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Income Tax Appellate Tribunal, B BENCH, AHMEDABAD
Before: DR. BRR KUMAR & SHRI SIDDHARTHA NAUTIYAL
(Assessment Year: 2017-18) Deputy Commissioner of Vs. AMI Life Science Pvt. Ltd., Income Tax 701 to 710 Lileria, 1038 Circle-1(1)(1), Next to Zydex Office T B Vadodara Sanatorium, S.S. Vadodara-390021 [PAN No.AAGCS9549F] (Appellant) .. (Respondent) Appellant by : Shri Abbas Gulamhusainwala, A.R. Respondent by: Shri Kavam Limbasiya, Sr. DR Date of Hearing 07.04.2025 Date of Pronouncement 22.04.2025 O R D E R
PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER:
This appeal has been filed by the Department against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi vide order dated 13.11.2024 passed for A.Y. 2017-18.
The Department has taken the following grounds of appeal:-
“i) On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs. 1,90,85,522/- without appreciating the facts that the assessee failed to prove that activities of the director Shri Girish L Chovatia such as meeting prospective customers, participation in exhibitions, market products of the company were not as the director of the company. ii) On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs. 1,90,85,522/- without appreciating the facts that the assessee has made payment to the Director in guise of commission only to evade dividend distribution tax. iii) The appellant craves leaves to add, modify, amend or alter any grounds of appeal at the time of, or before, the hearing of appeal.”
DCIT vs. AMI Life Science Pvt. Ltd. Asst. Year –2017-18 - 2– 3. The brief facts of the case are that the assessee company is engaged in the business of manufacturing of pharmaceutical intermediates and other related chemicals. During the course of assessment, the Assessing Officer noted that the assessee company had paid commission to one of it’s Directors Shri Girish Chovatia amounting to Rs. 1,90,85,522/-. Shri Girish Chovatia was holding 31.45% shares in the company as on 31.03.2017. The Assessing Officer was of the view that this commission had been paid by the assessee to Shri Girish Chovatia as Director only with a view to avoid payment of dividend distribution tax and accordingly, the aforesaid payment of Rs. 1,90,85,522/- was disallowed by the Assessing Officer under Section 36(1)(ii) of the Act.
In appeal, Ld. CIT(A) observed that recently the ITAT Ahmedabad in assessee’s own case, deleted similar addition for the immediately preceding year A.Y. 2016-17 in vide order dated 15.07.2024. While allowing relief to the assessee for the immediately preceding year with respect to similar disallowance towards payment of commission, the ITAT observed that Shri Girish Chovatia was one of the thirty shareholders in the assessee company and one of the six Directors and all the Directors had not been paid commission by the assessee company. The ITAT was of the considered view that payment of commission to Shri Girish Chovatia was not done with a view to avoid payment of DDT. Accordingly, Ld. CIT(A) gave relief to the assessee with following observations:
“5.3 Having duly considered the facts on record and the appellant’s submissions, it is seen that the Hon’ble ITAT, D Bench, Ahmedabad in has adjudicated on an indentical issue in the appellant’s own case for Assessment Year 2016-17 vide order dated 15/07/2024 as under:
During the course of hearing before us, the counsel for the assessee, after explaining the facts already explained to AO and CIT(A), relied on the following judicial pronouncements: - Loyal Motor Services Co. Ltd. [1946] (14 ITR 647) (Bombay). AMD Metaplat (P) Ltd. [2012] 20 taxmann.com 647 (Delhi). Controls & Switchgear Contractors Ltd. [2014] 47 taxmann.com 141 (Delhi).
7. We noted that the AO in his entire assessment order was failed to provide any evidence that the company has made the payment of commission only to avoid DDT. On the contrary, the assessee could provide substantial evidence to prove service of the director with the facts that he is one of the 30 shareholders holding only 32.78% shares, he is one of the six directors, and all have not been paid any commission. Further, book profit of the company during the period was of Rs.6,68,25,463/- whereas Company had given commission of Rs14,98,923/- which is 7.83% of the book profit of the Company. Further, it is noted that Shri Girish Chovatia has declared his total income (including commission) of Rs.2,74,82,370/- and paid tax of Rs.94,13,654/-. This shows that the payment of commission cannot be said to avoid the tax. 7.1. We have carefully examined the submissions and evidence provided by the assessee, as well as the relevant judicial precedents. It is observed that the AO primarily relied on the case of Dalal and Broacha Stock Broking Pvt. Ltd., which is factually distinguishable. In the present case, the assessee has provided substantial evidence demonstrating the services rendered by Shri Girish Chovatia and the resultant benefits to the company. 7.2. The case laws cited by the assessee before the Ld.CIT(A), particularly M/s Nat Steel Equipment Pvt. Ltd. and M/s.Marks Shipping Pvt. Ltd., support the view that commission paid for actual services rendered cannot be disallowed merely on the presumption of tax avoidance. The AO did not provide concrete evidence to show that the payment was made to avoid DDT. The assessee has clearly distinguished the judgement relied upon by the AO and the Ld.CIT(A). 7.3. Based on the facts and judicial precedents, we hold that the commission paid to Shri Girish Chovatia is an allowable business expenditure under section 36(1)(ii). Therefore, the disallowance made by the AO and confirmed by the Ld.CIT(A) is deleted. As the issue under dispute is squarely covered by the above judgement of the higher appellate authority, respectfully following the above, the addition made under section 36(1)(ii) at Rs. 1,90,85,522 for A.Y. 2017-18 is deleted and the appellant’s ground is allowed.” 5. The Department is in appeal before us against the aforesaid order passed by Ld. CIT(A) giving relief to the assessee.
6. On going through the facts of the instant case, we are of the considered view that Ld. CIT(A) has not erred in facts and in law in following the decision of ITAT, Ahmedabad in assessee’s own case for A.Y. 2016-17, while allowing relief to the assessee on this issue. Therefore, we find no infirmity in the order of Ld. CIT(A), so as to call for any interference.
In the result, the appeal of the Department is dismissed. This Order pronounced in Open Court on 22/04/2025
Sd/- Sd/- (DR. BRR KUMAR) (SIDDHARTHA NAUTIYAL) VICE PRESIDENT JUDICIAL MEMBER Ahmedabad; Dated 22/04/2025 TANMAY, Sr. PS TRUE COPY आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��थ� / The Respondent. 3. संबंिधत आयकर आयु� / Concerned CIT 4. आयकर आयु�(अपील) / The CIT(A)- 5. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER,