ACIT CEN CIR 29, MUMBAI V. PEST CONTROL (I) P.LTD, MUMBAI

ITA 5953/MUM/2012

• Counselvise Citation: 595319914 RSA 2012
• Duration Of Justice: 1 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 28-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJEEV JAIN
• Assessee Lawyers: G S PIKALE
• Keywords: Validity of assessment
• Section: 148; 143(3)

Judgement Text

C IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI .. , !'# $ $ $ $ %$$ $&; ( !'# !) BEFORE SHRI P.M. JAGTAP, AM AND SHRI VIVEK VARMA, J M !./ I.T.A. NO. 5633/MUM/2012 ( (+ & $,& (+ & $,& (+ & $,& (+ & $,& / / / / ASSESSMENT YEAR : 2006-07 M/S PEST CONTROL (INDIA) PVT. LTD., 36, YUSUF BLDG., M.G. ROAD, FORT, MUMBAI 400 001. + + + + / VS. ASSTT. COMMISSIONER OF INCOME TAX- CENTRAL CIRCLE 29, AAYAKAR BHAVAN, MUMBAI - 20. #- !./ PAN : AAACP5994K ( -. / // / APPELLANT ) .. ( /0-. / RESPONDENT ) !./ I.T.A. NO. 5952/MUM/2012 ( (+ & $,& (+ & $,& (+ & $,& (+ & $,& / / / / ASSESSMENT YEAR : 2006-07 ASSTT. COMMISSIONER OF INCOME TAX- CENTRAL CIRCLE 29, AAYAKAR BHAVAN, MUMBAI - 20. + + + + / VS. M/S PEST CONTROL (INDIA) PVT. LTD., 36, YUSUF BLDG., M.G. ROAD, FORT, MUMBAI 400 001. #- !./ PAN : AAACP5994K !./ I.T.A. NO. 5953/MUM/2012 ( (+ & $,& (+ & $,& (+ & $,& (+ & $,& / / / / ASSESSMENT YEAR : 2009-10 ASSTT. COMMISSIONER OF INCOME TAX- CENTRAL CIRCLE 29, AAYAKAR BHAVAN, MUMBAI - 20. + + + + / VS. M/S PEST CONTROL (INDIA) PVT. LTD., 36, YUSUF BLDG., M.G. ROAD, FORT, MUMBAI 400 001. #- !./ PAN : AAACP5994K ( -. / // / APPELLANT ) .. ( /0-. / RESPONDENT ) ASSESSEE BY SHRI G.S. PIKALE REVENUE BY : SHRI SANJEEV JAIN !+$ 1 / // / DATE OF HEARING : 27-11-2013 23, 1 / DATE OF PRONOUNCEMENT : 29.11.2013 [ ITA 5633,5952 & 5952/M/12 2 '4 / O R D E R PER P.M. JAGTAP, A.M . : .. , !'# OUT OF THESE THREE APPEALS, TWO APPEALS BEING ITA N O. 5633/MUM/12 (ASSESSEES APPEAL) AND ITA NO. 5952/MUM/12 (REVENU ES APPEAL) ARE CROSS APPEALS FOR A.Y. 2006-07 WHICH IS DIRECTED AGAINST THE ORDER OF LD. CIT(A) -40 MUMBAI DATED 9-7-12 WHILE THE THIRD APPEAL BEING IT A NO. 5953/MUM/2012 IS THE APPEAL OF THE REVENUE FOR A.Y. 2009-10 WHICH IS DIRECTED AGAINST THE ORDER OF LD. CIT(A) 40, MUMBAI DATED 9-7-2012. SINC E A COMMON ISSUE IS INVOLVED IN THESE APPEALS, THE SAME HAVE BEEN HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS SINGLE CONSOLIDATED ORDER FOR T HE SAKE OF CONVENIENCE. 2. FIRST, WE SHALL TAKE UP THE CROSS APPEALS FOR A. Y. 2006-07, THE RELEVANT FACTS OF THE CASE GIVING RISE TO THESE APPEALS ARE THAT THE ASSESSEE, A COMPANY WHICH IS ENGAGED IN THE BUSINESS OF PROVIDING PEST CONTROL SERVICES AS WELL AS IN MANUFACTURING AND FORMULATING THE PRODUCTS REQUI RED FOR ITS OWN CONSUMPTION, FILED ITS RETURN OF INCOME FOR THE YEA R UNDER CONSIDERATION ON 30-11-1996 DECLARING TOTAL INCOME OF RS. 7,46,46,56 0/-. IN THE ASSESSMENT COMPLETED ORIGINALLY U/S 143(3) OF THE INCOME TAX A CT, 1961 VIDE AN ORDER DATED 6-6-2008, THE TOTAL INCOME OF THE ASSESSEE WA S DETERMINED BY THE A.O. AT RS. 7,49,00,669/-. SUBSEQUENTLY, THE ASSESSMENT FOR A.Y. 2006-07 WAS REOPENED BY THE A.O. AND NOTICE U/S 148 DATED 24-3- 2011 WAS ISSUED BY HIM AFTER RECORDING THE REASONS. IN A LETTER DATED 27- 6-2011 FILED IN RESPONSE TO THE SAID NOTICE, THE ASSESSEE COMPANY STATED THAT T HE RETURN ORIGINALLY FILED BY IT ON 30-11-1996 BE TREATED AS THE RETURN FILED IN COMPLIANCE TO THE NOTICE ISSUED U/S 148 OF THE ACT. THEREAFTER, REASSESSMEN T WAS COMPLETED BY THE ITA 5633,5952 & 5952/M/12 3 A.O. VIDE AN ORDER DATED 20-10-2011 PASSED U/S 143( 3) R.W.S. 147 MAKING TWO ADDITIONS TO THE TOTAL INCOME OF THE ASSESSEE O N ACCOUNT OF UNEXPIRED SERVICE CONTRACT AMOUNTING TO RS. 1,38,03,503/- AND DISALLOWANCE OF COMMISSION TO DIRECTORS AMOUNTING TO RS. 71,16,300/ -. 3. AGAINST THE ORDER PASSED BY THE A.O. U/S 143(3) R.W.S. 147 OF THE ACT, APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LD. CIT(A) CHALLENGING THE VALIDITY OF REASSESSMENT MADE BY THE A.O. AS WELL A S DISPUTING BOTH THE ADDITIONS MADE THEREIN. AFTER CONSIDERING THE SUBM ISSIONS MADE ON BEHALF OF THE ASSESSEE AS WELL AS THE MATERIAL AVAILABLE ON R ECORD, THE LD. CIT(A) UPHELD THE VALIDITY OF ASSESSMENT PASSED BY THE A.O. U/S 1 43(3) R.W.S. 147OF THE ACT OVERRULING THE PRELIMINARY OBJECTION RAISED BY THE ASSESSEE. HE, HOWEVER, DELETED BOTH THE ADDITIONS MADE BY THE A.O. TO THE TOTAL INCOME OF THE ASSESSEE IN THE SAID ASSESSMENT ON ACCOUNT OF UNEXP IRED SERVICE CONTRACT AND DISALLOWANCE OF COMMISSION TO THE DIRECTORS FOLLOWI NG THE ORDER OF HIS PREDECESSOR IN ASSESSEES OWN CASE FOR A.Y. 2007-08 WHEREIN THE ADDITIONS MADE ON THE SIMILAR ISSUES WERE DELETED BY HIS PRED ECESSOR. HE ALSO NOTED THAT THE APPELLATE ORDER PASSED BY THE FIRST APPELL ATE AUTHORITY IN ASSESSEES OWN CASE FOR A.Y. 2007-08 ON SIMILAR ISSUE WAS FOLL OWED BY HIM TO GIVE RELIEF TO THE ASSESSEE IN A.Y. 2008-09 AND EVEN THE TRIBUN AL HAD UPHELD THE ORDER OF THE FIRST APPELLATE AUTHORITY FOR A.Y. 2007-08 G IVING RELIEF TO THE ASSESSEE ON SIMILAR ISSUE. AGGRIEVED BY THE ORDER OF THE LD. C IT(A), ASSESSEE AND REVENUE BOTH ARE IN APPEAL BEFORE THE TRIBUNAL. 4. IN ITS PRESENT APPEAL FILED BEFORE THE TRIBUNAL FOR A.Y. 2006-07, THE ASSESSEE HAS CHALLENGED THE ACTION OF THE LD. CIT(A ) IN UPHOLDING THE VALIDITY OF ASSESSMENT MADE BY THE A.O. U/S 143(3) R.W.S. 14 7 OF THE ACT WHEREAS THE REVENUE HAS CHALLENGED THE ACTION OF THE LD. CIT(A) IN DELETING THE ADDITIONS MADE BY THE A.O. ON ACCOUNT OF UNEXPIRED SERVICE CO NTRACT AND DISALLOWANCE OF COMMISSION TO THE DIRECTORS. ITA 5633,5952 & 5952/M/12 4 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS AGREED B Y THE LD. REPRESENTATIVES OF BOTH THE SIDES, THE ISSUES RAISED IN THE APPEAL OF THE REVENUE RELATING TO THE ADDITIONS MADE ON ACCOUNT OF UNEXPIRED SERVICE CONT RACT AND DISALLOWANCE OF COMMISSION TO THE DIRECTORS ARE SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL RENDERED IN ASSESSEES OWN CASE FOR A.Y. 2007-08 VIDE ITS ORDER DATED 14-3-2012 PASSED IN ITA NO. 53 17/MUM/2010 WHEREIN THE ORDER OF THE LD. CIT(A) DELETING THE ADDITIONS MADE BY THE A.O. ON ACCOUNT OF UNEXPIRED SERVICE CONTRACT AND DISALLOWANCE OF C OMMISSION TO THE DIRECTORS WAS UPHELD BY THE TRIBUNAL FOR THE FOLLOWING REASON S GIVEN IN PARA 3 & 6 OF ITS ORDER:- 3. NOW THE REVENUE IS IN APPEAL BEFORE US. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE RECORDS. WE FIND THAT THE A.O. HIMSELF HAS ACCEPTED THAT THE SERVICE CONTRACT S IN MANY CASES ARE SPILL OVER TO TWO FINANCIAL YEARS. IN VIEW OF THE A .O., AT THE MOST, THE ASSESSEE CAN CARRY FORWARD 25% OF THE RECEIPTS FOR RECOGNISING THE INCOME IN THE NEXT YEAR AND THE ASSESSEE SHOULD HAV E RECOGNIZED TO THE EXTENT OF 75% OF ITS RECEIPTS IN THE PRESENT ASSESS MENT YEAR. THE LD. COUNSEL DEMONSTRATED THAT WHERE ALL THE SERVICES AR E OVER IN A FINANCIAL YEAR, ENTIRE INCOME IS RECOGNIZED AND ONLY IN THE C ASES WHERE THE CONTRACTS ARE SPILL OVER IN THOSE CASES ONLY THE PR O RATE REVENUE IS RECOGNIZED IN THE NEXT YEAR. WE FURTHER FIND THAT I N THE PAST THE ASSESSEE HAS CONSISTENTLY FOLLOWING THIS METHOD AND EVEN IN THE ASSESSMENT COMPLETED U/S.143(3) THE METHOD FOLLOWED BY THE ASSESSEE HAS BEEN ACCEPTED. WE FIND THAT THERE IS NO LOGIC I N THE APPROACH OF THE A.O. WE FIND NO REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT (A) ON THIS ISSUE ACCORDINGLY THE SAME IS CONFIRMED. ACCOR DINGLY, ISSUE IN GROUND 'A' STANDS DISMISSED. 6. WE HAVE HEARD THE PARTIES AND PERUSED THE RECOR DS. THE LD. COUNSEL SUBMITS THAT COMPANY HAS BEEN PAYING THE DI RECTORS REMUNERATION AS A PROFIT COMMISSION AS PER THE PROV ISIONS OF THE COMPANIES ACT, 1956, AFTER DETERMINATION OF THE PRO FITS. THE ASSESSEE- COMPANY ALSO IS PERFORMANCE INCENTIVES TO THE MANAG ERS. HE SUBMITTED THAT MR. S. RAO WAS CHAIRMAN & MANAGING DIRECTOR OF THE ASSESSEE COMPANY WHO WITHDREW FROM THE ACTIVE PARTICIPATION OF THE COMPANY'S BUSINESS AND MR. ANIL S. RAO WAS PAID A COMMISSION OF RS.81,39,200/- @ 8% OF THE PROFIT WHICH AS PER THE RESOLUTION PASS ED BY THE BOARD. WE HAVE ALSO HEARD LD. D.R. WE FIND THAT THE PROFIT CO MMISSION WHICH IS PAID TO THE DIRECTOR IS APPROVED IN THE GENERAL MEE TING (G.M.) OF THE ITA 5633,5952 & 5952/M/12 5 SHAREHOLDERS AND REQUIRED EVIDENCE WAS FILED BEFORE THE LD. CIT (A). WE FURTHER FIND THAT ASSESSEE HAS BEEN PAYING PROFIT C OMMISSION TO THE MANAGING DIRECTOR IN PAST ALSO. EARLIER, MR. S. RAO WAS PAID SAME COMMISSION AND AFTER HIS WITHDRAWAL FROM BUSINESS O F THE ASSESSEE, MR. ANIL RAO HAS BEEN PAID, ENHANCING HIS PERCENTAG E TO 8%, THAT IS MERGING PERCENTAGE OF COMMISSION EARLIER PAID TO HI S FATHER. IN PAST A.O. HAS ALLOWED SAID DEDUCTION AND NEVER RAISED AN Y OBJECTION. AFTER GIVING OUR ANXIOUS CONSIDERATION TO THE FACTS ON RE CORDS, IN OUR OPINION THERE WAS NO JUSTIFICATION TO THE A.O. TO DISALLOW