ACIT Vs Shah Virchand Govanji Jewellers Pvt. Ltd. (ITAT Surat)
The Revenue filed appeals for AYs 2010-11 and 2012-13 challenging the orders of the Commissioner of Income Tax (Appeals), who had deleted:
- disallowance of commission paid to directors; and
- addition made under Section 68 in respect of advances received from customers.
The assessee filed cross-objections supporting the orders of the CIT(A). As the issues in both assessment years were common, the Tribunal treated AY 2010-11 as the lead case.
Procedural History
The Assessing Officer disallowed commission paid to directors on the ground that it represented distribution of profits in the guise of commission and also treated customer advances as unexplained cash credits under Section 68.
The CIT(A) deleted both additions by relying upon earlier decisions in the assessee’s own case.
The Revenue appealed before the ITAT, while the assessee filed cross-objections supporting the CIT(A)’s order.
Legal Issues
- Whether commission paid to directors was allowable or liable to disallowance.
- Whether customer advances could be treated as unexplained cash credits under Section 68.
- Whether the CIT(A)’s deletion of both additions required interference.
Relevant Statutory Provisions
- Sections 36(1)(ii), 37(1) and 68 of the Income-tax Act, 1961.
Parties’ Submissions
Revenue’s Submissions
- The commission paid to directors was effectively a distribution of profits in the guise of commission.
- Equal commission was paid despite different shareholding and the assessee had not established the services rendered by each director.
- The assessee failed to furnish PAN, confirmations and complete addresses of customers from whom advances were received, warranting addition under Section 68.
Assessee’s Submissions
- The issue of commission stood concluded in its favour by earlier Tribunal orders in its own case for AYs 2011-12, 2013-14 and 2014-15, which were affirmed by the Gujarat High Court.
- Commission was paid for services rendered by directors and not linked to shareholding.
- Customer advances were recorded in the books, adjusted against subsequent sales and offered to tax, making Section 68 inapplicable and avoiding double taxation.
Tribunal’s Findings and Reasoning
