Principal Commissioner of Income-tax, Delhi-2 v. MLS CBRE South Asia Private Limited
[Citation -2020-LL-0213-29]

Citation 2020-LL-0213-29
Appellant Name Principal Commissioner of Income-tax, Delhi-2
Respondent Name MLS CBRE South Asia Private Limited
Court HIGH COURT OF DELHI AT NEW DELHI
Relevant Act Income-tax
Date of Order 13/02/2020
Assessment Year 2009-10
Judgment View Judgment
Keyword Tags dividend distribution tax • principle of consistency • expenditure incurred • condonation of delay • excess remuneration • rule of consistency • excess expenditure • remuneration paid • business purpose • cogent material • commission paid • taxable income
Bot Summary: In the appeal preferred by the assessee, CIT upheld the aforenoted disallowance, observing that when the assessee-Company passed the resolution dated 27.05.2003 for payment of incentive to the shareholder- Mr. Anshuman Magazine, he held 99.99 shares of the assessee and but for the resolution to pay the commission, the sum so paid would have been passed on to him as dividend. In the eventuality, the ITA 96/2020 Page 2 of 8 assessee would have paid dividend distribution tax on such profits earned and the profits/ taxable income of the assessee would have also further increased by amount paid as commission to Mr. Anshuman Magazine. In order to avoid dividend distribution tax, the assessee had made the payment under the guise of commission. Mr. Shailender Singh, Advocate argues that the Tribunal has erred in reversing the decision of the CIT, in as much as, the Tribunal has made wrong observations that CIT has not given a finding to the effect that the excess remuneration was not incurred for the business purpose of the ITA 96/2020 Page 3 of 8 assessee. We have considered the rival arguments made by both the sides, perused the orders of the authorities below and the paper book filed on behalf of the assessee. We find the Tribunal in assessee's own case for A. Y. 2007-08, 2008-09 vide ITA No. 709/Del/2012 and 795/Del/2013 order dated 07.03.2016 has deleted such disallowances and the revenue has not filed any appeal against the order of the Tribunal deleting such deletion. Counsel for the assessee that in assessment year 2010-11, the incentive of Rs.4,01,84,983/- and salary of Rs.1,15,28,400/- both totaling to Rs.5,29,68,983/- has been allowed in the order passed u/s.


37 IN HIGH COURT OF DELHI AT NEW DELHI Date of Decision:- 13.02.2020 ITA 96/2020 PRINCIPAL COMMISSIONER OF INCOME TAX, DELHI-2, Appellant Through: Ms.Vibhooti Malhotra, Senior Standing Counsel with Mr. Shailender Singh, Advocate. versus MLS CBRE SOUTH ASIA PRIVATE LIMITED Respondent Through: None. CORAM: HON'BLE MR. JUSTICE VIPIN SANGHI HON'BLE MR. JUSTICE SANJEEV NARULA SANJEEV NARULA, J (Oral): C.M. No.5764/2020 (exemption) 1. Exemption allowed, subject to all just exceptions. 2. application stands disposed of. C.M. No. 5765/2020 (delay in filing) 3. By this application applicant seeks condonation of delay of 01 day in filing appeal. For reasons stated in application, delay is condoned. 4. application stands disposed of in aforesaid terms. C.M. No. 5766/2020 (delay in re-filing) 5. By this application applicant seeks condonation of delay of 87 days in re-filing appeal. For reasons stated in application, delay is ITA 96/2020 Page 1 of 8 condoned. 6. application stands disposed of in aforesaid terms. ITA 96/2020 7. Appellant - Principal Commissioner of Income Tax, has preferred present appeal under Section 260A of Income-Tax Act (hereinafter Act) for Assessment Year (AY) 2009-10, assailing order passed by Income-Tax Appellate Tribunal (ITAT) dated 28.06.2019 in ITA No.3527/DEL/2016, whereby appeal filed by Respondent-Assessee has been allowed. 8. Briefly stated, facts of case are that Respondent is private limited company, wherein, Mr. Anshuman Magazine holds 24% shares and is also employee and Director of assesse-Company. remaining 76% shares are held by CB Richards Ellis holding. assessee filed its return of income on 28.09.2009, declaring income of Rs. 31,79,41,751/-. case of assessee was selected for scrutiny and notice under Section 143(1) was issued. Pursuant thereto, assessment order was framed on 25.12.2010 under Section 143(3) of Act whereby inter alia addition of Rs.6,64,65,442/- was made by way of disallowance under Section 36(1)(ii) of Act. In appeal preferred by assessee, CIT (A) upheld aforenoted disallowance, observing that when assessee-Company passed resolution dated 27.05.2003 for payment of incentive to shareholder- Mr. Anshuman Magazine, he held 99.99% shares of assessee and but for resolution to pay commission, sum so paid would have been passed on to him as dividend. In eventuality, ITA 96/2020 Page 2 of 8 assessee would have paid dividend distribution tax on such profits earned and profits/ taxable income of assessee would have also further increased by amount paid as commission to Mr. Anshuman Magazine. In order to avoid dividend distribution tax, assessee had made payment under guise of commission. 