Income Tax Appellate Tribunal - Delhi
Vam Organic Chemicals Ltd. vs Deputy Commissioner Of Income Tax on 27 June, 2005
Equivalent citations: (2005)96TTJ(DELHI)600
ORDER
N.S. Saini, A.M.
1. These are the appeals filed against the order of the CIT(A) wherein two appeals are filed by the assessee relating to asst. yrs. 1994-95 and 1995-96 and two appeals filed by the Revenue for the asst. yrs. 1995-96 and 1996-97.
2. In the assessee's appeal in the asst. yrs. 1994-95 and 1995-96, the ground No. 1 of the appeal relates to the disallowance on account of provisions made against FL 39 License fees relates to under Section 43 (b) of the IT Act, 1961. At the time of hearing, the learned Authorised Representative of the assessee has not pressed this ground of appeal. Therefore, the ground of appeal of the assessee is dismissed for want of prosecution.
3. The ground No. 2 of the assessee's appeal for the asst. yr. 1994-95 relates to addition of Rs. 1,44,000 on account of gifts made under Section 37(1) of the Act. The brief facts of the case are that the AO disallowed Rs. 14,440 incurred by the assessee on article/gifts presented to business clients of the assessee-company. The assessee contended before the AO that the expenses should not be disallowed under Rule 6(b) of the IT Rules, 1962, as the items presented do not bear the monogram/logo/name of the assessee which can be used to advertise the assessee's product. It was submitted that the expenses were allowable under Section 37(1) of the IT Act, 1961. The said arguments of the assessee did not find favour with the AO who disallowed the same.
4. In appeal before the CIT(A), reliance was placed on the decision of the Hon'ble Delhi High Court in the case of CIT v. Associated India Export to show that on the expenses incurred, Rule 6(b) was not applicable. The learned CIT(A) noted that the items consisted of silver set and carpet, which were purchased for presentation purpose to the party with whom the assessee had official relation. The assessee could not furnished the name of the persons and the reason as to how the item was wholly, necessarily and exclusively required for carrying on the assessee's business. Hence, he confirmed the disallowance of the expenses made by the AO.
5. Having heard the rival submissions and perused the orders by both the lower authorities and deliberated upon the submissions made by both the parties and the decision cited at the Bar, we find that the Hon'ble Delhi High Court in the case of CIT v. Associated India Export (supra) held that gift of carpet worth Rs. 3,000 by a foreign buyer is not a case of advertisement on behalf of the assessee when admittedly, the assessee earns a lot of income from the foreign customers. In the instant case also, it is not in dispute that the gifts of the articles were made to business clients of the assessee-company. Therefore, facts being similar to the facts of the case of Associated India Export (supra), we set a side the orders of both the lower authorities and vacate the disallowance of Rs. 14,400 made by the AO. The ground of appeal of the assessee is allowed.
6. The ground No. 3 in the assessee's appeal for the asst. yr. 1994-95 relates to disallowing of set off of losses/depreciation of erstwhile Ramganga Fertilizers Ltd. The brief facts of the case are that Ramganga Fertilizers Ltd. was amalgamated with the assessee-company vide BIFR order dt. 5th Dec, 1994, with retrospective effect from 1st April, 1992. The AO after narrating the detail of the merger agreed with the assessee that there is no dispute in respect of amalgamation of both the companies in accordance with BIFR order dt. 5th Dec, 1994. He also agreed that the BIFR order was passed on 5th Dec, 1994, with retrospective effect from 1st April, 1992, and the new date for filing return of income for both the companies were 30th Nov., 1994. It was not possible for the assessee-company to file complete return incorporating the P&L a/c of Ramganga Fertilizers Ltd. He held that in the present proceedings under Section 148 such loss cannot be considered in the light of the principle laid down by the Hon'ble Supreme Court in the case of CIT v. Sun Engineering Works Ltd. . He held that under Section 147 of the IT Act, the AO can only bring to charge item of income which assessment even other than those which led to the notice under Section 148 and the ITO's jurisdiction does not extend to revising, reopening, reconsidering the whole assessment or permitting the assessee to litigate such points, which have been decided in the original assessment proceedings. He placed reliance on the decision in the case of Chettinad Corporation (P) Ltd. v. CIT for the proposition that under Section 147, the jurisdiction of the AO is binding to such income which has escaped assessment. Accordingly, he did not allow set off of loss of Ramganga Fertilizers Ltd. with the profit of M/s Vam Organic Chemicals Ltd., i.e., the assessees-company. He was of the view that set off of loss of Ramganga Fertilizers Ltd. with the profit of the assessee-company could have been allowed under a proceeding under Section 143(3) of the IT Act, but considering the restrictive nature of Section 147, such benefit cannot be availed by the assessee in reassessment proceedings.
