2012 (12) TMI 1151 - HC - Income Tax

Addition made u/s 36(1)(ii) - Held that - This was not a case where the amounts were to be added back under Section 36(1)(ii).

Summary

Issues:
1. Interpretation of Section 36(1)(ii) of the Income Tax Act.
2. Applicability of previous court decisions.
3. Justifiability of addition made by the Assessing Officer.
4. Deletion of addition by the CIT(A).
5. Upholding the Tribunal's decision.

Interpretation of Section 36(1)(ii) of the Income Tax Act:
The case involved the interpretation of Section 36(1)(ii) of the Income Tax Act regarding the addition made under this section. The assessee had paid commission and ex-gratia to its Managing Director, and the Assessing Officer had made an addition which was appealed against. The CIT(A) referred to a previous decision and held that the amounts were not to be added back under Section 36(1)(ii). The ITAT also referenced the same decision and concluded that the excessiveness of the payment could be examined under Section 40A(ii) of the Act, not Section 36(1)(ii). The High Court agreed with this interpretation, stating that the payments were part of the Managing Director's remuneration for services rendered, and upheld the deletion of the addition.

Applicability of previous court decisions:
The CIT(A) relied on a previous decision of the High Court in ACIT v. Bony Polymers (P) Ltd. to support the deletion of the addition made under Section 36(1)(ii). The ITAT also considered a decision in the assessee's own case for the assessment year 2007-08, where the CIT(A) had allowed the claim of the assessee, leading to the deletion of the addition by the AO. The High Court, in line with the previous order upholding the Tribunal's decision, found no reason to differ and dismissed the appeal, emphasizing that no substantial question of law arose.

Justifiability of addition made by the Assessing Officer:
The Assessing Officer had made an addition under Section 36(1)(ii) concerning the commission and ex-gratia paid to the Managing Director. However, both the CIT(A) and the ITAT found that the payments were part of the remuneration for services rendered by the Managing Director and were not excessive, thereby justifying the deletion of the addition.

Deletion of addition by the CIT(A):
The CIT(A) deleted the addition made under Section 36(1)(ii) after considering the nature of the payments made to the Managing Director and the applicability of relevant provisions of the Income Tax Act. The High Court concurred with the CIT(A)'s decision, emphasizing that the payments were justified as part of the Managing Director's remuneration for services rendered, and upheld the deletion of the addition.

Upholding the Tribunal's decision:
The High Court upheld the decision of the ITAT, which had referenced previous court decisions and the nature of the payments made to the Managing Director to conclude that the addition under Section 36(1)(ii) was not warranted. The Court dismissed the appeal, stating that the previous order upholding the Tribunal's decision in a similar matter for the assessment year 2007-08 was valid and no substantial question of law arose in the current case.