DCIT, New Delhi v. M/s. Cheviot Internation Ltd., New Delhi

ITA 2349/DEL/2010 | 2007-2008
Pronouncement Date: 20-07-2010 | Result: Dismissed

Appeal Details

RSA Number 234920114 RSA 2010
Assessee PAN AAACC0907H
Bench Delhi
Appeal Number ITA 2349/DEL/2010
Duration Of Justice 2 month(s) 2 day(s)
Appellant DCIT, New Delhi
Respondent M/s. Cheviot Internation Ltd., New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 20-07-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 20-07-2010
Date Of Final Hearing 20-07-2010
Next Hearing Date 20-07-2010
Assessment Year 2007-2008
Appeal Filed On 18-05-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B NEW DELHI BEFORE SHRI R.P. TOLANI AND SHRI SHAMIM YAHYA ITA NOS. 2382 & 2349/DEL/10 A.YRS. 2003-04 & 2007-08 DCIT CIR. 3(1) VS. M/S CHEVIOT INTERNATIONAL LT D. NEW DELHI. B-19/2 OKHLA PHASE-II NEW DELHI. PAN/ GIR NO. AAACC0907H ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : SHRI B. KISHORE B DR RESPONDENT BY : SHRI R.K. KAPOOR CA O R D E R PER R.P. TOLANI J.M : THESE APPEALS HAVE BEEN FILED BY THE REVENUE AGAIN ST SEPARATE ORDERS OF CIT(A) FOR ASSESSMENT YEARS 2003-04 & 2007-08. BOTH APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY A COMMON ORDE R FOR THE SAKE OF CONVENIENCE. ITA NO. 2382/DEL/2010 ( A.Y. 2003-04) : 2. FOR A.Y. 2003-04 REVENUES GRIEVANCE IS AS UNDE R: IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE DE CISION OF LD. CIT(A) DELETING PENALTY U/S 271(1)(C) OF THE ACT OF RS. 569625/- WITH REGARD TO QUANTUM ADDITION OF COMMISSION PAID TO DIRECTORS U/S 36(1)(II) OF THE ACT BY HOLDING THAT THE QUANTUM A DDITION UPON WHICH THIS PENALTY HAS BEEN IMPOSED HAS BEEN DELETE D BY THE ITAT IS NOT ACCEPTABLE. SINCE THE DECISION OF THE HONBL E ITAT IN THE QUANTUM ADDITION HAS BEEN CONTESTED BY THE DEPARTME NT THEREFORE FURTHER APPEAL AGAINST DELETION OF PENALTY U/S 271( 1)(C) IS RECOMMENDED. 3. LEARNED COUNSEL FOR THE ASSESSEE AT THE OUT SET CONTENDS THAT ADDITION MADE BY THE AO BASED ON WHICH THE AO LEVIED PENALTY IN QUESTION U/S 271(1)(C) HAS ITA 2382 & 2349/D/10 M/S CHEVIOT INTERNATIONAL LTD. 2 BEEN DELETED BY THE ITAT VIDE ITS ORDER DATED 24-4- 2009 IN QUANTUM APPEAL BEING ITA NO. 3863/DEL/07 AND THE CIT(A) FOLLOWING THE AFORESAID ORDER OF THE TRIBUNAL HAS DELETED THE PENALTY IN QUESTION. REVE NUE HAS PREFERRED PRESENT APPEAL BECAUSE TRIBUNALS ORDER HAS BEEN CONTESTED. HE SUBMITTED THAT SINCE THE VERY BASE FOR IMPOSING PENALTY HAS GONE THE CIT(A) HAS CORRECTLY DELETED THE PENALTY IN QUESTION. 4. LEARNED DR COULD NOT CONTROVERT THE AFORESAID FA CTUAL POSITION. HE HOWEVER SUBMITTED THAT THE REVENUE HAS NOT GIVEN U P ITS STAND. 5. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE ENTIRE MATERIAL AVAILABLE ON RECORD. SINCE THE QUANTUM ADDITION QUA WHICH TH E IMPUGNED PENALTY WAS LEVIED HAS BEEN DELETED BY THE TRIBUNAL THE CIT(A ) HAS RIGHTLY DELETED THE PENALTY IN QUESTION. ACCORDINGLY WE UPHOLD THE ORD ER OF CIT(A) DELETING THE PENALTY IN QUESTION. 6. REVENUES APPEAL IS DISMISSED. ITA NO. 2349/DEL/10 ( A.Y. 2007-08) : 7. FOR A.Y. 2007-08 REVENUE HAS RAISED FOLLOWING GR OUNDS OF APPEAL: 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 750000/- MADE BY THE AO ON ACCOUNT OF COMMISSION PAID TO DIR ECTOR OF THE COMPANY EVEN THOUGH IT WAS NOT AN ALLOWABLE EXPENDI TURE WITHIN THE MEANING OF SECTION 36(1)(II) OF THE I.T. ACT 1961. 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS BY ALLOWING THE DEPRECIAT ION @ 60% ON COMPUTER PERIPHERALS AND ACCESSORIES AMOUNTING TO R S. 20250/- AGAINST 15% ALLOWED BY THE AO SINCE THE IT RULES AL LOWS 60% DEPRECIATION ONLY ON COMPUTER AND COMPUTER SOFTWARE . 8. LEARNED COUNSEL FOR THE ASSESSEE IN RESPECT OF F IRST GROUND CONTENDS THAT CIT(A) HAS DELETED THE DISALLOWANCE MADE BY AO U/S 36(1)(II) RELYING ON TRIBUNALS ORDER IN ASSESSEES OWN CASE FOR A.Y. 20 03-04 BY FOLLOWING OBSERVATIONS: ITA 2382 & 2349/D/10 M/S CHEVIOT INTERNATIONAL LTD. 3 ON CAREFUL CONSIDERATION I FIND THAT THE ISSUE IS DECIDED IN FAVOUR OF THE APPELLANT BY THE DECISION OF HONBLE ITAT FO R ASSESSMENT YEAR 2003-04 IN ASSESSEES OWN CASE. RESPECTFULLY F OLLOWING THE SAME THE ADDITION IS DIRECTED TO BE DELETED. 8.1. LEARNED COUNSEL HAS ALSO FILED A COPY OF TRIBU NALS ORDER DATED 24-4-2009 RENDERED IN ITA NO. 3863/DEL/07 IN ASSESSEES OWN CASE FOR A.Y. 2003-04 WHEREIN THE ITAT HAS DELETED DISALLOWANCE MADE U/S 36(1)(II) WITH FOLLOWING OBSERVATIONS: 9. WE FIND THAT BOTH THE ABOVE REASONS ARE NOT TEN ABLE ON FACTS AND AS PER LAW. AS PER TERMS OF EMPLOYMENT THESE TWO D IRECTORS WERE ENTITLED TO MONTHLY REMUNERATION AS WELL AS COMMISS ION. THE COMMISSION PAYABLE WAS REQUIRED TO BE APPROVED BY T HE BOARD OF DIRECTORS. IN TERMS OF RESOLUTION PASSED BY THE BOA RD OF DIRECTORS CONSIDERING THE GROWTH IN SALES AND PROFIT THE DIR ECTOR DECIDED TO PAY COMMISSION TO THESE TWO DIRECTORS. THE REMUNERA TION PAYABLE WAS HELD AS ALLOWABLE BUSINESS EXPENSES AND IN RESP ECT OF WHICH THERE IS NO DISPUTE. THEREFORE THERE IS NO DISPUTE REGARDING RENDERING OF THE SERVICES BY THESE TWO DIRECTORS. W HAT IS THE REMUNERATION PAYABLE FOR SUCH SERVICES WAS DECIDED BY THE BOARD OF DIRECTORS AND HENCE IN TERMS OF RESOLUTION THESE TWO DIRECTORS WERE ENTITLED TO RECEIVE REMUNERATION. ACCORDINGLY IT C ANNOT BE SAID THAT THERE IS NOT EVIDENCE REGARDING THE NATURE OF SERVI CES RENDERED BY THESE TWO DIRECTORS. THE NATURE OF SERVICES RENDER ED BY THESE TWO DIRECTORS IS THE SAME DUE TO WHICH THEY BECAME ENTI TLED TO RECEIVE REMUNERATION. AS PER SECTION 17(1) OF THE ACT THE TERM SALARY INCLUDES ANY FEES COMMISSION PERQUISITES OR PROFI T IN LIEU OF SALARY. ALL THE SUMS ARE TAXABLE UNDER THE HEAD SALARY ON LY. THESE TWO DIRECTORS WHILE FILING THE RETURN OF INCOME DECLA RED NOT ONLY THE SALARY BUT COMMISSION ALSO AS PART OF INCOME UNDER THE HEAD SALARY. THE SAME ARE ASSESSED AS SUCH. THEREFORE IT IS INCORRECT TO HOLD THAT BONUS OR COMMISSION SHALL NOT FORM PART OF SALARY OR REMUNERATION. IN ACCORDANCE WITH THE PROVISIONS OF SECTION 36(1)(II) ANY SUM PAID TO AN EMPLOYEE AS BONUS OR COMMISSION FOR SERVICES RENDERED WHERE SUCH SUM WOULD NOT HAVE BEEN PAYABLE TO HIM AS PROFIT OR DIVIDEND IF IT HAD NOT BEEN PAID AS BONUS OR COMMISSION IS ALLOWABLE. THE SUM PAID TO THE DIRECTORS IS AS AN E MPLOYEE OF THE COMPANY. THE BONUS OR COMMISSION IS PAYABLE FOR THE SERVICES RENDERED AND ARE IN ACCORDANCE WITH THE TERMS OF EM PLOYMENT. THE DIRECTORS ARE NOT ONLY SHAREHOLDERS OF THE COMPANY. OUT OF THE TOTAL SHARE CAPITAL OF RS. 73 50 000/- MRS. MALATI KANOD IA HOLDS SHARE ITA 2382 & 2349/D/10 M/S CHEVIOT INTERNATIONAL LTD. 4 WORTH RS. 15 02 000/- ONLY. SHRI RAJEEV BOHRA IS NO T EVEN A SHAREHOLDER. THEREFORE IT CANNOT BE SAID THAT IF T HE COMMISSION WAS NOT PAID SUCH SUM WOULD HAVE BEEN PAID TO THE EMPL OYEES AS PROFIT OR DIVIDEND. THUS THE EXCEPTION PROVIDED IN SECTIO N 36(1)(II) DO NOT APPLY. IN SUCH CIRCUMSTANCES THE AMOUNT PAYABLE AS COMMISSION ARE ALLOWABLE U/S 36(1)(II) OF THE ACT. WE THEREFORE DELETE THE DISALLOWANCE OF RS. 15.50 LAKHS. 8.2. THIS FACT WAS BROUGHT TO THE NOTICE OF AO ALSO . FACTS AND CIRCUMSTANCES ABOUT PAYMENT OF COMMISSION AND THE MANAGING DIRECT OR BEING SAME ORDER OF CIT(A) SHOULD BE UPHELD. IT WAS FURTHER PLEADED THA T AO HAS NEITHER DOUBTED THE GENUINENESS OF SERVICES NOR EXTENT OF PAYMENT. 8.3. APROPOS GROUND NO. 2 LEARNED COUNSEL CONTENDS THAT CIT(A) HAS ALLOWED THE DEPRECIATION @ 60% ON COMPUTER ACCESSORIES AND PERIPHERALS BY FOLLOWING OBSERVATIONS: 3.1. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE HAS CLAIMED DEPRECIATION @ 60% ON COMPUTERS INCLUDING COMPUTER ACCESSORIES AND PERIPHERALS. THE AO WAS OF THE VIEW THAT ONLY T HE COMPUTER AND COMPUTER SOFTWARE ARE ELIGIBLE FOR DEPRECIATION @ 6 0% AND THE SAME CANNOT BE EXTENDED TO COMPUTER ACCESSORIES AND PERI PHERALS. HE THEREFORE RESTRICTED THE DEPRECIATION @ 15% THERE BY MAKING AN ADDITION OF RS. 20 250/-. 3.2. DURING THE PROCEEDINGS BEFORE ME IT WAS SUBM ITTED THAT THE COMPUTER ACCESSORIES ARE INTEGRAL PART OF THE COMPU TER AND HENCE DEPRECIATION IS ALLOWABLE @ 60%. RELIANCE WAS PLACE D ON THE DECISION OF HONBLE DELHI ITAT IN CASE OF ACIT V. C ONTAINER CORPORATION OF INDIA LTD. IN ITA NO. 2851 AND 3680/ DEL/2007. 3.3. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF LD. AR AND HAVE GONE THROUGH THE OBSERVATIONS OF THE ASSESSING OFFICER. IN LIGHT OF THE DECISION OF HONBLE DELHI ITAT CITED BY LD. AR AND ALSO IN LIGHT OF THE DECISION OF HONBLE KOLKATA ITAT IN TH E CASE OF ITO VS. SAMIRAN MAJUMDAR 98 ITD 119 I HOLD THAT THE COMPUT ER ACCESSORIES AND PERIPHERALS ARE INTEGRAL PART OF THE COMPUTER A ND DEPRECIATION IS ALLOWABLE @ 60%. THE ADDITION MADE BY THE ASSESSING OFFICER IS THEREFORE DIRECTED TO BE DELETED. ITA 2382 & 2349/D/10 M/S CHEVIOT INTERNATIONAL LTD. 5 8.4. IT WAS PLEADED THAT CIT(A) HAS RIGHTLY HELD TH AT COMPUTER ACCESSORIES AND PERIPHERALS ARE ELIGIBLE FOR DEPRECIATION @ 60%. O RDER OF CIT(A) WAS RELIED ON. 9. THE LEARNED DR ON THE OTHER HAND RELIED ON THE ORDER OF CIT(A). 10. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE ENTIRE MATERIAL AVAILABLE ON RECORD. APROPOS DISALLOWANCE OF DIRECTORS COMM ISSION U/S 36(1)(II) WE FIND NO INFIRMITY IN THE ORDER OF CIT(A) WHO IN TURN HA S RELIED ON TRIBUNALS ORDER IN ASSESSEES OWN CASE FOR A.Y. 2002-03 (SUPRA). FACTS AND CIRCUMSTANCES BEING SAME WE SEE NO INFIRMITY IN THE ORDER OF CIT(A) W HICH IS UPHELD. THIS GROUND IS DISMISSED. 11. APROPOS GROUND NO. 2 ALSO WE FIND THAT AMOUNT I N QUESTION HAS BEEN SPENT BY ASSESSEE IN VARIOUS PARTS OF COMPUTER ACCESSORIE S. CIT(A) WHILE ALLOWING RELIEF HAS RELIED ON ABOVE TRIBUNALS DECISIONS. WE UPHOLD HIS ORDER. THIS GROUND IS ALSO DISMISSED. 12. IN THE RESULT BOTH THE APPEALS FILED BY THE RE VENUE ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 20-7-2010. SD/- SD/- (SHAMIM YAHYA ) ( R.P. TOLAN I ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 20-7- 2010. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR ITA 2382 & 2349/D/10 M/S CHEVIOT INTERNATIONAL LTD. 6 ITA 2382 & 2349/D/10 M/S CHEVIOT INTERNATIONAL LTD. 7