KSHITIJ INTERIORS P.LTD, MUMBAI V. DCIT 8(2), MUMBAI

ITA 7367/MUM/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4265 (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: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 13-12-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ASGHAR ZAIN
• Keywords: Depreciation; Commercial expediency

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI- A BENCH , , BEFORE S/SH. JOGINDER SINGH,JUDICIA L MEMBER & RAJENDRA,ACCOUNTANT MEMBER /.ITA/7367/MUM/2013, /ASSESSMENT YEAR :2010-11 M/S. KSHITIJ INTERIORS PVT. LTD. 210, NEW APOLLO ESTATE PREMISES CO-.OP SOCIETY LTD., OLD NAGARDAS ROAD, 23, MOGRA VILLAGE, ANDHERI (E) MUMBAI-400 069. PAN:AABCK 8174 D VS DY. CIT - 8(2) AAYAKAR BHAVAN, M.K. ROAD MUMBAI-400 020. ( / APPELLANT) ( / RESPONDENT) /ASSESSEE BY :SHRI HARIDAS BHAT / REVENUE BY :SHRI ASGHAR ZAIN / DATE OF HEARING : 01-12- 2015 / DATE OF PRONOUNCEMENT : 01.01.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER 01.08.2013 OF CIT(A)-17,MUMBA I THE ASSESSEE HAS FILED THE PRESENT APPEAL. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF INTERIO R DECORATORS ETC.,FILED ITS RETURN OF INCOME ON 11.10.2010,DECLARING INCOME OF RS.53,88,125/-.TH E ASSESSING OFFICER(AO)COMPLETED THE ASSESSMENT ON 31.12.2012,U/S.143(3) OF THE ACT,DETE RMINING THE INCOME OF THE ASSESSEE AT RS.64,78,720/-. 2. EFFECTIVE GROUND OF APPEAL IS ABOUT CONFIRMING OF A N ADDITION OF RS.10 LAKHS.DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESS EE HAD PAID COMMISSION OF RS.10 LAKHS TO ONE OF ITS DIRECTORS,NAMELY BHAWARLAL K SHARMA(BKS) .HE DIRECTED THE ASSESSEE TO JUSTIFY THE COMMISSION PAID TO ITS WHOLE TIME DIRECTOR.AFTER CO NSIDERING THE REPLY DATED 29.12.2012 OF THE ASSESSEE,THE AO HELD THAT BKS WAS WORKING AS EMPLOY EE OF THE ASSESSEE,THAT THE PAYMENT MADE TO HIM WAS COVERED U/S.36(1)(II) OF THE ACT,THAT PR OFIT FOR THE YEAR AVAILABLE FOR APPROPRIATION BEFORE TAX WAS RS.35,09,200/- AFTER PAYING COMMISSI ON TO BKS,THAT THE SAID AMOUNT WAS CARRIED TO THE BALANCE SHEET ALONG WITH BALANCE BROUGHT FOR WARD,THAT IT WAS CREDITED UNDER THE HEAD RESERVE AND SURPLUS,THAT THE ASSESSEE DID NOT DECLA RE ANY DIVIDEND DURING THE YEAR UNDER APPEAL,THAT IT HAD PROFIT AMOUNTING TO RS.45.98 LAK HS,THAT SAME COULD HAVE BEEN DISTRIBUTED AMONG THE SHARE HOLDERS IN THE FORM OF DIVIDEND,THA T INSTEAD OF PAYING DIVIDEND THE ASSESSEE OPTED TO DISTRIBUTE THE PROFIT TO ONE OF ITS DIRECT ORS IN FORM OF COMMISSION.THE AO REFERRED TO THE CASE OF LOYAL MOTOR SERVICE CO.LTD.(14 ITR 647) AND HELD THAT BY PAYING COMMISSION IT HAD AVOIDED FULL PAYMENT OF TAX,THAT INTENTION OF THE P ROVISIONS OF SECTION 36(1)(II) WAS TO PREVENT ESCAPEMENT OF TAXATION IN FORM OF COMMISSION/BONUS PAYMENT.HE HELD THAT THE COMMISSION PAID TO BKS IN LIEU OF DIVIDEND WAS NOT ELIGIBLE FOR DED UCTION U/S.36(1)(II)OF THE ACT. 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHOIRTY(FAA).BEFORE HIM,IT WAS ARGUED THAT BKS HA D BEEN LOOKING AFTER THE BUSINESS OF THE 7367-KSHITIJ -10-11 2 ASSESSEE, THAT DUE TO HIS EFFORTS AND DEDICATION TH E ASSESSEE HAD RECORDED GROWTH IN THE BUSINESS,THAT BECAUSE OF THE CREATIVE SKILL OF THE DIRECTOR IT COULD EXPAND BUSINESS IN THE FIELD OF INTERIOR DECORATION, THAT THE PAYMENT OF COMMISSION WAS AS PER THE RESOLUTION PASSED BY THE BOARD OF THE DIRECTORS,THAT BKS WAS REWARDED FOR AD DITIONAL OVERRIDING COMMERCIAL EFFORTS AND UNTIRING SERVICES OF BKS, THAT THE PAYMENT WAS COVE RED BY THE PRINCIPLES OF COMMERCIAL EXPEDIENCY,THAT BKS HAD PAID TAX ON THE COMMISSION RECEIVED FROM THE ASSESSEE IN HIS PERSONAL RETURN OF INCOME,THAT HE WAS HOLDING ONLY 25% SHARE S OF THE COMPANY.IT RELIED UPON THE CASES OF HERO HONDA FINELEASE LTD.