Holtec Consulting Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 796/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58521 (ITAT-DELHI)
• Duration Of Justice: 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 19-01-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 09-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SALIL MISHRA
• Keywords: Gift; Maximum Marginal Rate
• Section: 37(1)

Judgement Text

ITA NOS. 3878/DEL/2010 & 796/DEL/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C NEW DELHI BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 3878/DEL/2010 & 796/DEL/2011 A.YRS. : 2005-06 & A.Y. 2006-07 M/S HOLTEC CONSULTING PVT. LTD., 01-0103, IMPERIAL TOWER, C-BLOCK, COMMUNITY CENTRE, NARIANA VIHAR, NEW DELHI 110 028 (PAN : AAACH0031M) VS. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 12(1), CENTRAL REVENUE BUILDING, NEW DELHI 110 002 (APPELLANTS ) (APPELLANTS ) (APPELLANTS ) (APPELLANTS ) (RESPONDENTS ) (RESPONDENTS ) (RESPONDENTS ) (RESPONDENTS ) ASSEESSEE BY : SH. AKHILESH GUPTA, FCA DEPARTMENT BY : SH. S ALIL MISHRA, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA : AM PER SHAMIM YAHYA : AM PER SHAMIM YAHYA : AM PER SHAMIM YAHYA : AM THESE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINS T THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 25 .6.2010 AND 10.10.2010 AND PERTAIN TO ASSESSMENT YEARS 2005-06 & 2006-07 RESPECTIVELY. SINCE THE APPEALS WERE HEARD TOGETHE R AND ISSUES ARE COMMON, THEY ARE BEING CONSOLIDATED AND DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE GROUNDS RAISED IN ASSESSMENT YEAR 2005-06 REA D AS UNDER:- (I) THE ASSESSING OFFICER HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN MAKING ADDITION OF ` 11,67,317 /- ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION. ITA NOS. 3878/DEL/2010 & 796/DEL/2011 2 (II) THE ASSESSING OFFICER HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN MAKING ADDITION OF ` 76,650/- ON ACC OUNT OF EXPENSES ON BIRTHDAY AND ANNIVERSARY GIFTS GIVEN TO DIRECTORS AND OTHER MANAGERIAL PERSONNEL. (III) THE ASSESSING OFFICER HAS ERRED IN LAW AND O N THE FACTS OF THE CASE IN MAKING ADDITION OF ` 106,000/- ON ACCOUNT OF EXPENSES PAID ON DONATION. (IV) THE ASSESSING OFFICER HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN MAKING ADDITION OF ` 7,077,719 /- ON ACCOUNT OF COMMISSION PAID TO DIRECTORS. 