Tata McGraw Hill Education Private Limited.,, New Delhi v. ACIT, New Delhi

ITA 4264/DEL/2009 | 2006-2007
Pronouncement Date: 12-02-2010 | Result: Allowed

Appeal Details

RSA Number 426420114 RSA 2009
Assessee PAN AAACT0179L
Bench Delhi
Appeal Number ITA 4264/DEL/2009
Duration Of Justice 3 month(s) 7 day(s)
Appellant Tata McGraw Hill Education Private Limited.,, New Delhi
Respondent ACIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 12-02-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted H
Tribunal Order Date 12-02-2010
Date Of Final Hearing 04-02-2010
Next Hearing Date 04-02-2010
Assessment Year 2006-2007
Appeal Filed On 04-11-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH H NEW DELHI) BEFORE SHRI R.P. TOLANI JUDICIAL MEMBER AND SHRI A.K. GARODIA ACCOUNTANT MEMBER I.T.A. NO.4264 /DEL/2009 (ASSESSMENT YEAR : 2006-07) TATA MCGRAW HILL EDUCATION PVT. LTD. VS. ACIT RA NGE 16 (FORMERLY KNOWN AS MCGRAW-HILL NEW DELHI. EDUCATION (INDIA) PVT. LTD. 7 WEST PATEL NAGAR NEW DELHI. (PAN/GIR NO.AAACT0179L) (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. LALITHA KRISHNAMURTHY CA RESPONDENT BY : SHRI B. KISHORE SR.DR ORDER PER A.K. GARODIA AM : THIS IS AN ASSESSEES APPEAL DIRECTED AGAINST THE ORDER OF THE CIT(A)-XIX NEW DELHI DATED 01.09.2009 FOR AY 2006-07. GROUND NO.1 OF THE APPEAL READS AS UNDER: THAT THE LD.CIT(A) HAD ERRED IN SUSTAINING THE DIS ALLOWANCE OF COMMISSION OF RS.300 000 (RUPEES THREE HINDERED THOUSAND) PAYABL E TO THE NON WHOLE TIME DIRECTORS OF THE COMPANY. 2. THE BRIEF FACTS ARE THAT IT IS NOTED BY THE AO I N THE ASSESSMENT ORDER THAT THE ASSESSEE HAS DEBITED A SUM OF RS.3 LAKH AS DIRECTOR S COMMISSION UNDER THE HEAD OPERATING AND OTHER EXPENSES. THE AO ASKED THE A SSESSEE TO EXPLAIN THE SAME. IN REPLY IT WAS SUBMITTED BY THE ASSESSEE BEFORE THE AO THAT DURING THE YEAR UNDER CONSIDERATION A REMUNERATION BY WAY OF COMMISSION AMOUNTING TO RS.3 LAKH WAS PROPOSED FOR FIVE NON-WHOLE TIME DIRECTORS AND THIS COMMISSION WAS PROPOSED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 309(4) OF THE COMPANIES ACT 1956 FOR THE SERVICES RENDERED BY THESE DIRECTORS. REGARDING TH E NATURE OF SURPLUS IT WAS SUBMITTED THAT THE SERVICES RENDERED INCLUDED REGULAR CUSTOME RS FOLLOW-UP INPUTS ON CERTAIN 2 STRATEGY DECISIONS ETC. THE ASSESSEE ALSO FURNISHE D THE RESOLUTIONS PASSED IN THE BOARD MEETING AND GENERAL MEETING OF THE MEMBERS OF ASSES SEE COMPANY. THE AO HAS STATED THAT THE CONTENTION PUT FORTH BY THE ASSESSEE IS NO T ACCEPTABLE BECAUSE THE ASSESSEE HAS DEBITED THIS AMOUNT AS AN EXPENSE UNDER THE OPERAT ING AND OTHER EXPENSES AND HAS NOT MADE ANY PROVISION FOR THE SAME. IT IS FURTHER STA TED BY THE AO THAT THE ASSESSEE FOLLOWS THE MERCANTILE SYSTEM OF ACCOUNTING AND THE DIRECTO RS MUST HAVE INCORPORATED THIS INCOME WHILE FILING THEIR RETURN AND THEREFORE THE ASSES SEES CONTENTION THAT THIS AMOUNT IS AN ACCRUED