7. In appeal, the CIT(A) agreeing with the findings of the AO, upheld the disallowance made.
8. The learned Authorised Representative of the assessee argued and submitted that no notice under Section 143(2) was issued to the assessee within the prescribed time. Notice under Section 148 was for the first time issued on 10th May, 1996, and the assessment made under Section 147 was the assessment for the first time. Previous to this only processing of the return was done under Section 143(1)(a), so, on the issue of notice under Section 148, the entire proceedings of the assessment were open before the AO and in such a proceeding he should have considered the claim of the assessee and should have allowed the deduction of the same from the income of the assessee. The assessee for his contention has placed reliance on the decision of the Karnataka High Court in the case of Kareemchand (P) Ltd. v. CIT (FB), wherein it was held that the right given to the assessee under Section 139(4) of the IT Act, 1961, cannot be taken away merely because Revenue instituted proceeding under Section 147 in the meanwhile. The right to file a return filing with Section 139(4) is as statutory right vested to the assessee as is the power vested to the AO to net in the escaped income for taxation under Section 147. There is no reason to read the provisions as conflicting to one another or to read one provision as overriding the other as both act harmoniously to arrive at the taxable income.
9. He also relied on the decision of the Kolkata High Court in the case of Himmatsingka Motor Works Ltd. v. CIT , wherein it was held that the ITO has been empowered to assess or reassess such income or compute the loss or depreciation allowances, as the case may be; in other words, the ITO can assess the income or the loss or the depreciation allowance whether this has been done provisionally or not. Explanation to Section 147 makes it quite clear that certain cases shall be deemed to be cases where the income chargeable to tax had escaped assessment and one of such cases is where the depreciation allowance has been computed. In such a situation the ITO is entitled to reopen the case under Section 147 and can re- compute the excessive loss or depreciation allowance but the basic right of ITO to make an assessment has not been taken away or curtailed by this provision. If a notice has been given under Section 148 and if the assessee files a return pursuant to that notice, the entire proceedings of the assessment will have to gone through from such return of the assessee as if the return has been filed under Section 139(2) of the Act. This is the legal fiction only, The section under which the ITO makes an assessment is under Section 143 or Section 144.
10. The Court further observed that the Supreme Court in the case of V. Jagan Mohan Rao & Ors. v. CIT has observed as under :
"It is, therefore, manifest that once the assessment is reopened by issuing a notice under Sub-section (2)(ii) of Section 22, the provision under assessment is set aside and the whole assessment proceedings started afresh."
11. The Hon'ble Kolkata High Court further observed that the above principle has been reiterated by the Supreme Court in ITO v. Mevalal Dwarka Prasad .
12. The Hon'ble Kolkata High Court further observed in the case of CIT v. Assam Oil Company Ltd. as under :
"It was relied upon the assessment being reopened the entire assessment was at large. It appears to us that it is so. Once the assessment is reopened a notice is given for a fresh return in respect of all the items. This view is corroborated by the observation of the Supreme Court though it was made in a different context, in the case of V. Jagan Mohan Rao & Ois. v. CIT ."
13. The Hon'ble Kolkata High Court further observed that the Madras High Court in the case of Co-operative Marketing Society Ltd. v. CIT has taken the view that the assessee claimed loss on the basis of return filed pursuant to notice under Section 148 provided return was filed within the time. The Hon'ble Kolkata High Court has also stated that Full Bench of the Bombay High Court in the case of CIT v. Indian Rare Earth Ltd. held that once valid proceedings under Section 147 of the IT Act, 1961, were started, it was the duty of the ITO to complete the whole assessment de novo. The Bombay High Court had already taken the view that once valid proceeding was started the assessment was nothing but a fresh assessment. The learned Authorised Representative of the assessee further relied on the order of the Hon'ble Kolkata High Court in the case of Satyanarayan Bhalotia v. CIT wherein it was held that the assessee would be entitled to carry forward and set off of his loss even if the loss is determined in pursuance of a return filed under Section 148, but within time available for filing a return voluntarily under Section 139(4).
14. We have heard the rival submissions and perused the orders of lower authorities and deliberated upon the submissions made by both the authorities and decision cited at the Bar. We find that in the present case the assessee filed its return income on 30th Nov., 1994. The company, Ramganga Fertilizers Ltd., also filed its return for the assessment under appeal. The order of the amalgamation of BFIR was received on 5th Dec, 1994, after filing return of income by both the companies. Thereafter, the assessment was reopened by issuing notice under Section 148. In response to the notice the assessee filed return of income and claimed set off loss of Ramganga Fertilizers Ltd.. We observe that the reassessment proceedings were started on the ground that excess claim of deduction has been made by the assessee which was allowed in the processing under Section 143(1)(a) and the notice under Section 143(2) could not be issued within the prescribed time of one (1) year. We observed that the assessee has placed reliance on the decisions of the Hon'ble Kolkata High Court and Karnataka High Court that in a reassessment proceedings under Section 147/148, the claim of loss of the assessee can be allowed as a deduction. We have carefully read the order of the Hon'ble Kolkata High Court (supra) and (supra). The Hon'ble Kolkata High Court has observed that the loss can be claimed as set off in the return filed under Section 148 provided the said return is filed within the prescribed time of filing of the return of income under Section 139(4) of the IT Act. In the case before us, it is not a case wherein loss is being claimed by the assessee for the current year under appeal which has to be determined in the assessment made by the AO for the purpose of set off and carry forward. In the present case before us the assessee is claiming set off of loss of Ramganga Fertilizers Ltd. which was amalgamated with the assessee and by virtue of order passed by the BIFR on 5th Dec, 1994 with retrospective effect from 1st April, 1992, was allowed to be set off by the assessee in determining its income. Thus, the said loss of Ramganga Fertilizers Ltd. was already a determined loss in the hands of Ramganga Fertilizers Ltd. and the assessee in the return filed under Section 148 was claiming deduction of the said income by way of set off. The AO has disallowed the set off to the assessee by placing reliance on the decision in the case of Sun Engineering Works (supra), wherein the Hon'ble Supreme Court observed that in a reassessment proceeding to bring to tax items which had escaped assessment it would be open to the assessee to put forward claim for deduction of any expenditure in respect of that income or regarding non-taxability of the items at all. Section 147 being for the benefit for the Revenue and not the assessee the assessee cannot be permitted to convert the reassessment proceedings into an appeal or revision in disguise and seek relief in respect of items earlier rejected or claim relief in respect of items not claimed in the original assessment proceedings unless relatable to escaped income.
15. In the instant case, it is not the case of the assessee in the reassessment proceedings wherein it is claiming relief in respect of items earlier rejected or in respect of any claim not made in the original assessment proceedings. In the instant case, the assessee filed its return of income on 30th Nov., 1994, the assessee received the order of BIFR dt. 5th Dec, 1994. Thus, the assessee did not have the occasion or the relevant order for claiming the loss in the return filed on 30th Nov., 1994. Thus, it is not a case where a fresh claim of loss has been made by the assessee for the first time or a claim is being made which has been rejected by the AO. The assessee filed a revised computation claiming the loss on 20th March, 1995, even before the return was processed. In the present case, the AO has reopened the. assessment under Section 148 for allowing excess deduction under Section 80-I of the IT Act. According to the scheme of IT Act, the assessee is to be allowed deduction under Chapter VI-A under Section 80-I to the extent of gross total income available to the assessee. In order to arrive at the gross total income of the assessee the brought forward losses have to be adjusted and from the balance amount available deduction under Section 80-I is allowable. Thus, in the assessment being made under Section 148, the loss of Ramganga Fertilizers Ltd. has to be considered for arriving at the income available with the assessee so as to allow the deduction available under Section 80-I of the IT Act. We also observed that the Hon'ble Supreme Court in ITO and Anr. v. K.L. Siihaii (HUF) & Ors. observed that after considering the judgement in the case of Jagan Mohan Rao v. CIT (supra) and WO v. Mewalal Dwaraka Prashad (supra) and CW v. Sun Engineering (P) Ltd. (supra). We have also perused the order dt. 19th March, 1983, as well as the specific order that was passed on 16th July, 1987, after the reopening of the assessment under Section 147. On a consideration of the order dt. 16th July, 1987, we were satisfied that the said assessment order makes a fresh assessment of the entire income of the respondent assessee and the High Court was in our opinion right in proceeding on the basis that the earlier assessment order had been effaced by subsequent order.
16. In the present case, since the reassessment is made considering the deduction allowable to the assessee under Section 80-I of the Act for which loss of Ramganga Fertilizers Ltd. is also to be taken into consideration for computing the deduction allowable, in our considered opinion, the AO should have considered the said loss of Ramganga Fertilizers Ltd. while determining the income under Section 147 of the Act. Further, we are of the considered view that the Hon'ble Supreme Court in Sun Engineering (supra) has held that concluded issues cannot be reviewed in a proceeding under Section 147 of the Act. This means that the AO cannot review his order on an issue decided under Section 143. However, it does not prohibit deciding an issue which was not considered and decided at all. Further, Bombay High Court in the case of CIT v. Central Provinces Manganese Ore Co. Ltd. (1978) 112 ITR 734 (Bom) held that, "The mere fact that deduction was not claimed before the ITO is, in our opinion, not of much importance. If the liability arises then a claim can be made bona fide at any stage before the higher authority, who is competent to grant relief". Further Section 143 was amended by Direct Tax Laws (Amendments) Act, 1989, by which it was provided that any refund due on the basis of a return was required to be granted to the assessee at the initial stage as per provisions of Section 143(1)(a)(ii) as there existed no provision in Section 143(3) for granting refund due. From this, we draw an analogy that all deductions must be allowed to the assessee on the basis of materials to determine the amount of refund due to the assessee. Further, Circular No. 14 (XI-35) of 1955, dt. 11th April, 1955, enjoins upon the authorities to allow deduction and/or relief even though not claimed by the assessee. The circulars issued by the CBDT are binding on the IT authorities. Further, the Hon'ble Bombay High Court in the case of CIT v. Smt. Archana R. Dhanwatey (1982) 136 ITR 355 (Bom) held "that there was a duty on the part of the ITO to consider whether the assessee was entitled to a deduction from income from other sources, though no such specific claim was made by the assessee. The jurisdiction of the ITO is to compute the total income which could be brought to tax in accordance with law. It is obvious that the Tribunal's observations that the ITO had been too technical are clearly justified because, if in fact and in law, the assessee was entitled to a deduction in which would have ultimately affected his or her total taxable income the assessee could not be assessed on a larger income." Still further, the Hon'ble Delhi High Court in the case of CIT v. Bharat General Reinsumnce Co. Ltd. observed that "it is true that the assessee itself had included that dividend income in its return for the year in question but there is no estopple in the IT Act and the assessee having itself challenged the validity of taxing the dividend during the year of assessment in question, it must be taken that it had resiled from the position which it had wrongly taken while filing the return. Quit apart from it, it is incumbent on the IT Department to find out whether a particular income was assessable in the particular year or not. Merely because the assessee wrongly included the income in its return for a particular year, it cannot confer jurisdiction on the Department to tax that income in that year even though legally such income did not pertain to that year." Still further, the Hon'ble Supreme Court in the case of C1T v. Mahalakshmi Textile Mill Ltd. held that "all questions, whether of law or facts, which relate to the assessment of the assessee may be raised before the Tribunal. If for reasons recorded by the Departmental authorities in respect of a contention raised by the assessee, grant of relief to him on another ground is justified, it would be open to the Departmental authorities and the Tribunal, and indeed they would be under a duty to grant that relief. The right of the assessee to relief is not restricted to the plea raised by him. For the reasons given above we are of the opinion that both the lower authorities were wrong in not considering the claim of the loss made by the assessee. Since the claim of loss of the assessee was not examined by the AO, we, by setting aside the orders of the CIT(A) and AO, restore the matter back to the file of AO with the direction to examine the claim of loss considering the order of the BIFR passed under Section 72A of the Act and if all the other relevant conditions have been fulfilled by the assessee and is eligible for claim of deductions, to allow the same to the assessee. The AO shall allow reasonable opportunity of hearing to the assessee. The assessee is also directed to file all the relevant details and papers on which it wishes to rely in support of his claim before the AO. The ground of appeal of the assessee is allowed. . 17. In the Revenues appeals for the asst. yrs. 1995-96 and 1996-97, the first ground of appeals relates to disallowance of interest of deposit which was added under Section 68 of the Act in the income of the assessee's asst. yr. 1994-95.
18. The brief facts are that in the asst, yr. 1994-95, the assessee had shown deposits of Rs. 5,40,000 from the following, parties :
1. Smt Saroj Sharma Rs.1,00,000
2. Sh. O.D. Mishra Rs.80,000
3. Smt. Rekha Verk Rs.1,00,000
4. Sh. K. Vyas Rs.60,000
5. Sh. Sanjay Mishra Rs.2,00,000 Rs. 5,40,000 This was added under Section 68 of the IT Act, 1961, as unexplained deposit and accordingly, amounts of Rs. 75,600 paid as interest to these persons were disallowed in the order. In appeal, the CIT(A) held that in the appeal for the asst. yr. 1994-95, the deposits were held by him to be genuine and not taxable under Section 68 of the IT Act, 1961. He further observed that the assessee is a public limited company and accepts public deposits, which is a very standard practice. The persons are identifiable and interest payment has been made through account payee cheque. Hence, he deleted the disallowance made by the AO. .
19. The learned Departmental Representative submitted that since the deposit has been held to be genuine, as a consequence to this, the interest was allowable. The learned Authorised Representative of the assessee submitted that in the asst. yrs. 1988-89 and 1989-90, the CIT(A) set aside the matter to the file of the AO and the AO allowed the claim of the assessee. He further submitted that in the asst. yrs. 1990-91 to 1993-94, no disallowance of interest has been made by the AO. He further submitted that no fresh advance has been received during the year. Hence, the disallowance of payment of interest in the years under appeal should be deleted.
20. We have heard the rival submissions and perused the orders of both the lower authorities and considered the submissions made by both the parties. The learned Departmental Representative has submitted that the allowance of the interest was consequential. Since the deposits have been held to be genuine by the CIT(A) in the asst. yr. 1994-95, the interest on deposits was allowable to the assessee. That being so we reject the ground of appeal of the Revenue.
21. The ground No. 2 of the appeal of the Revenue in the asst. yr. 1995-96 relates to allowing 10 per cent of the expenditure made on entertainment, relying on the Hon'ble Delhi High Court decision in the cases of CIT v. Expo Machinery Ltd. . The facts of the case are that the AO made disallowance of Rs. 21,25,710 out of entertainment expenses. Before the CIT(A) it was argued that the assessee incurred expenditure of Rs. 42,61,490 on entertainment expenses. This relates to the expenses incurred on the employees on official duty for food alongwith the assessee-company's customers in hotels and in the light of the Delhi High Court decision in the case of CIT v. Expo Machinery Ltd.(supra), atleast 25 per cent of the amount incurred on entertainment was allowable while computing the total income of the assessee. The CIT(A) allowed 10 per cent of the expenditure.
22. The learned Authorised Representative of the assessee submitted that relying on the decision on the Hon'ble Delhi High Court in the case of Expo Machinery Ltd. (supra), 25 per cent of the expenses incurred on the entertainment should be allowed as deduction to the assessee in the computation of its income. The learned Departmental Representative relied on the order of CIT(A).
23. Having heard both the parties we find that the AO while computing the income had made the disallowance considering the amount as entertainment expenditure under Section 37(2A) of the Act. In appeal, the learned CIT(A) had allowed 10 per cent of the expenditure claimed, by the assessee by not considering the same as entertainment expenditure. We observe that the Hon'ble Delhi High Court in the case of Expo Machinery Ltd. (supra) had held that the Tribunal has found that the employees of the company had taken eatable alongwith the guest and customers of the company and the expenditure which is incurred on foods, etc. of the employees is expressly excluded by virtue of provision of Section 37(2A), Explanation to. It is a finding of fact as to whether any part of the expenses of Rs. 1,55,003 was incurred on the food, etc. of the employees. This finding of facts has been answered in favour of the assessee. It is necessary in such a case that certain amount of estimate has to be resorted to. The Tribunal estimated such expenses as 35 per cent which cannot be stated to be unreasonable and in any case this estimate is a question of fact. The expense on the eatables of the employees which is excluded of the purview of Section 37(2A) includes expenses which are incurred in inter alia, at the place of work of employees. When the employees are having their foods alongwith the company's customers in a hotel in discharge of official duties, the employees are taking food while at work because it is their work and duty to entertain the customers of the company. Therefore, whenever expenditure is incurred on the food and beverages of the employees at the time when they are working, will obviously be excluded from the purview of Section 37(2A). Facts being similar, respectfully following the decision of the Hon'ble Delhi High Court, we uphold the order of the CIT(A). This ground of the appeal of the Revenue is dismissed.
24. The Ground No. 3 of the appeal for the asst. yr. 1995-96 and ground No. 2 for the asst. yr. 1996-97 relate to allowing deduction under Sections 80-I and 80-IA before deducting the amount of deduction under Section 80HH of the Act. The brief facts of the case are that the assessee claimed deduction under Sections 80HH, 80-I and 80-IA of the Act. The AO considering the provision of 80HH wherein it has been clarified that where the assessee claims deduction under Sections 80HH, 80-I, effect shall be first given under Section 80HH and on that basis be allowed deduction under Sections 80-I and 80-IA only on the balance amount after allowing deduction under Section 80HH of the IT Act, 1961.
25. In appeal, the assessee contended that Sections 80HH, 80-I and 80(I-A) are independent provisions and provisions of Section 80HH(9) provide order of priority for giving deduction, but cannot restrict the deduction admissible under Sections 80-I and 80-IA of the IT Act, 1961. The CIT(A) following his order for the asst. yr. 1994-95 and the decision of the M.P. High Court in the case of J.P. Tabacco Products (P) Ltd. v. CIT directed the AO to allow deduction under Section 80-I and 80-I(A) without taking into consideration any deduction allowed 80HH of the IT Act, 1961.
26. The learned Authorised Representative of the assessee relied on the order of the Tribunal in the assessee's own case passed in the asst. yrs. 1988-89 and 1990-91 in ITA Nos. 255 to 2554/Del/2000, wherein vide consolidated order dt. 20th Sept., 2000, it was held that deduction under Section 80-I is to be allowed on the profit of the business without reducing deduction under Sections 80HH and 80HHC and while doing so the decision of the Hon'ble M.P. High Court in J.P. Tabacco (P) Ltd. (supra) was followed.
27. On the other hand, the learned Departmental Representative supported the order of the AO.
28. We have heard the rival submissions and perused the orders of both the lower authorities. We find that the Hon'ble Rajasthan High Court on the similar issue has observed in the case of CLT v. Choski Contacts (P) Ltd. (2001) 251 ITR 587 (Raj) to quote as under :
"In this connection another provision which needs to be noticed is Section 80A. Sub-section (1) of Section 80A postulates that in computing the total of an assessee, there shall be allowed from his gross total income, in accordance with and subject to the provisions of Chapter VI-A, the deductions specified in Sections 80C to 80U. Sub-section (2) postulates that the aggregate amount of the deductions under Chapter VI-A shall not in any case, exceed the gross total income of the assessee. That makes the purpose behind prescribing priority of deduction in order of preferences to fulfil the object. When gross total income is not enough to be adjusted against all the deductions under Sections 80HH, 80-I and 80J computed independently and it has to be decided which unabsorbed claim to deduction is to be carried forward or not to be allowed as per the provision governing the same. In such circumstances, it becomes of consequence which deduction is to be adjusted in priority against the available gross total income for that purpose. While specific provision for allowing deduction under Section 80HH before deduction under Section 80-I or 80J is allowed, has been made, there is no further order or priority prescribed. Amongst claims to deduction under Sections 80-I and 80J, in the absence of enough gross total income against which the permissible deduction computed independently in accordance with Section 80-I or 80J, it remains the option of the assessee, which claim he opts to be adjusted against available gross total profit for that purpose. The object of Section 80HH(9) is not to reduce the limit of eligible deduction under Section 80-I or 80J in anyway."
To the same effect is the decision of the Hon'ble Bombay High Court in the case of CIT v. Neema Specific Family Trust (2001) 248 ITR 29 (Bom). To the same effect is the decision of the Hon'ble Punjab & Haryana High Court in the case of CIT v. S.B. Oil Industries (P) Ltd..
29. Facts being similar, respectively following the decision of the Tribunal in the assessee's own case and the decisions in the cases of Choksi Contacts (P) Ltd. (supra), Specific Family Trust (supra) and S.B. Oil Industries (P) Ltd. (supra), we decide the issue in favour of the assessee and reject the ground of the appeal of the Revenue.
30. The ground No. 4 of the appeal of the Revenue in the asst. yr. 1995-96 relates to disallowance of Rs. 3 lakhs as commission payable to non-executive directors. The brief facts of the case are that the assessee has not debited the commission paid to the directors in its P&L a/c but made a claim by making a separate claim during the assessment proceedings. The AO did not allow the claim as it was not through a revised return. In appeal, the CIT(A) held that a claim can be made during the assessment proceedings even without filing a revised return and the AO is duty-bound to examine its allowability or disallowability in accordance with the provisions of the IT Act, 1961. He further observed that there is no doubt that non-executive directors were rendering services to the assessee. The commission provided for them was paid subsequently is not disproportionate to the services rendered by them or atleast no such case has been made out by the AO. Therefore, relying on the decision of M.P. High Court in the case of Sagar Automotive (P) Ltd. v. CIT , directed the AO to allow, the commission payment of Rs. 3 lakhs to the non-executive directors as deduction in the computation of the income of the assessee.
31. The learned Authorised Representative of the assessee relied on the order of the CIT(A) whereas the Departmental Representative relied on the order of the AO.
32. Having heard the rival submission and perused the orders by both the lower authorities, we find that the reason for disallowing payment to the non- executive directors by the AO was that the assessee has not filed a revised return to claim the deduction as the same was neither claimed in the original return and neither it was debited in the P&L a/c. The. submission of the assessee was that there was inordinate delay in convening the annual general meeting of the company whereas the return of income was filod and the balance sheet was adopted by the AGM on 30th Dec, 1996. During this period, i.e., filing of return and approval of balance sheet by AGM, a change has been made in the balance sheet and a provision of Rs. 3 lakhs was made for commission to non-executive directors. The claim was made by the assessee company before the AO during the course of assessment proceedings under Section 143(3) of the IT Act, 1961. For the same reasons as given in paras 14 to 16 of this order, while deciding ground No. 3 of the assessee's appeal for asst. yr. 1994-95, we uphold the order of the CIT(A) in allowing deduction of commission payment to on executive directors of Rs. 3 lakhs; the ground of the Revenue is rejected.
33. In the result, the assessee's appeal being ITA Nos. 138 & 139/Del/1998 are partly allowed and the appeals of the Revenue being ITA Nos. 987 & 3123/Del/1998 are allowed.