3. THE GROUNDS RAISED IN ASSESSMENT YEAR 2006-07 RE AD AS UNDER:- (I) THE ASSESSING OFFICER HAS ERRED IN LAW AND O N THE FACTS OF THE CASE IN MAKING ADDITION OF ` 4,466,604/- ON ACCOUNT OF COMMISSION PAID TO DIRECTORS. (II) THE APPELLANT MAY BE ALLOWED TO ADD/AMEND/WITH DRAW ANY GROUNDS AT THE TIME OF HEARING. ITA NO. 3878/DEL/2010 (A.Y. 2005-06) 4. APROPOS FOREIGN EXCHANGE FLUCTUATION. ON THIS ISSUE ASSESSING OFFICER OBSERVED THAT IT IS SEEN FROM THE DETAILS FILED BY THE ASSESSEE THAT THE ASSESSEE HAS CLAIMED FOREIGN EXCHANGE FLUCTUATION LOSS AMOUNTING TO ` 454104/- O N ACCOUNT OF RESTATEMENT OF DEBTORS AS ON 31.3.2005 AND A FURTH ER LOSS OF ` 713213/- ON ACCOUNT OF REVALUATION OF FOREIGN CURRE NCY HELD AS ON 31.3.2005 THEREBY CLAIMING A TOTAL NOTIONAL FOREIGN EXCHANGE FLUCTUATION LOSS AMOUNTING TO ` 1167317/-. ASSES SING OFFICER OPINED ITA NOS. 3878/DEL/2010 & 796/DEL/2011 3 THAT FOREIGN EXCHANGE FLUCTUATION TO BE CONSIDERED FOR DEDUCTION, THE LOSS MUST ACTUALLY BE SUFFERED IN THE RELEVANT PREVI OUS YEAR. ACTUAL SUFFERING WOULD ARISE ONLY AT THE TIME OF REMITTANC ES AND NOT BEFORE. HENCE, THE ASSESSING OFFICER DISALLOWED THE SUM OF ` 1167317/-. 5. BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS ), ASSESSEE PLACED RELIANCE UPON THE CASE LAWS OF ONGC LTD. 83 ITD 151, SPECIAL BENCH (DELHI) AND LD. COMMISSIONER OF INCOME TAX VS. WOODWARD GOVERNOR INDIA P LTD. 312 ITR 254 (SC). THE LD. CO MMISSIONER OF INCOME TAX (APPEALS) DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE. HE OPINED THAT ASSESSEE HAS CLAIMED DEDUCTION U/S. 3 7 AND THE ESSENCE OF DEDUCTIBILITY U/S. 37 IS THAT THE INCREA SE IN LIABILITY DUE TO FOREIGN EXCHANGE FLUCTUATION MUST FULFILL THE TWIN R EQUIREMENTS OF EXPENDITURE AND THE FACTUM OF SUCH EXPENDITURE HAVI NG BEEN LAID OUT IN SECTION 37 OF THE ACT. HE HELD THAT THE PR ESENT ACT OF THE ASSESSEE DOES NOT FULFILL EITHER OF THE CRITERIA LA ID OUT AS PROVIDED IN THE ACT. IN FACT THERE WAS NO EXPENDITURE WITHIN THE ME ANING OF SECTION 37(1) FOR WHICH THE CLAIM WAS LODGED BY THE ASSESSE E. HENCE, LD. COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE A DDITION. 6. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APPEA L BEFORE US. LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE PRESENT C ASE IS SQUARELY COVERED BY THE DECISION OF THE SPECIAL BENCH, ITAT IN THE CASE OF ONGC LTD. AND APEX COURT DECISION IN THE CASE WOOD WARD GOVERNOR INDIA P LTD. (SUPRA). LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT ACCORDING TO THE PROVISIONS OF AS 11 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, THE ASSESSEE COMPAN Y IS REQUIRED TO REVALUE THE CLOSING BALANCES OF SUNDRY DEBTORS AS O N 31.3.2005 AT THE EXCHANGE RATE PREVAILING AT THE CLOSE OF THE FINANC IAL YEAR. THE ITA NOS. 3878/DEL/2010 & 796/DEL/2011 4 AMOUNT OF DIFFERENCE SO AROSE ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION AMOUNTED TO ` 11,67,317/- AND THE SAME WA S PROVIDED FOR IN THE BOOKS OF ACCOUNTS. IT HAS FURTHER BEEN SUBMIT TED THAT THE ASSESSEE COMPANY BY REVALUING THE FOREIGN CURRENCY A