ACIT, NEW DELHI vs. M/S. IIGM PVT. LTD., NEW DELHI

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ITA 4278/DEL/2016Status: DisposedITAT Delhi14 October 2019AY 2012-134 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the decision of the CIT(A) in deleting the disallowance. It noted that similar claims were allowed in earlier and subsequent assessment years, following the principle of consistency. The Tribunal also found no adverse material to satisfy the conditions of Section 40A(2)(b).

What were the facts?

The Revenue appealed against the deletion of a disallowance made under Section 40A(2)(b) for ex-gratia payments to directors. The Assessing Officer argued that the company should have declared dividends instead of paying directors to avoid dividend distribution tax.

What were the issues?

Whether ex-gratia payments to directors are disallowable under Section 40A(2)(b) when similar claims were allowed in previous years and the company has reserves. Whether the Assessing Officer has brought sufficient material to prove the payments were excessive or unreasonable.

Which sections of the Income-tax Act were involved?

Section 40A(2)(b)

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(1)Show list

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Income Tax Appellate Tribunal, DELHI BENCHES “C”: DELHI

Before: SHRI BHAVNESH SAINI & SHRI PRASHANT MAHARISHI

Hearing: 10.10.2019Pronounced: 14.10.2019

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES “C”: DELHI BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA.No.4278/Del./2016 Assessment Year 2012-2013 M/s. IIGM Pvt. Ltd., The ACIT, Circle-12(1), vs., B-112, Okhla Industrial Room No.405, C.R. Area, Phase-1, New Delhi. Building, New Delhi. PIN 110 020. PAN AAACI0110N (Appellant) (Respondent) For Revenue : Ms. Rakhi Vimal, Sr. D.R. For Assessee : Shri M.S. Sekhon, C.A. Date of Hearing : 10.10.2019 Date of Pronouncement : 14.10.2019 ORDER PER BHAVNESH SAINI, J.M.

This appeal by Revenue has been directed against the Order of the Ld. CIT(A)-4, New Delhi, Dated 18.05.2016 for the A.Y. 2012-2013, challenging the Order of Ld. CIT(A) in deleting the disallowance made under section 40A(2)(b) of the I.T. Act, 1961, amounting to Rs.2.38 crores.

2 ITA.No.4278/Del./2016 M/s. IIGM Pvt. Ltd., New Delhi.

2.

The Ld. CIT(A) noted that the only issue arise on account of ex-gratia payment to the Directors. The Ld. CIT(A) has gone through the record and found that they have been following the practice right from the inception of the company and in the earlier year assessments under section 143(3) have been passed and similar claim of assessee have been accepted in A.Ys. 2003-204, 2004-05, 2006-07 and 2009-10. The A.O. has distinguished this case from the case of Shahzada Nand & Sons vs. Commissioner of Income Tax [1977] 108 ITR 358 (SC) and has argued that since the assessee has huge reserve and surplus, it should have used the reserves to declare the dividend. By not doing so, it has diverted the money in the hands of the Directors to avoid payment of dividend distribution tax. On the other hand, the assessee has given the bifurcation of sales, commission and service charges from the A.Y. 2007-08 to 2012-2013 and has claimed that it is their prerogative under which head they want to pay to the Directors. The Ld. CIT(A) did not find any infirmity in the stand of the 3 ITA.No.4278/Del./2016 M/s. IIGM Pvt. Ltd., New Delhi.

assessee. The Ld. CIT(A) following the earlier year’s order, deleted the entire addition.

3.

The Ld. D.R. relied upon Order of the A.O.

4.

On the other hand, Learned Counsel for the Assessee submitted that in earlier year similar claim have been allowed in the regular assessments under section 143(3). He has submitted that in A.Y. 2013-2014 also similar claim have been allowed by the Ld. CIT(A) and Departmental appeal have ben dismissed for low tax effect vide Order dated 02.09.2019 in ITA.No.4279/Del./2016. He has further submitted that in A.Y. 2014-2015 also, the Ld. CIT(A) similarly allowed the claim of assessee following the earlier years order. Copies of the Orders are placed on record.

5.

In view of the above, it is clear that in earlier year as well as in subsequent year, the authorities below have allowed the similar claim of assessee. Therefore, following the rule of consistency there were no reason to take a different view or to make any addition against the assessee.

4 ITA.No.4278/Del./2016 M/s. IIGM Pvt. Ltd., New Delhi.

Further, nothing has been brought on record to satisfy the conditions of Section 40A(2)(b) of the I.T. Act. Therefore, in the absence of any adverse material against the assessee, no interference is called for. The Departmental appeal stands dismissed.

6.

In the result, appeal of Revenue dismissed.

Order pronounced in the open Court.

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