CHHABRIA BROS. PVT. LTD., MUMBAI V. DY.CIT-2(1), MUMBAI

ITA 6161/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8365 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2012
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 30-10-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 06-09-2011
• Court: TRIBUNAL
• Assessee Lawyers: M D PANDYA
• Keywords: Opportunity of being heard

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTAT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER I.T.A. NO.6161/M/2011 ASSESSMENT YEAR:2008-2009 M/S. CHHABRIA BROS. PVT. LTD., 26, P.J. RAMCHANDANI MARG, APOLLO BUNDER, MUMBAI 400 001. PAN:AAACC6294 VS. THE DCIT - 2(1), MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI M.D. PANDYA RESPONDENT BY : SHRI RAJARSHI DWIVEDY, SR.DR DATE OF HEARING:30.10.2012 DATE OF ORDER: 31.10.2012 O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE ASSESSEE ON 6.9.2011 IS DI RECTED AGAINST THE ORDER OF CIT (A)-4, MUMBAI DATED 9.6.2011 FOR THE ASSESSMENT YEA R 2008-2009. 2. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GR OUNDS WHICH READ AS UNDER: 1. THE APPELLANT SUBMIT THAT ON THE FACTS AND IN TH E CIRCUMSTANCES OF THE CASE THE LD CIT (A)-4, MUMBAI WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF RS. 2,52,000/- MADE BY THE AO ON ACCOUNT OF BONU S PAID TO THE DIRECTORS AS NOT ALLOWABLE EXPENDITURE U/S 36(1)(II) OF THE ACT. 2. THE APPELLANT SUBMIT THAT ON THE FACTS AND IN TH E CIRCUMSTANCES OF THE CASE THE AMOUNT OF BONUS PAID TO THE DIRECTORS IS A LLOWABLE EXPENDITURE U/S 36(1)(II) OF THE ACT AND THE CONDITION THAT ADMISSI BLE ONLY IF NOT PAYABLE AS PROFIT OR DIVIDEND IS NOT SQUARELY APPLICABLE TO THIS CASE AS THERE WAS NO INTENTION OF AVOIDING TAX. 3. THE APPELLANT FURTHER SUBMIT THAT THE BONUS WAS PAID TO THE DIRECTORS IN USUAL COURSE OF BUSINESS AND THE INCOME OF ALL THE DIRECTORS PERTAINING TO THE SAID YEAR IS IN THE BRACKET OF HIGHER TAX RATE AND AS SUCH THERE IS NO INTENTION TO MAKE LOSS TO REVENUE BY REDUCING THE PROFIT OF THE EMPLOYER OR OTHERWISE. 2 3. BRIEFLY STATED THE RELEVANT FACTS OF THE CASE AR E THAT THE ASSESSEE COMPANY HAS 6 DIRECTORS AND THE ASSESSEE PAID A SUM OF RS 2.52 LA KHS AS BONUS TO ALL OF THEM IN ADDITION TO THEIR SALARY @ 20% OF THEIR RESPECTIVE SALARIES. AO INVOKED THE PROVISIONS OF SECTION 36(1)(II) OF THE ACT STATING THAT THE SAID AMOUNT IS NOT BONUS OR COMMISSIONS AND NOT AN ALLOWABLE DEDUCTION. ACCORDINGLY, AO DIS ALLOWED THE AMOUNT OF RS. 2,52,000/-. 