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TMI Blog2019 (3) TMI 277X X X X Extracts X X X X X X X X Extracts X X X X ..... ssengers by the supplier but by the in-flight crew. HELD THAT:- The payment is made only for the supply of foods but not for service of the food. Nevertheless, the learned CIT appeal has allowed the claim of the assessee in view of the fact that PE has filed income tax returns and paid the due taxes on receipt. CIT-A following the decision of CIT vs Ansal landmark township private limited [2015 (9) TMI 79 - DELHI HIGH COURT] set aside the whole issue to the file of the learned assessing officer with a direction to not to make any disallowance on payment made to the payee’s who have duly accounted the receipt in question and have paid tax accordingly. DR failed to show that how the learned AO is aggrieved with the direction of the learned CIT – A. CIT – A has confirmed the fact that the assessee should have deducted tax at source thereon. In view of this ground number 2 of the appeal of the revenue is dismissed. Disallowance of vehicle maintenance due to non dedction of TDS - HELD THAT:- CIT-A noted that that cars were sent for repair and replacement of the parts the invoices carries two-person 14 parts on which VAT has been charged and the Garage has levied other for services o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to the annual maintenance contract of the computers. The assessee has incurred this expenditure as and when the bill has been approved in the liability has been assumed by the assessee. In view of this we do not find any infirmity in the order of the learned CIT-A. Disallowance of interest paid on unsecured loan - HELD THAT:- As perused the reasons given by the learned CIT-A for deleting the addition and the reasons recorded by the learned assessing officer for making the disallowance. The interest expenditure is to be allowed if the same is used for the purposes of the business. Interest expenditure paid to the related parties in case of the company can be disallowed if the same was found to be excessive or unreasonable with respect to the market rates. Relevant finding to the disallowance of interest expenditure that they are not incurred for the purposes of the business is missing in the assessment order. Further, the learned assessing officer has also not held that what is the market rate of the interest expenditure and how it is less than the amount of interest paid by the assessee to its directors and related parties. No infirmity in the order of the learned CIT-A del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee that the issue has been squarely covered by the decision of the coordinate bench in assessee’s own case for the assessment year 2007 – 08 is also of no consequence as noted by the learned CIT appeal that the disallowance was under section 40A (2) in that year. Similarly for assessment year 2012 – 13 the learned CIT – A has allowed the claim of the assessee in his appeal order is also of no consequence as because the learned CIT – A has relied upon the decision of the honourable Delhi High Court in case of CIT vs carrier launch a private limited,[2012 (4) TMI 440 - DELHI HIGH COURT] the facts of that case were quite distinct and different as we have already pointed out. Therefore, we confirm the order of the lower authorities. - ITA No. 1765/Del/2016, ITA No. 1065/Del/2016 - - - Dated:- 28-2-2019 - Shri H.S. Sidhu, Judicial Member And Shri Prashant Maharishi, Accountant Member For the Assessee : Shri Atul Puri, CA For the Revenue : Ms Rinku Singh, Sr. DR ORDER PER PRASHANT MAHARISHI, A. M. 1. These are the appeals filed by the assessee and the revenue against the order of the ld CIT (A)-28, New Delhi dated 18.01.2016 for the Assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and surmises in complete disregard of the facts, evidence placed on record and explanations offered. 4. Assessee is a company engaged in the business of a charter services, travel agents, and tour operators, air transport for crew entries, aircraft management, and advisory services etc. It filed its return of income on 26/9/2011 declaring income of INR 38639680/ the assessment under section 143 (3) of the income tax act was passed on 24/3/2014 determining total income of the assessee at INR 78363580/ . Several disallowances were made. The assessee challenged the same before the learned CIT A who partly allowed the appeal of the assessee by deleting the certain disallowances and confirmed some of the disallowances. Therefore, both the parties are in appeal before us. 5. We now take up the appeal of the learned assessing officer. The first ground of appeal is against the order of the learned CIT A in deleting the addition of INR 3766725/ on account of non-deduction of tax at source on aircraft maintenance charges. 6. We have heard the parties on this issue. Facts show that assessee is in the business of maintenance of the aircraft. Parts are procured from overseas an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question and have paid tax accordingly. The learned departmental representative failed to show that how the learned AO is aggrieved with the direction of the learned CIT A which is also following the decision of the honourable Delhi High Court. Even otherwise the learned CIT A has confirmed the fact that the assessee should have deducted tax at source thereon. In view of this ground number 2 of the appeal of the revenue is dismissed. 9. Ground number 3 is against the deleting the addition of 84040 for nondeduction of tax at source and vehicle maintenance. The learned CIT A after considering the fact that the cost includes cost for parts and labour cost component. The learned CIT A noted that that cars were sent for repair and replacement of the parts the invoices carries two-person 14 parts on which VAT has been charged and the Garage has levied other for services on which service tax. The learned CIT A also verified the bills of sale and services and found that where there is a services the amount of payment of services as below the required threshold for deduction of tax at source. The learned CIT A also noted that on sale of the parts no tax is required to be d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said to be of capital in nature. Therefore on the facts and circumstances of the case we do not find any infirmity in the order of the learned CIT A. Accordingly, ground number 4 of the appeal of the revenue is dismissed. 12. Ground number 5 is with respect to deletion of the addition of INR 4 0900/- incurred by the assessee on purchase of inverter battery held by the learned assessing officer as capital expenditure. The learned CIT A has held it to be revenue in nature. 13. We have heard the parties and found that the learned assessing officer has clearly erred in holding that replacement of battery in inverter is a capital expenditure. It is not the purchase of the inverter but one of the parts of the inverter has been replaced. The learned senior DR also could not show us any reason to support the order of the learned assessing officer. In view of this, we do not find any infirmity in the order of the learned CIT A in holding that replacement of battery in any inverter is revenue expenditure and not a capital expenditure as held by the AO. Accordingly, ground number 5 of the appeal is dismissed. 14. Ground number 6 is with respect to deletion of the addition o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there was no requirement of any unsecured loan, but still assessee took unsecured loan from the related party, which to the large extent remain on utilized. He further noted that assessee is also having huge fixed deposit receipts, which were not utilized. Therefore, he held that the assessee has used the excessive expenses and claim them as a deduction under the head interest expenditure. Therefore he disallowed the total interest expenditure of ₹ 2953348/ . The learned CIT appeal has deleted the disallowance on the ground that reasonableness of the expenditure has to be judged from the point of view of the business mind and not of the revenue and the learned assessing officer is only to verify whether the expenditure in question has been incurred wholly and exclusively for the purposes of the business are not. He further noted that during the brought on anything on record to show that the amount of interest paid by the assessee company to its related party are director was excessive or unreasonable. In view of this, he stated that the disallowance could not be made. The learned senior departmental representative also could not point out any infirmity in the order of the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cetera in a talented premises and airport authority can evict the assessee at anytime. On the vacation of the licensed property these partition et cetera even if removed will be rendered useless and therefore they are revenue expenditure in nature. The assessee also supported its argument with several judicial precedents. The learned assessing officer also relying upon the several judicial precedent and held that the sum of INR 6 86970/ is a capital expenditure. On appeal before the learned CIT A it was also confirmed. 19. We have heard the parties. The learned CIT A has given a categorical finding in para number 8.2 of the order that the expenditure has not been incurred for partitions, networking, tabletops, storage units installed to the walls sofa sets and electrical installation et cetera. Apparently, the assessee has incurred the total expenditure, which are furniture in nature and not with respect to the wooden partitions or panels to make the office premises taken on lease conducive to its business. The assessee has also purchased security systems, which is certainly of the nature of capital expenditure. We have also perused the several decisions cited by the learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... infirmity in the order of the learned CIT A in confirming the action of the learned assessing officer. Accordingly, ground number 3 of the appeal of the assessee is dismissed. 22. The fourth ground of appeal is against the disallowance confirmed by the learned CIT A of INR 2 0000000/ as bonus paid to the directors. During the course of assessment proceedings it was noted by the learned assessing officer that assessee has paid bonus of rupees one crore each to the two directors of the company who are holding 50% shares each in the company. The learned assessing officer asked the assessee to produce the board resolution of the company. He noted on perusal of the resolution that no such resolution of giving bonus to both the directors were passed by the company. He further held that issue is squarely covered against the assessee by the decision of the coordinate bench in the case of Dalal Barocha stock broking private limited vs ACIT that is on identical facts. Therefore the learned assessing officer held that the assessee has paid the bonus in lieu of the dividend and therefore disallowed the above sum under section 36 (1) (ii) of the act. 23. Before the learned CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 50% , e dividend would have been much equal to the bonus actually paid to the directors, therefore, this bonus would have been payable to both the directors as profit or dividends, had it not been paid as a bonus. Accordingly, he confirmed the disallowance. 