CIT vs. CHARU MERCHANDISING PVT LTD

IN THE HIGH COURT OF DELHI AT NEW DELHI . 09.11.2010 . Present: Ms. Prem Lata Bansal, Advocate for the Appellant. . + ITA No.1709/2010 . . The respondent/ assessee is a Private Limited Company. In the return filed for the Assessment Year 2005-2006 an income of Rs. 4241164/- was declared. The Assessing Officer, during assessment proceedings, found that the assessee company had paid a commission of Rs.10 lacs each to its two Directors which was claimed as expenditure under Section 36(1)(ii) of the Income Tax Act. The Assessing Officer disallowed the aforesaid amount and added the same to be the income of the assessee. ITAT has, however, deleted the addition holding that the commission paid to the Directors by the assessee would be an admissible expenditure under Section 36(1)(ii) of the Income Tax Act. A perusal of the order passed by the ITAT would reveal that the ITAT has found that the aforesaid commission was paid as part of remuneration to the Directors which was linked with the sales required to be achieved by the assessee company and this remuneration was subject to a ceiling of Rs.10 lacs. On this basis, the ITAT found that the commission was not synonymous to dividend and more particularly similar commission which was claimed by the assessee in respect of the Assessment Year 2003-2004 was allowed by the Assessing Officer as expenditure. -2- In view of the aforesaid factual aspects on the basis of which the commission paid is allowed as business expenditure. We are of the view that no substantial question of law arises. Dismissed. A.K. SIKRI, J. . SURESH KAIT, J. NOVEMBER 09, 2010 hk . #4