4. DURING THE FIRST APPELLATE PROCEEDINGS, AO MADE WRITTEN SUBMISSIONS JUSTIFYING THE CLAIM OF THE ASSESSEE. HOWEVER, LD CIT (A) EXTR ACTED THE SUBMISSIONS OF THE ASSESSEE IN HIS ORDER AND UPHELD THE DECISION OF TH E AO. AGGRIEVED WITH THE ABOVE DECISION OF THE CIT (A), ASSESSEE FILED THE PRESENT APPEAL BEFORE US. 5. BEFORE US, AT THE VERY OUTSET, SHRI M.D. PANDYA , LD COUNSEL FOR THE ASSESSEE MENTIONED THAT THE ORDER OF THE CIT (A) IS NOT A SP EAKING ONE AS EVIDENT FROM PARA 7 OF THE IMPUGNED ORDER. FURTHER, HE MENTIONED THAT THE SAID AMOUNT WAS UNIFORMLY PAID TO ALL THE DIRECTORS OF THE COMPANY @ 20% OF THEIR RES PECTIVE SALARIES AND THE MENTIONED THAT THE SAID PAYMENT DOES NOT AMOUNT TO ANY DISTRI BUTION OF PROFITS OR DIVIDEND PAYMENT TO THE DIRECTORS, WHICH COULD NOT HAVE BEEN PAID AS BONUS. AS PER THE ASSESSEE, THE SAID AMOUNT WAS PAID AS BONUS ONLY. REFERRING TO THE CLAUSE-(II) OF SECTION 36(1), THE LD COUNSEL MENTIONED THAT THE CI T (A) FAILED TO ADJUDICATE THE SECOND LIMB OF THE SAID CLAUSE (II) I.E. WHETHER SUCH SUM WOULD NOT HAVE BEEN PAYABLE TO HIM AS PROFITS OR DIVIDENDS IF IT HAD NOT BEEN P AID AS BONUS AND COMMISSION. ELABORATING THE SAME, LD COUNSEL MENTIONED THAT THE SAID AMOUNT WAS ACTUALLY PAID AS BONUS ONLY AS EVIDENT FROM THE ENTRIES IN THE BOOKS OF ACCOUNT, THEREFORE, THE SAID BONUS EXPENDITURE IS ALLOWABLE UNDER THE SAID CALUS E (II) OF THE ACT. LD COUNSEL ALSO MENTIONED THAT THE CLAIM OF THE ASSESSEE WAS ALLOWE D IN ALL THE EARLIER AS WELL AS IN SUBSEQUENT YEARS AND THEREFORE, THE DEPARTMENT CANN OT TAKE ANY INCONSISTENT STAND ON THE SAME ISSUE WITH IDENTICAL FACTS. FURTHER, LD C OUNSEL RELIED ON THE DECISION IN THE CASE OF AMD METPLAST P. LTD VS. DCIT (2012) 341 ITR 563 (DEL) FOR THE PROPOSITION THAT WHEN THE ASSESSEE MADE PAYMENTS IN COMPLIANCE TO TH E BOARD RESOLUTION, THE SAME 3 CANNOT BE TREATED AS A DIVIDEND. IN THAT CASE, ASSE SSEE IS ENTITLED TO DEDUCTION IN RESPECT OF COMMISSION PAID FOR SERVICES TO THE MANA GING DIRECTOR. 6. ON THE OTHER HAND, LD DR RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES AND MENTIONED THAT THE MATTER NEEDS TO BE SENT TO THE F ILES OF AO CONSIDERING THE FACTS THAT THE ORDERS OF THE CIT (A) IS VERY CRYPTIC AND NONE OF THE AUTHORITIES HAVE REALLY EXAMINED IF THE SAID AMOUNT ARE PAID @ 20% IN COMPL IANCE OF THE AGREEMENT / BOARD RESOLUTION OF THE COMPANY. IT IS ALSO RELEVANT TO M ENTION THAT THERE IS NO ACTUAL FINDING ON THE FACT THAT IF THE SAID AMOUNT WAS PAID AS BON US/COMMISSION FOR THE SERVICES RENDERED AS PER THE BOOKS OF ACCOUNT OF THE ASSESSE E AND NOT AND PAID AS PROFITS OR DIVIDEND. IT IS ALSO NOT CLEAR FROM THE FILES THAT WHETHER THE ASSESSEE PAID THE DIVIDEND TO THE OTHER SHAREHOLDERS. IT IS THE ARGUMENT OF T HE LD DR THAT ALL THE DIRECTORS ARE THE MEMBERS OF THE JOINT FAMILY AND THE SAID PAYMENT @ 20% OF THE SALARY UNIFORMLY IS AGAINST THE PRINCIPLES OF THE BONUS PAYMENTS. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE O RDERS OF THE REVENUE AUTHORITIES. WE HAVE ALSO PERUSED THE CONTENTS OF PARA 7 OF THE IMPUGNED ORDER AND THE SAME READS AS UNDER: I HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISS IONS OF THE ASSESSEE. THE PROVISIONS OF CLAUSE (II) OF SUB-SEC TION 1 OF SECTION 36 ARE AS FOLLOWS. ANY SUM PAID TO AN EMPLOYEE AS BONUS OR COMMISSION FOR SERVICES RENDERED, WHERE SUCH SUM WOULD NOT HAVE BE EN PAYABLE TO HIM AS PROFITS OR DIVIDEND IF IT HAD NOT BEEN PA ID AS BONUS OR COMMISSION. THE CONDITIONS PRESCRIBED IN THE PROVISIONS OF SEC TION 36(1)(II) ARE CLEARLY FULFILLED BECAUSE DIRECTORS ARE ALSO EMPLOYEES AND BONUS HAS BEEN PAID FOR THE SERVICES RENDERED AS CLAIMED BY THE ASSESSEE. ASSE SSEE HAS NOT SHOWN THAT THIS AMOUNT WOULD HAVE BEEN PAYABLE TO THE DIRECTORS AS PROFIT OR DIVIDEND HAD IT NOT BEEN PAID AS BONUS. THEREFORE, THE AO HAS RIGHTLY D ISALLOWED THE CLAIM OF THE ASSESSEE. HENCE, THE GROUND OF APPEAL IS REJECTED. 8. FROM THE ABOVE, IT IS EVIDENT THAT THE CIT (A) H AS FAILED TO MAKE A REQUISITE FINDING ON WHAT ARE THE ENTRIES IN THE BOOKS OF ACC OUNTS AND IF THE SAID AMOUNT WOULD NOT HAVE BEEN PAYABLE TO HIM AS PROFITS OR DIVIDEND IF IT HAD NOT BEEN PAID AS BONUS OR COMMISSION. THIS REQUIRES INVESTIGATION BY THE REVENUE AS BASIC FACTS ARE BORNE ON 4 RECORDS. THERE IS NO CLARITY ON IF THERE EXISTS AN Y AGREEMENT BETWEEN THE EMPLOYEE AND THE COMPANY OR AT LEAST ANY BOARD RESOLUTION OF THE COMPANY ENABLING THE COMPANY TO MAKE THE PAYMENT OF BONUS. THERE IS NO F INDING OF FACT ON IF THE SAID AMOUNTS WERE PAID FOR ANY SPECIAL SERVICES RENDERE D BY THE DIRECTORS OR THE SAME IS PAID TO THEM MERELY BECAUSE THEY BELONG TO COMBINED FAMILY AS ALLEGED BY THE LD DR. IN THE ABSENCE OF FACTS RELATING TO ALL THESE ISSUE S, IN OUR OPINION, IT IS IN THE INTEREST OF JUSTICE THAT THE MATTER SHOULD GO TO THE FILES OF T HE CIT (A) FOR WANT OF SPEAKING ORDER. CIT(A) SHALL ALSO CONSIDER ALL THE DECISIONS FILED BY THE ASSESSEE BEFORE US. ACCORDINGLY, THE GROUNDS ARE SET ASIDE TO THE FILES OF CIT(A) FO R FRESH ADJUDICATION AFTER GRANTING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. ACCORDINGLY, THE GROUNDS ARE ALLOWED FOR STATISTICAL PURPOSES. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF OCTOBER, 2012. SD/- SD/- (VIVEK VARMA) (D. KARUNAKA RA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE : 31. 10.2012 AT :MUMBAI OKK COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (A), CONCERNED. 4. THE CIT CONCERNED. 5. THE DR C, BENCH, ITAT, MUMBAI. 6. GUARD FILE. // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI