TMI Blog2022 (9) TMI 707X X X X Extracts X X X X X X X X Extracts X X X X ..... ere a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and the parties have been allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in subsequent year. We find that no change in fact for the year under consideration is brought to our notice to take the other view, therefore, respectfully following the decision of Coordinate bench, which has been affirmed by the Hon ble Jurisdictional High court, we do not find any merit in the grounds of appeal raised by revenue. All the submissions or the objections raised by the ld. CIT-DR for the revenue has already been considered by our predecessor while deciding the similar issue in appeal for A.Y. 2011-12, 2013-14 and 2014-15. In the result, ground No. 1 of appeal is dismissed. Unexplained cash credit u/s 68 - HELD THAT:- Hon ble Supreme Court in PCIT Vs Montage Enterprises P Limited [ 2018 (10) TMI 1452 - SC ORDER] held that where the High Court upheld the order of Tribunal in deleting the addition made under Section 68 in respect of trade advances on the ground of that the said adva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id to the directors without considering the judgment of Special Bench of the Hon ble ITAT in the case of Dalal Broacha Stock Broking Pvt. Ltd. Vs Addl.CIT, Range-4(1), Mumbai 131 ITD 36 (Mumbai) (SB). 2. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition of Rs. 48,90,672/- made on account of unexplained cash credits without appreciating that the assessee failed to provide PAN, confirmation and even address of the so called customers from whom advances were claimed to be received. 3. It is therefore, prayed that the order of the Ld. CIT(A), Valsad may be set aside and that of assessing officer may be restored to the above extent. 4. The appellant craves leave to add, alter, amend and/or withdraw any ground(s) of appeal either before or during the course of hearing of the appeal. 3. The assessee in his Cross Objection has raised following grounds: 1. The Revenue has challenged the addition deleted by the honourable CIT(A) amounting to Rs. 1,75,00,000/- being commission paid to Directors. The Honorable CIT(A) has considered the ratio applied by the Honorable Gujarat High Court in your appellant s own case f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of appeal are covered in favour of assessee and against the Revenue. 5. On the other hand, the ld. CIT-DR and the ld. Sr.DR for the revenue both submits that the principle of res judicata is not application in income tax cases and each assessment order has to be considered separately. The ld. CIT-DR submits that the assessee has not explained the services rendered by each of the directors. The assessee has paid similar commission to all the directors without specifying the services rendered by them. The directors to whom the said commission is paid are having substantial shareholding and they have been paid dividend in the garb of commission which is not allowable. The ld. CIT-DR submits that the assessee is required to pay the remuneration to its director in accordance with provisions of Section 309 of Companies Act. As per Section 309 of Companies Act, the maximum limit of paying remuneration to its director is 11% which includes salary, commission and bonus etc. In the present case, the assessee has exceeded the threshold limit while paying additional remuneration by way of commission for its directors. The ld. CIT-DR submits that either the order of Assessing officer may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Jurisdictional High Court, the issue attend finality and thus the issue is squarely covered in favour of assessee. 7. We have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. We find that during the assessment, the Assessing Officer made disallowance of commission payment to five of its directors, aggregating of Rs. 1.750 crore by taking a view that all the executive directors were paid equal amount of Rs. 35.00 lacs each irrespective of percentage of their shareholding. All these directors including their HUFs having substantial shareholding of 95.75%. The payment of commission to its director amounts to circumventing the requirement of dividend distribution tax, which is not permissible as it amounts to a device to evade tax as opposed to tax planning. We further find that the Assessing Officer made observation that similar disallowance was made in A.Y. 2011-12, 2013-14 and 2014-15, which were confirmed by ld. CIT(A). The ld. CIT(A) granted relief to the assessee by taking a view that in assessee s own case for A.Y. 2011-12, 2013-14 and 2014-15, similar disallowance of commission payment to directors was mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the profit was 45.84% and the remuneration was increased by 87.64% and these facts collectively show that the additional remuneration / commission has been paid to the Directors against the services rendered by them which resulted into steep growth of the company. 30. Let us adjudicate the contention of the authorities below and written submissions of the ld.CIT-DR, in the written submissions the AO has alleged that there is increase of 113% in the commission / additional remuneration paid to the Directors whereas, increase in the gold price was only 30% and thereafter, the AO alleges that the appellant contention is not acceptable that the commissions payments to the Directors was linked to the increase in the turnover of the company. We are not agree with these allegation of the AO which have been arrived by considering the growth in the remuneration with the price of gold. The AO is required to consider the percentage of increase or decrease in the turnover and thereafter only it can be observed that as to whether the payment of remuneration is linked with the increased turnover of the assessee. As we have noted above from the table, noted by the ld.CIT(A) at page 23 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atio of the order of the Special Bench in the case of Dalal Broacha Stock Broking Pvt. Ltd. (supra) we are of the view that from para 7 of this order of a Special Bench it is clear that the issue for adjudication before the Special Bench was regarding allowability of deduction on account of payment of commission of Rs.1.20 crores to the Three Employee Directors u/s.36(1)(ii) of the Act and in para 8.2 of this order it was held that under the provision of section 36(1)(ii) of the Act and section 37(1) of the Act will not be applicable in the cases wherein payment of commission has been made to the Directors. At the same time, we further observe that ITAT Delhi F Bench in the case of ACIT vs. Botil Oil Tools (I) Pvt. Ltd. (supra) after considering the ratio of the various decisions including decision of Hon'ble Delhi High Court in the case of CIT vs. Convertech Equipments P. Ltd.(supra) and AMD Metaplast Pvt. Ltd. (supra) held that while the commission was paid as a form of remuneration for actual services rendered, then section 36(1)(ii) would not apply, however, it is allowable u/s.37(1) of the Act. 33. In the present case also the AO has failed to establish that the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct and dividend had to be paid to all the shareholders equally. In the present case also the ld.AO and ld.First Appellate Authority was wrong in observing that there is no nexus between growth of turnover and growth in the percentage of commission paid to the Directors. At the same time, from the copies of the resolutions passed by the Board of Directors from F.Y. 2005-06 to F.Y. 2013-14, which has been placed at pages 1 to 11 of the assessee s paper book, dated 31.05.2018 it is vivid that the commission / additional remuneration has been paid by way of resolution passed by the company at the respective Board Meetings and for present A.Y. 2011-12 the copy of Board Resolution dated 02.09.2011 has been placed at page 8 of the same paper book. 36. At the cost of repetition, we may again point out that the assessee submitted the details of services rendered by the recipient Directors which was noted by the AO in para 12.10 of the assessment order but without controverting the contention and submission of the assessee, he proceeded to adjudicate the applicability of exception u/s.36(1)(ii) of the Act and by following the decision of Special Bench Mumbai in the case of Dalal Broacha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ters and Developers Pvt. Ltd. (supra) and in the recent decision of Apex Court in the case of Godrej and Boyce Manufacturing Pvt. Ltd. vs. DCIT (supra) therefore, contention of the ld.CIT-DR has no legs to stand that the cases relied by the ld.Senior Counsel are not applicable to the present case as they have dissimilar facts and circumstances. The rule of consistency also supports the case of the assessee as the facts and circumstances of immediately preceding years are quite similar and identical in the present A.Y. 2011-12 and it is not a case of the AO that there was any difference in the facts and circumstances of the present A.Y. with the immediately preceding years. Therefore, we are inclined to hold that in this case the principle / rule of consistency has not been respected and followed by the authorities below, therefore, their conclusion on the issue is incorrect, perverse and thus, not sustainable and we hold so. 38. The ld. Senior Counsel has also contended that as per decision of ITAT Pune B Bench in the case of Arihantam Infraproject (P.) Ltd. vs JCIT (supra) it has been held that even otherwise, since commission had been paid to directors and taxes had been p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Manufacturing Co. Ltd. vs. DCIT (supra), as strenuously relied and referred by the ld. Senior Counsel appearing on behalf of the assessee, supports the contention of assessee that the disallowance has been made by the authorities below by flouting and disrespecting Rule of consistency, which is applicable and widely respected by the Tax Authorities as a well-accepted principle of the tax jurisprudence. 40. Therefore, we are inclined to hold that the Revenue Authorities was not justified and correct in making dis-allowance in A.Y. 2011-12 flouting the Rule of consistency. In this scenario, we also observe that the commission / additional remuneration has been paid by the assessee company to the recipient Directors against the services rendered by them to the company after deducting TDS while making payment, which resulted into positive financial growth of the company. In view of this factual position, the recipient Directors paid tax on such commission, then it is an Act of charging tax under right head in the right hands of the right person for the right Assessment year. Therefore, we are of the considered opinion that it is not a case of taxing wrong person and thereafter exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act, hence, benefit of these circulars is not available for the assessee in the present case. 43. Finally, on the basis of foregoing discussion we reach to a logical conclusion that the AO has made disallowance of commission / additional remuneration by considering and appreciating the incorrect facts and figures and by flouting the Rule of consistency. We also observe that the contention of the learned AO while making disallowance and learned CIT(A) while confirming the disallowance in the impugned order are not sustainable, justified and correct. Per contra, we observe that the assessee has successfully established that the commission / additional remuneration has been paid in lieu of services rendered by the recipient Directors towards administrative and financial activities of the assessee company, which also resulted into steep financial growth in the turnover and profit of the assessee company, and for making such said payment the company passed resolutions in the Board of Directors meeting for the respective financial years / assessment years. Therefore, we also observe that the ratio of the decision of Hon'ble Delhi High Court in the case AMD Metaplast Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by revenue. All the submissions or the objections raised by the ld. CIT-DR for the revenue has already been considered by our predecessor while deciding the similar issue in appeal for A.Y. 2011-12, 2013-14 and 2014-15. In the result, ground No. 1 of appeal is dismissed. 10. Ground No. 2 relates to deleting the addition of Rs. 4890672/- on account of unexplained cash credit. The ld. CIT-DR for the revenue submits that during the assessment, the Assessing Officer noted that the assessee has shown advances from customers of Rs. 5308928/- during A.Y. 2010-11. The assessee was asked to furnish the complete details, including name, address, PAN No. and amount deceived. The assessee failed to furnish the details of such persons from whom advance of Rs. 4890672/- was received. The Assessing Officer treated the said amount as unexplained cash credit. The ld. CIT(A) allowed relief to the assessee by holding that the customer s advance received in current assessment year were duly adjusted against the sales in subsequent assessment years. It was also noted by the ld. CIT(A) that majority of advance received in current assessment year to the extent of 89% were duly adjusted against the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Once, the income offered from the transaction of advance has been accepted in the subsequent year, taxing the same in the current assessment year would lead to double taxation. The ld. AR submits that receiving advance from customers are regular feature in the business of jewellery and the assessee explained before the lower authorities by showing chart from A.Y. 2009-10 to 2014-15 that 3.6 to 5.5 of the total turnover shown in the balance sheet as customer advances. The advances received in the business cannot be treated for the addition under Section 68. To support his submission, the ld. AR for the assessee relied upon the decision of Hon ble Supreme Court in PCIT Vs Montage Enterprises Limited (2018) 100 taxmann.com 100 (SC) wherein the decision of Delhi High Court in PCIT Vs Montage Enterprises Limited (2018) 100 taxmann.com 99 (Del), decision of Kolkata High Court in PCIT Vs Datta Automobiles P Limited (2017) 81 taxmann.com 107 (Kolk) and Gujarat High Court in CIT Vs Ayachi Chandrashekhar Narsangji (2014) 42 taxmann.com 251 (Gujarat). 12. We have considered the rival contentions of both the parties and have gone through the orders of the lower authorities carefully. We hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Montage Enterprises P Limited (supra) held that where the High Court upheld the order of Tribunal in deleting the addition made under Section 68 in respect of trade advances on the ground of that the said advances were adjusted against sales made in the subsequent assessment years, the special leave filed against the said decision was to be dismissed. The Hon ble Kolkata High Court in PCIT Vs Dutta Automobiles P Limited (supra) also held that where a Tribunal recorded finding of find that money in question was advance deposit received from customers on account of sale of motor cycle, the assessee being a dealer in automobiles, and whenever sale took place, within one or two months, the said deposits were adjusted against sale price of motorcycle, Section 68 would not apply. We find that Hon ble Jurisdictional High Court in CIT Vs. Ayachi Chandrashekhar Narsangji (supra), though, on the context of repayment of loan in subsequent year, also held that when the department had accepted repayment of loan in subsequent years, no addition was to be made in the current year on account of cash credit. At the cost of repetition, we may mention that once the Assessing Officer has accepted th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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