Acides Solutions Pvt. Ltd., Noida vs Assessee

M/s. Acidaes Solutions Pvt. Ltd., vs. ITO, Ward 1 (2), C - 5, Sector 39, New Delhi. Noida (Uttar Pradesh). (PAN : AADCA1855F) (APPELLANT) (RESPONDENT)

ASSESSEE BY : Shri Sanjeev Sapra, CA REVENUE BY : Ms. Y. Kakkar, Senior DR

Date of Hearing : 04.03.2015 Date of Pronouncement : 11.03.2015

ORDER

PER B.C. MEENA, ACCOUNTANT MEMBER :

This appeal filed by the assessee emanates from the order of CIT

(Appeals)-IV, New Delhi dated 10.05.2010 for the assessment year 2007-

08.

2. The assessee company is engaged in the business of providing

services in the field of information technology, software solutions and

products.

3. The assessee raised four grounds of appeal and the ITAT, Bench 'A'

passed an order on 06.05.2011 wherein only ground no.3 was disposed off.

The ground no.4 was general, hence, no specific adjudication was required. 2 ITA No.3133/Del./2013

On the misc. application no.203/Del/2011, the ITAT allowed the misc.

application and order to fix for fresh hearing on ground nos.1 & 2 which

read as under :-

"1. That the authorities below had erred in law and on facts of the case in disallowing Rs.4,50,000/- paid by the appellant Co. to its whole time Director as per the terms of the employment by invoking section 36(1)(ii) of the I.T. Act.

2. That without prejudice to ground no.1 above, the disallowance as made is very excessive."

The only issue involved in these grounds is with regard to the disallowance

of Rs.4,50,000/- paid by the assessee company to its whole time Director

as per the terms of employment by invoking section 36(1)(ii) of the Act.

4. While pleading on behalf of the assessee ld. AR submitted that the

Assessing Officer held that bonus paid to Director, Shri Nishant Singh

cannot be allowed in terms of section 36(1)(ii) of the Act. Ld. AR

submitted that the CIT (A) has confirmed the addition merely saying that

Income-tax Act, 1961 is clear on the issue as observed by the Assessing

Officer. Ld. AR submitted a comparative chart, placed at page 6 of the

paper book, which clearly shows that such payment of bonus has been

allowed in the preceding years by the Assessing Officer by framing the

orders u/s 143 (3) of the Act. Ld. AR submitted that Shri Nishant Singh

was appointed Chief Executive Officer (CEO) vide letter dated 03.04.2006

and the details of salary to be paid were also mentioned in this letter.

There was employer - employee relationship between the company and 3 ITA No.3133/Del./2013

whole time Director. The position of Shri Nishant Singh as a whole time

Director has been fully accepted by the Department as salary paid by the

company is being allowed as deductible expenditure in the hands of the

company. The details of services rendered by Shri Nishant Singh was also

provided which clearly demonstrate that bonus was structured to be paid to

the employee Director for the reward of work done and it was nowhere

related to shareholding of the Director in the company. Shri Nishant Singh

to whom this bonus was paid was regularly assessed to tax and paid taxes

accordingly. Ld. AR also submitted copy of the Board Resolution in this

regard before the authorities below. It was also submitted before us that

since similar payments have been allowed in earlier years wherein

assessments have been made u/s 143(3) of the Act, therefore, such

expenditure is allowable in this year also in terms of consistency as held by

Hon'ble Supreme Court in the case of Radhasoami Satsang vs. CIT - 193

ITR 321. The reliance was also placed on the decision of Hon'ble Delhi

High Court in the case of CIT vs. ARG Securities Printers - 264 ITR 276.

Ld. AR also relied on the decision of Hon'ble jurisdictional High Court in

the case of AMD Metplast P. Ltd. vs. DCIT - 341 ITR 563 and pleaded

that this issue is now covered by the decision of Hon'ble jurisdictional

High Court.

