KOCHHAR SURVEYORS P.LTD, MUMBAI V. DCIT RG 9(2), MUMBAI

ITA 7304/MUM/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4317 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 12-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MOHAMMED RIZWAN

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI- A ,BENCH , , BEFORE S/SH. JOGINDER SINGH,JUDICIA L MEMBER & RAJENDRA,ACCOUNTANT MEMBER /.ITA/7304/MUM/2013, /ASSESSMENT YEAR :2010-11 M/S. KOCHHAR SURVEYORS PVT. LTD. 607, MAHALAXMI CHAMBERS BHULABHAI DESAI ROAD MAHALAXMI MUMBAI-400 026. PAN:AAACK 2085 Q VS DCIT, RANGE-9(2) MUMBAI. ( / APPELLANT) ( / RESPONDENT) /ASSESSEE BY :SHRI HARESH P. SHAH / REVENUE BY :SHRI MOHAMMED RIZWAN / DATE OF HEARING : 30-11- 2015 / DATE OF PRONOUNCEMENT : 01-01- 2016 , 1961 1961 1961 1961 254 254 254 254( (( (1 11 1) )) ) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DT.16.9.2013 OF CIT(A)-20,MUM BAI,THE ASSESSEE,HAS FILED THE PRESENT APPEAL. ASSESSEES MAIN ACTIVITY IS MARINE SURVEYORS AND CO NSULTANTS.IT FILED ITS RETURN OF INCOME ON 13.9.2010,DECLARING TOTAL INCOME 68.1 LACS.THE ASSE SSING OFFICER(AO) COMPLETED THE ASSESSMENT U/S.143(3) OF THE ACT,ON 26.11.2012,DETERMINING THE INCOME OF THE ASSESSEE AT RS.71,36,760/-. 2 .EFFECTIVE GROUND OF APPEAL IS ABOUT DISALLOWANCE O F COMMISSION PAID TO THE DIRECTOR,AMOUNTING TO RS.2, 55,460/-.DURING THE ASSESSMENT PROCEEDINGS ,THE AO FOUND THAT ASSESSEE PAID 2.55 LACS AS COMMISSION TO ONE OF ITS DIRECTORS NAMELY VISHESH S KOCHHAR (VSK).HE DIRECTED THE ASSESSEE TO EXPLAIN AS TO WHY THE SAME SHOULD NOT BE DISALLOWED AS PER THE PROVISIONS OF SEC.136(1)(II) OF THE ACT.AFTER CONSIDERING THE SUBMISSION OF THE ASSESSE E,THE AO HELD THAT AS PER THE PROVISIONS OF SECTION136(1)(II) PAYMENT OF COMMISSION TO DIRECTOR S/EMPOLOYEES WHO WERE ELIGIBLE FOR DIVIDEND WAS NOT ALLOWABLE,THAT VSK WAS HOLDING 1000 SHARES OF THE COMPANY AND WAS ENTITLED FOR DIVIDEND OUT OF THE PROFIT OF THE COMPANY.HE DISALL OWED THE COMMISSION PAID TO VSK AND ADDED IT BACK TO THE TOTAL INCOME OF THE ASSESSEE 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).BEFORE HIM,IT WAS ARGUED THAT DURING THE YEAR UNDER CONSIDERATION VSK WAS PAID COMMISSION,THAT HE WAS NOT PAID BONUS AS OTHER EMPLOYEES,THAT HE WAS DEGREE HOLDER IN MARITIME BUSINESS,THAT VSK HAD INCLUDED COMMISSION INCOME IN HIS RETURN INCOME AND HAD PAID TAX ON IT, THAT DUE TO EFFORTS OF THE DIRECTORS THE PROFIT HAD INCREASED, THAT ADEQUACY OF SERVICE WAS NOT RELEVANT CONSIDERATION,THAT IT WAS NOT NECESSAR Y THAT PAYMENT SHOULD BE MADE COMMENSURATE TO THE RENDERING OF SERVICES OR THERE SHOULD BE EXT RA SERVICES RENDERED FOR PAYMENT ON ACCOUNT OF BONUS/COMMISSION,THAT IN CASE THE DIRECTORS IF THEY DID NOT RENDER ANY SERVICE AND WERE PAID COMMISSION SUCH EXPENDITURE WOULD BE CONSIDERED A PAYMENT IN NATURE OF DIVIDEND,THAT DURING THE YEAR UNDER