M/s. The Alchemists Ark Private Ltd., Pune V. Income-tax Officer,

ITA 755/PUN/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 7689 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-05-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 04-05-2018
• Assessment Year: 2011-2012
• Appeal Filed On: 20-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Principle of natural justice

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE . , , BEFORE SHRI D.KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO.755/PUN/2016 / ASSESSMENT YEAR : 2011-12 M/S. THE ALCHEMISTS ARK PRIVATE LIMITED, B-101, SIGNET CORNER BUILDING, BANER ROAD, BANER, PUNE 411 007 PAN : AABCT5190J . /APPELLANT VS. JCIT, RANGE-7, PUNE . / RESPONDENT ASSESSEE BY : SHRI SUHAS BORA REVENUE BY : SHRI AJAY MODI, JCIT / DATE OF HEARING : 04.05.2018 / DATE OF PRONOUNCEMENT: 09.05.2018 / ORDER PER D. KARUNAKARA RAO, AM : THIS IS THE APPEAL FILED BY THE ASSESSEE AGAINST THE ORDE R OF CIT(A)-5, PUNE, DATED 18-01-2016 FOR THE ASSESSMENT YEAR 20 11-12. 2. GROUNDS RAISED BY THE ASSESSEE ARE EXTRACTED AS UNDER : 1. THE LD.CIT(A) ERRED IN DISALLOWING VARIABLE PAY DEFINED AS PERFORMANCE BONUS PAID TO THE DIRECTORS TO THE EXTE NT OF RS.30,00,000/- 2. THE APPELLANT PRAYS FOR JUST AND EQUITABLE RELIE F. 3. THE APPELLANT PRAYS TO ADD, ALTER, AMEND, EXPLAI N, AND MODIFY THE GROUND/S AS THE OCCASION MAY DEMAND. 3. BRIEFLY STATED RELEVANT FACTS ARE THAT ASSESSEE IS EN GAGED IN THE BUSINESS OF CONSULTANCY AND TRAINING, E-LEARNING FOR COMPANIE S AND 2 INDIVIDUALS. ASSESSEE FILED THE RETURN OF INCOME DECLARING TOT AL INCOME OF RS.16,81,575/- AT THE END OF THE ASSESSMENT PROCEED INGS U/S.143(3) OF THE ACT, AO MADE MAJOR ADDITION OF RS.30 LAKHS AS PER T HE DISCUSSION GIVEN IN PARA NOS. 6.1 TO 6.10 OF THE ASSESSMENT ORDER. FINALLY, THE ASSESSED INCOME IS DETERMINED AT RS.51,64,220/-. 4. FACTS RELATING TO ADDITION OF RS.30 LAKHS INCLUDE THAT T HE ASSESSEE HAS TWO DIRECTORS NAMELY (1) MR. RAYMOND MOSES; AND (2) MR . TYAGRAJAN SHRIRAM. 80% OF THE SHARES ARE HELD BY BOTH OF THEM (40% EACH). DURING THE YEAR, ASSESSEE PAID TOTAL SUM OF RS.1.02 CRORE S AS SALARY AND BONUS OF THE EMPLOYEES AND THE DIRECTORS. OUT OF RS .1.02 CRORES, RS.90 LAKHS IS PAID TO THESE TWO DIRECTORS. IT INCLUDES BO NUS OF RS.30 LAKHS, I.E. RS.15 LAKHS EACH. AO SCRUTINIZED THIS CLAIM OF RS.30 LAKHS PAID TO THE DIRECTORS. AO INVOKED THE PROVISIONS OF SECTIO N 36(1)(II) OF THE ACT AND SUBMITTED THAT THE PAYMENT MADE TO THESE DIRECTORS AS BONUS IS NOT DEDUCTIBLE AMOUNT. AO IS OF THE OPINION THAT THE SAID AMOUNT WOULD NOT HAVE BEEN PAYABLE TO THEM EITHER AS P ROFITS OR AS DIVIDENDS IF IT HAD NOT BEEN PAID AS BONUS. IN RESPONSE, A SSESSEE CHANGED HIS EXPLANATION AND STATED THAT THE EXPENDITURE IS ALLOWABLE AS IT IS A CASE OF VARIABLE PAY LINKED TO THE TURNOVER. ACC ORDING TO HIM, THE