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Income Tax Appellate Tribunal, DELHI BENCH “B” NEW DELHI
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “B” NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND Ms. SUCHITRA KAMBLE : JUDICIAL MEMBER Asstt. Yr: 2006-07 ACIT, Circle 3(1), Vs. M/s Convertech Equipment Pvt. Ltd., New Delhi. F-90/6, Okhla Indl. Area, Phase-I, New Delhi. PAN: AAACC 0815 E AND Asstt. Yr: 2006-07 M/s Convertech Equipment Pvt. Ltd., Vs. ACIT, Circle 3(1), F-90/6, Okhla Indl. Area, Phase-I, New Delhi. New Delhi. ( Appellant ) (Respondent) Department by : Shri Neehar Ranjan Pandey Sr. DR Assessee by : Shri V.K. Garg Date of hearing : 14/12/2015. Date of order : 08/02/2016. O R D E R PER S.V. MEHROTRA, A.M:
These are cross appeals, preferred by the revenue as well as the assessee against the order passed by the ld. CIT(A)-VI, New Delhi relating to A.Y. 2006-07.
2. The assessee company, in the relevant assessment year, was engaged in the business of manufacturing of Doctor’s blades, which were used in printing machines. It had filed its return of income declaring income of Rs. 1,64,41,160/-. The assessment was completed at Rs. 2,54,73,380/-, inter alia, making following disallowances: i. Disallowance u/s 36(1)(ii) Rs. 88,52,536/- ii. Depreciation on computer peripherals Rs. 19,620/- 3. Ld. CIT(A) partly allowed the assessee’s appeal. Being aggrieved with the order of ld. CIT(A) both the assessee and the department are in appeal before us. Respective grounds taken are as under:
Revenue’s appeal:
“1. In the facts and circumstances of the case, the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 8852536/- made by AO on account of bonus and commission paid to Directors of the company even though it was not an allowable expenditure within the meaning of section 36(1 )(ii) of the I.T.Act,1961.
In the facts and circumstances of the case, the Ld. CIT(A) erred in law and on facts by allowing the depreciation @ 60% on computer peripherals and accessories amounting to Rs. 19620/- though the I.T. Rules allows 60% depreciation only on computer and computer software.
The appellant craves leave for reserving the right to amend, modify, after, add or forego any ground( s) of appeal at any time before or during the hearing of this appeal.
Assessee’s appeal:
1. 1. THAT the Ld. Commissioner of Income Tax (Appeals) [Ld. CIT (A)] has erred on facts and in law in restricting the allowance of commission paid to the Directors @ 3% of total sales as against 4% of total sales claimed by Assessee. As such the Ld. CIT (Appeals) has erred in sustaining a disallowance of Rs.926567 computed at 1 % of sales of Rs. 92656710/-.
2. THAT the disallowance of commission as confirmed by the Ld.CIT(A) Is based on erroneous views and / or non- appreciation of the facts and law involved including non- appreciation or proper rebuttal of the detailed submissions with case law placed on record.
3. That consequential relief is liable to be allowed in respect of interest levied under section 234B and under Section 234D.
4. That the assessment as made and the order of the Ld. CIT (Appeals) are against law and facts of the case involved 5. THAT the grounds of appeal as hereinabove are without prejudice to each other.
6. THAT the Assessee respectfully craves leave to add, amend, alter and/or forgo any ground(s) at or before the time of hearing.”
4. Brief facts apropos Revenue’s appeal and ground no. 1 of assessee’s appeal are that in course of assessment proceedings the AO noticed that assessee had paid salary and other allowances to its directors as per the Board’s resolution. The payment also included commission and bonus of Rs. 74,12,536/- and Rs. 14,40,000/- respectively paid to its two Director of the company namely Mr. Tarun Sanon and Mr. Ravi Sanon. The AO observed that as per the provision of the Act, bonus or commission paid to its employee is allowable as deduction, if and only if it is not payable as profit or dividend. He pointed out that in the case of assessee company profit of Rs. 1,61,90,588/- had been declared. Thus, it was clear that in case of director of the company, the sum paid as commission and bonus should have been paid as profit or dividend, which was not the case here. Accordingly, he show caused the assessee. The assessee’s reply has been reproduced at pages 3 & 4 of assessment order. The assessee, inter alia, pointed out that the commission being paid was based on agreement with the directors through the company’s resolution computed at 3% of sales. It was further pointed out that the same rate of commission had been paid and accepted in the immediately preceding year a borne out from the record. This has been accepted vide order u/s 143(3). Similar disallowance made in AY 2004-05 and 2005-06 was deleted by ld. CIT(A). AO, however, did not accept assessee’s contention, inter alia, pointing out that since the language of section 36(1)(ii) was plain and unambiguous, therefore, no interpretation/ outside meaning could be attached to it. He pointed out that the assessee company could have paid the amount as profit/ dividend instead of bonus/ commission since the payment was being made to directors of the company.
However, company declared dividend only to the extent of Rs. 3,05,500/- and on the other hand it had paid commission and bonus of Rs. 88,52,536/-.
He further observed that in the instant case company was avoiding tax to the extent of 20% approximately (around 13.5% as dividend distribution tax and because individual income-tax is lower than corporate tax by 5%, even after accepting the argument of the assessee that directors were paying tax on commission received by it by resorting to such means). He, accordingly, made addition of Rs. 88,52,536/-.
Before ld. CIT(A) it was submitted that the issue was covered in favour of the assessee by order of the CIT(A) and the Tribunal for earlier years i.e. 2004-05 and 2005-06. Ld. CIT(A) observed from the decision of the Tribunal that the same was based on certain facts in the relevant years.
He, therefore, required the AO to make necessary verification regarding the facts for this year as well. AO submitted its report wherein it was submitted that the department had filed further appeal before the Hon’ble Delhi High Court on this issue for earlier years. It was further pointed out that during the year under consideration the commission had been raised to 4% as compared to 3% in earlier years. Ld. CIT(A), after considering all the aspects observed that the issue was covered by the decision of the Tribunal in assessee’s own case for AY 2004-05 and 2005-06. He, therefore, allowed assessee’s claim to the extent of 3% of total sales and not 4% as claimed by assessee.
Ld. counsel submitted that the issue is covered by the order of the Hon’ble Delhi High Court in assessee’s own case for AY 2002-03 and 2003- 04 vide & 670 of 2012. He further referred to the decision of the Tribunal’s order dated 6.2.2009 for AY 2004-05 and dated 13.2.2009 for AY 2005-06, contained in PB 2 filed by assessee, wherein also on the same issue the department’s appeal had been dismissed.
Ld. DR submitted that there is no basis for increasing the commission from 3% to 4% and assessee has not filed any resolution to that effect. On the contrary before AO the assessee specifically pleaded that the commission had been paid on earlier year’s basis.
We have considered the submissions of both the parties and have perused the record of the case. As far as commission and bonus paid to the directors to the extent of 3% on turnover is concerned, the issue is squarely covered by the earlier year’s orders. The Hon’ble Delhi High Court vide its order dated 3.12.2012 rendered in and 670 of 2012 (in assessee’s own case for AY 2002-03 and 2003-04) dismissed the revenue’s appeal on the issue in question by observing in para 6 of its order as under: 6. So far as the merits of the disallowance under section 36(1)(ii) are concerned for the assessment year 2002-03, the Tribunal's reasoning is to be found in paragraph 2 and 3 of the impugned order. In para 2, the Tribunal has reproduced its earlier orders in for the assessment year 2004-05 and after considering the same, held as follows: - "3. When the similar issue arose in A Y 2005-06, the ITAT again following its own order for A Y 2004-05, upheld the order of the learned CIT(A) deleting the disallowance of commission paid to directors. Admittedly, the facts of the year under consideration are identical. Therefore, respectfully following the above decision of ITAT in assessee's own case, we uphold the order of learned CIT(A) and dismiss the Revenue’s appeal.”
We find that the ITAT vide its order dated 13.2.2009 rendered in ITA no. 1450/Del/2008, in assessee’s own case for AY 2005-06, in para 5 has observed as under: “With the assistance of learned representatives, we have gone through the record carefully and found that in assessment year 2003-04, assessee has paid commission @ 3% of total sales to the directors. This commission was allowed to the assessee by the Assessing Officer in an assessment made under sec. 143(3) on 30th November, 2005. In this year, the turnover of assessee has increased and it has paid the commission on the same line. There is no change of circumstance which can persuade the Assessing Officer to disallow the claim of assessee. Therefore, after going through the order of the learned CIT(Appeals) on this issue, we do not see any good reason to interfere in the findings of the learned Ist Appellate Authority. This ground of appeal is rejected.”
10. Thus, we see no reason to interfere in the order of the CIT(A) on the issue in question and the same is upheld.
11. Now coming to the assessee’s appeal regarding increase in remuneration to 4% as against 3% paid in earlier years, the assessee has not demonstrated as to how the increase in remuneration was justified inasmuch as no Board’s resolution had been filed before lower revenue authorities to justify its claim. Further, it is pertinent to note that before AO the assessee’s pleadings were that it had paid the commission as in the earlier years. It was only at the CIT(A)’s level that it transpired that the commission had been paid @ 4% and not 3%. In the absence of any proper explanation for the increase, we are constrained to restrict the commission @ 3% of turnover. In the result, assessee’s ground on the issue in question is dismissed.
Brief facts apropos ground no.2 of department’s appeal are that assessee had claimed depreciation @ 60% on additions made to fixed assets under the head computer. The assessee explained that printer and other computer accessories formed part of computer and the function of computer is incomplete without printer etc. The AO, however, did not accept the assessee’s contention and restricted the depreciation to 15%. Ld. CIT(A) deleted the addition following the decision of the ITAT in assessee’s own case for AY 2004-05 and 2005-06.
After hearing both the parties, we find that there is no dispute that the depreciation @ 60% was claimed by assessee on the computer peripherals with printers. This issue is squarely covered by the decision of the Hon’ble Delhi High Court I the case of BSES Yamuna Power Ltd. 358 ITR 47, wherein it has been held that on computer accessories and peripherals assessee is entitled to higher rate of depreciation @ 60%. Respectfully following the decision of Hon’ble High Court this ground is dismissed.
Charging of interest u/s 234B & 234D is consequential.
In the result, assessee’s appeal as well as revenue’s appeals are dismissed. Order pronouncement in open court on 08/02/2016.