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TMI Blog2024 (7) TMI 1481X X X X Extracts X X X X X X X X Extracts X X X X ..... for actual services rendered cannot be disallowed merely on the presumption of tax avoidance. AO did not provide concrete evidence to show that the payment was made to avoid DDT. The assessee has clearly distinguished the judgement relied upon by the AO and the Ld.CIT(A). Thus, we hold that the commission paid to director/Shri Girish Chovatia is an allowable business expenditure u/s 36(1)(ii). Disallowance of weighted deduction claimed u/s 35(2AB) - claim denied relying upon Form 3CL issued by DSIR - HELD THAT:- AO's reliance solely on the DSIR report, without considering the detailed books of accounts and certification by a Chartered Accountant, is not justified. The principles of natural justice require that any reduction in the claim should be substantiated with clear reasons and the assessee should be given an opportunity to respond. Following the judgment in Bosch Ltd. vs. Secretary, DSIR [ 2016 (4) TMI 1294 - KARNATAKA HIGH COURT ] we hold that the restriction of the weighted deduction u/s 35(2AB) of the Act by the AO is not sustainable. Accordingly, the disallowance made by the AO and confirmed by the Ld.CIT(A) is deleted, and the assessee's claim is allowed in full ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstantly travelling to many countries, meeting the customer, understand need of the customers and develop, mould and modify the products accordingly to market requirements. 4. The strategy has benefited the company in terms of growth in sales as well as increasing in net earnings. To support the growth story figures of year wise sales from the FY 2010-11 to FY 2017-18 was provided to the AO with breakup of domestic sales and export sales. 5. Continuous efforts of Shri Girish Chovatia has always help into growth of the company. Because of which the rest of the shareholders have decided to pay him commission based on growth in export sales of the company and on new products developed and marketed into market by him. 6. During the period the company had achieved export sales of Rs. 6277.70 Lakhs and as per commitment, he was paid commission of Rs. 52.34 Lakhs. 7. The amount of commission is very nominal to the turnover and profit earned by the company. 8. The company has not paid the commission to avoid any tax. 9. The company has done good amount of capital investment every year because of which no dividend is declared in these years. 10. The company has made investment of Rs. 655.7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... horities that the same was to avoid payment of dividend tax, could not be disallowed by taking recourse to Sec. 36(1)(ii) of the Act . 4.2. The Assessee also placed reliance on the decision of M/s.Marks Shipping Pvt. Ltd. Vs. ACIT - 4 (2), Mumbai, 51791 (ITAT-MUMBAI) (2016), wherein the Ttribunal observed that (as submitted by the assessee) In case of Dalal tribunal came to conclusion that no evidence on record was available to support the fact that the Directors had rendered any extra services for the payment of huge commission or remuneration (Para 4.1 of the judgement). In case of assessee, services rendered by Director Shri Mahesh A Dharira, it is pertinent to mention here that payment has not been paid to other Directors. Thus, payment in question was with respect to services rendered by the said Director, was not avoidance of payment of tax. We find no avoidance of tax done. So, we direct the Assessing Officer to allow the same because same was paid to Director in proportion to the service rendered by him (para 4.2 of the judgement). 4.3. The assessee further submitted to the Ld.CIT(A) that Shri Girish Chovatia has rendered services to the company and it is also accepted by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and tried to distinguish the judgement of Special Bench Mumbai ITAT in the case of M/s Dalal Broacha Stock Broking Pvt Ltd vs Addl. Commissioner of Income tax. I have gone through the judgements relied upon by the appellant. They are clearly distinguishable from the facts of this case. The judgement of Hon'ble Special Bench of Mumbai ITAT as mentioned above is clearly applicable to the facts of the case. It is to be noted here that there are many Directors, but the commission has been paid to Shri Girish Chovatia only. The appellant has not supplied any reason in the written submission as well as in the video conference that why other Directors were not involved. The Hon'ble Delhi High Court in the decision of Schneider Electric vs. CIT dated 31.01.2006 held that the Assessing Officer is justified in making addition on account of commission if it is not proved before the Assessing Officer how the business has been grown due to the person whom the commission has been paid. The Hon'ble Delhi High Court has relied upon the judgement of Hon'ble Supreme Court in the case of Lachminarayan Madanlal vs CIT [1972] 86 ITR 439. Hence, relying upon the judgement of Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port sales for specific services rendered in earlier succeeding years as authorized by Board resolution and not to all other directors /shareholders. 4. Ld. CIT (A) (NFAC) erred in law holding that Special Bench Mumbai decision in case of M/s Dalal Broacha Stock broking Pvt. Ltd. relied upon by AO was clearly applicable to apply provisions of Sec. 36(1)ii) to the facts ignoring judicial decisions submitted distinguishing Special Bench decision. 5. Ld. CIT (A) (NFAC) erred in law and on facts in not appreciating the fact that commission payment to the director Mr Chovatia in preceding and succeeding years was accepted by Department in scrutiny proceedings. 6. Ld. CIT (A) (NBAC) erred in law and on facts confirming action of AO in restricting claim made u/s 35(2AB) of the Act by Rs. 26, 33, 000/- simply by relying upon Form 3CL issued by DSIR not considering submissions made by the assessee before him. 7. Levy of interest u/s 234B, 234C 234D of the Act is unjustified 8. Initiation of penalty proceedings u/s 271(1)(c) of the Act is unjustified. On Ground Nos. 1 to 5 6. During the course of hearing before us, the counsel for the assessee, after explaining the facts already explained to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) and made a claim of total of Rs. 181.79 lakhs. The DSIR in their visit found certain revenue expenses as not linked with the R D activity and vide certificate dated 22.06.2017 restricted the claim for revenue expenses by Rs. 26.33 lakhs. It means they approved total amount of Rs. 155.46 lakhs. However, they have not given any breakup or details of the expenses which are treated as not incurred for the purpose of R D. The assessee further submitted before the Ld.CIT(A) that the assessee-company has maintained separate books of accounts which are verified and certified by a Chartered Accountant in Form No 3CLA. The expenses are verified and certified by a Chartered Accountant. At the same time the assessee provided all the details to the authority of DSIR who visited the premise. However, they have without giving any reason, without giving any breakup and without providing any opportunity to the appellant, reduced the claim of the appellant by an amount of Rs. 26.33 Lakhs. The authority did not provide breakup of the expenses in the report also showing details as which are treated as ineligible. 8.1. The AO in his order has purely relied on the report in Form 3CL. At the same time, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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