SSETS AT THE CLOSING RATE AND BY RECOGNIZING THE EXCHANGE DIFFER ENCE ARISING AS EXPENSES ENSURED ADHERENCE TO THE MANDATORY REQUIR EMENT LAID UNDER ACCOUNTING STANDARD AS11 OF THE ICAI. IT HAS FURTHER BEEN CLAIMED THAT THE ASSESSEE MAINTAINED ITS ACCOUNTS AS PER THE ACCRUAL SYSTEM OF ACCOUNTING AND HAS BEEN FOLLOWING THIS A CCOUNTING AND THE SAME IS ALSO IN LINE WITH THE STANDARD ACCOUNTING P OLICIES AND PRACTICES BEING FOLLOWED BY THE INDUSTRY AT LARGE. WE FIND TH AT THE SUBMISSIONS OF THE ASSESSEE ARE COGENT ENOUGH. 6.1 WE FURTHER FIND THAT IN THE CASE OF WOODWARD GO VERNOR INDIA P LTD., IT WAS HELD HEAD NOTES WHETHER EXPRESSION EXPENDITURE AS USED IN SECTION 37 MAY, IN CIRCUMSTANCE OF A PARTIC ULAR CASE, COVERED AN AMOUNT WHICH IS REALLY A LOSS EVEN THOUGH THE SAI D AMOUNT HAS NOT GONE OUT FROM THE POCKET OF ASSESSEE HELD. YES. W HETHER LOSS SUFFERED BY THE ASSESSEE ON ACCOUNT OF FOREIGN EXCH ANGE DIFFERENCE AS ON THE DATE OF BALANCE SHEET IS AN ITEM OF EXPENDIT URE U/S. 37(1) HELD. YES. THUS WE FIND THAT ON THE ANVIL OF THE HONBL E APEX COURT DECISION CITED ABOVE, THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE AND HENCE, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AN D DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 7. APROPOS AMOUNT ON BIRTHDAY AND ANNIVERSARY GIFT O F ` 76,650/-. 8. IN THIS CASE ASSESSEE HAS DEBITED A SUM OF ` 7 6650/- IN RESPECT OF EXPENSES INCURRED ON BIRTHDAY AND ANNIVERSARY G IFTS GIVEN TO DIRECTORS AND OTHER MANAGERIAL PERSONS. ASSESSING OFFICER OPINED ITA NOS. 3878/DEL/2010 & 796/DEL/2011 5 THAT THESE EXPENSES WERE OF PERSONAL NATURE AND ASS ESSEE WAS ASKED TO EXPLAIN AS TO WHY EXPENSES ON ACCOUNT OF BIRTHDA Y AND ANNIVERSARY GIFTS NOT BE DISALLOWED. IN RESPONSE THE ASSESSEE SUBMITTED THAT THESE EXPENSES WERE INCURRED ON EMPLOYEES AS MARK OF THEIR LOYALTY AND WELFARE. IT WAS FURTHER SUBMITTED THAT THESE BENE FITS WERE ADDED TO THE SALARY OF THE EMPLOYEES WHILE CALCULATING THEIR TAXABLE INCOME AND TAX WAS DEDUCTED THEREON. ASSESSING OFFICER DID NOT ACCEPT THE REPLY ACCEPTABLE. HE DISALLOWED THE AMOUNT OF ` 76650/-. 9. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) NOTED THAT ASSESSEE HAS FAILED TO ESTABLI SH THAT SUCH EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. ASSESSMENT OF SUCH INCOME IN THE HANDS OF THE EMPLOYEES DOES NOT MAKE ANY PAYMENT AS ADMISSIBLE IF IT DOES NOT FULFILL SECTION 37 OF THE ACT AND HENCE, THE ACTION OF THE ASSESSIN G OFFICER IS CORRECT, HENCE, SUSTAINABLE. 10. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APPE AL BEFORE US. 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS. WE FIND THAT THE ABOVE EXPENSES WERE INCURRED BY T HE ASSESSEE ON BIRTHDAY AND ANNIVERSARY GIFT GIVEN TO THE DIRECTOR AND OTHER MANAGERIAL PERSONS. THESE EXPENDITURE CAN CERTAIN LY BE CATEGORIZED AS EXPENDITURE FOR THE PURPOSE OF BUSINESS AS THE SAME AMOUNT WAS TO BOOST THE MORAL OF THE EMPLOYEES. HENCE, IN OU R CONSIDERED OPINION, THE EXPENDITURE IN THIS REGARD IS DULY ALL OWABLE AND ACCORDINGLY, WE SET ASIDE THE ORDERS OF THE AUTHORI TIES BELOW AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. ITA NOS. 3878/DEL/2010 & 796/DEL/2011 6 12. APROPOS ADDITION OF ` 106,000/- ON ACCOUNT OF E XPENSES PAID ON DONATION. THIS GROUND WAS NOT PRESSED BY THE ASSES SEE, HENCE, IT IS DISMISSED AS NOT PRESSED. 13. APROPOS ADDITION OF ` 7,077,719/- ON ACCOUNT OF COMMISSION PAID TO DIRECTORS. THIS GROUND HAS ALSO BEEN RAISED IN ITA NO. 796/DEL/2011 (A.Y. 2006-07), WHERE THE DISALLOWANCE IS OF ` 4466604/- WE DEAL WITH THIS GROUND BY REFERRING A.Y. 2006-07 IN ITA NO. 796/ DEL/2011. 14. ON THIS ISSUE ASSESSING OFFICER NOTED THAT ASS ESSEE COMPANY IS ENGAGED IN THE BUSINESS OF THE PROVIDING MULTI-DISC IPLINARY ENGINEERING AND MANAGEMENT CONSULTING SERVICES. ASS ESSING OFFICER NOTED THAT ASSESSEE HAS PAID COMMISSION TO ITS TWO E MPLOYEES DIRECTORS SH. UMESH SRIVASTAVA AND SH. SUMAT SRIVAST AVA TO THE TUNE OF ` 1,38,71,441/-. ASSESSING OFFICER REFERRED TO SECTION 36(1)(II) OF THE IT ACT, MENTIONS AS UNDER:- ANY SUM PAID TO AN EMPLOYEE AS BONUS OR COMMISSION F OR SERVICES RENDERED, WHERE SUCH SUM WOULD NOT HAVE NO T BEEN PAYABLE TO HIM AS PROFITS OR DIVIDEND IF IT HAD NOT BEEN PAID AS BONUS OR COMMISSION. 14.1 ASSESSING OFFICER OBSERVED THAT IN THIS REGAR D THE TWO EMPLOYEE DIRECTOR ALSO HAPPEN TO BE SHARE HOLDER OF THE COMPA NY HOLDING 19.80% AND 12.40% OF SHARES OF THE COMPANY. IN THI S VIEW OF THE MATTER, THEY ARE ENTITLED TO RECEIVE PROFIT BY WAY O F DIVIDEND. CONDITION OF SECTION 36(1)(II) AS ENUMERATED APPL Y IN THE CASE OF ALLOWANCE OF DEDUCTION AS :- I) THE PAYMENT SHOULD OF COMMISSION FOR SERVICES R ENDERED. II) IT IS TO AN EMPLOYEE. ITA NOS. 3878/DEL/2010 & 796/DEL/2011 7 III) SUM SHOULD NOT OTHERWISE BE PAYABLE AS DIVIDEN D. FROM THE ABOVE, ASSESSING OFFICER INFERRED THAT IN THIS REGARD POSITIVE CONDITION DO EXIST BUT THEN NEGATIVE CONDI TION IS NOT SATISFIED AS PART OF COMMISSION DEFINITELY REPRESENT, SUM WHICH WOULD HAVE BEEN RECEIVED AS DIVIDEND HAD THIS AMOUNT NOT BEEN R EDUCED FROM PROFITS AS EXPENDITURE. THEREFORE, ASSESSING OFFIC ER OPINED ONLY THAT PORTION OF COMMISSION IS AN ALLOWABLE DEDUCTION WHIC H OTHERWISE WOULD NOT HAVE BEEN RECEIVED BY THESE EMPLOYEES AS DIVIDE ND OR SHARE OF PROFIT. THE AMOUNT THEREFORE NOT QUALIFYING FOR AL LOWANCE U/S 36(1)(III) AND WAS WORKED AS UNDER:- TOTAL COMMISSION AS AMOUNT WHICH ` 1,38,71,441/- WOULD HAVE BEEN AVAILABLE FOR DISTRIBUTION AS DIVIDEND SHARE %AGE OF TWO EMPLOYEE DIRECTORS ` 32.2% AMOUNT WHICH OTHERWISE RECEIVED AS DIVIDEND ` 44,66 ,604/- ON DISTRIBUTION. THEREFORE, AMOUNT OF ` 44,66,604/- WAS DISALLOWED. 15. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE ACTION OF THE ASSESSING OFF ICER. LD. COMMISSIONER OF INCOME TAX (APPEALS) FOUND THAT HIGH ER PERCENTAGE OF PAYMENT HAS BEEN MADE TO THE DIRECTORS NAMELY SH. UME SH SRIVASTAVA AND S. SRIVASTAVA. HE FOUND THAT THE P AYMENT TO THESE PERSONS HAS SHOWN VERY SHARP INCREASE AS COMPARED T O LAST YEAR. HE FURTHER OBSERVED THAT ASSESSEE HAS FAILED TO FURNIS H ANY MATERIAL TO SAY THAT THE PAYMENT OF COMMISSION WAS JUSTIFIED WITH REF ERENCE TO THE SERVICES RENDERED BY THE DIRECTORS. ASSESSEE HAS ARGUED THAT THESE DIRECTORS WERE PAID 5% OF NET PROFITS AND THIS WAS DECIDED BY A ITA NOS. 3878/DEL/2010 & 796/DEL/2011 8 RESOLUTION PASSED BY THE COMPANY. THIS ARGUMENT WAS NOT ACCEPTABLE BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) BECAU SE HE HELD THAT THIS COMPANY IS OWNED BY THE TWO DIRECTORS AND THEIR FAMILY MEMBERS. LD. COMMISSIONER OF INCOME TAX (APPEALS) OPINED THAT APART FROM DISALLOWANCE U/S. 36(1)(II), THE AMOUNT DISALLOWED BY THE ASSESSING OFFICER WAS ALSO TO BE DISALLOWED U/S. 40A(2)(A), BECAUSE THE PAYMENT IS EXCESSIVE AND UNREASONABLE AND THE ASSESSEE HAS FAILED TO JUSTIFY THE DEDUCTIBILITY OF COMMISSION ON PAYMENT. 16. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APP EAL BEFORE US. 17. LD. COUNSEL OF THE ASSESSEE HAS MADE THE FOLLOWI NG SUBMISSIONS:- THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PROVIDING ENGINEERING AND MANAGEMENT CONSULTANCY SERVICES WITH FOCUS ON CEMENT AND MINERAL INDUSTRIES . DURING THE RELEVANT YEAR IT HAS PAID COMMISSION TO IT S WHOLE TIME DIRECTORS MR. UMESH SRIVASTAVA AND MR. SUMANT SRIVASTAVA. BOTH THESE DIRECTORS ARE ENGINEERS AND MANAGEMENTS GRADUATES AND HAVING EXPERIENCE OF AROUN D 50 AND 15 YEARS RESPECTIVELY. THESE DIRECTORS ARE RESPONSIBLE FOR OVERALL PLANNING, INNOVATION AND MA KING STRATEGIES TO ENSURE GROWTH OF BUSINESS AREAS OF O PERATIONS AND PROFITABILITY. UNDER THEIR ABLE LEADERSHIP THE COMPANY HAD BEEN ABLE TO IMPROVE ITS PROFITABILITY OVER THE YEARS CONSIDERABLY. THE ASSESSEE COMPANY HAD ENTERED INTO AN AGREEMENT W ITH BOTH THE DIRECTORS FOR DETERMINING THEIR REMUNERATIO N AND COMMISSION. IN THE AGREEMENT, IT CLEARLY SPECIFIED THAT COMMISSION IS PAYABLE AT 5% OF THE NET PROFITS OF TH E ITA NOS. 3878/DEL/2010 & 796/DEL/2011 9 COMPANY AND THE SAME SHALL BE PAYABLE WITHIN THREE MONTHS OF THE APPROVAL OF ANNUAL ACCOUNTS BY THE SHAREHOLDERS. THEREFORE, THE COMMISSION IS BEING PA ID AS A FIXED PERCENTAGE OF PROFITS AND NOT ON AN ADHOC BAS IS. THE