Provision of sec 36(1)(ii) not applicable in the absence of evidence and depreciation at 60% should be charged on computer

IN THE INCOME TAX APPELLATE TRIBUNAL

DELHI BENCH: B: NEW DELHI

BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT

AND

SHRI I.P. BANSAL, JUDICIAL MEMBER

ITA No.710/Del/2012

Assessment Year: 2008-09

ACIT, Circle 3 (1),

New Delhi.

(Appellant)

Vs.

Coromandel Agrico Pvt. Ltd.,

3rd Floor,

7, Community Centre, Near

Sapne Cinema,

East of Kailash,

New Delhi.

PAN: AABCC6812A

 (Respondent)

Assessee by: None

Revenue by: Shri Surender Pal, Sr. DR

ORDER

PER I.P. BANSAL, JUDICIAL MEMBER

This is an appeal filed by the revenue. It is directed against the order passed by the CIT (A) dated 15th November, 2011 for Assessment Year 2008-09. The grounds of appeal read as under:-

“1. The Learned CIT (A) has erred on facts and in law in deleting the addition of Rs.9,34,446/- on account of disallowance of commission paid to director u/s 36(1)(ii) of the Income Tax Act.

2. the learned CIT (A) has erred on facts and in law in deleting additions of Rs.12,981/- on account of extra depreciation claimed on computer peripherals.

3. The appellant craves leave for reserving the right to amend, modify, alter, add, or forego any ground (s) of appeal at any time before or during the hearing of this appeal.”

2. The notice of hearing was sent to the assessee, however, none was present on behalf of the assessee. Therefore, we proceeded to decide the present appeal ex parte qua the assessee after hearing the learned DR. The assessee company is engaged in the business of manufacture of pesticides and insecticides at its factory at Sikandrabad. It filed its return of income at ` 95,77,210/- which was later on revised at ` 98,39,243/-. During the course of assessment proceedings, the Assessing Officer noticed that the assessee has paid salary and other allowances to its directors which included commission of ` 9,34,446/- paid to the directors of the company. Referring to the provisions of Section 36 (1)(ii), ld. Assessing Officer required the assessee to explain as to why disallowance of commission should not be made. It was submitted that director Shri Anand Pradeep Kumar has been paid salary and commission in terms of resolution passed on 30th September, 2005 by the shareholders. Copy of the resolution was filed. It was submitted that the said director is in the pesticide trade for the last many years and has experience for about 25 years. The position of sale was given as under:-

Asstt. year    Sales         Net Profit

2008-09      56.43 cr.     112.25 lacs

2007-08      50.36 cr.     108.78 lacs

2006-07      40.58 cr.     110.84 lacs

2005-06      44.77 cr.     105.05 lacs

2004-05       36.46 cr.    51.46   lacs

3. It was submitted that there is a major increase in sale as well as the profit of the company and that is only due to the efforts of the said director of the company. It was submitted that the provisions of Section 36 (1)(ii) will not be applicable. It was submitted that services of the director have been duly approved by the shareholders and have, in fact, been required and his services are directly co-related to his performance in the company and such payment is wholly and exclusively paid to the employees for their performance and is allowable as business expenditure. Reference was made to various decisions and it was contended that no disallowance on this account could be made. It was also submitted that for the year under consideration the return of income has been filed by the said director at ` 59,08,748/- and he has also been taxed at maximum margin rate, therefore, there is no question of evasion of tax. After considering the reply of the assessee, ld. Assessing Officer has held that provisions of Section 36 (1)(ii) were applicable, hence, he has disallowed the said amount of commission. Ld. CIT (A) has found that on similar fact and circumstances Delhi ITAT in the case of ACIT vs. Bony Polymers Pvt. Ltd. (2010) 36 SOT 456 (Delhi), has deleted the addition. Relying on the said ratio, ld. CIT (A) has deleted the addition. The department is aggrieved, hence, in appeal.

4. The learned DR, after narrating the facts, submitted that the Assessing Officer has rightly disallowed the said amount u/s 36 (1)(ii) and his order should be restored and that of learned CIT (A) should be set aside.

5. We have carefully considered the submissions of the learned DR. We have also carefully gone through the assessment order as well as the order passed by the CIT (A). In the case of ACIT vs. Bony Polymers Pvt. Ltd. (supra), it was held by the Co-ordinate Bench that in the absence of any material or evidence to show that the commission is being paid as dividend to the shareholders the disallowance u/s 36 (1)(ii) was not permissible. The Companies Act, 1956 contains the limitation and restrictions in the matter of payment of dividend and such obligation of the company either to pay or not to pay dividend cannot be assumed. The Assessing Officer cannot presume that had this commission not paid would have necessarily being paid as dividend to the shareholders. Thus, it was held that there was no basis for assumption particularly in the circumstances when the assessee company was having substantial profits out of which dividends also could be declared if so wanted by the assessee company. In this manner, the amount added by the Assessing Officer was deleted. The ratio of the said decision is fully applicable to the facts of the present case and we find no infirmity in the order of the CIT (A) vide which the relief has been granted to the assessee. Therefore, we decline to interfere and this ground of the revenue is dismissed.

6. The next ground relates to grant of depreciation on computer peripherals which has been held to be learned CIT (A) @ 60% in place of 15% allowed by the Assessing Officer. Now this issue is covered in favour of the assessee by the decision of Hon’ble Delhi High Court in the case of CIT vs. BSES Rajdhani Power Ltd. vide order dated 31^st August, 2010 in ITA No.1266/2010. Therefore, we find no infirmity in the order of CIT (A) vide which it has been held that depreciation on computer peripherals is allowable @ 60%, therefore, this ground of the revenue is also dismissed.

7. In the result, the appeal is dismissed.

The order pronounced in the open court on 17.04.2012.

                                                         Sd/-                                   Sd/-

                                            [G.D. AGRAWAL]            [I.P. BANSAL]

                                           VICE PRESIDENT         JUDICIAL MEMBER

Dated: 17.04.2012.

dk

Copy forwarded to: -

1. Appellant

2. Respondent

3. CIT

4. CIT (A)

5. DR, ITAT

Deputy Registrar,

ITAT, Delhi Benches