CONSIDERATION ASSESSEE PAID DIVIDEND OF 18 LACS,THAT THE EXPENDITURE WAS INCURRED ITA/7304/MUM/2013-AY.2010-11,KSPL 2 WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE,THE FAA HELD THAT DIVIDEND WAS PAYABLE TO VSK WHO HAD 10% OF THE SHARES,THAT HE WAS COVERED BY PROVISIONS OF SECTION36(1)(II), THAT IT WAS RESPONSIBILITY OF ASSESSEE TO DEMONSTRATE THE EVIDENCE OF SERVICES RENDERED BY THE DIRECTOR THAT WOULD ENTITLE HIM FOR COMMISSION/BONUS, ASSESSEE FAILED TO FURNISH ANY EVIDENCE OF SERVICES RENDERED FOR EARNING OF COMMISSION,THAT INCREASE IN PROFIT WOULD NOT PROVE RENDERING OF SER VICES BY SINGLE DIRECTOR, THAT THE ASSESSEE HAD FURNISHED GENERAL EXPLANATION ONLY.FINALLY,HE CONFI RMED THE DISALLOWANCE MADE BY THE AO. 4. BEFORE US,THE AUTHORISED REPRESENTATIVE(AR)ARGUED T HAT THE ASSESSEE HAD PAID DIVIDEND,THAT IT HAD PAID COMMISSION TO BOTH THE DIRECTORS,THAT VSK WAS A QUALIFIED SURVEYOR,THAT COMMISSION COULD NOT BE TREATED AS DIVIDEND.HE REFERRED TO PG- 3, 5, 8 OF THE PB AND ARGUED THAT NET PROFIT HAD INCREASED AND THAT SUBSTANTIAL DIVIDEND WAS PAID.TH E DEPARTMENTAL REPRESENTATIVE (DR) STATED THAT ASSESSEE HAD NOT PRODUCED ANY EVIDENCE THAT WO ULD JUSTIFY THE PAYMENT OF COMMISSION,THAT VSK WAS A SHARE HOLDER.IN SHORT,HE RELIED UPON THE ORDER OF THE FAA. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE ASSESSEE HAD PAID COMMISSION OF RS.2.54LACS TO VSK, THAT HE WAS HOLDING 1000 SHARES OF THE COMPANY,THAT THE AO HAD INVOKED THE PROVISIONS OF S ECTION 36(1)(II)OF THE ACT AND HAD DISALLOW -ED THE COMMISSION PAYMENT MADE TO VSK,THAT THE ASS ESSEE HAD PAID DIVIDEND DURING THE YEAR UNDER CONSIDERATION AMOUNTING TO RS.18 LAKHS.IT IS SAID THAT THE OBJECT OF THE PROVISO TO SECTION 36(1)(II) OF THE ACT IS TO ENCOURAGE THE MANAGEMENT TO PAY BONUS IN EXCESS OF WHAT IS STATUTORILY BOUND TO BE PAID TO THE EMPLOYEES PROVIDED THE PAYM ENT IS JUSTIFIABLE AS A REASONABLE PAYMENT. IN THE CASE UNDER CONSIDERATION NET PROFIT HAD INCR EASED FROM 9.90% TO 20.85% DURING THE YEAR AND THE FACT THAT VSK IS A QUALIFIED SURVEYOR IS NO T IN DOUBT.HE HAS OFFERED THE COMMISSION INCOME IN HIS INDIVIDUAL RETURN AND HE IS IN THE SA ME TAX BRACKET OF THE ASSESSEE-COMPANY. CONSIDERING THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE,WE ARE OF THE OPINION THAT THE COMMISSION PAID TO VSK WOULD FALL UNDER THE CATEGOR Y OF REASONABLE PAYMENT. THEREFORE, REVERSING THE ORDER OF THE FAA,WE DECIDE EFFECTIVE GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE. AS A RESULT, APPEAL FILED BY THE ASSESSEE STANDS AL LOWED. . ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST JANUARY, 2016. 01 , 2016 SD/- SD/- ( / JOGINDER SINGH) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /MUMBAI, /DATE 01.01.2016 . . . .. . JV.SR.PS. ITA/7304/MUM/2013-AY.2010-11,KSPL 3 / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.