TaxTMI 
TaxTMI 
2022 (9) TMI 707
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....are decided by this consolidate order to avoid the conflicting decision. For appreciation of fact, the appeal for A.Y. 2010-11 in ITA No. 175/Srt/2020 and CO No. 14/Srt/2020 is treated as 'lead' case, wherein the revenue and the assessee has raised following grounds of appeal: Grounds of appeal raised by the Revenue: "1. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition of Rs. 1,75,00,000/- made on account of disallowance of commission paid to the directors without considering the judgment of Special Bench of the Hon'ble ITAT in the case of Dalal Broacha Stock Broking Pvt. Ltd. Vs Addl.CIT, Range-4(1), Mumbai 131 ITD 36 (Mumbai) (SB). 2. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition of Rs. 48,90,672/- made on account of unexplained cash credits without appreciating that the assessee failed to provide PAN, confirmation and even address of the so called customers from whom advances were claimed to be received. 3. It is therefore, prayed that the order of the Ld. CIT(A), Valsad may be set aside and that of assessing officer may be restored to the above extent. 4.....
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....enue filed appeal before the Hon'ble Jurisdictional High Court and the same was dismissed vide order dated 20/08/2019 in Tax Appeal No. 72, 73 and 74 of 2019 reported in (2019) 418 ITR 472 (Guj). The Revenue filed Special Leave Petition (SLP) before the Hon'ble Supreme Court and the same was dismissed. The ld. AR submits that the SLP of Revenue was dismissed as there was delay of 452 days in filing SLP and the delay was not condoned. The ld. AR, thus, submits that the grounds of appeal are covered in favour of assessee and against the Revenue. 5. On the other hand, the ld. CIT-DR and the ld. Sr.DR for the revenue both submits that the principle of res judicata is not application in income tax cases and each assessment order has to be considered separately. The ld. CIT-DR submits that the assessee has not explained the services rendered by each of the directors. The assessee has paid similar commission to all the directors without specifying the services rendered by them. The directors to whom the said commission is paid are having substantial shareholding and they have been paid dividend in the garb of commission which is not allowable. The ld. CIT-DR submits that the assessee is ....
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....on to the directors as per provisions of Section 309 of the Companies Act, the ld. AR submits that such provision is applicable to the public limited companies and not to the private limited companies, therefore, the submission of ld. CIT-DR is misplaced. The ld. AR submits that even similar submission was considered by the Tribunal while deciding the appeal for A.Y. 2011-12, 2013-14 and 2014-15. The ld. AR submits that once the order of Tribunal is affirmed by the Hon'ble Jurisdictional High Court, the issue attend finality and thus the issue is squarely covered in favour of assessee. 7. We have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. We find that during the assessment, the Assessing Officer made disallowance of commission payment to five of its directors, aggregating of Rs. 1.750 crore by taking a view that all the executive directors were paid equal amount of Rs. 35.00 lacs each irrespective of percentage of their shareholding. All these directors including their HUFs having substantial shareholding of 95.75%. The payment of commission to its director amounts to circumventing the requirement of divide....
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....nt order para 12.10 which shows that the assessee explained the services rendered by the recipient Directors towards administration, purchase of goods, product designing, advertisement, sales promotion and other administration which contributed to the overall growth of the company. vi) From the table noted by the ld.CIT(A) at page 23 it is also vivid that in A.Y. 2011-12, which is under consideration, the growth of turnover was 139.77% and growth in the profit was 45.84% and the remuneration was increased by 87.64% and these facts collectively show that the additional remuneration / commission has been paid to the Directors against the services rendered by them which resulted into steep growth of the company. 30. Let us adjudicate the contention of the authorities below and written submissions of the ld.CIT-DR, in the written submissions the AO has alleged that there is increase of 113% in the commission / additional remuneration paid to the Directors whereas, increase in the gold price was only 30% and thereafter, the AO alleges that the appellant contention is not acceptable that the commissions payments to the Directors was linked to the increase in the turnover of the compa....
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.... services rendered then it is allowable u/s.37(1) of the Act. The ld.Senior Counsel submitted that the Tribunal in para 13 & 14 of this order clearly observed that in existence of binding decision of Hon'ble High Court the Tribunal is not required to consider the decision of ITAT Special Bench Mumbai in the case of Dalal Broacha Stock Broking Pvt. Ltd. (supra). 32. On careful consideration of above submissions, on the applicability of ratio of the order of the Special Bench in the case of Dalal Broacha Stock Broking Pvt. Ltd. (supra) we are of the view that from para 7 of this order of a Special Bench it is clear that the issue for adjudication before the Special Bench was regarding allowability of deduction on account of payment of commission of Rs.1.20 crores to the Three Employee Directors u/s.36(1)(ii) of the Act and in para 8.2 of this order it was held that under the provision of section 36(1)(ii) of the Act and section 37(1) of the Act will not be applicable in the cases wherein payment of commission has been made to the Directors. At the same time, we further observe that ITAT Delhi 'F' Bench in the case of ACIT vs. Botil Oil Tools (I) Pvt. Ltd. (supra) after consider....
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....oard resolution the Managing Director / Director was entitled to receive commission for the services rendered to the company then commission was to be treated as a part and parcel of salary and tax has been deducted at source, then the recipient director is liable to pay tax on both the salary component and the commission. In this judgment, their lordship categorically held that the payment of dividend is made in terms of companies Act and dividend had to be paid to all the shareholders equally. In the present case also the ld.AO and ld.First Appellate Authority was wrong in observing that there is no nexus between growth of turnover and growth in the percentage of commission paid to the Directors. At the same time, from the copies of the resolutions passed by the Board of Directors from F.Y. 2005-06 to F.Y. 2013-14, which has been placed at pages 1 to 11 of the assessee's paper book, dated 31.05.2018 it is vivid that the commission / additional remuneration has been paid by way of resolution passed by the company at the respective Board Meetings and for present A.Y. 2011-12 the copy of Board Resolution dated 02.09.2011 has been placed at page 8 of the same paper book. 36. At the....
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....dication by this Bench. 37. It is a well-accepted principle of tax jurisprudence that the principle of res-judicata does not apply to the tax case but rule of consistency has to be respected by the tax authorities. This principle has been rendered in various judgments including judgments of Hon'ble Supreme Court in the cases of Radhaswami Satsang Vs. CIT (supra), CIT Vs. Excel Industries Ltd. (supra), CIT Vs. Dalmia Promoters and Developers Pvt. Ltd. (supra) and in the recent decision of Apex Court in the case of Godrej and Boyce Manufacturing Pvt. Ltd. vs. DCIT (supra) therefore, contention of the ld.CIT-DR has no legs to stand that the cases relied by the ld.Senior Counsel are not applicable to the present case as they have dissimilar facts and circumstances. The rule of consistency also supports the case of the assessee as the facts and circumstances of immediately preceding years are quite similar and identical in the present A.Y. 2011-12 and it is not a case of the AO that there was any difference in the facts and circumstances of the present A.Y. with the immediately preceding years. Therefore, we are inclined to hold that in this case the principle / rule of consistenc....
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....tical and similar and hence the principle of consistency has to be applied and respected in all assessment years on the issue of payment of commission / additional remuneration. In view of above noted facts and circumstances the benefit of the ratio of decisions of Hon'ble Supreme Court in the case of CIT Vs. Excel Industries Ltd. (supra), CIT vs M/s. Dalmia Promoters & Developers (P.) Ltd. (supra) and Godrej & Boyce Manufacturing Co. Ltd. vs. DCIT (supra), as strenuously relied and referred by the ld. Senior Counsel appearing on behalf of the assessee, supports the contention of assessee that the disallowance has been made by the authorities below by flouting and disrespecting Rule of consistency, which is applicable and widely respected by the Tax Authorities as a well-accepted principle of the tax jurisprudence. 40. Therefore, we are inclined to hold that the Revenue Authorities was not justified and correct in making dis-allowance in A.Y. 2011-12 flouting the Rule of consistency. In this scenario, we also observe that the commission / additional remuneration has been paid by the assessee company to the recipient Directors against the services rendered by them to the compa....
