON THE ABOVE FACTS, THE HON'BLE SUPREME COURT O BSERVED AS UNDER:- HELD, ON THE FACTS, THAT THE COMMISSION PAID TO THE DIRECTORS WAS NOT AN EXPENDITURE INCURRED WHOLLY AND EXCLUSIV ELY FOR 8 THE PURPOSE OF THE APPELLANT'S BUSINESS UNDER SECTI ON 10(2)(XV) OF THE INDIAN INCOME-TAX ACT. AFTER MAKING THE ABOVE OBSERVATION IT WAS HELD THAT COMMISSION PAID TO THE DIRECTOR WAS NOT AN EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS IN THE PRESENT CASE SINCE THE DIRECTO RS WERE ALREADY IN RECEIPT OF REMUNERATION AS MONTHLY SALARY, THEY WERE DUTY BOUN D TO VARIOUS ACTS ON BEHALF OF THE COMPANY. IN ANY CASE NO EVIDENCE HAS BEEN B ROUGHT ON RECORD TO SHOW WHAT EXTRA EFFORT THEY HAVE MADE TO SELL THE PROPER TY. FOR SELLING OF PROPERTY, VARIOUS ADVERTISEMENTS ARE REQUIRED TO BE PLACED IN NEWSPAPERS OR SOME TRAVELING WAS REQUIRED TO MEET A PARTICULAR PERSON BUT NO EVIDENCE OF THIS KIND IS PRODUCED BEFORE ASSESSING OFFICER OR CIT(A) OR BEFO RE US. SIMILARLY, PASSING THE RESOLUTION WOULD NOT HELP THE CASE OF THE ASSES SEE. IN ANY CASE MERELY PASSING OF THE RESOLUTION AS OBSERVED BY THE HON'BL E SUPREME COURT IN THE CASE OF SWADESHI COTTON MILLS CO. LTD, V CIT (SUPRA) WI LL NOT MAKE THE PAYMENT OF COMMISSION AS ALLOWABLE BUSINESS EXPENDITURE. WE N EED TO REMEMBER THAT IT WAS VERY EASY FOR THE DIRECTOR TO PASS RESOLUTION B ECAUSE OF THE MAJORITY SHARE HOLDINGS TO MAKE THE DIRECTORS ENTITLED FOR RECEIPT OF COMMISSION. 13. WE ALSO NEED TO APPRECIATE THE CONTENTION OF LD . DR THAT COMMISSION HAS BEEN PAID @ 12% WHEREAS THE NORMAL RATES ARE 1 TO 2 % WHICH ITSELF SHOWS THAT COMMISSION HAS BEEN PASSED ON JUST TO SAVE THE TAX IN THE HANDS OF THE ASSESSEE. 14. IT WAS ALSO CONTENDED THAT DIRECTORS HAVE ALREA DY PAID TAX BY REFLECTING THIS COMMISSION INCOME AT THEIR OWN HANDS. IN OUR OPINION THIS CONTENTION HAS NO MERIT BECAUSE IT IS ALMOST SETTLED THAT TREATMEN T GIVEN IN THE HANDS OF THE RECIPIENTS WILL NOT DETERMINE THE ALLOWABILITY OF E XPENSES IN THE HANDS OF PAYEE. THE HON'BLE SUPREME COURT IN THE CASE OF EMPIRE JUTE CO. LTD. V. CIT 124 ITR 1 CLEARLY OBSERVED THAT THE FACT THAT A CERTAIN PAYM ENT CONSTITUTES INCOME OR 9 CAPITAL RECEIPTS IN THE HANDS OF RECIPIENT IS NOT M ATERIAL IN DETERMINING WHETHER THE PAYMENTS IS REVENUE OR CAPITAL DISB URSEMENT QUA THE PAYEE. WE MAY ALSO NOTE THAT ASSESSEE HAS FURTHER CLAIMED A SUM OF RS. 3 LAKHS PAID TO SHRI INDER MOHINI TOWARDS PROFESSIONAL CHARGES THOU GH THIS EXPENDITURE HAS BEEN ALLOWED WITHOUT ANY COMMENT BUT IF SEPARATE PR OFESSIONAL CHARGES HAVE BEEN PAID, THEN THERE IS NO JUSTIFICATION FOR COMMI SSION PAID TO THE DIRECTORS. 15. THERE WAS ONE MORE CONTENTION RAISED BY THE ASS ESSEE THAT PROVISIONS OF SECTION 36(1)(II) ARE NOT APPLICABLE BECAUSE EXPEND ITURE WAS CLAIMED UNDER THE HEAD CAPITAL GAIN U/S 48. WE DO NOT FIND ANY FO RCE IN THIS CONTENTION. SECTION 36(1)(II) READS AS UNDER:- 36. OTHER DEDUCTIONS.--(1) THE DEDUCTIONS PROVIDED FOR IN THE FOLLOWING CLAUSES SHALL BE ALLOWED IN RESPECT OF TH E MATTERS DEALT WITH THEREIN, IN COMPUTING THE INCOME REFERRE D TO IN SECTION 28-- (I) . (II) ANY SUM PAID TO AN EMPLOYEE AS BONUS OR COMMISSION FOR SERVICES RENDERED, WHERE SUCH SUM WO ULD NOT HAVE BEEN PAYABLE TO HIM AS PROFITS OR DIVIDEND IF IT HAD NOT BEEN PAID AS BONUS OR COMMISSION: 16. THE ABOVE CLEARLY SHOWS THAT ANY BONUS OR COMMI SSION PAID TO AN EMPLOYEE FOR SERVICES RENDERED IF THE SAME WAS PAYA BLE AS DIVIDEND ARE NOT ALLOWABLE. FROM THIS IT BECOMES CLEAR UNDER WHICH HEAD THE EXPENDITURE HAS BEEN CLAIMED IS NOT MATERIAL BUT THE MANDATE OF THE PROVISION IS THAT IF SUCH COMMISSION WAS PAYABLE AS DIVIDEND TO THE SUCH PERS ONS THEN SUCH COMMISSION IS NOT ALLOWABLE. HAD THE ASSESSEE COMPANY NOT PAID THE COMMISSION, THE AMOUNT WOULD HAVE REMAINED WITH THE COMPANY WHICH COULD HA VE ULTIMATELY BE PAID TO THE DIRECTORS ONLY BY WAY OF DIVIDEND. THEREFORE, IN OUR OPINION THE DECISION OF SPECIAL BENCH IN THE CASE OF DALAL BROACHA STOCK B ROKING (P.) LTD. V. ACIT (SUPRA) IS SQUARELY APPLICABLE. THE HEAD NOTE OF THAT CASE READS AS UNDER:- 10 SECTION 36(1)(II) OF THE INCOME-TAX ACT, 1961-BON US OR COMMISSION ASSESSMENT YEAR 2006-07-WHETHER ANY EXPENDITURE ON ACCOUNT OF PAYMENT OF COMMISSION TO AN EMPLOYEE WILL BE ALLOWABLE AS DEDUCTION UNDER PROVI SIONS OF SECTION 36(1)(II) IRRESPECTIVE OF FACT WHETHER EMPL OYEE IS A SHAREHOLDER OR NOT OR WHETHER COMMISSION HAS BEEN P AID FOR SOME EXTRA SERVICES OR FOR SOME SERVICES, SUBJECT T O CONDITION THAT PAYMENT IS NOT IN LIEU OF DIVIDEND HELD, YES - WHETHER HOWEVER, IN CASE EXTRA SERVICES HAVE BEEN RENDERED FOR PAYMENT OF COMMISSION, IT WILL BE ONE OF RELEVANT F ACTORS TO CONSIDER WHILE DECIDING WHETHER CASE IS COVERED BY EXCEPTION PROVIDED IN SECTION 36(1)(II),I.E., WHETHER PAYMENT OF COMMISSION IS IN LIEU OF DIVIDEND-HELD, YES-WHETHER WORD PAYABLE USED IN SECTION 36(1)(II) MEANS THAT DIVI DEND WOULD HAVE BEEN DECLARED BY ANY REASONABLE MANAGEMENT ON FACTS AND CIRCUMSTANCES OF CASE, CONSIDERING PROFITABILIT Y AND OTHER RELEVANT FACTORS AND BECOME PAYABLE TO SHAREHOLDERS HELD, YES-WHETHER, THEREFORE, AFTER CONSIDERING ENTIRETY OF FACTS AND CIRCUMSTANCES OF CASE, IF A REASONABLE CONCLUSION C AN BE DRAWN THAT DIVIDEND WAS PAYABLE BY ASSESSEE COMPANY AND IT INSTEAD OF PAYING DIVIDEND HAD PAID COMMISSION TO I TS EMPLOYEE-SHAREHOLDER, SUCH PAYMENT OF COMMISSION WI LL BE IN