5. On the other hand, ld. DR relied on the orders of the authorities

below.

4 ITA No.3133/Del./2013

6. We have heard both the sides on the issue. The Hon'ble

jurisdictional High Court in the case of AMD Metplast P. Ltd., cited supra,

has considered the similar issue and held as under :-

"Held, allowing the appeal, that A was the managing director and in terms of the board resolution was entitled to receive commission for services rendered to the company. It was a term of employment on the basis of which he had rendered service. Accordingly, he was entitled to the amount. Commission was treated as a part and parcel of salary and tax had been deducted at source. A was liable to pay tax on both the salary component and the commission. The payment of dividend was made in terms of the Companies Act, 1956. The dividend had to be paid to all shareholders equally. This position could not be disputed by the Revenue. Dividend was a return on investment and not salary or part thereof."

In the case of DCIT vs. Gopsons Paper Ltd., ITAT, 'C' Bench, Delhi in

ITA No.1303(Del)08, order dated 27.02.2009, held as under :-

"12. Having heard the parties and having perused the material on record, again, we do not find any force in the grievance sought to be raised by the department. As per the note s of accounts and evidence filed in support of the assessee's claim, the management of the assessee identified S/Shri Sunil Dutt Goel, Anil Goel, Rattan Lal, Nitin Goel, Vasant Goel and Gaurav Goel and Smt. Suman Goel as key management personnel, being whole-time Directors. Out of these persons, five, i.e., S/Shri Sunil Dutt Goel, Anil Kumar Goel, Nitin Goel, Vasant Goel and Gaurav Goel had been paid commission. For assessment years 2003-04 and 2004- 05, out of these personnel, four had been paid commission, totalling to Rs.27,81,734/- and Rs.34,04,878/-, respectively. The total commission paid for the year under consideration was Rs.43,88,832/-. For the purpose, a Board Resolution dated 22.9.2004 was passed resolving to pay 1.5% each to S/Shri Sunil Dutt Goel and Anil Kumar Gael and 1% each to S/Shri Nitin Goel, Gaurav Goel and Vasant Goel, on the assessee's profit before tax. The commission had been worked out in terms of section 198 read with sections 349 5 ITA No.3133/Del./2013

and 350 of the Companies Act. The commission payable to the Managing Director and other Directors was not in excess of the amount determinable u/s 198 read with Part II of Schedule XIII of the Companies Act with Part II of Schedule XIII of the Companies Act. All these facts were noticed by the ld. CIT (A). It was seen that the assessee vide letter dated 18.9.2007, brought on record before the AO, amended copy of the report in form 3 CD which suspended the one which was considered by the AO. As per this report, the auditors noted that the amounts, inter alia, of commission paid to the Managing Director and other Directors, were not in the nature of profit or dividend. This report was wrongly ignored by the AO, without recording any reason therefor. It was on consideration of this, that section 36(1)(ii) was held in not applicable.

This order of ITAT has been upheld by Hon'ble Delhi High Court. Thus,

assessee's case is also covered by the rule of consistency. Shri Nishant

Singh, CEO of the assessee company was a salaried person of the company

and there is a Board Resolution with regard to the payment of bonus as per

the terms of employment, therefore, in our considered view, this issue

stands covered in favour of the assessee by the aforementioned decision of

Hon'ble jurisdictional High Court. Therefore, we allow these grounds of

assessee's appeal.

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

Order pronounced in open court on this 11th day of March, 2015.

Sd/- sd/- (G.C. GUPTA) (B.C. MEENA) VICE PRESIDENT ACCOUNTANT MEMBER

Dated the 11th day of March, 2015 TS 6 ITA No.3133/Del./2013

Copy forwarded to: 1.Appellant 2.Respondent 3.CIT 4.CIT(A)-IV, New Delhi 5.CIT(ITAT), New Delhi. AR, ITAT NEW DELHI.