LIABILITY AND CRYSTALLIZED DOES NOT ENTITL E THE ASSESSEE TO MAKE THIS CLAIM UNDER THE PROVISIONS OF SECTION 37 OF THE I.T. ACT. IT I S ALSO STATED BY THE AO THAT THE ASSESSEES LD.AR DURING THE ASSESSMENT PROCEEDINGS COULD NOT B E ABLE TO SHOW THE SERVICES RENDERED BY THESE DIRECTORS OF THE COMPANY IN LIEU OF WHICH THE COMMISSION HAS BEEN PAID TO THEM. THE AO DISALLOWED THE SAME. BEING A GGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT SUC CESS AND NOW THE ASSESSEES IS IN FURTHER APPEAL BEFORE US. 3. IT IS SUBMITTED BY THE LD.AR OF THE ASSESSEE THA T THE REMUNERATION WAS PAID AS PER THE RESOLUTION PASSED IN MEETING OF THE SHAREHOLDER S OF THE ASSESSEE COMPANY ON 15.3.2001 FOR A PERIOD OF 5 YEARS AND THE SAME IS A S PER THE PROVISION OF SECTION 309 OF THE COMPANIES ACT 1956. HE SUBMITTED A COPY OF RE SOLUTION PASSED IN THE GENERAL MEETING OF THE ASSESSEE COMPANY. HE ALSO FURNISHED THE RELEVANT PROVISIONS OF COMPANIES ACT AND IT IS POINTED OUT THAT AS PER CL AUSE (B) OF SUB-SECTION (4) OF SECTION 309 OF COMPANYS ACT 1956 REMUNERATION CAN BE PAI D TO A DIRECTOR WHO IS NEITHER IN THE WHOLE TIME EMPLOYMENT OF THE COMPANY NOR IS A MANAG ING DIRECTOR BY WAY OF COMMISSION IF THE COMPANY BY SPECIAL RESOLUTION AUT HORIZES SUCH PAYMENT AND THE RESTRICTION IS THAT TOTAL REMUNERATION PAID TO SUCH DIRECTORS SHOULD NOT EXCEED 1% OF THE NET PROFIT OF THE COMPANY IF THE COMPANY HAS A MANA GING OR WHOLE-TIME DIRECTOR OR MANAGER. IT IS ALSO SUBMITTED THAT AS PER THE WORK ING OF COMMISSION IN ACCORDANCE WITH SECTION 349 OF THE COMPANIES ACT 1956 1% COMMISSI ON IS WORKED OUT AT RS.19.06 LAKH BUT PAYMENT OF COMMISSION IS RESTRICTED TO RS.3 LAK H AS PER THE APPROVAL OF THE SHAREHOLDER IN GENERAL MEETING. IT WAS SUBMITTED T HAT IN VIEW OF THESE PROVISIONS OF COMPANIES ACT 1956 AND THE RESOLUTIONS OF THE BOAR D MEETING AND GENERAL MEETING OF THE ASSESSEE COMPANY THE AUTHORITIES BELOW ERE NOT JUSTIFIED IN DISALLOWING THIS PAYMENT 3 OF REMUNERATION TO NON-WHOLE TIME DIRECTORS. IT IS ALSO SUBMITTED THAT IN ALL EARLIER YEARS ALSO SIMILAR AMOUNT WAS DEBITED BY THE ASSESSEE TO THE P&L A/C AND THE SAME WAS ALLOWED BY THE DEPARTMENT. SHE SUBMITTED A COPY OF ASSESSMENT ORDER FOR AY 2002-03 AND POINTED OUT THAT ALTHOUGH IN THAT YEAR THE ASS ESSMENT WAS COMPLETED BY THE AO U/S 143(3) BUT THERE WAS NO DISALLOWANCE ON THIS ASPEC T. 4. AS AGAINST THIS LD.DR OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. IT WAS ALSO HIS SUBMISSION THAT EVEN IF THE RE WAS NO DISALLOWANCE IN EARLIER YERS THE DISALLOWANCE CAN BE MADE IN THE PRESENT YEAR I F IT IS FOUND ON CLOSER SCRUTINY THAT THE EXPENSES ARE NOT ALLOWABLE. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS PERUSE D THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BEL OW. WE FIND THAT THIS DISALLOWANCE WAS MADE BY THE AO ON THE BASIS THAT THE ASSESSEE COULD NOT SHOW THE SERVICES RENDERED BY THESE DIRECTORS TO THE COMPANY IN LIEU OF WHICH THE COMMISSION HAS BEEN PAID TO THEM. ONE MORE OBJECTION OF THE AO IS THAT THE ASSESSEE F OLLOWS THE MERCANTILE SYSTEM OF ACCOUNTING AND THE ASSESSEE COULD NOT SATISFY THE A O THAT THIS AMOUNT IS AN ACCRUED LIABILITY AND CRYSTALLIZED DURING THIS YEAR. WE AR E NOT IN AGREEMENT WITH THE AUTHORITIES BELOW ON BOTH THE ASPECTS. REGARDING THE SERVICES RENDERED BY THESE DIRECTORS WE FIND THAT IT WAS SUBMITTED BY THE ASSESSEE BEFORE THE AO THAT THE SERVICES RENDERED BY THESE DIRECTORS INCLUDE REGULAR CUSTOMERS FOLLOW-UP AND I NPUTS ON CERTAIN STRATEGY DECISIONS. MOREOVER SUCH PAYMENT OF REMUNERATION IN THE FORM OF COMMISSION TO THESE DIRECTORS IS IN ACCORDANCE WITH THE PROVISIONS OF SECTION 309 OF THE COMPANIES ACT 1956 AND THE SAME WAS DULLY AUTHORIZED BY THE SHAREHOLDERS IN A GENERAL MEETING AND HENCE IT CANNOT BE SAID THAT REMUNERATION WAS PAID TO THESE DIRECTO RS WITHOUT ANY SERVICES BEING RENDERED BY THEM. REGARDING THE SECOND ASPECT AS TO WHETHER THE EXPENSES HAS ACCRUED IN THIS YEAR OR NOT WE FIND THAT AS PER THE WORKING GIVEN IN TH E AUDITED ACCOUNTS BASED ON THE PROFITS OF THE PRESENT YEAR 1% COMMISSION HAS BEEN WORKED OUT AT RS.19.06 LAKHS BUT THE PAYMENT OF COMMISSION HAS BEEN RESTRICTED TO RS.3 L AKHS AS PER THE SHAREHOLDERS APPROVAL. IN VIEW OF THESE FACTS WE ARE NOT IN AG REEMENT WITH THE AO THAT LIABILITY HAS NOT ACCRUED. CONSIDERING ALL THESE FACTS WE ARE O F THE CONSIDERED OPINION THAT NO DISALLOWANCE IS CALLED FOR ON ACCOUNT OF SUCH COMMI SSION PAYMENT TO NON-WHOLE TIME 4 DIRECTORS AND WE THEREFORE DELETE THE SAME. REGA RDING THE CONTENTION OF THE LD.DR OF THE REVENUE THAT THE ASSESSEE CANNOT GET SHELTER OF PRINCIPLES OF CONSISTENCY WE WOULD LIKE TO POINT OUT THAT WE ARE NOT ALLOWING THIS DED UCTION ON THIS BASIS THAT BECAUSE THERE WAS NO DISALLOWANCE IN EARLIER YEARS THERE CAN BE NO DISALLOWANCE IN THE PRESENT YEAR. INSTEAD OF THIS WE HAVE FOUND THAT AS PER THE LAW AND THE FACTS OF THE CASE NO DISALLOWANCE IS CALLED FOR. GROUND NO.1 OF THE ASS ESSEE IS ALLOWED. 6. GROUND NO.2 OF THE APPEAL READS AS UNDER: THAT THE LD.CIT(A) HAD ERRED IN SUSTAINING THE DIS ALLOWANCE OF COMMISSION OF RS.892 454 (RUPEES EIGHT HUNDRED NINETY TWO THOUSA ND FOUR HUNDRED FIFTY FOUR) WRITTEN OFF AS A BAD DEBT IN THE PROFIT AND LOSS AC COUNT OF THE COMPANY. 7. BRIEF FACTS ARE THAT IT IS NOTED BY THE AO IN TH E ASSESSMENT ORDER THAT THE ASSESSEE HAS WRITTEN OFF BAD DEBTS AMOUNTING TO RS.892454. THE AO ASKED THE ASSESSEE AS TO WHY AND HOW THESE DEBTS HAVE BECOME BAD. IN REPLY IT WAS SUBMITTED BY THE ASSESSEE BEFORE THE AO THAT THE BAD DEBTS WERE WRITTEN OFF IN RESPE CT OF A DISTRIBUTOR NAMED A.H. WHEELER AND CO. PVT. LTD. BASED IN ALLAHABAD WHO HA S SUFFERED HUGE LOSSES IN BUSINESS. IT WAS ALSO SUBMITTED THAT THE ASSESSEE COMPANY HAS FILED A LEGAL SUIT WITH THE HONBLE HIGH COURT OF DELHI AGAINST THE