2017 (2) TMI 1336 - AT - Income Tax

Disallowing HRA paid to Managing Director as excessive in nature - Held that - It is observed that it is in assessee s own case accountable High Court 2013 (7) TMI 1104 - DELHI HIGH COURT has allowed the commission paid to the managing director for the services rendered as per the terms of the employment. As the revenue has not brought any distinguishing factor to deviate from the decision of Hon ble High Court, respectfully following the same we dismiss ground No. 1 raised by revenue. Addition on account of foreign travelling expenses treating the same as personal in nature - Held that - CIT(A) on verification of the details have observed that none of the family members has been accompanying directors. There has been no contrary evidence is that has been brought on record by Ld. AO regarding any personal touch to the foreign travel expenses. It appears that Ld. AO without there being cogent material has made addition on mere surmises. Accordingly, we are inclined to uphold the findings of Ld. CIT(A) in deleting the addition Addition credit balance written back - Held that - The only requirement for allowability of the bad debts is that the assessee should write off the bad debts as irrecoverable in its accounts in the relevant year. Admittedly, the assessee has written off the bad debts to the extent of ₹ 2,59,041/- by way of debit to the profit & loss account.In this case, debit to the profit & loss account was only for ₹ 2,59,041/- while the Assessing Officer made the disallowance of ₹ 9,35,706/-, at the same time also making separate addition for the cessation of liability. Be that as it may, we are of the opinion that the assessee is entitled to the deduction of bad debts in view of the above decision of Hon ble Apex Court in the case of T.R.F. Limited. 2010 (2) TMI 211 - SUPREME COURT - Decided against revenue Addition in respect of HRA paid to the Managing Director as excessive in nature - Held that - HRA paid to the directors will be considered as perquisites in the hands of Directors. There cannot be evasion of tax as the directors are paying tax on the perquisites received. We are setting aside this issue to Ld. AO to verify whether such income has been treated as prerequisite in the hands of the Directors and to allow the same in the hands of assessee. Ground raised by the assessee stands allowed for statistical purposes.

Summary

Issues:
1. Disallowance of commission paid to Managing Director and whole-time director under section 36(l)(ii) of the Income Tax Act, 1961.
2. Disallowance of foreign traveling expenses treated as personal in nature.
3. Disallowance of credit balance written off.
4. Excessive nature of House Rent Allowance (HRA) paid to Managing Director.

Issue 1: Disallowance of Commission Paid to Managing Director and Whole-time Director:
The appeal involved the disallowance of commission paid to the Managing Director and whole-time director under section 36(l)(ii) of the Income Tax Act, 1961. The Ld. CIT(A) deleted the addition made by the Assessing Officer, citing that the payment was for services rendered as per the terms of employment and not as dividend or bonus. The decision was supported by the Hon'ble High Court's previous rulings, and as no distinguishing factor was presented by the revenue, the Tribunal dismissed the revenue's appeal.

Issue 2: Disallowance of Foreign Traveling Expenses:
The Assessing Officer disallowed a portion of foreign travel expenses, treating them as personal in nature. However, the Ld. CIT(A) overturned this decision, noting that all details related to the travel were provided, and no evidence of personal use was found. The Tribunal upheld the Ld. CIT(A)'s decision, as the Assessing Officer's addition was based on surmises without concrete evidence, leading to the dismissal of the revenue's ground.

Issue 3: Disallowance of Credit Balance Written Off:
The Ld. CIT(A) had deleted the addition concerning the credit balance written off, which was supported by the Tribunal's previous rulings for similar cases. The Tribunal upheld the Ld. CIT(A)'s decision, emphasizing that the bad debts written off were accounted for correctly, resulting in the dismissal of the revenue's ground.

Issue 4: Excessive Nature of House Rent Allowance (HRA) Paid to Managing Director:
The sole ground raised by the assessee was the disallowance of excessive HRA paid to the Managing Director. The Tribunal set aside the Ld. CIT(A)'s decision, directing the Assessing Officer to verify if the HRA paid to the directors was treated as perquisites and taxed accordingly. The ground raised by the assessee was allowed for statistical purposes, resulting in the allowance of the appeal filed by the assessee.

Overall, the Tribunal dismissed the revenue's appeal while allowing the assessee's appeal on the issue of excessive HRA paid to the Managing Director for further verification by the Assessing Officer.