आयकर अपीऱीय अधिकरण, मुंबई न्यायपीठ 'बी' मुंबई

                    IN THE INCOME TAX APPELLATE TRIBUNAL
                               "B" BENCH, MUMBAI

        श्री राजेंद्र, ऱेखा सदस्य एवुं श्री शक्तिजीि दे , न्याययक सदस्य के समक्ष

            BEFORE SHRI RAJENDRA, ACCOUNTATN MEMBER AND
                     SHRI SAKTIJIT DEY, JUDICIAL MEMBER


                      आमकय अऩीर सं. / ITA no.6393/Mum./2013
                      (ननधधायण वषा / Assessment Year : 2010-11)

Dy. Commissioner of Income Tax
                                                                       ................. अऩीरधथी /
Circle-3(2), Aayakar Bhawan
                                                                                Appellant
101, M.K. Road, Mumbai 400 020

                                             v/s

M/s. Nagpur Power & Industries Ltd.
20th Floor, Nirmal, Nariman Point                                      ................... प्रत्मथी /
Mumbai 400 021                                                               Respondent

PAN AAACN5438N यधजस्व की ओय से / Revenue by : Shri M. Rajan ननधधारयती की ओय से / Assessee by : Shri Surinder Mehra सन ु वधई की तधयीख / आदे श घोषणध की तधयीख / Date of Hearing - 28.09.2015 Date of Order - 09.10.2015 आदे श / ORDER शक्तिजीि दे , न्याययक सदस्य के द्वारा / PER SAKTIJIT DEY, J.M.

The aforesaid appeal of the Department is directed against the order dated 16th August 2013, passed by the learned Commissioner (Appeals)-4, Mumbai, for the assessment year 2010-11. The Department has raised following effective grounds:-

M/s. Nagpur Power & Industries Ltd.

"1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of Rs.11,19,877/- made by A.O. on account of commission paid to the director by holding that the disallowance of commission is not in the guise of dividend without appreciating the fact that despite of the huge profits the assessee has not declared any dividend.

2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of Rs.11, 19,877/- made by A.O. on account of commission paid to the director without appreciating the fact that the commission paid ix] s. 36(1)(ii) is disallowable when the commission is paid instead of dividend.

3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of Rs.12,21,098/- made by A.O on account of plantation expenses by holding these expense as revenue expenses as these are statutorily required without appreciating the fact that these expenses are onetime expenses and the benefit is of enduring nature."

2. As could be seen, grounds no.1 and 2, are on the common issue of addition of ` 11,19,877, made by the Assessing Officer and deleted by the first appellate authority.

3. Briefly the facts are, the assessee is a company engaged in the business of ferro manganese, silico manganese and value added ferro alloys, ferro manganese slag and similar other products. For the assessment year under consideration, the assessee filed its return of income on 18th September 2010, declaring total income of ` 13,61,10,940. During the assessment proceedings, the Assessing Officer, on going through the financial statements, noticed that during the relevant previous year, the assessee apart from paying salary to M/s. Nagpur Power & Industries Ltd.

3 the executive, chairman and director of the company Shri Gautam Khandelwal, has also paid commission to him for an amount of ` 11,19,877, which has been claimed as deduction. The Assessing Officer being of the view that commission paid is not an allowable expense under section 36(1)(ii) of the Act, proposed to disallow the same. Objecting to the proposed disallowance of the commission payment, the assessee submitted an explanation stating therein that the commission paid to Shri Gautam Khandelwal, is actually part of salary paid to him which amounts to 5% of the net profit of the company and the said payment is also in terms with the provisions of Companies Act, 1956 It was also submitted that the commission payment was authorised by board resolution dated 30th June 2009. The Assessing Officer, however, was not satisfied with the explanation of the assessee. He was of the view that the assessee in the garb of commission has distributed its profit to the shareholders without treating it as dividend and paying dividend distribution tax thereon. Following a decision of the Tribunal, Mumbai Bench, in Dalal Brocha Stock Broking Pvt. Ltd., [TS-287-ITAT-2011 (MUM.)], he ultimately disallowed the commission paid and added it back to the income of the assessee. Being aggrieved of such addition, the assessee challenged the same in an appeal preferred before the first appellate authority.

4. Before the learned Commissioner (Appeals), the assessee reiterated the stand taken before the Assessing Officer. The learned M/s. Nagpur Power & Industries Ltd.

4 Commissioner (Appeals) considering the submissions of the assessee in the light of the facts and materials on record, found that the assessee is a public limited company wherein Shri Gautam Khandelwal holds only 4.28% of the shares. He was, therefore, of the opinion that even if the company would have declared dividend to Shri Gautam Khandelwal, he would have received a very negligible amount towards such dividend. Whereas, the major portion of the dividend would go to others, therefore, the apprehension of the Assessing Officer that by paying commission to Shri Gautam Khandelwal, the assessee has avoided paying dividend distribution tax was without any basis. Further, as far as the Assessing Officer's reliance on the Tribunal decision in Dalal Brocha Stock Broking Pvt. Ltd. (supra), the learned Commissioner (Appeals), after going through the same noticed that not only the said company is a private limited company, but 100% shareholders of the company are the father and sons to whom commission has been paid. He, therefore, was of the view that in that case, there is linkage between dividend and commission.

5. On the other hand, the learned CIT(A), relied upon the decision of the Hon'ble Delhi High Court in Hive Communication Pvt. Ltd. v/s CIT, ITA no.306 of 11, order dated 8th July 2011, and in the case of CIT v/s Convertech Equipments Pvt. Ltd., ITA no.669/2012, dated 3 rd December 2012, wherein it was held that if commission is paid towards services rendered by the director as per terms of M/s. Nagpur Power & Industries Ltd.

5 appointment, then no disallowance could be made by treating it as dividend. Accordingly, he deleted the addition.

6. While the learned Departmental Representative relied upon the reasoning of the Assessing Officer, the learned Counsel for the assessee strongly supported the findings of the first appellate authority.

7. We have considered the submissions of the parties and perused the material available on record. As can be seen, the Assessing Officer has disallowed the commission paid to Shri Gautam Khandelwal, shareholder and director of the company on the ground that it is actually dividend. However, as recorded by the learned Commissioner (Appeals), Shri Gautam Khandelwal, is only 4.28% of the shareholder of the company and distribution of dividend, if at all, it is declared by the company would be very negligible, hence, it is hard to believe that for avoiding payment of distribution tax on such negligible amount of dividend, the assessee would have paid dividend to Shri Gautam Khandelwal in the garb of commission. Moreover, the assessee has produced material on record to show that commission payment is in terms with the terms of appointment and towards services rendered by the director. Nothing has been brought on record by the Assessing Officer to controvert the aforesaid claim of the assessee. That being the case, the disallowance of commission paid, in our view, is without M/s. Nagpur Power & Industries Ltd.

6 any valid reason. Accordingly, finding no infirmity in the order of the learned Commissioner (Appeals), we uphold the same by dismissing the ground raised by the Revenue.

8. The next issue, as raised in ground no.3, relates to disallowance of ` 12,21,098, by the Assessing Officer but deleted by the learned Commissioner (Appeals).

9. Briefly the facts are, during the assessment proceedings, the Assessing Officer noticed that the assessee has debited an amount of ` 22,88,993, towards miscellaneous expenses which included plantation expenses of ` 12,21,098. The Assessing Officer disallowed the plantation expenses of ` 12,21,098, opining that the expenditure is going to get enduring benefit to the assessee. He further observed, as the assessee is not into plantation business the expenditure cannot be considered as revenue in nature. The assessee challenged the disallowance before the first appellate authority.

10. The learned Commissioner (Appeals) having considered the submissions of the assessee in the light of the facts on record, found that the expenditure incurred was primarily for the purpose of environmental safety and pollution control. He found that the assessee had to incur such expenditure for planting citrus tree to reduce pollution caused by the factory to the environment. He also noticed that such expenditure has to be incurred by the assessee in terms with M/s. Nagpur Power & Industries Ltd.

7 Prevention of Pollution Act. He also observed that in the earlier assessment years, the Assessing Officer has allowed such expenditure fully. Relying upon some High Court judgments, the learned Commissioner (Appeals) finally deleted the addition made by the Assessing Officer.

11. We have considered the submissions of the parties and perused the material available on record. As could be seen the only reason on which the Assessing Officer disallowed the expenditure is it is of enduring benefit, hence, is a capital expenditure. Having held so, strangely enough, the Assessing Officer did not allow any depreciation. However, as could be seen from the submissions made by the assessee right from the assessment stage, the expenditure incurred was not merely for beautification of the factory premises but for Prevention of Pollution Control and Environment Safety. It is also evident, the assessee has to incur such expenditure as mandated by pollution control and environmental safety laws. It is also evident that the allegation of the Assessing Officer that such expenditure is not recurring in nature is without any basis as the learned Commissioner (Appeals) has recorded a finding of fact that the assessee had been incurring such expenditure from earlier assessment years and the Assessing Officer has allowed such expenditure fully. Considering the aforesaid facts and circumstances, we do not find any reason for disallowance of the plantation expenditure claimed by the assessee.

M/s. Nagpur Power & Industries Ltd.

8 Accordingly, we uphold the order of the learned CIT(A) by dismissing the grounds raised on the issue by the Department.

12. In the result, Revenue's appeal stands dismissed.

Order pronounced in the open Court on 09.10.2015 Sd/- Sd/-

             राजेंद्र                                              शक्तिजीि दे
         ऱेखा सदस्य                                               न्याययक सदस्य
       RAJENDRA                                                   SAKTIJIT DEY
   ACCOUNTANT MEMBER                                            JUDICIAL MEMBER

मुंबई MUMBAI, ददनाुंक DATED: 09.10.2015

आदे श की प्रनतलरपऩ अग्रेपषत / Copy of the order forwarded to: (1) ननधधारयती / The Assessee;

(2) यधजस्व / The Revenue;

(3) आमकय आमुक्त(अऩीर) / The CIT(A);

(4) आमकय आमुक्त / The CIT, Mumbai City concerned; (5) पवबधगीम प्रनतननधध, आमकय अऩीरीम अधधकयण, भुंफई / The DR, ITAT, Mumbai; (6) गधर्ा पधईर / Guard file.

सत्मधपऩत प्रनत / True Copy आदे शधनुसधय / By Order प्रदीऩ जे. चौधयी / Pradeep J. Chowdhury वरयष्ठ ननजी सधचव / Sr. Private Secretary उऩ / सहधमक ऩंजीकधय / (Dy./Asstt. Registrar) आमकय अऩीरीम अधधकयण, भंफ ु ई / ITAT, Mumbai