Case Law Details

Case Name : M/s. Kshitij Interiors Pvt. Ltd. Vs. DCIT OSD- 8(2) (ITAT Mumbai)
Appeal Number : ITA No. 5151/Mum/2014
Date of Judgement/Order : 12/01/2018
Related Assessment Year : 2011-12
Courts : All ITAT (4877) ITAT Mumbai (1575)

M/s. Kshitij Interiors Pvt. Ltd. Vs. DCIT (ITAT Mumbai)

From the record we found that commission was paid to Mr. Bhawarlal Sharma, whole time Director of the Company, for the services rendered by him to the Company. The Director has rendered technical services to the assessee company. The commission so paid is for the services so rendered by the director and in line the principles of commercial expediency. The same are paid as per the agreed terms in the board resolution and are also at reasonable rates. We also found that the director is a whole time director and an employee of the company. Further, director is a person with technical knowledge having a first class degree in Interior line which further substantiate the fact that Mr. Bhawarlal Sharma is a technical person and his capacity and ability in effecting business activities and that the commission paid is in accordance with the board resolution passed at the beginning of the year. We also found that Mr. Bhawarlal Sharma also paid tax on the commission income received by company in his individual return. Thus, there is no tax avoidance.

FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-

This is an appeal filed by assessee against the order of CIT(A)-17, Mumbai dated 28/05/2014 for A.Y. 2011-12 in the matter of order passed u/s.143(3) of the IT Act.

2. The following grounds have been taken by the assessee.

1. On facts and circumstances of the case and in law, the Commissioner of Income Tax (Appeals) 17, erred in confirming the addition of Rs. 3,29,900/- made by the AO being the commission paid to the director as commission in lieu of dividend , U/s36(1)(ii) of the Income tax Act, 1961.

2. The Id. CIT and the AO failed to appreciate that:-

a) The Commission is paid for the services rendered by the director as per the terms and are at reasonable rates.

b) The commission is paid to the whole time director of the company.

c) The director is a qualified person with a First class degree in Interior Line.

d) The commission paid is in terms with board resolution.

e) The commission paid during the year is not a solitary payment in the current year, it is regular payment.

f) There is no motive of tax evation since the full tax is paid by the recipient of commission

g) The proof of the technical qualification of the director is placed on record in the assessment proceedings,

h) The qualification and experience of the director as well as the submissions made during the assessment and appellate proceedings has been ignored.

i) The earlier year order was blindly followed ignoring the submissions made highlighting the differences.

3. The appellant, therefore, prays that the addition of Rs. 3,29,9007- towards commission paid to directors may kindly be deleted.

The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal.

3. Rival contentions have been heard and record perused.

4. Grievance of assessee revolves around dis allowance of Rs. 3,29,900/- paid as commission to the Director of the company by invoking provisions of Section 36(1)(ii) of the IT Act.

5. Rival contentions have been heard and record perused. We had also carefully gone through the orders of the authorities below and found that assessee company is engaged in the business of interior decorators, manufacturing, re seller and works contract. Assessee company has two directors Mr. Bhawarlal Sharma and Mrs. Manju Sharma. Mr. Bhawarlal Sharma is a whole time Director of the Company. The assessee company during the year has paid commission to Mr. Bhawarlal Sharma of Rs. 3,29,900/- for the services rendered by him to the assessee company. The AO added the commission paid to the above director and shareholder u/s 36(l)(ii) on the grounds that the commission paid to director is in lieu of dividends and further reasoned that the transaction is used as a measure for tax avoidance.

6. By the impugned order, CIT(A) confirmed the action of the AO against which assessee is in further appeal before us.

7. We have considered rival contentions and deliberated on the judicial pronouncements referred by lower authorities in their respective orders as well as cited by learned AR and DR during the course of hearing before us in the context of factual matrix of the case.

8. From the record we found that commission was paid to Mr. Bhawarlal Sharma, whole time Director of the Company, for the services rendered by him to the Company. The Director has rendered technical services to the assessee company. The commission so paid is for the services so rendered by the director and in line the principles of commercial expediency. The same are paid as per the agreed terms in the board resolution and are also at reasonable rates. We also found that the director is a whole time director and an employee of the company. Further, director is a person with technical knowledge having a first class degree in Interior line which further substantiate the fact that Mr. Bhawarlal Sharma is a technical person and his capacity and ability in effecting business activities and that the commission paid is in accordance with the board resolution passed at the beginning of the year. We also found that Mr. Bhawarlal Sharma also paid tax on the commission income received by company in his individual return. Thus, there is no tax avoidance. All the findings are supported by documentary evidences placed on record. Thus, the finding of lower authorities to the effect that commission was paid for avoidance of tax is not factually correct. Furthermore, the issue under consideration is squarely covered by the decision in the case of C1T vs. Converted! Equipments Pvt. Ltd., High Court of Delhi (2012) 83 CCH 101 (Del HC), AMD Metplast Pvt. Ltd. vs. DCIT High Court of Delhi (2012) 341 1TR 563 (Delhi), C1T vs. Career Launcher India Ltd. High Court of Delhi (2012) 71 DTR (Del) 161, Shahzada Hand & Sons vs. CIT (1977) 108 ITR 358 (SC) and Loyal Motor Service Co. Ltd. vs. CIT (1946) 14 ITR 647 (BOM) .

9. Applying the proposition of law laid down in the above judicial pronouncements to the facts of the instant case along with fact that Mr. Bhawarlal Sharma being a technical person looking after entire work of the company had been paid reasonable commission of Rs. 3,29,900/- looking to the efforts made by him during the course of business and also considering the fact that amount of commission have already been offered by Mr. Bhawarlal Sharma in his individual return, meaning thereby, there is no tax avoidance, accordingly, we do not find any merit for the dis allowance so made by the lower authorities.

10. In the result, appeal of the assessee is allowed.

Order pronounced in the open court on this 12/01/2018

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