9. Further, CIT (A) also held that excess remuneration paid was without approval of Central Government and was, therefore, liable to be disallowed as same was not for business purpose of assessee. On further appeal, ITAT overturned decision of CIT (A) in favour of assessee. It was held that in assessee s own case for AY 2007-08 and 2008- 09 in respective ITA Nos. 709/Del/2012 and 795/Del/2013, Tribunal vide order dated 07.03.2016 had deleted such disallowances. Revenue had not preferred any appeal against order of Tribunal, and for subsequent years from 2010-11 to 2014-15, Assessing Officer had passed orders under Section 143(3) of Act and allowed payment of commission/ incentive. Tribunal further deleted addition under head excess remuneration on ground that there was no reasoning or finding given by CIT (A) holding that commission was not for business purpose of assessee. 10. Aggrieved by aforesaid order, revenue has preferred present appeal. Mr. Shailender Singh, Advocate argues that Tribunal has erred in reversing decision of CIT (A), in as much as, Tribunal has made wrong observations that CIT (A) has not given finding to effect that excess remuneration was not incurred for business purpose of ITA 96/2020 Page 3 of 8 assessee. He submits that Tribunal has overlooked reasoning of CIT (A) for disallowance under Section 36(1)(ii) of Act, where it has been held that remuneration was to avoid payment of dividend and was not for genuine purposes. This reasoning for disallowance would also hold good for disallowing expenditure under head of excess expenditure . He further submits that Tribunal also overlooked fact that factual situation in AY 2009-10 were different from AY 2007-08 and 2008-09, where assesse had declared dividend. 11. We have given due consideration to contentions urged by Revenue. Tribunal has followed principle of consistency while allowing appeal of assessee. It has taken into account previous assessment orders and given benefit to assessee. relevant portions of order passed by ITAT which are extracted herein below: 13. We have considered rival arguments made by both sides, perused orders of authorities below and paper book filed on behalf of assessee. We have also considered various decisions cited before us. We find Assessing Officer in instant case invoking provisions of section 36(1)(ii) of IT Act, 1961, made addition of Rs.6,64,65,442/- to total income of assessee being amount of commission and exgratia paid to one of director Sh. Anshuman Magazine who is share holder of this company holding 24% share holding. According to Assessing Officer similar additions made in AY 2007-08 and 2008-09 were deleted by CIT(A) but department had not accepted same and matter is pending before Tribunal. He further held that in instant case no dividend has been declared by assessee company whereas it has paid salary and other allowances to its directors which also includes bonus / ex-gratia which is nothing but to reduce taxable income of assessee company and to avoid dividend ITA 96/2020 Page 4 of 8 distribution tax. We find Ld. CIT(A) distinguishing orders of his procedure and order of Tribunal upheld action of Assessing officer, reasons for which have already been reproduced in preceding paragraphs. We find facts of impugned assessment year are identical to facts of preceding as well as subsequent years. We find Tribunal in assessee's own case for A. Y. 2007-08, 2008-09 vide ITA No. 709/Del/2012 and 795/Del/2013 order dated 07.03.2016 has deleted such disallowances and revenue has not filed any appeal against order of Tribunal deleting such deletion. submission of ld. Counsel for assessee that in assessment year 2010-11, incentive of Rs.4,01,84,983/- and salary of Rs.1,15,28,400/- both totaling to Rs.5,29,68,983/- has been allowed in order passed u/s. 143 (3) could not be controverted by Ld. DR. Similarly submission of Ld. Counsel for assessee that Assessing Officer has allowed payment of Rs.6,84,08,003/- for A.Y. 2011-12, Rs.7,75,03,229/- for A.Y. 2012-13, Rs.8,02,22,620/- for A.Y. 2012-13 and Rs.8,44,07,484/- for A.Y. 2014-15 in order passed u/s 143(3) also could not be controverted by Ld. DR. Since commission paid to Sh. Anshuman Magazine, director of assessee company was deleted by CIT(A) in preceding years and order of Tribunal dismissing appeal filed by revenue has not been challenged by revenue in preceding two years and further considering fact that Assessing Officer in orders passed u/s. 143(3) for subsequent assessment years from 2010-11 to 2014-15 has allowed similar commission/ incentive, therefore, following rule of consistency, we are of considered opinion that no disallowance u/s. 36(1)(ii) of IT Act is called for in instant case. We, therefore, set aside order of CIT(A) on this issue and allow grounds of appeal No. 1 to 1.3 raised by assessee. 25. We have considered rival arguments made by both sides, perused orders of lower authorities and paper book filed on behalf of assessee. We have also considered ITA 96/2020 Page 5 of 8 various decisions cited before us. We find Assessing Officer made disallowance to Rs.7,77,69,909/- being excess remuneration paid to directors. We find Ld. CIT(A) upheld action of Assessing Officer, reason of which has already been reproduced in preceding paragraphs. It is submission of Ld. Counsel for assessee that in assessment year 2008-09 amount of Rs.6,47,27,888/- was disallowed u/s. 36(1)(ii) of IT Act, 1961 which included amount of excess remuneration of Rs.3,04.30,061. Therefore, again same amount cannot be brought to tax in impugned assessment year. We find merit in above argument of ld. Counsel for assessee. From details furnished by assessee, it is seen that amount of Rs.3,04,30,061/- was part of amount of Rs.6,47,27,888/- being amount of disallowance u/s. 36(1)(ii) of IT Act, 1961 for A. Y.2 008- 09. We, therefore, restore this part of disallowance to file of Assessing Officer for verification and if above amount was part of disallowance made u/s. 36(1)(ii) of IT Act, 1961 of Rs.4,47,27,888/- then it relates to A. Y. 2008-09 and cannot be disallowed during current year. Assessing Officer shall decide issue as per fact and law after giving due opportunity of being heard to assessee. We hold and direct accordingly. 26. So far as amount of Rs.4,73,39,848/- being excess. Remuneration paid to Sh. Anshuman Magazine is concerned, we find assessee has obtained approval of competent authority though on 18.07.2011 i.e. much after date on which such remuneration has been paid. In our opinion although approval has been obtained after date of payment, however it will relate back to year under consideration. Since approval was granted by competent authority vide letter dated 18.07.2011 for three financial at time i.e. financial year 2007-08, 2008-09 and 2009-10, therefore, it is wrong on part of Assessing Officer and CIT(A) to hold that remuneration is not allowable since approval has been obtained after payment of remuneration to concerned director. We further find that above amount was part of Rs.6,64,64,442/- which was disallowed by Assessing ITA 96/2020 Page 6 of 8 Officer u/s. 36(1)(ii). However, we have already deleted such disallowances. We find there is no finding of Assessing Officer and CIT(A) that expenditure incurred is not for purpose of business of assessee. We find similar expenditure has been allowed by Assessing Officer in preceding and succeeding assessment years. Further amount has already suffered to tax in hands of Sh. Anshuman Magazine. In view of above discussion we are of considered opinion that disallowance of Rs.4,73,39,848/- is not justified under facts and circumstances of case. We, therefore, set aside order of Ld. CIT(A) on this issue and direct Assessing Officer to delete addition. Ground No.2 to 2.3 are accordingly allowed for statistical purpose. 27. In result, appeal filed by assessee is allowed for statistical purpose. [Emphasis Supplied] 12. Taking note of identical claims in respect of incentive paid to Mr. Anshuman Magazine, Director of assessee-Company, which stood allowed for previous years, Tribunal has allowed claim of assesse. revenue has indeed accepted claim for preceding years as well as for subsequent years and therefore, incentive paid to Mr. Anshuman Magazine for AY 2004-05 onwards has been assessed as salary . We find no error in approach of Tribunal. 13. We also do not find any merit in contention of revenue that observations of Tribunal qua findings of Assessing Officer and CIT(A). Irrespective of observations of Tribunal, fact remains that reasoning of CIT (A) for disallowance under Section 36(1)(ii) of ITA 96/2020 Page 7 of 8 Act has been consistently rejected by Tribunal for previous years. identical expenditures stood allowed in preceding years as also in succeeding assessment years. We are also unable to find any cogent material that would indicate that expenditure was not for purpose of business of assessee. This factual background does not give rise to any substantial question of law for our consideration. 14. appeal stands dismissed. SANJEEV NARULA, J VIPIN SANGHI, J FEBRUARY 13, 2020 v ITA 96/2020 Page 8 of 8 Principal Commissioner of Income-tax, Delhi-2 v. MLS CBRE South Asia Private Limited
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