(ITA/4329/DEL/ 2010),MARRI SON TRAVELS PVT.LTD.(ITA/ 1296/ DEL/ 2012). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE A ND THE ASSESSMENT ORDER,THE FAA HELD THAT THE ASSESSEE HAD PAID THE COMMISSION TO ONLY ONE OF THE DIRECTORS,THAT BKS WAS PAID COMMISSION OF RS.10.00 LAKHS ON THE SALES,THAT BKS HAD NO SPECIAL ISED KNOWLEDGE,THAT NO EVIDENCE WAS PRODUCED BY THE ASSESSEE TO PROVE THAT BKS HAD PERF ORMED SPECIFIC SERVICES,THAT THE ASSESSEE WAS A CLOSELY HELD COMPANY,THAT BKS WAS NOT MANAGIN G DIRECTOR OF THE COMPANY,THAT IT HAD FAILED TO DRAW THE ISSUE TO HOME THAT THE COMMISSIO N PAID TO BKS WAS PART AND PARCEL OF HIS SALARY.FINALLY,HE CONFIRMED THE ADDITION OF RS.10.5 3 LAKHS. 4. BEFORE US,THE AUTHORISED REPRESENTATIVE(AR) STATED THAT SECTION 36(1)(II) WAS INVALID AFTER REPEAL OF SECTION 40(C) OF THE ACT,THAT REASONABLEN ESS OF PAYMENT WAS NOT A DECIDING FACTOR, THAT PAYMENT OF DIVIDEND WAS NOT COMPULSORY FOR MAKING C OMMISSION PAYMENT, THAT THE DIRECTOR HAD PAID TAX ON THAT, THAT REVENUE HAD SUFFERED NO LOSS BECAUSE OF PAYMENT OF COMMISSION TO BKS.HE REFERRED TO THE CASE OF DALAL BHARUCHA BROKERAGE (1 31 ITD36).DEPARTMENTAL REPRESENTATIVE (DR) RELIED UPON THE ORDER OF THE FAA. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THERE WERE ONLY FOUR SHAREHOLDERS OF THE ASSESSEE-COMPAN Y ,THAT OUT OF WHICH TWO WERE DIRECTORS NAMELY BKS AND HIS WIFE MANJU SHARMA,THAT IT HAD P AID COMMISSION ON SALES,AMOUNTING TO RS.10.00 LAKHS TO BKS,THAT BKS WAS HOLDING 25% OF T HE SHARES OF THE COMPANY.PROVISIONS OF SECTION 36(1)(II) STIPULATE THAT IN CERTAIN CIRCUMS TANCES COMMISSION/BONUS PAID BY AN ASSSESSEE CAN BE DISALLOWED.WE FIND THAT IN THE CASE BEFORE U S,THE FINDING OF FACT HAS BEEN GIVEN THAT ASSESSEE HAD NOT DECLARED DIVIDEND FOR THE YEAR UND ER APPEAL.THE AR HAD NOT CHALLENGED THE FINDING.THE AO AND THE FAA HAVE HELD THAT BY NOT DE CLARING DIVIDEND AND BY NOT PAYING DIVIDEND DISTRIBUTION TAX,IN LIEU OF THE COMMISSION PAID TO BKS,THE ASSESSEE HAD EVADED PAYMENT OF FULL TAXES.ONE OF THE REASONS TO INTRODUCE THE S ECTION IN THE ACT WAS TO PREVENT ESCAPEMENT OF TAXES WHERE THE ASSESSEES WOULD MAKE BONUS/COMMISSI ON WITHOUT PAYING DIVIDEND.WE FIND THAT THE SALES AS ON (31.03.2009) HAD REDUCED FROM RS.16 .36 CRORES TO RS.9.84 CRORES AS ON(31.3.2010), THAT PROFIT BEFORE DEPRECIATION TAX FOR THE YEAR UNDER CONSIDERATION WAS RS.60.45 LAKHS WHEREAS FOR THE EARLIER YEAR IT WAS RS.92.44 LAKHS, THAT PROFIT AFTER TAX HAS ALSO REDUCED BY RS.20.00 LAKHS (APPROX.).IN THESE CIRCUMSTANCES, WE ARE UNABLE TO APPRECIATE THE CLAIM MADE BY THE ASSESSEE THAT BECAUSE OF THEOVERRIDING COMMERC IAL EFFORTS AND UNTIRING SERVICES TO THE BUSINESS OF THE COMPANY BKS WAS PAID COMMISSION.TH E CIT(A) HAS SPECIFICALLY MENTIONED THAT NEITHER BEFORE HIM NOR BEFORE THE AO THE ASSESSEE H AD ADDUCED ANY EVIDENCE TO PROVE THAT BKS HAS DONE ANY SPECIALISED FUNCTION.IT IS ALSO A FACT THAT COMMISSION PAID TO BKS WAS NOT PART AND PARCEL OF HIS SALARY. CONSIDERING ALL THESE FACTORS CUMULATIVELY, WE ARE OF THE OPINION THAT ORDER 7367-KSHITIJ -10-11 3 OF THE FAA DOES NOT SUFFER FROM ANY LEGAL INFIRMITY .THEREFORE, CONFIRMING HIS ORDER, WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAINST THE ASSESSEE . AS A RESULT,APPEAL FILED BY THE ASSESSEE STANDS DISMISSED. . ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST JANURAY, 2016. 01 , 2016 SD/- SD/- ( / JOGINDER SINGH) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /MUMBAI, /DATE 01.01.2016 . . . .. . JV.SR.PS. / 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.