LIEU OF DIVIDEND AND CLAIM OF DEDUCTION WILL NOT BE ALLOWABLE UNDER SECTION 36(1)(II)- HELD, YES- ASSESSEE-COMPAN Y WAS A SHARE BROKER-DURING RELEVANT ASSESSMENT YEAR, IT HA D PAID COMMISSION OF TUNE OF RS. 40 LAKHS EACH TO THREE WO RKING DIRECTORS WHO WERE ONLY SHAREHOLDERS OF COMPANY AND OWNED ENTIRE SHARE CAPITAL OF RS. 6.5 CRORES OF COMPANY- ASSESSING OFFICER HELD THAT SUCH PAYMENT OF COMMISSION WAS IN LIEU OF DIVIDEND AND WAS NOT ELIGIBLE FOR DEDUCTION UNDER S ECTION 36(1)(II)- ASSESSEE CLAIMED THAT PAYMENT OF COMMISS ION WAS NOT IN LIEU OF PROFIT OR DIVIDEND AS PAYMENT HAD BE EN MADE TO DIRECTORS FOR HARD WORK THEY HAD PUT IN IMPROVING P ROFITS OF COMPANY- HOWEVER, FACTS REVEALED THAT STEADY RISE I N PERFORMANCE OF COMPANY WAS DUE TO IMPROVED MARKET CONDITIONS AND NOT BECAUSE OF ANY EXTRA SERVICE REN DERED BY DIRECTORS AS NO EVIDENCE HAD BEEN PRODUCED FOR REND ERING OF EXTRA SERVICES- ASSESSEE HAD NOT GIVEN ANY CONVINCI NG REASON FOR NOT DECLARING DIVIDEND IN SPITE OF SUBSTANTIAL PROFIT- 11 MOREOVER, NO COMMISSION WAS PAID TO ANY EMPLOYEE OT HER THAN THREE SHAREHOLDER DIRECTORS WHO WERE ALSO FAMI LY MEMBERS-WHETHER, ON FACTS, PAYMENT OF COMMISSION OF RS. 1.20 CRORES TO THREE WORKING DIRECTORS WAS IN LIEU OF DIVIDEND AND SAME WAS NOT ALLOWABLE AS DEDUCTION UNDER SECTI ON 36(1)(II)- HELD, YES 17. IN THE CASE BEFORE US, BOTH THE EMPLOYEES I.E SHRI B.M SINGH AS WELL AS HIS WIFE MRS. KIRAN B.M. SINGH ARE DIRECTORS WHO HA VE ALREADY RECEIVED THE SALARY AND IF THE AMOUNT OF COMMISSION WAS NOT PAI D THEY WOULD HAVE BECOME ENTITLED TO RECEIVE THE DIVIDEND. THE LD. COUNSEL HAD ALSO RELIED ON THE DECISION OF AMB METPLAST P. LTD V DCIT (SUPRA) AND COMMISSIO NER OF INCOME-TAX VS CAREER LAUNCHER INDIA LTD. (SUPRA) FOR THE PROPOSI TION THAT IN THE CIRCUMSTANCES OF THE CASE BEFORE US SECTION 36(1)(II) WOULD NOT B E ATTRACTED. 18. IN THE CASE OF AMB METPLAST P. LTD V DCIT (SUPR A), THE DIRECTORS WERE PAID COMMISSION IN TERMS OF AN AGREEMENT THROUGH W HICH IN ADDITION TO SALARY,1 % COMMISSION WAS REQUIRED TO BE PAID, THEREFORE, IT BECOMES CLEAR THAT COMMISSION WAS PAYABLE AS PART OF THE DIRECTORS SAL ARY AS PER THE AGREEMENT ENTERED INTO BETWEEN THE COMPANY AND THE DIRECTORS WHEREAS IN THE CASE BEFORE US, COMMISSION IS PAID BY PASSING A BOARD RESOLUTIO N AND IS NOT PART OF THE REGULAR REMUNERATION OF THE DIRECTORS. SIMILAR SIT UATION WAS THERE IN THE CASE OF COMMISSIONER OF INCOME-TAX VS CAREER LAUNCHER INDIA LTD. THEREFORE, THE RATIO LAID DOWN IN BOTH THESE CASES ARE NOT APPLICABLE. I N VIEW OF THE ABOVE DISCUSSIONS, WE ARE OF THE OPINION THAT LD. CIT(A) HAS MISDIRECTED HIMSELF IN ALLOWING THE RELIEF BY SIMPLY OBSERVING THAT THERE IS NO BAR FOR ANY PERSON TO ACT AS A PROPERTY BROKER. HE HAS TOTALLY MISSED THE FAC T THAT THE PERSONS WHO GOT COMMISSION WERE EXECUTIVE DIRECTORS OF THE COMPANY WHO WE ALREADY IN RECEIPT OF THE SALARY AND WERE DUTY BOUND TO PERFORM THE FU NCTIONS WHICH WERE ASSIGNED TO THEM WITH THE REMUNERATION PAID TO THEM. THEREF ORE, WE SET ASIDE HIS ORDER AND RESTORE THAT OF ASSESSING OFFICER. 12 19. GROUND NO.2: AFTER HEARING BOTH THE PARTIES WE FIND THE PLOT SITUATED IN INDUSTRIAL AREA, PHASE-I, MOHALI WHICH WAS SOLD DUR ING THE YEAR WAS PURCHASED PRIOR TO 1981. THE ASSESSEE FILED A VALUATION REPO RT FROM THE APPROVED VALUEAR FOR ESTIMATING THE FAIR MARKET VALUE AS ON 1.4.198 1. THE VALUER MENTIONED IN THE VALUATION REPORT THAT PRESENT RATE WAS RS. 3000/- P ER SQUARE YARD AND THEREAFTER HE APPLIED THE COST INFLATION INDEX IN THE REVERSE ORDER AND FOUND VALUE AT RS. 612/- PER SQUARE YARD. THEREAFTER, HE ADOPTED FI NALLY RATE OF RS. 600/- PER SQUARE YARD AND FAIR MARKET VALUE AS ON 1.4.1981 WA S TAKEN AT RS. 25.00,002/-. THE ASSESSING OFFICER OBSERVED THAT METHOD OF REVER SE INDEXATION WAS NOT APPROPRIATE METHOD. HE FURTHER OBSERVED THAT VALUER HAS MENTIONED THAT CURRENT VALUE OF THE PLOT OF RS. 3000/- BY SQUARE YARD BUT CURRENT YEAR HAS NOT BEEN MENTIONED. FURTHER NO EVIDENCE WAS ENCLOSED OR DECL ARED IN THE VALUATION REPORT FOR ASSUMING THE VALUE OF RS. 3000/- IN THE CURRENT YEAR. THEREFORE, ASSESSING OFFICER ASKED THE ASSESSEE TO JUSTIFY THE VALUATION AND IN RESPONSE IT WAS SUBMITTED AS UNDER;- AS EARLIER EXPLAINED, THE ASSESSEE SOLD THE LAND W HICH HE ACQUIRED ON 30.01.1969 I.E. BEFORE 01.04.1981. AS PER THE PR OVISIONS OF SECTION 55(2) OF THE INCOME TAX ACT, THE ASSESSEE H AS THE OPTION TO ADOPT A FAIR MARKET VALUE OF THIS LAND. ACCORDINGLY , HE EXERCISED THIS OPTION AND A FAIR MARKET VALUE HAS BEEN ASSESS ED BY THE COMPETENT PERSON. THIS FAIR MARKET VALUE HAS BEEN C ONSIDERED AS ACQUISITION COST AND FURTHER INDEXED UNDER THE PROV ISIONS OF THE INCOME TAX ACT TO COMPUTE THE CAPITAL GAIN LIABILIT Y. THEREFORE, THE ASSESSEE IS FULLY JUSTIFIED IN HAVIN G CHOSEN THE FAIR MARKET VALUE INSTEAD OF EITHER BOOK VALUE OR THE PR EVAILING GOVT PRICE ON 01.04.1981. KINDLY PERMIT US TO MENTION TH E MARKET VALUE OF ANY PROPERTY AT ANY TIME IS ALWAYS HIGHER AS COM PARE TO THE RATES ADOPTED BY THE GOVT. AUTHORITIES. IT IS EVIDENT FRO M THE PRESENT CASE ALSO WHERE THE SALES CONSIDERATION OF RS. 400 LACS IS MUCH MORE THAN THE PREVAILING GOVT. PRICE. IN VIEW OF THIS TH E MEANING OF FAIR MARKET VALUE U/S 55(2) SHOULD NOT BE MISSED WITH GO VT RESERVE PRICE AS ON 01.04.1981. THE FMV AS ASSESSED BY THE COMPET ENT VALUER MAY PLEASE BE ADOPTED FOR CAPITAL GAIN LIABILITY. 