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2014 (2) TMI 466 - AT - Income TaxDeletion made on account of commission to Managing Director Held that - The decision in DCIT, Circle 9 (1), New Delhi Versus M/s. Spirotech Heat Exchangers Pvt. Ltd. 2013 (11) TMI 140 - ITAT DELHI and AMD Metplast (P) Ltd 2011 (12) TMI 320 - Delhi High Court followed - Commission is part and parcel of salary and is subject to tax deduction at source Contrarily, dividend is a return on investment and not salary or part thereof Managing Director and whole time Director (Operations) were paid commission on the basis of duly passed Board Resolution and was in accordance with the provisions of the Companies act. The payment of Commission is necessarily a part of salary as defined in section 17 - the payment of commission was paid to Managing Director and Director (Operations) as per their terms of appointment as is apparent from Board Resolution - the payment of commission was a genuine business expenditure and there was no reason to interfere in the order of CIT(A) Decided against Revenue. Deletion on account of foreign travelling expenses Held that - Spouses had also accompanied with the directors of the company there must be some element of personal nature in the expenses the AO had rightly made disallowance of 20% out of foreign travel expenses the order of the CIT(A) set aside Decided in favour of Revenue. Deletion of bad debts written off 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 Relying upon TRF. LTD. Versus COMMISSIONER OF INCOME-TAX 2010 (2) TMI 211 - SUPREME COURT - the assessee was entitled to claim of bad debts debited to the profit & loss account - there cannot be more disallowance than what is actually debited to the profit & loss account - the assessee is entitled to the deduction of bad debts decided against Revenue.
Issues:
1. Addition on account of commission to Managing Director. 2. Addition on account of foreign traveling expenses. 3. Addition on account of bad debts written off. 4. Addition on account of cessation of liabilities. Issue 1: Addition on account of commission to Managing Director The Revenue appealed against the deletion of the addition on account of commission to the Managing Director. The ITAT upheld the decision of the CIT(A) based on the precedent from the previous year and the decision of the Hon'ble Delhi High Court. It was established that the commission paid to the Managing Director was a genuine business expenditure in accordance with the terms of appointment and the Companies Act. The ITAT found no reason to interfere with the CIT(A)'s order, as the facts were identical to the preceding year. The appeal on this ground was dismissed. Issue 2: Addition on account of foreign traveling expenses The Revenue contested the deletion of the addition on account of foreign traveling expenses. The ITAT reversed the CIT(A)'s decision based on the precedent from the previous year. It was noted that 20% of the total foreign travel expenses had been disallowed by the Assessing Officer, considering the personal nature of some expenses. The ITAT upheld the decision of the Assessing Officer, citing similar facts to the preceding year. Issue 3: Addition on account of bad debts written off Regarding the bad debts written off and cessation of liabilities, the Revenue challenged the deletion of these additions. The ITAT analyzed the deductions claimed by the assessee and the Assessing Officer's disallowances. Referring to the decision of the Hon'ble Apex Court, it was established that bad debts need to be written off in the accounts to be allowable. The ITAT found that the assessee had correctly accounted for the bad debts and cessation of liabilities, and no further additions were warranted. The appeal on these grounds was rejected. In conclusion, the ITAT partly allowed the Revenue's appeal, upholding the addition on foreign traveling expenses but rejecting the additions related to bad debts and cessation of liabilities. The decision was pronounced in open court on 8th August 2013.
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