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Issues involved:
The issue raised is the deletion of addition made on account of disallowance of commission/bonus paid to the Directors of the assessee company u/s 36(1)(ii). Details of the Judgment: 1. The Assessing Officer made an addition of `30,00,000/- as commission/bonus paid to a director of the company, citing the provisions of section 36(1)(ii) and the possibility of profit diversion to a shareholder. The AO believed that if the company intended to compensate the director, it should have declared dividend instead. The AO relied on the decision of the Hon'ble Mumbai High Court in Loyal Motor Service Co. Ltd. vs. C.I.T. 14 ITR 647. 2. The Ld. Commissioner of Income Tax (Appeals) considered the issue and noted that the remuneration paid to the director was justified as it was directly related to the profitability of the company. The Ld. CIT(A) referred to the case of ACIT Vs. Bony Polymers (P) Ltd. (2010) 36 SOT 456 (Del.) where it was held that commission payments approved in general meetings were allowable deductions. The Ld. CIT(A) also cited the decision of the Delhi High Court in CIT Vs Autopins (India) [1991] 192 ITR 161, stating that such payments were for business expediency and not subject to section 36(1)(ii). 3. The Tribunal upheld the decision of the Ld. CIT(A), emphasizing that the commission and bonus paid were incentives directly linked to the company's profitability. The Tribunal agreed that the provisions of section 36(1)(ii) were not applicable in this case, as the payments were for business expediency and improving the working of the assessee. 4. The Tribunal dismissed the appeal by the revenue, affirming the decision of the Ld. CIT(A) that the addition of `30,00,000/- was rightly deleted, based on the principles of business expediency and the direct correlation of the payments to the company's profitability. 5. The Tribunal concluded the hearing on 21/7/2011, upholding the decision of the Ld. CIT(A) and dismissing the appeal filed by the revenue.
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