DCIT 5(2), MUMBAI V. KOHINOOR TELEVIDEO P.LTD, MUMBAI

ITA 6601/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1495 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 31-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR YADAV
• Section: 143(3); 5(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A MUMBAI BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 6601/MUM/2014 ASSESSMENT YEAR: 2010-11 DCIT 5(2) VS. M/S. KOHINOOR TELEVIDEO P. LTD. R. NO. 571 AAYAKAR BHAVAN 182 HAJI HABIB BLDG. DR. B.A. RD. M.K. ROAD, DADAR (E), MUMBAI 400020 MUMBAI - 400014 (APPELLANT) (RESPONDENT) REVENUE BY : SHRI RAJESH KUMAR YADAV ASSESSEE BY: NONE DATE OF HEARING : 21/1 2/2016 DATE OF PRONOUNCEMENT: 21/12/2016 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE REVENUE. THE RELEVAN T ASSESSMENT YEAR IS 2010-11. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER (APPEALS)-9, MUMBAI AND ARISES OUT OF ORDER U/S 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT). THE GROUNDS OF APPEAL FILED BY THE ASSESSEE READ AS UNDER:- I. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING ASSESSEES APPEAL REGAR DING DISALLOWANCE U/S 40(A)(IA) OF RS. 13,99,370/- PAID TO HDFC BANK LTD., TOWARDS CREDIT CARD TRANSACTION THOUGH THE PAYMENT WAS IN THE NATURE OF COMMISSION AND WAS LIABLE TO WITHHOLDING TAX? ITA NO. 6601/MUM/2014 2 II. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) HAS ERRED IN PARTLY ALLOWING ASSESSEES APPEA L ON PAYMENT OF INCENTIVES TO DIRECTORS, AMOUNTING TO RS. 32,32,800/ - EVEN WHEN WORK OF DIRECTOR WAS NOT RELATED TO RETAIL SALE? HE FAILED TO APPRECIATE THAT SUCH PAYMENT AMOUNTED TO DISTRIBUTION OF DIVIDEND AND WAS A COLOURABLE DEVICE. 2. WE BEGIN WITH 1 ST GROUND OF APPEAL. THE AO HAS DISALLOWED RS. 13,99,370/- U/S 40(A)(IA) ON THE GROUND THAT THE AS SESSEE-COMPANY HAS NOT MADE TDS IN RESPECT OF CREDIT CARD COMMISSI ON / DISCOUNT PAID TO M/S. HDFC BANK LTD. IN APPEAL, THE LEARNED CIT(A) FOLLOWED THE ORDER OF THE ITAT BANGALORE IN TATA TELESERVICES LTD. VS DCIT(TDS) (2013) 29 TAXMAN.COM 261 AND ALLOWED THE CONCERNED GROUND OF APPEAL. 2.1 WE FIND THAT A SIMILAR ISSUE AROSE TATA TELESERVICES LTD.(SUPRA). IN THAT CASE, THE ASSESSEE HAD ARRANGEMENT WITH SEV ERAL BANKS WHEREBY CUSTOMERS OF ASSESSEE, WHO ALSO HELD CREDIT CARD OF SUCH BANKS, COULD MAKE PAYMENT FOR COMMUNICATION SERVICE S UTILISED BY THEM FROM THE ASSESSEE THROUGH CREDIT CARD. THE REV ENUE AUTHORITIES HELD THAT FEE RETAINED BY BANK WAS IN NATURE OF COM MISSION AND, THEREFORE, ASSESSEE OUGHT TO HAVE DEDUCTED TAX AT S OURCE ON SUCH PAYMENT. THE TRIBUNAL HELD THAT PAYMENTS TO BANK ON ACCOUNT OF UTILISATION OF CREDIT CARD FACILITIES WOULD BE IN T HE NATURE OF BANK CHARGE AND NOT IN THE NATURE OF COMMISSION WITHIN M EANING OF SECTION 194H. IN VIEW OF THE ABOVE, THE TRIBUNAL SET ASIDE THE ORDER OF THE AUTHORITIES BELOW. 2.2 WE FOLLOW THE ABOVE ORDER OF THE TRIBUNAL AND U PHOLD THE ORDER LEARNED CIT(A) IN DELETING THE ADDITION OF RS. 13,9 9,370/- MADE BY THE AO. ITA NO. 6601/MUM/2014 3 3. WE NOW COME TO 2 ND GROUND OF APPEAL. WE FIND THAT LEARNED CIT(A) HAS PASSED AN ORDER WITH SUFFICIENT REASONS AS CAN BE SEEN BELOW: AFTER CONSIDERING THE RIVAL SUBMISSION, I PARTLY AG REE WITH A.O. AS WELL AS THE APPELLANT. THE PAYMENTS TO DIRECTORS OF THE COMPANY ARE GOVERNED BY THE PROVISIONS OF SECTION 40A(2B) OF I.T. ACT, THEREFORE, WHILE ALLOW ING / DISALLOWING THE PAYMENTS MADE TO THE DIRECTORS ONE HAS TO PRIMARILY SEE THE REASONABL ENESS OF PAYMENTS MADE TO THE DIRECTORS. IN THE INSTANT CASES, IT IS NOTED THAT THE RE HAD BEEN AN ABNORMAL INCREASE IN THE TOTAL PAYMENTS MADE TO THE DIRECTORS BY WAY OF SALARY AND INCENTIVES, THE TOTAL PAYMENTS TO THE DIRECTORS )INCLUDING SALARY AND INVENTIVE) HAS BEEN MORE THAN DOUBLE IN ANT OF ONE STROKE, WHICH CANNOT BE HELD REASONABLE, CONSIDERING THE FACT THAT THERE IS NO CORRESPONDING ABRUPT INCREASE IN THE TURNOVER. HOWE VER, CONSIDERING THE MATERIAL FACT THAT THERE HAD BEEN NO INCREASE IN REMUNERATION OF T HE DIRECTORS FROM A.Y. 2004-05 WHICH REMAIN STATIC AT RS. 12 LACS PER ANNUM., THER EFORE, CONSIDERING THE NORMAL RATE OF INFLATION / INCREASE IN THE REMUNERATION F@10% P.A. , I CONSIDER IT REASONABLE TO ALLOW 60% INCENTIVES (@10% HIKE IN REMUNERATION DURING LAS T SIX YEARS FROM A.Y. 2004-05). ACCORDINGLY, THE DISALLOWANCE OF INCENTIVE IS RESTRIC TED TO 40% OF INCENTIVE PAYMENTS. THIS GROUND OF APPEAL IS, THEREFORE, PARTLY ALLOWED. 3.1 WE AGREE WITH THE ABOVE ORDER OF THE LEARNED CI T(A) AS THE SAME IS BASED ON REASONS. 4. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED ORDER PRONOUNCED IN THE OPEN COURT ON 21/12/2016 SD/ SD/- (MAHAVIR SINGH) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBE R MUMBAI; DATED: 21/12/2016 BISWAJIT, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT ITA NO. 6601/MUM/2014 4 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI