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TMI Blog2006 (9) TMI 303X X X X Extracts X X X X X X X X Extracts X X X X ..... rtners. It is engaged in the business of sales and service of Hero Honda Motorcycles, swaraj mazda buses, generator sets for the last fifteen years. In addition to the partners themselves, the other family members who are well-qualified were also associated with the firm as whole time employees, on which salary and incentives were paid to them as per work performed by them. During the course of assessment under section 143(3), the Assessing Officer disallowed part of the payment by invoking the provisions of section 40A(2) of the Income-tax Act, 1961 on the allegations that payment was excessive and unreasonable. With regard to payment of salary and incentive to Shri Amit Oberoi, it was submitted before the Assessing Officer that Shri Amit Oberoi was qualified engineer and also completed diploma in sales and marketing, he was looking after marketing of motorcycles and also workshop. Monika Oberoi was post-graduate and diploma holder in manufacturing technology, was working as customer satisfaction manager specifically for insurance claims, etc. Thus, she was looking after sales through finance from finance companies and was paid salary of Rs. 69,600. In respect of Shri Amit Oberoi, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eroi. With respect to sales linked incentive of Rs. 1,01,000 paid to Shri Ambuj Oberoi, the CIT (Appeals) found that incentive of Rs. 1,01,000 paid to Shri Ambuj Oberoi was inclusive of all expenses, such as local/outstanding travelling, sales assistance/conveyance etc. He further observed that sales of Swaraj Mazda vehicle and generator set have increased tremendously in the last three years because of the active contribution of Shri Ambuj Oberoi. A finding has also been recorded by the CIT (Appeals) to the effect that if the assessee-firm had to appoint a sales executive to visit the potential customers, it would have annually cost about Rs. 60,000 plus sales target incentive of Rs. 50,000 plus EPF, ESI, TA DA at the rate applicable from time to time, thus the total annual cost to the firm towards expenses incurred on the assessee s sales executive will certainly be higher than incentive paid to Mr. Ambuj Oberoi. As per CIT (Appeals), there was nothing on record to suggest that payment of Rs. 1,01,000 to Shri Ambuj Oberoi was excessive or non-genuine. 4. With regard to salary paid to Smt. Anita Oberoi, the CIT (Appeals) found that there is no dispute regarding genuinene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the year under consideration as compared to the earlier years. As per learned AR both Amit and Ambuj Oberoi was in higher tax bracket, therefore, there was no occasion for any reduction in the tax liability by paying salary and incentive to these persons for the services rendered by them. He further relied on the detailed findings of the learned CIT (Appeals) with regard to reasonableness of the payments made to the persons falling under section 40A(2)( b ) of the Act. 8. We have considered the rival contentions carefully gone through the order of the lower authorities and also deliberated on the case laws cited by learned DR and AR, and also referred by the learned Assessing Officer and the CIT (Appeals) in their respective orders, in the context of factual matrix of the case. As per our considered view, it is a trite law that so far as the question of commercial expediency and business needs of an organization is concerned, it is not the view of the revenue officer which would count, but it would be the view point of ordinary businessman dealing with a situation like one faced by the assessee-firm in question, is to be considered. The reasonableness of the expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment year, the assessee-firm has earned gross profit of Rs. 42,71,000 during the assessment year 2000-01, under consideration. 9. In respect of Shri Amit Oberoi, we found that after completing from Doon School, Dehradun, he qualified as a mechanical engineer and thereafter completed diploma in sales and marketing from National Institute of Sales. After having successfully completed said qualifications, he undertaken training programme with M/s. Hero Honda Motors Technical Shop Floor Training at Hero Honda Factory, Sales Marketing Programme at Delhi Hero Honda Office and Self Development Attitude Training in Delhi. On successfully completing the training programme Mr. Amit Oberoi was appointed by the assessee-firm in the capacity of Sales Marketing Manager to look after the marketing of Hero Honda motorcycles, as well as managing the Hero Honda Motorcycle Workshop in the year 1994. As a pre-condition of the appointment of Mr. Amit Oberoi as Sales Marketing Manager, Mr. Amit Oberoi had to necessarily attend the Sales Service meetings- cum -refresher training programmes conducted by M/s. Hero Honda Motors in the Northern Region from time to time and specially before t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the year under consideration, the sales of Swaraj Mazda vehicles has increased substantially, as also sales of generator sets. Total sales of these items has increased from Rs. 56.73 lakhs in the assessment year 2000-01 to Rs. 74.31 lakhs during the assessment year 2001-02 under consideration. Thus, we found a steady rise in the volume of sales and which has been made possible because of the efforts undertaken by Shri Ambuj Oberoi. Thus, the payment of incentive of Rs. 1,01,000 which is inclusive of all expenses such as local/outstanding travelling/sales assistance/helper/conveyance