AFORESAID AGREEMENT WAS APPROVED IN THE MEETING OF BOARD OF DIRECTORS. THE COMPENSATION FOR BOTH THE DIRECTORS WERE STRUC TURED IN SUCH A WAY THAT APART FROM GETTING A FIXED REMUNERAT ION FOR THEIR SERVICES RENDERED, THEY WOULD ALSO BE ENTITL ED TO RECEIVE COMMISSION BASED ON THE PROFITABILITY OF THE COMPANY. (IN A CASE WHEN THERE ARE NO PROFITS OR T HE COMPANY IS INCURRING LOSSES, NO SUCH COMMISSION IS PAYABLE.) THUS, THE COMMISSION PAID TO THEM WOULD C LEARLY FALL IN THE EXPRESSION SALARY. THE APPELLANT COMPANY WAS PAYING SUCH COMMISSIONS TO DIRECTORS IN THE EARLIER YEARS ALSO AND THE SAME WAS DULY ALLOWED AS A DEDUCTION IN THE ASSESSMENT OF THE APP ELLANT COMPANY. THE ABOVE COMMISSION PAYMENT WAS ALSO ACCEPTED BY THE REVENUE ITSELF OF THE PURPOSE OF TH E BUSINESS OF THE APPELLANT COMPANY AND THUS THERE IS NO QUESTION OF DISALLOWANCE OF COMMISSION IN THE YEAR U NDER APPEAL. THE ASSESSING OFFICER DID NOT BRING ON RECORD ANY EVIDENCE OR MATERIAL AS TO WHY HE IS CHANGING THE PR ACTICE THIS YEAR THAT HAS BEEN FOLLOWED IN THE PREVIOUS Y EAR. IT IS A NORMAL PRACTICE IN THE INDUSTRY TO PAY BONU S/ COMMISSION TO SENIOR MANAGEMENT PERSONNEL WHICH IS DIRECTLY PROPORTIONAL TO A FIXED PERCENTAGE OF INCO ME / ITA NOS. 3878/DEL/2010 & 796/DEL/2011 10 PROFITS. THIS PRACTICE OF PAYMENT OF COMMISSION BASED ON THE PROFITS IS QUITE PREVALENT IN THE INDUSTRY. TH E COMMISSION WAS BEING PAID BY THE APPELLANT COMPANY AS A BUSINESS PRACTICE AND INDUSTRY NORMS. THE APPELLANT COMPANY HAS PAID TAX ON ITS TOTAL INCO ME AT THE MAXIMUM MARGINAL RATE. BOTH THE DIRECTORS HAVE ADMITTED THE PAYMENT OF COMMISSION RECEIVED AND OFFER ED THE SAME IN THEIR INCOME TAX RETURNS AND HAD PAID TA XES AT MAXIMUM MARGINAL RATE. THIS CLEARLY ESTABLISHES THE FA CT THAT THERE HAS BEEN NO TAX AVOIDANCE MOTIVE BEHIND THE PAYMENT OF COMMISSION TO THE DIRECTORS BY THE APPELLA NT COMPANY. FURTHER, THE DISALLOWANCE OF SUCH COMMISSI ON WILL AMOUNT TO DOUBLE TAXATION FOR THE SAME INCOME A S IT HAS ALREADY BEEN TAXED IN THE HANDS OF RECIPIENTS. 17.1 LD. COUNSEL OF THE ASSESSEE FURTHER PLACED RE LIANCE UPON THE DECISION OF THE TRIBUNAL IN THE CASE OF ACIT VS. M/ S BONY POLYMERS (P) LTD. 36 SOT 0456 (DEL). HE FURTHER PLACED RELIANCE UPON THE DECISION OF THE DCIT VS. CMR AUTOMATION PVT. LTD. IN ITA NO. 493/DEL/2011 WHEREIN VIDE ORDER DATED 21.7.2011 THE TRIBUNAL HAS CONFIRMED THE ALLOWABILITY OF COMMISSION TO DIRECTORS. 