Income Tax Appellate Tribunal - Delhi
M/S. Spirotech Heat Exchangers Pvt. ... vs Dcit, New Delhi on 22 March, 2018
1 ITA Nos. 5952 & 5224/Del/2014
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: 'G' NEW DELHI
BEFORE SHRI N. K. SAINI, ACCOUNTANT MEMBER
AND
MS SUCHITRA KAMBLE, JUDICIAL MEMBER
ITA No. 5952/DEL/2014 ( A.Y 2011-12)
DCIT Vs Spirotech Heat Exchangers (P)
Circle-9(1) Ltd. B-13, IInd Floor, Kailash
New Delhi Colony
New Delhi
(APPELLANT) AABCS3931J
(RESPONDENT)
C.O No. 5224/DEL/2014 ( A.Y 2011-12)
Spirotech Heat Exchangers (P) Ltd. Vs DCIT
B-13, IInd Floor, Kailash Colony Circle-9(1)
New Delhi New Delhi
AABCS3931J (RESPONDENT)
(APPLICANT)
Appellant/ Sh. S. S. Rana, CIT DR
Respondent by
Applicant/ Ms. Lalita Agrawal, CA
Respondent by
Date of Hearing 11.01.2018
Date of Pronouncement 22.03.2018
ORDER
PER SUCHITRA KAMBLE The appeal and cross objection have been filed by the Revenue as well as assessee against the order dated 11/08/2014 passed by CIT(A)-XII, New Delhi for Assessment Year 2011-12.
2. The grounds of appeal are as under:-
2 ITA Nos. 5952 & 5224/Del/2014 ITA No. 5952/DEL/2014"1. The Ld.CIT(A) has erred in law and on facts in deleting the addition of Rs.1,53,95,399/- made by the A.O on account of disallowance of Commission paid to the Managing Director u/s 36(1)(ii) of the Income Tax Act, 1961."C.O No. 5224/DEL/2014
1. The Ld.CIT(A) erred in law and on facts in upholding ad-hoc disallowance of Rs.92,125 out of foreign travel expenses of directors as personal in nature.
2. The Ld.CIT(A) erred in law and on facts in upholding the ad-hoc disallowance of Rs.3,00,000/- out of the HRA of Rs.12,00,000/- paid to Managing Director as excessive in nature."
3. The assessee is engaged in the business of manufacturing of Fin and Tube Type Cooling & condensing coil for all types of Air-Conditioners and Refrigeration's. Assessee filed return of income declaring an income of Rs. 16,34,23,706/- on 27/09/2011. The same was processed u/s 143(1). Case was selected for scrutiny and notice u/s 143(2) was issued on 20/09/2012. Thereafter notice under section 143(2) along with questionnaire under section 142(1) was sent on 02/07/20l3. The assessee claimed in its P/L Account expenses on account of commission to Managing Director and to a whole time Director amounting to Rs. 1,53,95,399/-. During the Assessment proceedings AR produced details. The Assessing Officer observed that this claim is not allowable as per the provision of Section 36(l)(ii) of Income Tax Act, 1961. Vide over sheet entry dated 31/12/2013, assessee was asked to give the explanation on addition made in earlier years on commission to Director and also to justify as to how the said claim is allowable under section 36(l)(ii). The assessee submitted a reply on 09/01/20l4. The Assessing Officer observed that commission was paid to the directors who were also shareholders. The Assessing Officer further observed that Section 36(1) (ii) of the Income Tax Act,1961 is specially inserted to ensure that the companies do not avoid tax by 3 ITA Nos. 5952 & 5224/Del/2014 distributing their profits to their specific members/ shareholders as bonus or commission instead of dividend. The Assessing Officer observed that in this case, profit which would have been otherwise paid to the Director as dividend is diverted in the form of commission. By diverting the sum of Rs.1,53,95,399/- as commission to Director and assessee only reduced the corpus available for distribution as dividend. Since the commission worked out as a certain percentage of the net profit /turnover and so it cannot be said to be a part of a salary. The Assessing Officer held that it is participation in the profits of the company. Thus, the Assessing Officer held that the commission paid to the Directors was otherwise payable to them as profit or dividend and this commission of Rs. 1,53,95,399/- and the same is not allowable as per the provisions of section 36(l)(ii) of the Income Tax Act, 1961 and disallowed the sum of Rs. 1,53,95,399/- and added back to the total income of the assessee. The Assessing Officer also made addition of Rs.92,125/- ie. of 20% of total foreign travel expenses and also made an addition of Rs.89,793/- towards the writing of trading liabilities which has to be deemed income of the assessee u/s 41(1) to be the profit and gains of the business and profession. The Assessing Officer further made addition of Rs. 3 lacs as relates to disallowance of HRA to the Director.
4. Being aggrieved by the said, the assessee filed appeal before the CIT (A). The CIT(A) partly allowed the appeal of the assessee.
5. The Ld. DR submitted that the CIT(A) erred in deleting the addition of Rs.1,53,95,399/- made by the Assessing Officer on account of disallowance of commission paid to the managing director u/s 36(1)(ii) of the Act. The Assessing Officer rightly held that the commission paid to the Directors was otherwise payable to them as profit or dividend and this commission of Rs. 1,53,95,399/- is not allowable as per the provisions of section 36(l)(ii) of the Income Tax Act, 1961. As relates to assessee's cross objection the Ld. DR relied upon the orders of the Assessing Officer and CIT(A).
4 ITA Nos. 5952 & 5224/Del/20146. The Ld. AR submitted that the issue of commission paid to Managing Director u/s 36(1)(ii) is already decided in favour of the assessee by the Hon'ble Delhi High Court for A.Y. 2008-09 and 2009-10 being ITA No.341/2013 dated 19.07.2013. As relates to issues regarding Foreign Travel expenses and disallowance of HRA paid to Managing Director considered as excessive agitated by the Assessee in cross objections the same are also decided by the ITAT in assessee's own case for A.Y. 2010-11. The Ld. AR further submitted that during the present Assessment Year, there was no travel with the family.
7. We have heard both the parties and perused the material available on record. The Revenue has filed appeal in respect of addition of Rs.1,53,95,399/- on account of commission paid to the Managing Director u/s 36(1) (ii) of the Income Tax Act. The CIT(A) allowed the said disallowance as similar disallowance were allowed in assessment year 2008-09, 2009-10 and 2010-11 by the Hon'ble Delhi High Court in assessee's own case. The Hon'ble High Court held that the disallowance made on account of commission to Managing Director and to a whole time Director under Section 36(1)(ii) of the Act was correctly deleted by the ITAT. Thus, the Revenue's appeal in the present assessment year is dismissed. As relates to cross objection, the Ld. AR relied upon the order of the ITAT for A.Y. 2010-11 (ITA No. 650/Del/2014 order dated 23.02.2017), the Ld. AR made submission that during the present Assessment Year, there was no travel with the family. Thus, the CIT(A) while giving its finding has ignored this fact in toto. Therefore, the Ground No. 1 of the cross objection filed by the assessee is allowed. Ground No. 2 of the cross objection in respect of disallowance of excess HRA paid to Managing Director, the same is also decided by the ITAT for A.Y. 2010-11. In present Assessment Year also the Assessing Officer made assumption that the assessee is providing undue benefit to the directors in the shape of high rentals and there was no adverse material/finding/evidence pointed out by the Assessing Officer. In fact, the HRA paid to the directors have to considered as perquisites in the hands of the Directors. Therefore, following the earlier decision of the ITAT we set aside this 5 ITA Nos. 5952 & 5224/Del/2014 issue to Assessing Officer to verify whether such income has been treated as perquisites in the hands of the Managing Director and decide the issue accordingly. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Thus, Ground No. 2 of the cross objection filed by the Assessee is partly allowed for statistical purpose.
8. In result, appeal of the Revenue is dismissed and cross objection of the assessee is partly allowed for statistical purpose.
Order pronounced in the Open Court on 22nd March, 2018.
Sd/- Sd/-
(N. K. SAINI) (SUCHITRA KAMBLE)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 22/03/2018
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
ITAT NEW DELHI
6 ITA Nos. 5952 & 5224/Del/2014
Date
1. Draft dictated on 11/01/2018 PS
2. Draft placed before author 11/01/2018 PS
3. Draft proposed & placed before .2018 JM/AM
the second member
4. Draft discussed/approved by JM/AM
Second Member.
5. Approved Draft comes to the PS/PS
Sr.PS/PS 22.03.2018
6. Kept for pronouncement on PS
7. File sent to the Bench Clerk 22.03.2018 PS
8. Date on which file goes to the AR
9. Date on which file goes to the
Head Clerk.
10. Date of dispatch of Order.
7 ITA Nos. 5952 & 5224/Del/2014