KOCHHAR SURVEYORS P.LTD,MUMBAI vs. DCIT RG 9(2), MUMBAI

आयकर अपीलीय अिधकरण,” ऐ” खंडपीठ मुंबई INCOME TAX APPELLATE TRIBUNAL,MUMBAI-“A” ,BENCH सव"ी जोिग"दर"सह , "याियक सद"य एवं एवं राजे"", लेखा सद"य एवं एवं Before S/Sh. Joginder Singh,Judicial Member & Rajendra,Accountant Member आयकर आयकर अपील अपील संसंसंसं/.ITA/7304/Mum/2013,िनधा"रण िनधा"रण वष" वष"/Assessment Year :2010-11 आयकर आयकर अपील अपील िनधा"रण िनधा"रण वष" वष" M/s. Kochhar Surveyors Pvt. Ltd. DCIT, Range-9(2) 607, Mahalaxmi Chambers Mumbai-400 026. PAN:AAACK 2085 Q (अपीलाथ" /Appellant) (""यथ" / Respondent) िनधा"रती िनधा"रती ओर ओर सेसेसेसे/Assessee by :Shri Haresh P. Shah िनधा"रती िनधा"रती ओर ओर राज"व क" ओर से/ Revenue by :Shri Mohammed Rizwan सुनवाई क" क" तारीख तारीख / Date of Hearing : 30-11- 2015 सुनवाई सुनवाई सुनवाई क" क" तारीख तारीख घोषणा क" तारीख / Date of Pronouncement : 01-01-2016 आयकर आयकर अिधिनयम अिधिनयम,1961 1961 1961 क" 1961 क" धारा धारा 254 254 254(1)केकेकेके अ"तग"त 254 अ"तग"त आदेश आदेश आयकर आयकर अिधिनयम अिधिनयम क" क" धारा धारा अ"तग"त अ"तग"त आदेश आदेश Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद"य सद"य राजे"" राजे"" केकेकेके अनुसार अनुसार PER RAJENDRA, AM- लेखा लेखा लेखा सद"य सद"य राजे"" राजे"" अनुसार अनुसार Challenging the order dt.16.9.2013 of CIT(A)-20,Mumbai,the assessee,has filed the present appeal. Assessee’s main activity is marine surveyors and consultants.It filed its return of income on 13.9.2010,declaring total income 68.1 lacs.The Assessing Officer(AO) completed the assessment u/s.143(3) of the Act,on 26.11.2012,determining the income of the assessee at Rs.71,36,760/-. 2.Effective ground of appeal is about disallowance of commission paid to the director,amounting to Rs.2, 55,460/-.During the assessment proceedings,the AO found that assessee paid 2.55 lacs as commission to one of its directors namely Vishesh S Kochhar (VSK).He directed the assessee to explain as to why the same should not be disallowed as per the provisions of sec.136(1)(ii) of the Act.After considering the submission of the assessee,the AO held that as per the provisions of section136(1)(ii) payment of commission to directors/empoloyees who were eligible for dividend was not allowable,that VSK was holding 1000 shares of the company and was entitled for dividend out of the profit of the company.He disallowed the commission paid to VSK and added it back to the total income of the assessee 3.Aggrieved by the order of the AO,the assessee preferred an appeal before the First Appellate Authority(FAA).Before him,it was argued that during the year under consideration VSK was paid commission,that he was not paid bonus as other employees,that he was degree holder in maritime business,that VSK had included commission income in his return income and had paid tax on it, that due to efforts of the directors the profit had increased, that adequacy of service was not relevant consideration,that it was not necessary that payment should be made commensurate to the rendering of services or there should be extra services rendered for payment on account of bonus/commission,that in case the directors if they did not render any service and were paid commission such expenditure would be considered a payment in nature of dividend,that during the year under consideration assessee paid dividend of 18 lacs,that the expenditure was incurred

ITA/7304/Mum/2013-AY.2010-11,KSPL

wholly and exclusively for the purpose of business.After considering the submission of the assessee,the FAA held that dividend was payable to VSK who had 10% of the shares,that he was covered by provisions of section36(1)(ii), that it was responsibility of assessee to demonstrate the evidence of services rendered by the director that would entitle him for commission/bonus, assessee failed to furnish any evidence of services rendered for earning of commission,that increase in profit would not prove rendering of services by single director, that the assessee had furnished general explanation only.Finally,he confirmed the disallowance made by the AO. 4.Before us,the Authorised Representative(AR)argued that the assessee had paid dividend,that it had paid commission to both the directors,that VSK was a qualified surveyor,that commission could not be treated as dividend.He referred to pg-3, 5, 8 of the PB and argued that net profit had increased and that substantial dividend was paid.The Departmental Representative (DR) stated that assessee had not produced any evidence that would justify the payment of commission,that VSK was a share holder.In short,he relied upon the order of the FAA. 5.We have heard the rival submissions and perused the material before us.We find that the assessee had paid commission of Rs.2.54lacs to VSK,that he was holding 1000 shares of the company,that the AO had invoked the provisions of section 36(1)(ii)of the Act and had disallow -ed the commission payment made to VSK,that the assessee had paid dividend during the year under consideration amounting to Rs.18 lakhs.It is said that the object of the proviso to section 36(1)(ii) of the Act is to encourage the management to pay bonus in excess of what is statutorily bound to be paid to the employees provided the payment is justifiable as a “reasonable payment”. In the case under consideration net profit had increased from 9.90% to 20.85% during the year and the fact that VSK is a qualified surveyor is not in doubt.He has offered the commission income in his individual return and he is in the same tax bracket of the assessee-company. Considering the peculiar facts and circumstances of the case,we are of the opinion that the commission paid to VSK would fall under the category of reasonable payment. Therefore, reversing the order of the FAA,we decide effective ground of appeal in favour of the assessee. As a result, appeal filed by the assessee stands allowed. फलतः िनधा"रती "ारा दािखल क" गई अपील मंजूर क" जाती है. Order pronounced in the open court on 1st January, 2016. आदेश क" घोषणा खुले "यायालय म" "दनांक 01 जनवरी , 2016 को क" गई । (जोिग"दर"सह/ Joginder Singh) (राजे"" / RAJENDRA) "याियक सद"य / JUDICIAL MEMBER लेखा लेखा सद"य सद"य / ACCOUNTANT MEMBER लेखा लेखा सद"य सद"य मुंबई/Mumbai,"दनांक/Date 01.01.2016 व.िन.स.Jv.Sr.PS. 2

ITA/7304/Mum/2013-AY.2010-11,KSPL

आदेश क" क" "ितिलिप "ितिलिप अ"ेिषत अ"ेिषत/Copy of the Order forwarded to : आदेश आदेश आदेश क" क" "ितिलिप "ितिलिप अ"ेिषत अ"ेिषत 1.Appellant /अपीलाथ"