24. The learned authorised representative vehemently submitted that issue squarely covered in favour of the assessee by the decision of the honourable Delhi High Court in case of CIT V Carrier Launcher India Ltd 358 ITR 179 . He also relied upon the decision of the coordinate bench in case of ARihnatam Infraprojetcs P Ltd V Jt CIT 156 ITD 425 . He further submitted a copy of the resolution dated 29/03/2016 passed in the board meeting of the company wherein dividend of INR 1 130/ per share was declared. He therefore submitted that the assessees declaring bonus. He further referred to the order of the learned Commissioner of income tax appeals for assessment year 2012 13 stating that on the identical facts and circumstances bonus paid to directors of INR 25,000,000 has been deleted. He further referred to page number 23 of the order of the learned CIT A wherein he held that the issue squarely covered by the decision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO has further erred in disallowing bonus paid to Directors of ₹ 2,00,00,000/- on assumptions and surmises in complete disregard of the facts, evidence placed on record and explanations offered. 14.1 During the course of the appellate proceeding it was submitted by the L.d A.R that Now here again the AO decides that the directors should not be paid bonus but instead since they also happen to be shareholders they should be paid dividend. The AO further alleges that the copy of the resolution was not- given. This was given vide the letter of the AR dated 23-08-2013 along with whole lot of other documents, submissions and clarifications. A copy of the same is enclosed herewith .Annexure-14 The payment of bonus has been made all along and accepted by the department. The AO on assumptions, without bringing anything on record that the payment was excessive, in complete disregard of the past records and Principles of consistency, on surmises and assumptions, made the addition. We draw your kind attention to the case of Commissioner of Income Tax Vs Career Launcher India Limited [Income Tax Appeal (939/2010, 911/ 2011 926/2011) High Court of Delhi Dated 19th Apr 2012 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or was on account of services rendered in the normal course of business or it would even otherwise would have been paid under different nomenclature . 14.3 There are only two directors in the company and both of them are also equal (50%) share holders of the company. A resolution has been passed by them that on 31.03.2011 that ₹ 1 crore bonus will be paid to each of the directors of the company for the year ending 31.03.2011. Had resolution been passed to pay dividend to the share holders then also the amount in question had been equally received by them as there are only two shareholders. In other words it is apparent this arrangement clearly indicates that if this bonus was not paid to both the directors director then it would be received in the shape of profit/dividend. Moreover the bonus paid is neither link to the sale of the company or performance of the directors. In the resolution no reason or basis for payment of the commission has been mentioned. The different decisions cited by the L.d A.R is not comparable as the fact of the case is totally different . In none of the case discussed there were identical number of directors and shareholders or in other words al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit or dividend there from. Therefore in the present case , the payment of bonus or commission is not allowable as deduction under section 36 (1) (ii) of the act in the hands of the assessee company. 29. Support its case the assessee has relied upon the decision of the honourable Delhi High Court in case of CIT vs Carrier launcher India Ltd. The facts of the case as mentioned in paragraph 14 onwards shows that the payment was made to the directors of the company and claimed as it deduction. The same was disallowed by the learned assessing officer under section 36 (1) (ii) of the act. The facts noted in para number 18 clearly shows that that the amount paid to the 2 directors specifically and having regard to their shareholding they would have been entitled much higher amount as dividend then the amounts paid to them as bonus.. Further in para number 19 the honourable High Court also noted that the tribunal has found that having regard to the shareholding of each of the directors they would have got much higher amount has dividend than as bonus and there was no tax avoidance motive. Therefore the honourable High Court held that the provisions of section 36 (1) (ii) does not pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payments had been made to the directors for the hard work they had put in improving the profits of the company. Since it wanted to improve its net worth to attract FIIs the company was not declaring dividend. The three directors were holding shares at 50%, 25% and 25% and therefore the case the amount of commission had been distributed as dividend, they would not have got the same amount as dividend. It held that the payment of dividend by a company is not compulsory and it is dependent upon the profitability and other conditions of the business. Therefore, in cases, where dividend is not payable, the payment of bonus or commission can be allowed as deduction in case of employee shareholders also under Section 36(1)(ii) as in that case it could not be said that payment of bonus or commission is in lieu of dividend. Thus the provisions of Section 36(1)(ii) are also applicable to share holder employees subject to the condition that payment is not made in lieu of dividend. The provisions of Section 36(1)(ii) can be split in two parts. The first part viz., any sum paid to an employee as bonus or commission for services rendered is an enabling provision. This part applies to all e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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