TMI Blog2019 (9) TMI 543X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee that in the assessment year 2008-09 amount as disallowed u/s. 36 (1) (ii) which included the amount of excess remuneration, therefore, again the same amount cannot be brought to tax in the impugned assessment year - HELD THAT:- We find merit in the above argument of the ld. Counsel for the assessee. From the details furnished by the assessee, it is seen that the amount of ₹ 3,04,30,061/- was a part of the amount of ₹ 6,47,27,888/- being the amount of disallowance u/s. 36 (1) (ii) for A. Y.2 008-09. We, therefore, restore this part of the disallowance to the file of the Assessing Officer for verification and if the above amount was a part of disallowance made u/s. 36 (1) (ii) then it relates to A. Y. 2008-09 and cannot be disallowed during the current year. AO shall decide the issue as per fact and law after giving due opportunity of being heard to the assessee. Excess remuneration paid to Sh. Anshuman Magazine - necessary approval seeked - HELD THAT:- We find the assessee has obtained approval of the competent authority though on 18.07.2011 i.e. much after the date on which such remuneration has been paid. In our opinion although the approval has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... human Magazine as a managing director of the appellant company was to make extensive efforts to obtain and increase the business of the appellant company and devote extra time and as such it was resolved that Shri Anshuman Magazine be paid incentive in the form of commission at 30% of the net profits for each year after adding back depreciation, since Assessment year 2004-05, apart from the basic salary which stood allowed and accepted in preceding years. 1.3 That the learned Commissioner of Income Tax (Appeals) has erred both in law and no facts in recording various adverse inferences without granting any opportunity which are also contrary to facts on record, material placed on record and, are otherwise absolutely unwarranted. 3. Facts of the case, in brief, are that the assessee is a company and engaged in the business of providing real estate consultancy services, site management services, professional advisory services and project management services. It filed its return of income on 28.09.2009 declaring total income of ₹ 31,79,41,751/-. Since the assessee has entered into international transaction with its associated enterprises/ concerns, the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r commission for services rendered is to be deducted in computing the total income, where such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission. 4.3.2 The appellant has relied upon the order of the Hon'ble Tribunal in the case of M/s Creative Travel (P) Ltd. vs. ACIT in ITA No. 190/D 2010 for Assessment Year 2006-07 dated 13.05.2011. I have examined this order deeply and in my personal opinion and with great respect to the Hon ble ITAT, 1 find that facts of this case and those of the appellant are entirely different. In that case no doubt the other family members were also the shareholders and commission was paid to the director who was not having the substantial shareholding, whereas in the present case, Mr. Anshuman Magazine was having 99.99% shareholding of the appellant company when the resolution dated 27.5.2003 was passed, and if no such resolution had been passed, even then the entire profits were to go to Shri Anshuman Magazine and his wife (who held the balance shares). This fact cannot be brushed aside that Mr. Anshuman Magazine was holding 99.99% shareholding, and distribution of profit in the shape of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt company differ from those cases, and in the peculiar facts, the issue of payment of commission to the Managing Director Shri Anshuman Magazine who held 99.99% shares when such resolution for payment of commission was passed, need to be examined considering those circumstances. Therefore, with great respect to the Hon ble 1TAT. I am of the personal opinion that this fact escaped the attention of the Hon'ble I I AT. while deciding the issue in A.Y. 2007-08 and A.Y. 2008-09 in the appellant s case. Further, in para 10 of their order dated 07th March, 2016 for A.Ys 2007-08 2008-09 in the case of the appellant company, Hon ble ITAT have inter-alia observed as follows:- ..................... It is noted that the A.O. proceeded to make disallowance on incorrect assumption of fact that no dividend has been distributed amongst the shareholders in the instant year; where as a matter of fact that dividend of ₹ 13 90 crores was declared in the instant year .............. Hence, the facts of the case for the year under appeal are different in the sense that dividend has not been paid by the appellant company despite earning profits before tax of ₹ 26.74 cror ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion passed, the appellant company has avoided payment of dividend distribution tax. Commission paid to Shri Anshuman Magazine is with the sole intention to reduce the income of the company and to avoid dividend distribution tax. 4.3.7 Provisions of Section 36(1)(ii) were brought on to the statute to prevent such diversion of profits to the shareholders who are other wise to get the same as profit / dividend by virtue of being shareholders of the company. In the present case also the issue is of allowability of commission paid to an employee (director who is also shareholder) as per provisions of section 36(1)(ii) of the Act. In the present case before me. Mr. Anshuman Magazine is not only Managing Director/employee of the appellant company but is also the shareholder in the appellant company. It is observed from the details filed that at the time when the resolution was passed for payment of commission to Shri Anshuman Magazine, he was having 99.99% shares of the appellant company and the balance 0.01% i.e. only one share was held by his wife. Meaning thereby, that the entire profits earned by the appellant company were to go to Shri Anshuman Magazine when the resolution was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly the employee but also a shareholder, he would have got that as a profit or dividend. Therefore, provisions of section 36(1)(ii) are clearly attracted in the present case and the amount paid to him as commission should not have been allowed u/s 36(1)(ii) of the Act. 4.3.10 It is also a matter of record that appellant company has paid substantial amount as commission to one of its directors Shri Anshuman Magazine. For this the appellant has relied on the Board resolution passed dated 27.05.2003 (PB 4) which reads as under:- RESOLVED that pursuant to Article 24 of the Articles of Association of the Company and applicable provisions, if any, of the Companies Act, 1956, Mr. Anshuman Magazine be and is hereby appointed as the Managing Director of the Company with effect from Is' June 2003 for a period of five (5) years i.e. from Is1 June, 2003 till 31st May, 2008 which may be extended further as decided by the Board. Thus even according to the above resolution. Mr. Anshuman Magazine was not entitled to payment of any commission after 31M May, 2008 and therefore, if any commission is paid out of the profits earned by the appellant company for the period 01.06. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d have increased, and the tax which is claimed to have been paid by Shri Anshuman Magazine, would have been paid on increased income (actual income) of the appellant company. In addition the increased profits distributed as dividend would also be subjected to dividend distribution tax. In the present case, by passing such a resolution and showing that it is commission for the performance of the director is just a corporate veil, whereas the fact is that the performance achieved is not because of one person but is as a result of the team work of manpower employed in the business. Mr. Anshuman Magazine would have received almost the same amount as dividend at least upto A.Y. 2007-08 which has been given to him by way of commission, but in that case the appellant company would have paid tax on the commission expense which in fact is not to be allowed as per provisions of section 36(i)(ii) of the Act. In addition, it would also have paid dividend distribution tax. 4.3.13 In view of my above observations, this fact cannot be ignored that the commission has been paid to a director who has substantial share holding in the company and such commission so claimed to have been paid whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,96,543 24% 6,64,65,442 Amount given to Mr. Anshuman as Commission and incentive Difference which could have been allowed as expenses in the hands of the company (Even this was not to be paid as commission since the resolution passed only for five years) 3268899 4.3.16 I further find that in the present assessment year under consideration the profits of the appellant company are substantially reduced, which have come down to ₹ 26.74 crores as compared to immediately preceding year wherein the profits are shown at ₹ 37.06 crores despite increase in turnover from ₹ 243.14 crores to ₹ 280.63 crores. No material regarding the qualifications of Sh. Anshuman Magazine and the efforts made by him to increase the profitability of the company has been adduced by-the AR of the appellant. Therefore. 1 do not find any force in arguments of the appellant company that the increase in turnover or profits is as a result of Mr. Anshuman Magazine, for which expense purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A. Y. Incentive (Rs.) Total Salary (Computation of income at page of paper book) Assessment u/s. (pages of Paper book) i) 2003-04 25,00,000 74,22,460 143 (1) ii) 2004-05 1,19,48,350 1,82,95,160 143 (3) (93) iii) 2005-06 1,91,75,160 2,69,01,560 143 (1) iv) 2006-07 3,81,76,000 4,72,10,880 143(3) (98) v) 2007-08 2,89,55,000 4,07,24,000 143(3) vi) 2008-09 6,47,27,888 7,67,27,888 (168-171) 143(3) (103) vii) 2009-10 5,44,65,442 6,62,49,942 (172-190) 143 (3) (105) (Issue under consideration) viii) 2010-11 4,01,84,98 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court in the case of CIT v. Career Launcher India Ltd reported in 358 ITR 179 he submitted that here also following the above judgment, disallowance made was deleted. He submitted that the learned Commissioner of Income Tax (Appeals) however has held that the resolution placed on record could not be accepted as on the date of passing of resolution on 27.05.2003, Sh. Anshuman Magazine was holding 99.99% shareholding and distribution of profits in the shape of commission was done with sole intention to avoid dividend distribution tax which otherwise was to be paid by the assessee company and such finding is wholly misconceived and untenable particularly when on the basis of identical resolution in the preceding assessment year, deduction claimed stands allowed even by the Hon ble Tribunal and by the learned Commissioner of Income Tax (Appeals). He submitted that in the succeeding year also, identical claim of incentive paid has been allowed as such in assessment framed under section 143(3) of the Act. He submitted that the observation in para 4.3.4 (page 23 of order of CIT(A) that factum of passing of resolution on the date when Sh. Anshuman Magazine held 99.99% shareholding and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant; c) Identical incentive paid in the succeeding year stands also accepted by the Assessing Officer in assessment framed under section 143(3) of the Act; and, d) Identical incentive paid to other employee was also allowed as deduction. He submitted that even otherwise, a chart or tabulation prepared is based on fundamental misconception and otherwise too, cannot be a ground to assume that sum paid was profit or dividend. 12. The Ld. Counsel for the assessee without prejudice to the above submitted that even otherwise, profit as per profit and loss account was ₹ 26.78 crores and even assuming, the entire sum is profit and dividend then total sum was ₹ 33.38 crores out of which, if taxes are reduced of ₹ 11.78 crores then net surplus available is ₹ 21.70 crores against which, share of Sh. Anshuman Magazine would be ₹ 5.21 crores and not ₹ 6.64 crores and thus, even otherwise, the preposterous theory propounded by the learned CIT(A) is misconceived. He submitted that since the whole issue is covered by the order of the Tribunal and assessment framed under section 143(3) of the Act and order made in the case of Sh. Anshuman Mag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the order passed u/s. 143 (3) could not be controverted by the Ld. DR. Similarly the submission of the Ld. Counsel for the assessee that the Assessing Officer has allowed the payment of ₹ 6,84,08,003/- for A. Y. 2011-12, ₹ 7,75,03,229/- for A. Y. 2012-13, ₹ 8,02,22,620/- for A. Y.2012-13 and ₹ 8,44,07,484/- for A. Y. 2014-15 in the order passed u/s. 143 (3) also could not be controverted by the Ld. DR. Since the commission paid to Sh. Anshuman Magazine, director of the assessee company was deleted by the CIT(A) in the preceding years and the order of the Tribunal dismissing the appeal filed by the revenue has not been challenged by the revenue in the preceding two years and further considering the fact that the Assessing Officer in the orders passed u/s. 143 (3) for subsequent assessment years from 2010-11 to 2014-15 has allowed similar commission/ incentive, therefore, following the rule of consistency, we are of the considered opinion that no disallowance u/s. 36 (1) (ii) of the IT Act is called for in the instant case. We, therefore, set aside the order of the CIT(A) on this issue and allow the grounds of appeal No. 1 to 1.3 raised by the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration has been waived off by the Central Government. Approval letter issued by the Central Government regarding the waiver of recovering such excess managerial remuneration is being enclosed as Annexure M for your kind perusal . 16. However, the Assessing Officer was not satisfied with the arguments advanced by the assessee. He referred to Annexure M which is the letter issued by the Deputy Secretary to the Government of India, Ministry of Corporate Affairs dated 18th July 2011 which is much after the date on which such remuneration has been paid by the assessee company or filing of return. The assessee company failed to provide prior approval of remuneration expenses. In view of the above, the Assessing Officer disallowed the amount of ₹ 7,77,69,909/-. 17. In appeal the Ld. CIT(A) upheld the action of the Assessing Officer by observing as under :- 5.4.1 1 have examined the observations made by the AO in the impugned assessment order as well as submissions made by the appellant on the above addition made. The addition made by the AO is with regard to excess remuneration paid to Mr. Anshuman Magazine of ₹ 4.73.39.848/- which relates to AY 2009-10 and & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ongly challenged the order of the CIT(A) in sustaining the addition so made by the Assessing Officer. The Ld. Counsel for the assessee at the outset drew the attention of the bench to the following table : 20. He submitted that the disallowance of ₹ 3,04,30.61/- was claimed by the assessee in the preceding assessment year 2008- 098 and not in the instant assessment year 2009-10, therefore, the disallowance is patently incorrect. 21. So far as the disallowance of ₹ 4,73,39,840/- is concerned he submitted that this is the part of the total remuneration to the managing director which is already disallowed u/s. 36 (1) (ii) of the IT Act and thus amounts to double addition of the same amount. Relying on various decisions he submitted that double addition is not permissible in law. Even otherwise he submitted that the disallowance by the Assessing Officer on the basis that the assessee company failed to provide prior approval of remuneration expenses is not in accordance with law. 22. Relying on various decisions he submitted that mere alleged infractions under other statutes cannot be made a basis to make a disallowance under income tax Act 1961. He further sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see, it is seen that the amount of ₹ 3,04,30,061/- was a part of the amount of ₹ 6,47,27,888/- being the amount of disallowance u/s. 36 (1) (ii) of the IT Act, 1961 for A. Y.2 008-09. We, therefore, restore this part of the disallowance to the file of the Assessing Officer for verification and if the above amount was a part of disallowance made u/s. 36 (1) (ii) of the IT Act, 1961 of ₹ 4,47,27,888/- then it relates to A. Y. 2008-09 and cannot be disallowed during the current year. The Assessing Officer shall decide the issue as per fact and law after giving due opportunity of being heard to the assessee. We hold and direct accordingly. 26. So far as the amount of ₹ 4,73,39,848/- being the excess remuneration paid to Sh. Anshuman Magazine is concerned, we find the assessee has obtained approval of the competent authority though on 18.07.2011 i.e. much after the date on which such remuneration has been paid. In our opinion although the approval has been obtained after date of payment, however it will relate back to the year under consideration. Since the approval was granted by the competent authority vide letter dated 18.07.2011 for three financial at a ti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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