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TMI Blog2014 (7) TMI 1195X X X X Extracts X X X X X X X X Extracts X X X X ..... and facts on the filed in as much as he was not justified to uphold the action of the learned DCIT, Cir5(1), new Delhi in making a disallowance of Rs. 63,04,151/- on account of interest paid being allegedly excessive and unreasonable by applying the provisions of Section 40A(2)(b) of the Income-tax Act, 1961. 3. That the order dated 08.02.2013 passed u/s 250 of the Income Tax Act, 1961 by the learned Commissioner of Income-Tax (Appeals) VIII, New Delhi is against law and facts on the filed in as much as he was not justified to uphold the action of the leaned DCIT, Cir5(1), New Delhi in making a disallowance of Rs. 1,99,324/- on account of Depreciation claimed by the Appellant company on the assets on the ground that either bills for purchase of assets were not provided on the bills did not mention the Appellant's name. 4. That the order dated 08.02.2013 passed u/s 250 of the Income Tax Act, 1961 by the learned Commissioner of Income-Tax (Appeals)VIII, new Delhi against law and facts on the file in as much as he was not justified to uphold the action of the learned DCIT, Cir 5(1), new Delhi in making a disallowance of a sum of Rs. 19,18,699/- on account of Addl Depreciati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owever no dividend has been proposed or distributed amongst the share holders which also includes directors of the company. Thus it is clear that in case of directors of the company, the sum paid as commission and bonus could have been paid as profit or dividend which is not the case here. (viii) The assessee company could have paid the amount as Profit/ Dividend instead of Bonus/Commission since the payment is being made to shareholders of the company. (ix) However in the instant case 'No Dividend' has been declared by the assessee company. The assessee has submitted that the bonus paid to the directors/ shareholders are as per the contract of appointment approved by the share holders of the company. However, the approval of the share holders does not make any expenditure/payment sacrosanct and allowable. The income of the assessee has to be arrived at on the basis of provisions of the 1, T. Act. and more specifically in this case the provisions of section 36(1)(U} does not support the stand of the assessee. (x) The Hon'ble Bombay High Court in the case of Loyal Motor Service Co. Ltd. vs. ClT (1946), 14 ETR 647 has held as under:- "The restriction that such Bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... managing director and in terms of the board resolution was entitled to receive commission for services rendered to the company. It was a term of employment on the basis of which he had rendered service. Accordingly, he was entitled to the amount. Commission was treated as a part and parcel of salary and tax had been deducted at source. A was liable to pay tax on both the salary component and the commission. The payment of dividend was made in terms of the Companies Act, 1956. The dividend had to be paid to alI shareholders equally. This position could not be disputed by the Revenue. Dividend was a return on investment and not salary or part thereof" 7. We find that the facts of the qassessee's case are almost identical in the case under appeal before us also, Shri Raj Kumar Bardeja was the Managing Director of the assessee company who had been paid salary and commission in terms of Board's Resolution. Copy of the Board's Resolution is placed before us in the paper book. The commission was treated as part and parcel of the salary by the assessee company as well as Shri Raj Kumar Bardeja. The assessee has deducted the tax at source under Section 192 of the Act treating the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come in its taxable return on its receipt. The detailed finding recorded by the CIT(A) at para 2 has not been controverted by the learned DR. We therefore do not find any reason to interfere with the same. In the result, this ground of Revenue in both the years are dismissed." 9. That the Revenue had filed appeal against the above order before the Hon'ble Jurisdictional High Court. The Hon'ble Jurisdictional High Court, vide order dated 12th January, 2012 in ITA Nos.1840/2010 and 1846/2010, dismissed the appeal filed by the Revenue. Hon'ble Jurisdictional High Court has specifically approved the finding of the learned CIT(A) as well as ITAT that the services were rendered by the Managing Director. The relevant portion of the decision of Hon'ble Jurisdictional High Court reads as under:- "In both these cases, the issue relates to payment of. commission made by the assessee to its Managing Director, in addition to salary. The same was disallowed by the Assessing Officer on two grounds, viz., a) No tax at source was deducted on amount: and b) It was not proved that the Managing Director has rendered services to earn such commission. Insofar as second grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugned order and direct deletion of the disallowance of Rs. 60 lakhs towards commission paid to the Directors. Ground No.1 is thus allowed. 10. Ground No.2 is in respect of disallowance of Rs. 63,04,151/- on account of interest paid held to be excessive and unreasonable and thus disallowed u/s 40A(ii)(b) of the Act. 11. While making the above addition, the AO, has held as under:- "I have considered the submissions made on behalf of the Assessee Company and they are not found to be acceptable. Section 40A(2)(a) provides that "where the assessee incurs any expenditure in respect of which payment has been or is to be made to relating or close associates of the assessee, and the Assessing Officer is of the opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the business or profession of the assessee or the benefit derived or accruing to him there from, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction. From the facts of the case it is clear that the payment of the interest @ 18% is not only excessive but unreasonable. The AR of the Assessee could not explain as to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 469 8. Sheetal Bardeja 52,860 35,240 17,620 9. Sakshi Bardeja 74,538 49,692 24,846 10. Prerna Bardeja 2,82,320 1,88,213 94,107 The total disallowance on account of excessive and unreasonable payment of interest to specified persons works out Rs. 63,04,151/-, which is added to the income of the assessee for the year under consideration. This will mean an addition of Rs. 63,04,151/-. " 12. The ld CIT(A) has sustained the said disallowance on the basis that interest paid at 18% in absence of any justification is excessive and unreasonable. And as such he also held that AO was justified in allowing interest at 12% . In support he has referred to the fact that assessee has paid interest at the rate of 12% to six different persons i.e. namely:- 1.Sh. Ashok Kumar, 2. Sh. Raj Kumar Bardeja, 3. Sh. Kanhiya Lal, 4.Raj Kumar Bardeja (HUF), 5. Kanhiya Lal Ashok Kumar (HUF), 6.Kanhiya Lal Raj Kumar (HUF). 13. Being aggrieved the assessee is in appeal before us. 14. Ld AR has submitted that the disallowance has been made without satisfying the condition provided in Section 40A(2)(b) of the Act. He referred to circular dated 06t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest has been paid to the specified persons in the earlier years at 16% which has been allowed in the respective previous years. The assessee however, has claimed deductions on the money borrowed from said ten persons at 18% in the instant year. The AO has held the same to be excessive and unreasonable in term of section 40A(2)(b) of the Act. He has referred to the interest paid to six parties at 12% and thus the difference between 18% and 12% was disallowed u/s 40A(2)(b) of the Act. We however find that it would be unfair to restrict the disallowance by adopting the interest at 12% because in earlier year interest has been allowed to such persons at 16%. Reference has been made by the authorities below to interest paid at 12% in respect of six parties. In our opinion in view of the preceding history of the ten said persons, it would be appropriate to refer to the interest paid to the said person in the earlier year for the purpose of section 4A(2)(b) of the Act. Having regard to the above, we conclude that it would be fair and appropriate to restrict the disallowance by adopting the interest rate at 16%. In view of the above the AO is directed to disallow the interest between 18 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company had completed the construction of Labour Quarters, Factory Building etc at its two factories at Chennai and Ghaziabad. The said process had commenced in the earlier years but was completed in the year under appeal and accordingly the relevant assets were capitalized during the year under appeal. The said construction involved, at various stages, payments for small and petty amounts which, in many cases, were purchased from local vendors against payment in cash. The ld AR submitted that complete details of the additions in respect of which depreciation has been disallowed on the ground that the bills thereof do not mention the name of the Appellant Company are enclosed herewith and took our attention to Page 63-145 of PB, a review of which would according to him, reveal that the same essentially comprise of petty amounts representing purchases made from small traders who mostly belong to the unorganized sector. According to ld AR, the nature of the said expenses is such that they were germane to and a necessary ingredient of the cost of the said plant during the process of the construction and installation. This being the case, the mere fact that the name of the Appellant Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which were carried forward from preceding years. 22. In the instant case the AO has mentioned in para 7 of the assessment order that the appellant had claimed additional depreciation on the addition made to block V and block VII of its Ghaziabad units. The AO has further observed that on perusal of bills and vouchers in respect of which additional depreciation had been claimed by the appellant it was observed that certain bills pertained to the earlier years and also that the appellant had claimed additional depreciation on the opening balance carried forward as on 01.04.2008. In view of the above findings the AO disallowed the appellant's claim of additional depreciation amounting to Rs. 19,18,699/- in respect of the assets which were not purchased during the year but had been purchased in the earlier years. 23. The ld CIT(A) has sustained the disallowance stating that:- "assets on which additional depreciation have been claimed have to be purchased during the relevant previous year." 24. Being aggrieved, the assessee is before us. The ld AR contends that the action of the authorities below to deny the claim of depreciation is based on misreading of provision contained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduction of any article or thing, a further sum equal to twenty per cent of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii): Provided that no deduction shall be allowed in respect of - (a) any machinery or plant which, before its installation by the assessee, was used either within or outside India by any other person; or (b) any machinery or plant installed in any office premises or any residential accommodation, including accommodation in the nature of a guest house; or (c) any office appliances or road transport vehicles; or any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head "Profits a gains of business or profession" of anyone previous year:" 28. A perusal of the aforesaid provision would show that where any new machinery or plant has been acquired and installed after 31st March 2005, by an eligible assessee then he is entitled to additional depreciation equal to 20% of the actual cost of the machinery. The AO in the instant case has held that certain bills and vouchers pertaining to the claim of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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