DISTRIBUTOR TO RECO VER AMOUNT OF RS.64.88 LAKHS WHICH WAS DUE FROM THIS PARTY. IT WAS ALSO SUBMITTED THA T CONSIDERING THE FINANCIAL STATUS OF THE DISTRIBUTOR THE COMPANY AGREED FOR A OUT OF COURT SETTLEMENT AND DECIDED TO WAIVE OFF RS.892454. THE AO WAS NOT SATISFIED. IT WAS HIS O BSERVATION THAT AT ONE POINT THE LD.AR STATED THAT THE COMPANY HAD FILED A LEGAL SUI T AND ON THE OTHER HAND HE STATED THAT THE COMPANY COMPROMISED IN OUT OF COURT SETTLEMENT. AS PER THE AO BOTH THE THINGS DO NOT GO SIMULTANEOUSLY AND BY MAKING THESE OBSERVATI ONS THE AO DISALLOWED THE CLAIM OF THE ASSESSEE. BEING AGGRIEVED THE ASSESSEE CARRIE D THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT SUCCESS AND NOW THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 8. IT WAS SUBMITTED BY THE LD.AR OF THE ASSESSEE TH AT SINCE THE BAD DEBTS WERE WRITTEN OFF DEDUCTION HAS TO BE ALLOWED BECAUSE AF TER THE AMENDMENT OF SECTION 36(1)(VII) THERE IS NO REQUIREMENT TO PROVE AS TO HOW AND WHEN THE DEBTS HAVE BECOME BAD. LD.DR OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 5 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BEL OW. NOW THIS IS A SETTLED POSITION OF LAW THAT IF THE BAD DEBTS HAVE BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNT DEDUCTION HAS TO BE ALLOWED TO THE ASSESSEE WITHOUT ASKING THE ASSES SEE TO SHOW AS TO HOW AND WHEN THE DEBTS HAVE BECOME BAD. IN THE PRESENT CASE WE FIN D THAT UNDER THE HEAD OPERATING AND OTHER EXPENSES THE ASSESSEE HAS DEBITED THIS AMOUN T OF RS.892454 TOWARDS BAD DEBTS AND IN ADDITION TO THIS THE ASSESSEE HAS ALSO DEBITED PROVISION FOR DOUBTFUL DEBTS TO THE EXTENT OF RS.211.19 LAKH. THIS GOES TO SHOW THAT THIS IMP UGNED AMOUNT OF RS.892454 IS NOT ON ACCOUNT OF PROVISION OF BAD DEBTS AND DEFINITELY IT REPRESENTS BAD DEBTS WRITTEN OFF. HENCE WE DO NOT FIND ANY REASON TO DISALLOW THE SA ME AS WE ARE OF THE CONSIDERED OPINION THAT THE CLAIM OF THE ASSESSEE HAS TO BE AL LOWED SINCE THE BAD DEBTS WERE WRITTEN OFF IN THE PRESENT YEAR. WE THEREFORE ALLOW THE S AME AND THE DISALLOWANCE IS DELETED. GROUND NO.2 OF THE ASSESSEE IS ALLOWED. 10. GROUND NOS.3 & 4 OF THE APPEAL READ AS UNDER: 3. THAT THE DISALLOWANCE OUT OF TRAVELING TO THE EXTENT OF RS.50 000 (FIFTY THOUSAND) SUSTAINED BY THE LD.CIT(A) IS ARBITRARY UNJUSTIFIED UNWARRANTED AND THE DISALLOWANCE SUSTAINED DESERVES TO BE DELET ED. 4. THAT THE DISALLOWANCE OUT OF COMMUNICATION COST TO EXTENT OF RS.50 000 (FIFTY THOUSAND) SUSTAINED BY THE LD.CIT(A) IS ARBI TRARY UNJUSTIFIED UNWARRANTED AND THE DISALLOWANCE SUSTAINED DESERVES TO BE DELETED. 11. BRIEF FACTS ARE THAT IT IS NOTED BY THE AO THAT THE ASSESSEE HAS INCURRED A SUM OF RS.188.13 LAKH TOWARDS TRAVELING AND CONVEYANCE. T HE AO HAS STATED THAT EXAMINATION OF THE DETAILS AND ITS VERIFICATION FROM THE BOOKS OF ACCOUNT REVEALS THAT COME OF THE BILLS/VOUCHERS ARE OF UNVERIFIABLE NATURE AND THE T RAVELING HAS NOT BEEN DONE FOR THE PURPOSE OF BUSINESS. BY MAKING THESE OBSERVATIONS HE DISALLOWED AN AMOUNT OF RS.1 LAKH ON AD HOC BASIS. IT IS ALSO NOTED BY HIM THAT THE ASSESSEE HAS INCURRED RS.55.49 LAKHS UNDER THE HEAD COMMUNICATION COST. THE AO HAS ST ATED THAT PERSONAL USE OF THE TELEPHONE BY THE DIRECTORS CANNOT BE RULED OUT. BY MAKING THESE OBSERVATIONS HE DISALLOWED A SUM OF RS.1 LAKH OUT OF COMMUNICATION COST EXPENSES ALSO. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEA L BEFORE LD.CIT(A). AGAINST BOTH THESE ALLOWANCES CIT(A) HAS RESTRICTED THE DISALLO WANCE UNDER BOTH THE HEADS TO THE 6 EXTENT OF RS.50 000/- EACH. NOW THE ASSESSEE IS IN APPEAL BEFORE US AGAINST PART DISALLOWANCE CONFIRMED BY THE CIT(A) UNDER BOTH THE SE HEADS. 12. IT IS SUBMITTED BY THE LD.AR OF THE ASSESSEE TH AT DISALLOWANCE HAS BEEN MADE BY THE AO ON AD HOC BASIS WITHOUT POINTING OUT EVEN A SINGLE INSTANCE OF ANY VOUCHER REGARDING TRAVELING EXPENSES WHICH IS OF UNVERIFIAB LE NATURE OR ANY TRAVELING INSTANCE WHICH IS NOT FOR BUSINESS PURPOSE. SIMILARLY REGA RDING THE DISALLOWANCE OUT OF TELEPHONE EXPENSES IT WAS SUBMITTED BY HER THAT IN CASE OF A COMPANY THERE CANNOT BE ANY DISALLOWANCE ON THE BASIS THAT THE EXPENSES IS OF A PERSONAL NATURE BECAUSE COMPANY IS AN ARTIFICIAL JUDICIAL PRONOUNCEMENT AS HELD IN NUMBER OF DECISIONS. IT WAS ALSO SUBMITTED THAT EVEN IF SOME BENEFIT ACCRUES TO DIRECTORS THE SAME CANNOT BE A GROUND FOR DISALLOWANCE OF EXPENSES. LD.DR OF THE REVENUE SUP PORTED THE ORDERS OF THE AUTHORITIES BELOW. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND WE FIND THAT BOTH THE DISALLOWANCES MADE BY THE AO DESERVES TO BE DELETED. REGARDING D ISALLOWANCE OUT OF TRAVELING EXPENSES WE FIND THAT THE AO HAS MADE A GENERAL OB SERVATION WITHOUT POINTING OUT EVEN A SINGLE INSTANCE WHERE THE VOUCHERS ARE NOT VERIFI ABLE OR TRAVELING IS NOT FOR BUSINESS PURPOSE AND HENCE NO DISALLOWANCE CAN BE MADE OUT O F TRAVELING EXPENSES ON AD HOC BASIS. SIMILARLY REGARDING DISALLOWANCE OUT OF TE LEPHONE EXPENSES THE ONLY BASIS OF THE AO IS THAT THERE CAN BE SOME PERSONAL USE OF TELEPH ONE BY THE DIRECTORS. EVEN IF THAT IS SO IT CANNOT BE BASIS TO DISALLOW THE EXPENSES BEC AUSE USE OF TELEPHONE BY THE DIRECTORS FOR THE PERSONAL PURPOSE CAN BE A PERQUISITE IN THE HANDS OF THE DIRECTORS BUT FOR THE ASSESSEE COMPANY IT IS A BUSINESS EXPENSES AND HEN CE IN THE CASE OF THE COMPANY NO DISALLOWANCE CAN BE MADE ON THE BASIS THAT THERE WA S SOME PERSONAL USE OF THE TELEPHONE BY THE DIRECTORS. WE THEREFORE DELETE BOTH THESE DISALLOWANCES. 14. IN THE RESULT THE APPEAL OF THE ASSESSEE STAND S ALLOWED. 15. ORDER PRONOUNCED IN OPEN COURT ON 12.02.2010. SD/- SD/- (R.P. TOLANI) (A.K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER DELHI DATED : FEBRUARY 12 2010 SKB 7 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XIX NEW DELHI. 5.CIT(ITAT) NEW DELHI. AR/ITAT