THE COMMISSION PAYMENT TO THE DIRECTORS AND THE MANAGERS. WE FIND NO REASON TO TAKE A DIFFERENT VIEW FROM THAT OF LD. CIT (A), WE ACCOR DINGLY CONFIRM THE SAME AND ACCORDINGLY ISSUE IN ROUND 'B' ALSO STANDS DISMISSED. THE DECISION RENDERED BY THE TRIBUNAL IN A.Y. 2007- 08 WAS ALSO SUBSEQUENTLY FOLLOWED BY THE TRIBUNAL IN 2008-09 WH ILE GIVING RELIEF TO THE ASSESSEE ON THE SIMILAR ISSUE VIDE ITS ORDER DATED 03-04-2013 PASSED IN ITA NO. 5673/MUM/2011. AS THE ISSUES INVOLVED IN THE Y EAR UNDER CONSIDERATION I.E 2006-07 AS WELL AS ALL THE MATERIAL FACTS RELEV ANT THERETO ARE ADMITTEDLY SIMILAR TO THAT OF 2007-08 AND 2008-09, WE RESPECTF ULLY FOLLOW THE ORDERS OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL FOR ASSESSME NT YEARS 2007-08 AQND 2008-09 AND UPHOLD THE IMPUGNED ORDER OF THE LD. CI T(A) DELETING THE ADDITIONS MADE BY THE A.O. ON ACCOUNT OF UNEXPIRED SERVICE CONTRACT AND DISALLOWANCE OF COMMISSION TO THE DIRECTORS. THE AP PEAL OF THE REVENUE FOR A.Y. 2006-07 IS ACCORDINGLY DISMISSED. 6. AS A RESULT OF OUR DECISION RENDERED ABOVE CONFI RMING THE DELETION OF BOTH THE ADDITIONS MADE BY THE A.O. TO THE TOTAL IN COME OF THE ASSESSEE IN THE REASSESSMENT COMPLETED U/S 143(3) R.W.S. 147 OF THE ACT, THE SOLITARY ISSUE RAISED IN THE APPEAL OF THE ASSESSEE CHALLENGING TH E VALIDITY OF THE SAID ASSESSMENT HAS BECOME ACADEMIC AS AGREED BY THE LD. REPRESENTATIVES OF BOTH THE SIDES. WE, THEREFORE, DO NOT CONSIDER IT NECESS ARY OR EXPEDIENT TO ADJUDICATE UPON THE SAME. 7. AS REGARDS THE APPEAL OF THE REVENUE FOR A.Y. 20 09-10 BEING ITA NO. 5953/MUM/2012, IT IS OBSERVED THAT THE ISSUES INVOL VED THEREIN RELATING TO ITA 5633,5952 & 5952/M/12 6 DELETION BY THE LD. CIT(A) OF THE ADDITIONS MADE BY THE A.O. ON ACCOUNT OF UNEXPIRED SERVICE CONTRACT AND DISALLOWANCE COMMISS ION PAYMENT MADE TO THE DIRECTORS ARE SIMILAR TO A.Y. 2006-07. ACCORDIN GLY WE FOLLOW OUR CONCLUSION DRAWN IN A.Y. 2006-07 AND UPHOLD THE IMP UGNED ORDER OF THE LD. CIT(A) DELETING THE ADDITIONS MADE BY THE A.O. ON A CCOUNT OF UNEXPIRED SERVICE CONTRACT AND DISALLOWANCE OF COMMISSION TO DIRECTORS. APPEAL OF THE REVENUE FOR A.Y. 2009-10 IS THEREFORE DISMISSED. 8. IN THE RESULT, THE APPEALS OF THE REVENUE FOR AS SESSMENT YEARS 2006-07 AND 2009-10 AND THE APPEAL OF THE ASSESSEE FOR A.Y. 2006-07 ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29. 11.2013. . '4 1 23, 5'+6 29.11.2013 3 1 SD/- SD/- (VIVEK VARMA) (P.M. JAGTAP ) ( !'# JUDICIAL MEMBER !'# / ACCOUNTANT MEMBER MUMBAI ; 5'+ 29.11.2013 DATED $.(+.!./ RK , SR. PS '4 1 /(7% 8%, '4 1 /(7% 8%, '4 1 /(7% 8%, '4 1 /(7% 8%,/ COPY OF THE ORDER FORWARDED TO : 1. -. / THE APPELLANT 2. /0-. / THE RESPONDENT. 3. 9 () / THE CIT(A)20, MUMBAI. 4. 9 / CIT 9,, MUMBAI 5. %$< /((+ , , / DR, ITAT, MUMBAI J BENCH 6. =& > / GUARD FILE. '4+! '4+! '4+! '4+! / BY ORDER, !0% /( //TRUE COPY// ? ? ? ?/ // /!@ !@ !@ !@ ( DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI