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Income Tax Appellate Tribunal, PUNE BENCH “A”, PUNE
Before: SHRI D.KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM
आदेश आदेश / ORDER आदेश आदेश
PER D. KARUNAKARA RAO, AM :
This is the appeal filed by the Assessee against the order of CIT(A)-5, Pune, dated 18-01-2016 for the Assessment year 2011-12.
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 extent of Rs.30,00,000/- 2. The appellant prays for just and equitable relief. 3. The appellant prays to add, alter, amend, explain, and modify the ground/s as the occasion may demand.”
Briefly stated relevant facts are that assessee is engaged in the business of consultancy and training, e-learning for companies and
individuals. Assessee filed the return of income declaring total income
of Rs.16,81,575/- At the end of the assessment proceedings u/s.143(3)
of the Act, AO made major addition of Rs.30 lakhs as per the 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/-.
Facts relating to addition of Rs.30 lakhs include that the 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 crores 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 bonus 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 section 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 profits or as
dividends if it had not been paid as bonus. In response, assessee
changed his explanation and stated that the expenditure is allowable as
it is a case of “variable pay” linked to the turnover. According to him,
the claim is allowable alternatively u/s.37(1) of the Act. Assessee relied
on various decisions in support of the claim. Assessee relied on the
judgment of Hon’ble Delhi High Court in the case of Shriram 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 Tribunal in the
case of M/s. Dalal Broacha Stock Broking Pvt. Ltd. Vs. ACIT 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 Act. AO also
relied on the judgment of Hon’ble Bombay High Court in the case of
M/s. Loyal Motor Services Co. Ltd. 14 ITR 647 (Bom.) and held 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 case of
Subodh Chandra Poppatlal Vs. CIT 24 ITR 566 (Bom.) and others, 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 the
Act.
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 in 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 Hon’ble Bombay High Court’s judgment in
the case of Subodh Chandra Poppatlal Vs. CIT, as well as judgments in
the cases of Malwa Vanaspati & Chemical Co. Ltd. Vs. CIT 154 ITR 655
(MP), Khimji Visram & Sons (Gujarat) Pvt. Ltd. Vs. CIT 209 ITR 993
(Guj.) were also relied upon by the CIT(A).
Aggrieved with the order of CIT(A), assessee filed the present
appeal before the Tribunal with the grounds referred above.
At the outset, Ld. Counsel for the assessee brought our attention
to the decision of Special Bench of the Tribunal in the case of M/s.Dalal
Broacha Stock Broking Pvt. Ltd. Vs. ACIT (supra) submitted that the
said order has been reversed by the Hon’ble Delhi High Court in various
cases. Further, relying on the decisions of Pune Bench of the Tribunal
in the case of Mahafeed Speciality Fertilizers (India) Pvt. Ltd. Vs. ACIT –
ITA No.2274/PUN/2014, dated 09-08-2017 (posterior to the 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 assessee
submitted that the matter can be remanded back to the file of AO for
fresh adjudication in the light of the said jurisdictional orders of the
Tribunal.
On the other hand, Ld. DR for the Revenue relied on the orders of
the AO and the CIT(A).
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 payments if the same
constitute bonus or variable pay. Assessee has changed the
nomenclature of the same from time to time. Therefore, there is a
requirement of going deeper into the nature of transaction, if the same
is paid for the services rendered by the Directors or otherwise. 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 per the
agreement of employment and if the said payment is outside 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.
Coming to the Special Bench decision of Mumbai Bench of the
Tribunal in the case of M/s. Dalal Broacha Stock Broking Pvt. Ltd. Vs.
ACIT (supra), we find the AO need to examine this aspect after
comparing the facts as well as the nature of payments made to the two
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 Mahafeed Speciality
Fertilizers (India) Pvt. Ltd. Vs. ACIT and in the case of Arihantam
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 above decisions
of the Pune Bench of the Tribunal explain the provisions relating to
section 36(1)(ii) of the Act which help the AO to come to proper
appreciation of legal position qua the facts of the case.
Accordingly, as discussed in open court, we are of the opinion
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, we
remand the issue to the file of AO. AO shall grant reasonable
opportunity of being heard to the assessee in accordance with the set
principles of natural justice. AO shall examine the judgmental laws and
the facts on the issue and pass a speaking order. Thus, the grounds
raised by the assessee are allowed for statistical purposes.
In the result, appeal of the assessee is allowed for statistical
purposes.
Order pronounced in the open court on this 09th day of May, 2018.
Sd/- Sd/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) �याियक �याियक सद�य �याियक �याियक सद�य सद�य /JUDICIAL MEMBER लेखा सद�य लेखा लेखा सद�य लेखा सद�य सद�य / ACCOUNTANT MEMBER सद�य
पुणे Pune; �दनांक Dated : 09th May, 2018 सतीश
आदेश आदेश क� आदेश आदेश क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : अ�ेिषत
अपीलाथ� / The Appellant 1. ��यथ� / The Respondent 2. 3. The CIT(A)-5, Pune 4. CIT-5, Pune िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “A Bench” Pune; 5. गाड� फाईल / Guard file. 6.
आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER,स आदेशानुसार
स�यािपत �ित //True Copy// //True Copy// Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune