TMI Blog2021 (7) TMI 1136X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on the view of disallowance of enhanced rent paid in the year under consideration, no reassessment proceedings for earlier years has been initiated by the Revenue. Considering the totality of the aforesaid facts and relying on the aforesaid decision rendered in the case of Radhasoami Satsang (supra), we find no reason to interfere with the order of CIT(A). Thus the ground of Revenue is dismissed. Commission paid to shareholder Directors - disallowance made by AO of the commission paid to the whole time Directors of the company - HELD THAT:- As undisputed fact that three whole time working Directors had been paid commission and the commission payment is as per the limits prescribed under the Companies Act, the commission payment has been approved by the shareholders in the general meeting of shareholders. It is the case of AO that no dividend has been paid by the assessee and had the assessee not paid the commission, it would have been required to distribute the amount as dividend necessitating the payment dividend tax. The aforesaid observation of the AO of assessee not paying of dividend is contrary to the fact as the assessee has been paying dividend in the past and durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in not appreciation of the fact that the sharing of profit between two entities is clearly covered in the ambit of application of income and expense on the account cannot be allowed as deductible in P L account. 3. That on the facts and circumstances of the case, the ld CIT(A) has erred in not appreciation of the fact that the assessee has paid commission to the share holder Directors without any services rendered by them to the company any only to bypass the provision of Section 36(1)(ii) so as to not declared the dividend. 4. That on the facts and circumstances of the case, the Ld CIT(A) has erred in not appreciation of the fact that the AO made the disallowance in accordance with sec. 14A r.w.r 8D of the IT Act only. 5. The appellant craves, leave or reserving the right to amend modify, alter add or forego any groups) of appeal at any time before or during the hearing of this appeal. 5. Ground No.1 2 are interconnected and therefore, both are considered together. 6. During the course of assessment proceedings, AO noticed that assessee has claimed compensation of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f res judicata is not applicable to income tax proceedings and each assessment year is an independent year. He submitted that merely because the enhanced compensation that has been paid by assessee since 1999 onwards has not been disallowed in any of the earlier assessment years, that cannot be the ground for allowing the expenses. He thus supported the order of AO. 8. Learned AR on the other hand reiterated the submissions made before the lower authorities. He further pointing to the working arrangement agreement that has been reproduced by AO in the order, submitted that the agreement continued to be a rent agreement. He thereafter submitted that though there is a clause in the agreement which provides that in case the profit increases manifold, then the assessee shall pay 5% of the gross operating profit, but he submitted that this clause had not been triggered in the year under consideration as the gross operating profit was not higher than the minimum rent. He submitted that during the year the gross operating profit was ₹ 697.24 lacs 5% of it works out to ₹ 34.86 lacs whereas the rent paid was ₹ 126 lacs. He therefore submitted that since the rent was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the totality of the aforesaid facts and relying on the aforesaid decision rendered in the case of Radhasoami Satsang (supra), we find no reason to interfere with the order of CIT(A). Thus the ground of Revenue is dismissed. 10. Ground No.3 is with respect to the commission paid to shareholder Directors. 11. During the course of assessment proceedings, AO noticed that assessee has made payment of ₹ 33,03,384/- to the three working Directors namely; Shri Narinder Kumar, Shri Virender Kumar and Shri Rajinder Kumar. AO noted that the aforesaid three persons were also the shareholders of the assessee company. AO was of the view that the provision of 36(1)(ii) of the Act were applicable in the present case. AO was of the view that had the amount not been paid as commission to the three Directors, the assessee would have to pay dividend to those persons. He noted that no dividend was declared by the assessee in the past number of years and the assessee has thus saved on dividend tax. He therefore, held that the payment of Commission to the three Director employees to be not allowable expenditure and accordingly made addition of ₹ 33,03,384/-. 12. Aggrieved by the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the addition and the action of CIT(A) was upheld by the Co-ordinate Bench of Tribunal. He further submitted that the AO has wrongly assumed that company has not been paid dividends but on the contrary assessee during the year under consideration has paid dividend of ₹ 4,20,00,000/- which works out to 50%. He also submitted that assessee has also paid dividends in the past. He thereafter submitted that the case laws relied upon by the AO are distinguishable on facts and therefore not applicable to the present facts. He submitted that on the contrary the Hon ble Apex Court in the case of Shazada Nand Sons vs. CIT (1997) 108 ITR 358 has held that the sharing of profit by employees should be encouraged by adopting a progressive and liberal approach. He thus supported the order of CIT(A). 15. We have heard the rival submissions and perused the materials available on record. The issue in the present ground is with respect to deleting the disallowance made by AO of the commission paid to the whole time Directors of the company. It is an undisputed fact that three whole time working Directors had been paid commission and the commission payment is as per the limits prescribed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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