17.2 LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER H AND SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 17.3 WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AN D PERUSED THE RECORDS. WE FIND THAT ASSESSEE HAS PAID COMMISSION TO THE DIRECTORS AS PART OF THE REMUNERATION. IN THE AGREEMENT, IT WA S CLEARLY SPECIFIED THAT COMMISSION IS PAYABLE AT 5% OF THE NET PROFITS O F THE COMPANY. THUS, THE PAYMENT WAS DULY APPROVED BY THE BOARD OF DIRECTORS. ITA NOS. 3878/DEL/2010 & 796/DEL/2011 11 FURTHER, WE FIND THAT COMMISSION WAS PAID IN EARLIER YEARS ALSO AND THE SAME WAS ACCEPTED BY THE REVENUE AND HENCE, NO DIS ALLOWANCE WAS MADE. 17.4 WE FURTHER FIND THAT HONBLE JURISDICTIONAL HI GH COURT IN THE CASE CIT VS. DALMIA PROMOTERS DEVELOPERS (P) LTD. 28 1 ITR 346 HAS HELD THAT FOR REJECTING THE VIEW TAKEN IN EARLIER ASSESSMENT YEARS, THERE MUST BE MATERIAL CHANGE IN THE FACT, SITUATIO N OR IN LAW. IN THIS CASE, CLEARLY THERE IS NEITHER ANY CHANGE IN THE FA CT, SITUATION OR IN LAW. WE AGREE WITH THE CONTENTION OF THE ASSESSEE THAT T HE COMPENSATION FOR BOTH THE DIRECTORS WERE STRUCTURED IN SUCH A WA Y THAT APART FROM GETTING A FIXED REMUNERATION FOR THEIR SERVICES REN DERED, THEY WOULD ALSO BE ENTITLED TO RECEIVE COMMISSION BASED ON THE PROFITABILITY OF THE COMPANY. WE ALSO FIND THAT ASSESSEE HAS PAID TAXES AT MAXIMUM MARGINAL RATE. BOTH THE DIRECTORS HAVE ADMITTED TH E PAYMENT OF COMMISSION RECEIVED AND OFFERED THE SAME IN THEIR IN COME TAX RETURNS AND HAD PAID AT A MAXIMUM MARGINAL RATE. THIS CLEA RLY ESTABLISHES THE FACT THAT THERE HAS BEEN NO TAX AVOIDANCE MOTIV E BEHIND THE PAYMENT OF COMMISSION TO THE DIRECTORS BY THE ASSESSE E COMPANY. WE FURTHER FIND THAT THE CASE LAW REFERRED BY THE LD. COUNSEL OF THE ASSESSEE ARE ALSO GERMANE AND SUPPORT THE CASE OF TH E ASSESSEE. 17.5 IN THE BACKGROUND OF THE AFORESAID DISCUSSIONS AND PRECEDENTS, IN OUR CONSIDERED OPINION, THE PAYMENT OF COMMISSION WAS JUSTIFIED AND NOT DISALLOWABLE U/S 36(1)(II) OF THE IT ACT. 17.6 AS REGARDS THE CONTENTION OF THE LD. COMMISSION ER OF INCOME TAX (APPEALS) THAT AMOUNT IS ALSO TO BE DISALLOWED U/S 40A(2)(A), BECAUSE THE PAYMENT TO THE ASSESSEE WAS UNREASONABL E. WE FIND THAT THE SAME IS NOT SUPPORTED BY ANY COMPARABLE INSTANCE . IN WHAT ITA NOS. 3878/DEL/2010 & 796/DEL/2011 12 CONTEXT IT WAS UNREASONABLE HAS NOT BEEN BROUGHT ON RECORD, HENCE, THIS POINT OF VIEW IS ALSO NOT SUSTAINABLE. 17.7 IN THE BACKGROUND OF THE AFORESAID DISCUSSION AND PRECEDENTS, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND D ECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 18. IN THE RESULT, THE ITA NO. 3878/DEL/2010 IS P ARTLY ALLOWED AND ITA NO. 796/DEL/2011 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 25/1/201 2. SD/ SD/ SD/ SD/- -- - SD/ SD/ SD/ SD/- -- - [ [[ [A.D. JAIN A.D. JAIN A.D. JAIN A.D. JAIN] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 25/1/2012 SRB COPY COPY COPY COPY FORWARDED TO: FORWARDED TO: FORWARDED TO: FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES