2021 (7) TMI 1136

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..... 4. Aggrieved by the order of AO, assessee carried the matter before the CIT(A) who vide order dated 25.11.2016 allowed the appeal of the assessee. Aggrieved by the order of CIT(A), Revenue is now in appeal before us and has raised the following grounds of appeal: 1. " That on the facts and circumstance of the case, the Ld. CIT(A) has erred in ignoring the fact that the working arrangements agreements clearly provides that a fixed percentage - profits to be paid to M/s Sir Sobha singh & Sons Pvt. Ltd. as compensate, which clearly makes it an application of income." 2. "That on the facts and circumstances of the case, the Ld. CIT(A) has erred in not appreciation of the fact that the sharing of profit between two entities is clearly covered in the ambit of application of income and expense on the account cannot be allowed as deductible in P& L account." 3. "That on the facts and circumstances of the case, the ld CIT(A) has erred in not appreciation of the fact that the assessee has paid commission to the share holder Directors without any services rendered by them to the company any only to bypass the provision of Section 36(1)(ii) so as to not declared....

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....table expense. He accordingly disallowed the payment of Rs. 1,26,00,000/-. Aggrieved by the order of AO, assessee carried the matter before the CIT(A) who decided the issue in favour of the assessee. Aggrieved by the order of CIT(A), Revenue is now before us. 7. Before us, Learned DR took us through the findings of AO and further submitted that Learned CIT(A) has erred in holding that the ratio of the decision in the case of Shitaldas Tirath Das (33 ITR 367) which has been relied upon by AO is not applicable to the facts of the case. He further submitted that the principle of res judicata is not applicable to income tax proceedings and each assessment year is an independent year. He submitted that merely because the enhanced compensation that has been paid by assessee since 1999 onwards has not been disallowed in any of the earlier assessment years, that cannot be the ground for allowing the expenses. He thus supported the order of AO. 8. Learned AR on the other hand reiterated the submissions made before the lower authorities. He further pointing to the working arrangement agreement that has been reproduced by AO in the order, submitted that the agreement continued to be a r....

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....nciples of res judicata do not apply to income tax proceedings, but where a fundamental aspact permeating through different assessment years has been found as the fact one way or the other and the parties have allowed the position to be sustained by not challenging the order, then it would not be appropriate to allow the position to be changed in the subsequent year. We further find that based on the view of disallowance of enhanced rent paid in the year under consideration, no reassessment proceedings for earlier years has been initiated by the Revenue. Considering the totality of the aforesaid facts and relying on the aforesaid decision rendered in the case of Radhasoami Satsang (supra), we find no reason to interfere with the order of CIT(A). Thus the ground of Revenue is dismissed. 10. Ground No.3 is with respect to the commission paid to shareholder Directors. 11. During the course of assessment proceedings, AO noticed that assessee has made payment of Rs. 33,03,384/- to the three working Directors namely; Shri Narinder Kumar, Shri Virender Kumar and Shri Rajinder Kumar. AO noted that the aforesaid three persons were also the shareholders of the assessee company. AO was ....

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....wledge and looks after the accounting, finance, budgeting, etc, of the hotel working. With respect to Mr. Virender Kumar, it was submitted that he is a graduate and has almost fifty years experience of the hotel industry. Learned AR thereafter submitted that Commission paid to working Directors were within the limits specified u/s 198 & 309 of Companies Act, 1956, the payment of commission has been duly approved by the shareholders. He further submitted that identical payment of commission was disallowed by the AO in the Year 2003-04 but CIT(A) had deleted the addition and the action of CIT(A) was upheld by the Co-ordinate Bench of Tribunal. He further submitted that the AO has wrongly assumed that company has not been paid dividends but on the contrary assessee during the year under consideration has paid dividend of Rs. 4,20,00,000/- which works out to 50%. He also submitted that assessee has also paid dividends in the past. He thereafter submitted that the case laws relied upon by the AO are distinguishable on facts and therefore not applicable to the present facts. He submitted that on the contrary the Hon'ble Apex Court in the case of Shazada Nand & Sons vs. CIT (1997) 108 ITR....