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....at even if unreasonable excessive payments are made to relatives or connected persons, the same cannot be disallowed under the provision of section 40A(2) of the Act. However, we may point out that in the present case it is not a case of the AO that the impugned commission / additional remuneration has been excessively paid to the connected persons / Directors and impugned disallowance has not been made u/s.40A(2) of the Act, hence, benefit of these circulars is not available for the assessee in the present case. 43. Finally, on the basis of foregoing discussion we reach to a logical conclusion that the AO has made disallowance of commission / additional remuneration by considering and appreciating the incorrect facts and figures and by flouting the Rule of consistency. We also observe that the contention of the learned AO while making disallowance and learned CIT(A) while confirming the disallowance in the impugned order are not sustainable, justified and correct. Per contra, we observe that the assessee has successfully established that the commission / additional remuneration has been paid in lieu of services rendered by the recipient Directors towards administrative and finan....
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....the order, it would not be at all appropriate to allow the position to be changed in subsequent year. We find that no change in fact for the year under consideration is brought to our notice to take the other view, therefore, respectfully following the decision of Coordinate bench, which has been affirmed by the Hon'ble Jurisdictional High court, we do not find any merit in the grounds of appeal raised by revenue. All the submissions or the objections raised by the ld. CIT-DR for the revenue has already been considered by our predecessor while deciding the similar issue in appeal for A.Y. 2011-12, 2013-14 and 2014-15. In the result, ground No. 1 of appeal is dismissed. 10. Ground No. 2 relates to deleting the addition of Rs. 4890672/- on account of unexplained cash credit. The ld. CIT-DR for the revenue submits that during the assessment, the Assessing Officer noted that the assessee has shown advances from customers of Rs. 5308928/- during A.Y. 2010-11. The assessee was asked to furnish the complete details, including name, address, PAN No. and amount deceived. The assessee failed to furnish the details of such persons from whom advance of Rs. 4890672/- was received. The Assessin....
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....r in a town like Valsad. It was totally unrealistic to call confirmation after more than seven years which is not practically possible to find the customer after such passage of time. The ld. AR submits that the list of 198 persons from whom advances were received were provided to the Assessing Officer. The Assessing Officer accepted the sales against the advance in the subsequent assessment year. Once, the income offered from the transaction of advance has been accepted in the subsequent year, taxing the same in the current assessment year would lead to double taxation. The ld. AR submits that receiving advance from customers are regular feature in the business of jewellery and the assessee explained before the lower authorities by showing chart from A.Y. 2009-10 to 2014-15 that 3.6 to 5.5 of the total turnover shown in the balance sheet as customer advances. The advances received in the business cannot be treated for the addition under Section 68. To support his submission, the ld. AR for the assessee relied upon the decision of Hon'ble Supreme Court in PCIT Vs Montage Enterprises Limited (2018) 100 taxmann.com 100 (SC) wherein the decision of Delhi High Court in PCIT Vs Montage ....
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....wn in the balance sheet as customers' advance. We find that similar facts were brought in the notice of ld. CIT(A), which is not converted before us. We further find that the Assessing Officer has not made any investigation on the address furnished by assessee. There is no allegation of Assessing Officer that such person is not available at the given addresses. The Hon'ble Supreme Court in PCIT Vs Montage Enterprises P Limited (supra) held that where the High Court upheld the order of Tribunal in deleting the addition made under Section 68 in respect of trade advances on the ground of that the said advances were adjusted against sales made in the subsequent assessment years, the special leave filed against the said decision was to be dismissed. The Hon'ble Kolkata High Court in PCIT Vs Dutta Automobiles P Limited (supra) also held that where a Tribunal recorded finding of find that money in question was advance deposit received from customers on account of sale of motor cycle, the assessee being a dealer in automobiles, and whenever sale took place, within one or two months, the said deposits were adjusted against sale price of motorcycle, Section 68 would not apply. We find that H....