Summary and Review of Case Laws Decided by Income Tax Appellate Tribunals
Thursday, 10 March 2016 12:26

Bonus & Commission paid to Directors - No disallowance u/s 36(1)(ii) when allowed and assessed u/s 143(3) in preceding years and stand assessed as salary in the hands of Director - Delhi Tribunal

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Disallowance u/s 36(1)(ii) - Commission paid to Directors

When identical commission paid to Director has been allowed as deduction in the preceding assessments u/s 143(3) of the Act and also correspondingly such incentive stands assessed as salary in the hands of Director, Disallowance u/s 36(1)(ii) is unjustified.


1. Assessee company is engaged in the business of real estate, consultancy services, site management services, professional advisory and project management services

2. It filed a return of income on 31.10.2007 declaring an income of Rs. 29,58,90,498/-

3. The return was processed u/s 143(1) of the Income-tax Act, 1961 (hereinafter ‘the Act’) on 30/03/2009

4. The AO completed the assessment u/s 143(3) of the Act dated 10.12.2010 at an income of Rs. 32,47,12,801/- after making following disallowances;

i) Rs.2,85,55,000/- on account of disallowance u/s 36(1)(ii) of the Act;

ii) Rs.1,58,568/- on account of disallowance u/s 14A of the Act; and

iii) Rs.1,08,735 on account of disallowance of depreciation u/s 32 of the Act

5. The AO observed in the case of assessee company profit of Rs. 28,41,79,791/- has been worked out for this financial year as per the statement of taxable income filed along with the return, however no dividend has been proposed or distributed among the shareholders who are also director of the company. He thus was of the opinion that, sum of Rs.2,85,55,000/- has been apparently paid as commission and bonus and not as dividend to reduce the income of the company and to avoid dividend distribution tax

5. The CIT (A) following the decision of Delhi Bench of Tribunal in the case of Creative Travel (P) Ltd. vs. ACIT in ITA No. 190/Del/2010 for A.Y. 2006-07 dated 13.5.2011 affirmed by the Hon’ble Jurisdictional High Court in the case of CIT vs. M/s Creative Travel (P) Ltd. in ITA No.1672/D/2010 deleted the disallowance of Rs.2,88,55,000/- on account of disallowance u/s 36(1)(ii) of the Act

6. He also deleted the disallowance of Rs.1,58,568/- u/s 14A and Rs. 1,08,735/- on account of disallowance of deprecation u/s 32 of the Act

7. The revenue is now in appeal before ITAT against the aforesaid findings of the learned CIT(A)

8. Honb. Tribunal decided the issue in favour of the Assessee


It is noted that the AO proceeded to make disallowance on incorrect assumption of fact that no dividend has been distributed amongst the shareholders in the instant year; whereas as a matter of fact that dividend of Rs.13.90 crores was declared in the instant year. Moreover it is also noticed that identical commission paid to MD Anshuman Magazine has been allowed as deduction in the preceding assessments u/s 143(3) of the Act and also correspondingly such incentive stands assessed as salary in the hands of Anshuman Magazine for the instant year. Further, likewise incentive paid to other employees has also been allowed as deduction.

...the commission has not been paid to Rashmi Magazine, other shareholder of assessee company and commission was paid to Anshuman Magazine for services rendered by him as per terms of appointment as a managing director, which has been taxed as salary in his hands in the instant year. Having regard to the above judicial position, the ground raised by the revenue is rejected.

Cases referred to

1. 139 TTJ 48 (Del) ACIT vs Career Launcher India Ltd.

2. 331 ITR 10 (Del) CIT vs Dinesh Kumar Goel

3. 53 DTR 1 (Del) Cyber Media (India) Ltd vs. CIT

4. AMD Metplast (P) Ltd. v DCIT – 341 ITR 563 (Del)

5. Controls & Switchgear Contractors Ltd. v. DCIT – 269 CTR 44 (Del)

6. Maxopp Investment Ltd. – 347 ITR 272 (Del)

7. ITO vs. Samiran Majumdar – 280 ITR 74 (AT)

8. 118 TTJ 652 (Del) Expeditors Inter. India (P) Ltd. vs. Addl. CIT

9. 11 417 (Del) CIT vs. Orient Ceramics & Inds. Ltd.

10. 136 TTJ 505 (Del) Birlasoft India Ltd. vs DCIT

Additional Info

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