2013 (11) TMI 1333 - AT - Income Tax

Allowance of deduction on commission paid to Managing Director u/s 36(ii) of the Income Tax Act Held that - Reliance has been placed upon the judgment in the case of AMD Metplast P.Ltd. 2011 (12) TMI 320 - Delhi High Court , wherein it has been held that in terms of the board resolution the Managing Director was entitled to receive commission for services rendered to the company. It was a term of employment on the basis of which he had rendered service. Accordingly, he was entitled to the amount. Commission was treated as a part and parcel of salary and tax had been deducted at source. MD was liable to pay tax on both the salary component and the commission. The payment of dividend was made in terms of the Companies Act, 1956. The dividend had to be paid to all shareholders equally. This position could not be disputed by the Revenue. Dividend was a return on investment and not salary or part thereof. In the present case, Shri Raj Kumar Bardeja was the Managing Director of the assessee company who had been paid salary and commission in terms of Board s Resolution - The assessee has deducted the tax at source under Section 192 of the Act treating the commission as part of salary. Shri Raj Kumar Bardeja has disclosed the income under the head salary Deduction of commission was allowed u/s 36(1)(ii) of the Income Tax Act. Addition on account of remission/cessation of liability under Section 41(1) of the Income-tax Act - Assessee could not produce the confirmation from these three creditors Held that - Relying upon the judgment in the case of Uttam Air Products (P) Ltd 2004 (10) TMI 284 - ITAT DELHI-C , it was held that Revenue has no material or evidence to substantiate that the said supplier had given up its claim against the assessee. The onus to bring on record such material or evidence is on the Revenue - On the basis of the facts and material as found on record, it cannot be held that the liability had ceased to exist in the hands of the assessee in the absence of any material to the contrary Decided in favor of Assessee.

Issues Involved:
1. Disallowance of commission paid to the Managing Director under Section 36(1)(ii).
2. Disallowance on account of remission/cessation of liability under Section 41(1).
3. Disallowance under Section 14A of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Disallowance of Commission Paid to the Managing Director under Section 36(1)(ii):

The primary issue revolves around the disallowance of Rs. 75,40,000/- paid as commission to the Managing Director, Shri Raj Kumar Bardeja, by the assessee company. The Assessing Officer disallowed this commission under Section 36(1)(ii), arguing that the payment was not justified. The assessee contended that the commission was part of the salary, and tax was deducted under Section 192, not Section 194H, as previously upheld by the ITAT and the Hon'ble Jurisdictional High Court in earlier years. The assessee cited decisions from the Hon'ble Jurisdictional High Court in AMD Metplast P.Ltd. and Career Launcher India Ltd., asserting that the commission was part of the salary as per the Board's Resolution and disclosed under the head 'salary' in the Managing Director's individual assessment.

The Tribunal found that the facts of the present case were similar to those in AMD Metplast P.Ltd., where the commission was treated as part of the salary, and tax was deducted at source. The Tribunal emphasized that the decision of the Hon'ble Jurisdictional High Court was binding, thus holding that the disallowance of the commission was not justified. Consequently, ground No.1 of the assessee's appeal was allowed.

2. Disallowance on Account of Remission/Cessation of Liability under Section 41(1):

The second issue concerns the addition of Rs. 58,667/- made by the Assessing Officer under Section 41(1) for remission/cessation of liability. The assessee argued that there was no remission or cessation of liability and that these liabilities were still shown in the books of account. The Tribunal referred to the ITAT Delhi Bench decision in Uttam Air Products (P) Ltd., which held that in the absence of any write-off by the assessee or evidence of the supplier giving up its claim, the liability could not be considered ceased.

Following this precedent, the Tribunal concluded that the CIT(A) was not justified in upholding the disallowance. Therefore, ground No.2 of the assessee's appeal was allowed.

3. Disallowance under Section 14A of the Income-tax Act:

For the assessment year 2007-08, ground No.3 of the appeal involved a disallowance of Rs. 1,91,533/- under Section 14A. No arguments were advanced by the assessee against this disallowance during the hearing, leading the Tribunal to infer that the assessee was not interested in pressing this ground. Consequently, ground No.3 was treated as not pressed and rejected.

For the assessment year 2008-09, a similar ground regarding disallowance under Section 14A amounting to Rs. 1,44,287/- was also not pressed by the assessee, and it was similarly rejected.

Appeals for K.L. Concast Pvt. Ltd.:

The issues in the appeals for K.L. Concast Pvt. Ltd. were similar to those in K.L. Steels Pvt. Ltd., involving disallowance of commission paid to directors. The Tribunal noted that while the commission payment was made for the first time in the assessment year 2007-08, the Assessing Officer had accepted that the payment was for services rendered. Therefore, following the rationale applied in K.L. Steels Pvt. Ltd., the disallowance of commission under Section 36(1)(ii) was deleted for both assessment years 2007-08 and 2008-09.

Conclusion:

In conclusion, the Tribunal allowed the appeals partly for K.L. Steels Pvt. Ltd. (ITA Nos. 4341/Del/2010 and 3985/Del/2011) and fully for K.L. Concast Pvt. Ltd. (ITA Nos. 4340/Del/2010 and 3986/Del/2011). The decisions were pronounced in the open Court on 26/03/2013.

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