CLAIM IS ALLOWABLE ALTERNATIVELY U/S.37(1) OF THE ACT. ASS ESSEE RELIED ON VARIOUS DECISIONS IN SUPPORT OF THE CLAIM. ASSESSEE R ELIED ON THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF SHRIR AM PISTONS AND RINGS LTD. VS. CIT DATED 29-09-2008. EVENTUALLY, THE AO RELIED ON THE SPECIAL BENCH DECISION OF THE MUMBAI BENCH OF THE TRIBU NAL IN THE CASE OF M/S. DALAL BROACHA STOCK BROKING PVT. LTD. VS. ACI T 131 ITD 36 (ITAT MUMBAI-SB) FOR THE PROPOSITION THAT THE COMMISSION PAID TO THE DIRECTOR ATTRACTS THE PROVISIONS OF SECTION 36(1)(II) OF THE A CT. AO ALSO RELIED ON THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN TH E CASE OF 3 M/S. LOYAL MOTOR SERVICES CO. LTD. 14 ITR 647 (BOM.) AND HE LD THAT THE FACTS ARE COMPARABLE. HEAVILY RELYING ON THE JUDGMENT OF SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF M/S.DALAL BROACHA STOCK BROKING PVT . LTD. VS. ACIT (SUPRA), JUDGMENT OF BOMBAY HIGH COURT IN THE CAS E OF SUBODH CHANDRA POPPATLAL VS. CIT 24 ITR 566 (BOM.) AND OT HERS, AO TREATED THE BONUS OF RS.30 LAKHS PAID TO THE DIRECTORS IS IN THE NATURE OF DIVIDEND WHICH IS NEITHER ALLOWABLE U/S.36(1)(II) NOR U/S.37(1) OF T HE ACT. 5. AGGRIEVED WITH THE SAID DECISION OF THE AO, ASSESSEE FILED AN APPEAL BEFORE THE CIT(A). THIS ISSUE WAS DISCUSSED BY THE CIT(A) IN PARA NO.3.3 OF HIS ORDER AND CONFIRMED THE ADDITION MADE BY THE AO. WHILE CONFIRMING THE CIT(A) HELD THAT PAYMENT OF RS.30 LAKHS WAS I N NATURE OF BONUS TO THE DIRECTORS, WHO HAS 40% SHARE HOLDING EACH. THE CIT(A) HELD THAT THE CLAIM FALLS WITHIN THE SCOPE OF PROVISIONS OF SECTION 36(1)(II) OF THE ACT. APPLICABILITY OF HONBLE BOMBAY HIGH COURTS JU DGMENT IN THE CASE OF SUBODH CHANDRA POPPATLAL VS. CIT, AS WELL AS J UDGMENTS IN THE CASES OF MALWA VANASPATI & CHEMICAL CO. LTD. VS. CIT 1 54 ITR 655 (MP), KHIMJI VISRAM & SONS (GUJARAT) PVT. LTD. VS. CIT 209 ITR 993 (GUJ.) WERE ALSO RELIED UPON BY THE CIT(A). 6. AGGRIEVED WITH THE ORDER OF CIT(A), ASSESSEE FILED THE PR ESENT APPEAL BEFORE THE TRIBUNAL WITH THE GROUNDS REFERRED ABOVE. 7. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL IN THE CAS E OF M/S.DALAL BROACHA STOCK BROKING PVT. LTD. VS. ACIT (SUPRA) SUBMITTED THAT THE SAID ORDER HAS BEEN REVERSED BY THE HONBLE DELHI HIGH C OURT IN VARIOUS CASES. FURTHER, RELYING ON THE DECISIONS OF PUNE BENCH O F THE TRIBUNAL IN THE CASE OF MAHAFEED SPECIALITY FERTILIZERS (INDIA) PVT. LTD . VS. ACIT 4 ITA NO.2274/PUN/2014, DATED 09-08-2017 (POSTERIOR TO TH E ORDER OF CIT(A) DATED. 18-01-2016) AND ARIHANTAM INFRAPROJECTS PVT . LTD. VS. JCIT ITA NO.2201/PN/2012, ITA NO.2280/PN/2012 & ITA NO.1767/PN/2013, DATED 30-11-2015, LD. COUNSEL FOR THE AS SESSEE SUBMITTED THAT THE MATTER CAN BE REMANDED BACK TO TH E FILE OF AO FOR FRESH ADJUDICATION IN THE LIGHT OF THE SAID JURISDICTIONAL ORDE RS OF THE TRIBUNAL. 