etc. was quite justified and reasonable. This income was also offered by Shri Ambuj Oberoi in his return of income and has been duly suffered tax. Considering otherwise also, if the assessee-firm had to appoint a sales executives to visit the potential customers, it would have initially costed Rs. 60,000 plus sales target incentive of about Rs. 50,000, in addition to liability on account of EPF, ESI, TA and DA at the rates applicable from time to time. Thus, the total annual opportunity cost of the assessee-firm towards expenses incurred on the sales executive will certainly be higher than the inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s much less compared to the salary being paid to other employees of the firm working under Smt. Anita Oberoi and as such the salary paid to her was neither excessive nor unreasonable. We also found that she was a regular tax payer and the salary income was duly taxed in her hands. 14. In view of the above, we can safely conclude that nothing was brought on record by the Assessing Officer in support of the contentions that payment of salary/incentive to the persons falling under section 40A(2)( b ) was excessive or unreasonable. Whereas on the contrary, we found that payments to these persons were as per commercial considerations and business needs of the assessee organization keeping in view the services rendered by these persons and the benefit received by the assessee-firm in the form of exorbitant increase in sales, gross profit and net profit of the business during the year under consideration. 14A. In the result, the appeal of the revenue is dismissed on the grounds raised in the appeal. 15. We have gone through the grounds of appeal filed by the Revenue and found that tax effect in the instant appeal is less than Rs. 2 lakhs. In view of C.B.D.T. Instruction No. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e revenue in that case was that Rs. 2 lakhs limit was increased by circular dated 27-3-2000 and prior to that, the limit was only Rs. 50,000 and the contention of the revenue was that the new limit would not be applicable to the old references. The High Court rejected the said contention of the revenue. In those circumstances, though the said High Court decision did not deal with the circular dated 24-10-2005, but it had dealt with the earlier circular and the limits of that circular were applied even to the cases which were prior to the old circular. Therefore, the ratio of that decision was applicable in the instant case as well. The CBDT has taken a policy decision not to file appeals in such type of cases and the circular is binding on the revenue even to appeals filed before 31-10-2005 and the department would not be justified in proceeding with those appeals within the monetary limit of tax effect prescribed in the circular dated 24-10-2005." 18. As per our considered view the instructions for not filing the appeals with regard to the quantum of revenue effect being less than particular amount have not been issued by the Central Board of Direct Taxes in a light hearted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of the provisions of the Act are under challenge, the appeals filed by the department should be dismissed. It was observed by ITAT Special Bench in the case of ITO v. Bir Engg. Works [2005] 94 ITD 164 (Asr.) that with a view to reduce the pendency of appeals in the Tribunal, High Court and Supreme Court and also to redress difficulties of small assessees in meeting cost of litigation, CBDT has been issuing various instructions to revenue officials prescribing the monetary limit for filing appeals before the above forums. Impugned Instruction No. 1979, dated 28-3-2000 was issued in suppression of all earlier instructions stipulating such limit of tax effect. 19. With regard to the binding nature of these instructions issued by the CBDT, on the Income-tax authorities, the provisions of section 119 of Income-tax Act are very much clear. On a plain reading of section 119, it is clear that sub-section (1) refers to orders, instructions and directions to the Income-tax authorities by the Board. The section itself provides that all such authorities and all other persons employed in the execution of this Act shall observe and follow such orders, instructions and directions of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstructions are binding on income-tax authorities. 20. ITAT, Hyderabad Bench in the case of Dy. CIT v. Nb. Syed Jaffar Ali Khan [2005] 1 SOT 691. Following was the observations and conclusions of the Co-ordinate Bench : "It is necessary to bear in mind that an expression which lacks clarity requires clarification but, in present case, the policy decision taken by the C.B.D.T. vide Instruction No. 1979 being very specific and explicit, it may not be proper to give a different view on the matter in the garb of clarification. If the C.B.D.T. is of the view that the earlier instructions contained an unintended error, it could have been withdrawn and fresh circular/instruction would have been issued, which is within the powers of C.B.D.T. under section 119 of the Act. However, in our considered opinion, the C.B.D.T. is not justified in interpreting an earlier Circular, issued under section 119 of the Act. As stated earlier, Instruction No. 1979 leaves no room for doubt as to what should be the monetary limit to be taken into consideration while filing an appeal by the revenue. From para 2 of the aforementioned instruction, it could be seen that following three points were st ..... X X X X Extracts X X X X X X X X Extracts X X X X
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