13 20. THE ASSESSING OFFICER WAS NOT SATISFIED FROM TH E REPLY AND IN ORDER TO FIND OUT THE CORRECT VALUE OF THE PROPERTY AS ON 1. 4.1981 INFORMATION WAS CALLED FROM PUNJAB SMALL INDUSTRIES AND EXPORT CORPORATION LTD (PSIEC). PSIEC INFORMED THE ASSESSING OFFICER THAT ANOTHERPLOT IN INDUSTRIAL AREA, MOHALI WAS ALLOTTED AT THE RATE OF RS. 46/- PER SQUARE YARD ON 12.7.1981. IN THE LIGHT OF THIS RATE AND OBSERVATIONS OF THE APPROVED VALUER THAT T HE NORMAL VALUE IS 2 -3 TIMES HIGHER THEN THE GOVERNMENT ALLOTMENT RATES, THE ASS ESSING OFFICER ESTIMATED THE FAIR MARKET VALUE BY MULTIPLYING THE AMOUNT OF VALU E AS INFORMED BY PSIEC BY THREE TIMES I.E. 46 X 3 AND ADOPTED RATE FOR 138/- PER SQUARE YARD AS FAIR MARKET VALUE AS ON 1.4.1981 AND ALLOWED THE INDEXATION ACC ORDINGLY. 21. ON APPEAL, THE SUBMISSIONS MADE BEFORE ASSESSIN G OFFICER WERE REITERATED AND RELIANCE WAS PLACED ON SOME CASE LAWS. IT WAS FURTHER EMPHASIZED THAT VALUATION REPORT WAS FURNISHED WHICH WAS ISSUED BY A REGISTERED VALUER AND THEREFORE, SAME SHOULD BE ADOPTED. FURTHER, SINCE V ALUATION WAS NOT REFEREED TO DVO, THEREFORE, THERE WAS NO BASIS FOR REJECTION OF THE VALUER REPORT. THE LD. CIT(A) ACCEPTED THESE SUBMISSIONS AND OBSERVED THAT SINCE MATTER WAS NOT REFERRED TO DVO THE VALUATION GIVEN BY REGISTERED V ALUER SHOULD HAVE BEEN ADOPTED. 22. BEFORE US LD. DR REFERRED TO THE CONTENTS OF TH E ASSESSMENT ORDER AND SUBMITTED THAT ASSESSING OFFICER HAS RIGHTLY REJECT ED THE METHOD OF REVERSE INDEXATION. THE SPECIAL BENCH OF THE TRIBUNAL IN CA SE OF HIRALAL LOKCHANDANI V ITO 106 ITD 45 HAS CLEARLY HELD THAT REVERSE INDEXATION METHOD IS NOT CORRECT METHOD FOR VALUATION. SIMILARLY, THE HON'BLE CALCUT TA HIGH COURT IN THE CASE OF JAGAT MOHAN KAPUR V WEALTH TAX OFFICER 211 ITR 721 HAS CLEARLY OPINED THAT COST INFLATION INDEX RELATES ONLY TO FORWARD FIGURE S IN TIME BUT SUCH COST INFLATION INDEX COULD NOT BE REVERSED IN A MANNER S O AS SHRINKAGE INDEX I.E. FOR BACKWARD CALCULATIONS. IN ANY CASE THE ASSESSING OF FICER HAS OPINED THE VALUATION FROM A GOVERNMENT AGENCY WHICH WAS RESPON SIBLE FOR ALLOTTING THE PLOT 14 AND THE ASSESSING OFFICER HAS BEEN MORE THAN REASON ABLE TO INCREASE SUCH VALUATION BY THREE TIMES. 23. ON THE OTHER HAND, LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER AND CIT(A) AND SU BMITTED THAT VALUATION FILED BEFORE THE ASSESSING OFFICER WAS PREPARED BY THE REGISTERED VALUER AND COULD NOT BE REJECTED LIGHTLY. HE ALSO SUBMITTED T HAT HON'BLE GUJARAT HIGH COURT IN THE CASE OF SHANTADEVI GAEKWAD (DECEASED) VS. DCIT 250 CTR (GUJ) 421 HAS HELD THAT REVERSE INDEXATION CAN BE APPLIED EVEN IN CASE OF FINDING THE FAIR MARKET VALUE OF THE EARLIER PERIOD. 24. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND FIND THAT ASSESSEE HAS FILED THE VALUATION REPORT FROM A REGISTERED V ALUER. HOWEVER, THE ASSESSING OFFICER CORRECTLY POINTED OUT THE DEFECT THAT NO YE AR WAS MENTIONED AGAINST THE CURRENT YEAR. MOREOVER, NOWHERE IT WAS MENTIONED I N THE VALUATION REPORT REGARDING VALUATION OF RS. 3000/- PER SQUARE YARD I N THE CURRENT YEAR. NORMALLY IN SUCH A SITUATION THE MATTER SHOULD HAVE BEEN REF ERRED TO THE VALUATION CELL BUT ASSESSING OFFICER HAS REFERRED THE MATER TO THE PSI DC WHICH IS A GOVERNMENT AGENCY RESPONSIBLE FOR ALLOTTING THE INDUSTRIAL PLO TS IN MOHALI AREA WHERE THE PLOT OF THE ASSESSEE WAS ALSO LOCATED. THIS AGENCY HAS WRITTEN A LETTER WHICH HAS BEEN EXTRACTED BY ASSESSING OFFICER AND READS AS UN DER:- PUNJAB SMALL INDUSTRIES & EXPORT CORPORATION LTD. UDYOG BHWAN, SECTOR 17, CHANDIGARH THE DEPUTY COMMISSIONER, INCOME TAX, CIRCLE 1(1), CHANDIGARH SUBJECT: - CALLING FOR INFORMATION U/S 133(6) OF IN COME TAX ACT 1961. SIR, 15 KINDLY REFER TO YOURE YOUR MEMO NO. DCIT/C1(1) 20 09-10/9940 DATED 28.10.2009 ON THE SUBJECT NOTED ABOVE. IN THIS CONTEXT, IT IS INFORMED THAT PSIEC HAD ALL OTTED PLOT NO. B-61, PHASE VII, MOHALI MEASURING 11,245 SQ YARDS ON 22.7.1981 TO M/S RINE MACHINE TOOLS @ RS. 46/- PER SQ. YDS. A COPY OF ALLOTMENT LETTER OF PLOT NO. B-61 PHASE VII, FOCAL POINT, MOHALI IS SENT HEREWITH FOR INFORMATIO N. YOURS FAITHFULLY, SD/- ESTATE OFFICER-IV ENCL: AS ABOVE. 25. THE ABOVE CLEARLY SHOWS THAT AGENCY ITSELF HAS ALLOTTED A PLOT OF 11245 SQUARE YARD ON 22.7.1981 @ RS. 46/- PER SQUARE YARD THE VALUE WHICH WAS REQUIRED TO BE FOUND IS ON 1.4.1981 AND THE PLOT HA S BEEN ALLOTTED BY PSIEC ON1 JULY 1981 AND THE PERIOD COMES QUITE IN PROXIMITY T O THE DATE OF 1.4.1981 AND THEREFORE, IN OUR OPINION THE ASSESSING OFFICER COU LD HAVE APPLIED THIS RATE EASILY. THE ASSESSING OFFICER HAS BEEN MORE THAN REASONABLE IN FURTHER INCREASING THIS RATE BY THREE TIMES TO ASCERTAIN TH E MARKET VALUE, THEREFORE, THE VALUATION AS ADOPTED BY ASSESSING OFFICER SEEMS TO BE CORRECT. WE DO NOT INTEND TO GO INTO THE CASE LAWS BECAUSE THE JUDGMENTS OF T WO HIGH COURTS ARE CONTRARY TO EACH OTHER WHEREAS THE ASSESSING OFFICER HAS BAS ED HIS VALUATION ON THE BASIS OF CONCRETE COMPARABLE INSTANCE GIVEN BY PSIEC. TH EREFORE, WE SET ASIDE THE ORDER OF LD. CIT(A) AND RESTORE THAT OF ASSESSING O FFICER. 25. IN THE RESULT, REVENUES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 09.12.2014 SD/- SD/- (BHAVNESH SAINI) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 9 TH DECEMBER, 2014 RKK COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR 16