8. ON THE OTHER HAND, LD. DR FOR THE REVENUE RELIED ON THE ORDERS OF THE AO AND THE CIT(A). 9. WE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE. THERE IS NO DISPUTE ON THE FACT RELATING TO THE FIGURES OF THE PAYMENT OF RS.30 LAKHS BONUS TO THE TWO DIRECTORS. HOWEVER, THERE IS CONFUSION IN THE NOMENCLATURE WITH REGARD TO THE NATURE OF THE PAY MENTS IF THE SAME CONSTITUTE BONUS OR VARIABLE PAY. ASSESSEE HAS CHANGED THE NOMENCLATURE OF THE SAME FROM TIME TO TIME. THEREFORE, THE RE IS A REQUIREMENT OF GOING DEEPER INTO THE NATURE OF TRANSACTIO N, IF THE SAME IS PAID FOR THE SERVICES RENDERED BY THE DIRECTORS OR OT HERWISE. AO NEEDS TO EXAMINE, IF THE SAME IS LINKED TO THE TURNOVER OR NOT. IT IS UNDISPUTED FACT THAT THE SAME IS NOT REMUNERATION AS PE R THE AGREEMENT OF EMPLOYMENT AND IF THE SAID PAYMENT IS OUTSID E THE SCOPE OF THE TERMS AND CONDITIONS OF THE EMPLOYMENT IN ALL CASES . AO NEED TO CATEGORISE THESE PAYMENTS IN THE LIGHT OF THE CHANGES IN THE NOMENCLATURE OF THE PAYMENTS. 10. COMING TO THE SPECIAL BENCH DECISION OF MUMBAI BENCH O F THE TRIBUNAL IN THE CASE OF M/S. DALAL BROACHA STOCK BROKING PV T. LTD. VS. ACIT (SUPRA), WE FIND THE AO NEED TO EXAMINE THIS ASPECT A FTER COMPARING THE FACTS AS WELL AS THE NATURE OF PAYMENTS MA DE TO THE TWO 5 DIRECTORS. FURTHER, IT IS THE CASE OF THE ASSESSEE THAT HIS CASE IS COVERED BY THE DECISIONS OF THE PUNE BENCH IN THE CASE OF MAHAFEE D SPECIALITY FERTILIZERS (INDIA) PVT. LTD. VS. ACIT AND IN THE CASE OF ARIHA NTAM INFRAPROJECTS PVT. LTD. VS. JCIT (SUPRA). THEREFORE, THERE IS A REQUIREMENT OF COMPARING THE FACTS ON THE ISSUE TO THAT OF THE DECISIONS CITED BY THE LD. COUNSEL FOR THE ASSESSEE. WE FIND THE AB OVE DECISIONS OF THE PUNE BENCH OF THE TRIBUNAL EXPLAIN THE PROVISIONS RE LATING TO SECTION 36(1)(II) OF THE ACT WHICH HELP THE AO TO COME TO PRO PER APPRECIATION OF LEGAL POSITION QUA THE FACTS OF THE CASE. ACCORDINGLY, AS DISCUSSED IN OPEN COURT, WE ARE OF THE O PINION THAT THE REQUEST OF THE LD. COUNSEL FOR THE ASSESSEE FOR REMANDING THE ISSUE TO THE FILE OF AO NEED TO BE CONSIDERED FAVOURABLY. ACCORDINGLY, W E REMAND THE ISSUE TO THE FILE OF AO. AO SHALL GRANT REASON ABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN ACCORDANC E WITH THE SET PRINCIPLES OF NATURAL JUSTICE. AO SHALL EXAMINE THE JUDGMENTAL LAWS A ND THE FACTS ON THE ISSUE AND PASS A SPEAKING ORDER. THUS , THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR S TATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 09 TH DAY OF MAY, 2018. SD/- SD/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) /JUDICIAL MEMBER / ACCOUNTANT MEMBER PUNE; DATED : 09 TH MAY, 2018 6 / COPY OF THE ORDER FORWARDED TO : / BY ORDER, //TRUE COPY// //TRUE COPY// SENIOR PRI VATE SECRETARY , / ITAT, PUNE 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT(A)-5, PUNE 4. CIT-5, PUNE 5. , , A BENCH PUNE; 6. / GUARD FILE.