M. Balaganesh ORDER
M. Balaganesh, Member (A)
1. The appeal in ITA No. 4819/Del/2017 for AY 2009-10, arises out of the order of the ld CIT(A)-18, New Delhi dated 16.05.2017 [hereinafter referred to as ld CIT(A) in short] in Appeal 242/16-17 dated 09.02.2015 passed u/s 143(3) Income-tax Act, 1961 (hereinafter referred to as 'the Act').
2. The assessee has raised the following grounds of appeal:-
"1. The learned CIT (A) has erred in confirming the disallowance of Rs. 32,74,998 working Directors commission on profits, despite it being permitted by the Companies Act and held as allowable by appellate authorities in other years on the basis decisions by the jurisdictional High Court
2 The learned CIT (A) has erred in not dealing/giving directions in his order for correct determination of tax due after granting Proper credits for prepaid taxes and for adjusting refunds which were purported to be given but not actually given
3 That the above grounds are independent and without prejudice to each other."
3. The only issue to be decided in this appeal is as to whether the ld CIT(A) was justified in confirming the disallowances to Director's commission of profits amounting to Rs. 32,47,750/-in the facts and circumstances of the instant case.
4. We have heard the rival submissions and perused the material available on record. The assessee filed its return of income for AY 2009-10 on 26.09.2009 showing income of Rs. 3,18,29,604/-. The assessment was originally completed u/s 143(3) of the Income Tax Act, 1961 on 07.12.2011 accepting the returned income. Further, this assessment was sought to be revised by the ld PCIT by invoking revisionary jurisdiction u/s 263 of the Act. Pursuant to the order passed u/s 263 of the Act, the ld AO passed the giving effect order u/s 143(3) read with section 263 of the Act on 09.02.2015 (i.e. present proceeding before us). In the said order, the ld AO observed that the assessee had paid a sum of Rs. 32,74,750/-as commission to the Managing Director of the assessee company. This was stated to be paid out of profits of the assessee company. The ld AO invoked the provisions of section 36(1)(ii) of the Act stated that this commission was paid in lieu of distribution of profits in the form of the dividend to the share holders. Accordingly, this commission would not be allowed as deduction. This action of the ld AO was upheld by the ld CIT(A).
5. At the outset, we find that commission was paid to Mr. Feroz who is working as Director of the assessee company. The details of two share holders of the assessee company at the relevant point of time are as under:-
6. We find at page 17 of the paper book containing extract of the minutes of annual general meeting of the assessee company held on 27.09.2008, wherein, while adopting the annual accounts of the assessee company for the year ended on 31.03.2008, the shareholders of the assessee company had approved the following remuneration to Mr. Feroz:-
7. We find that the ld CIT(A) had wrongly held in his order that both Mr. Feroz and Mr. Sumit are holding 50% of shareholding each in the assessee company. This is factually incorrect as is evident from the shareholding pattern stated hereinabove. It is not in dispute that this commission of Rs. 32,74,750/-was paid by the assessee company to its director Mr. Feroz as percentage of profit before tax. This has been duly approved by the share holders in their genera........