2015 (8) TMI 1201 - AT - Income Tax

Disallowance u/s 14A - CIT(A) deleted the addition - Held that - Nothing has been brought on record by the AO to hold why the suo moto disallowance made by the assessee u/s 14A on facts could not be accepted. On consideration thereof it is seen that in the peculiar facts and circumstances of the case where the AO has not recorded his finding as to why he was not satisfied by the correctness of assessee s claim of expenditure. No distinguishing facts and circumstances has been pointed out by the Ld. Sr. DR. In assessee s own case in 2008-09 wherein it was held that Rule 8D cannot be applied for want of recording of requisite satisfaction by the AO it was submitted that facts and circumstances being identical, the departmental appeal on identical fact had been dismissed - Decided against revenue. Addition on commission paid to the Managing Director of the assessee company, u/s 36(1)(ii)- Held that - As decided in assessee s own case for 2007-08 & 2008-09 as per section 17(1) of the Act, the term salary includes any, fees, commission, perquisites or profit in lieu salary, All the sums are taxable under the head salary only. These two directors, while filing the return of income, declared not only the salary but commission also as part of income under the head salary The same are assessed as such. Therefore, it is incorrect to hold that bonus or commission shall not form part of salary or remuneration. In accordance with the provisions of section 36(1)(ii) any sum paid to an employee as bonus or commission for services rendered where such sum would, not have been payable to him as profit or dividend if it had not been paid as bonus or commission is allowable. The sum paid to the directors is as an employee of the company. The bonus or commission payable for the services rendered and are in accordance with the terms or employment. The directors are not only shareholders of the company. Therefore, it cannot be said that if the commission was not paid, such sum would have been paid to the employees as profit or dividend. Thus, the exception provided in section 36(1)(ii) do not apply. In such circumstances the amount payable as commission are allowable u/s 36(1)(ii) of the Act. - Decided in favour of assessee.

Summary

Issues:
1. Disallowance under section 14A
2. Disallowance of commission paid to Managing Director under section 36(1)(ii)

Issue 1: Disallowance under section 14A
In this case, the Revenue challenged the deletion of an addition made on account of disallowance under section 14A amounting to Rs. 7,98,763. The Assessing Officer (AO) disallowed this amount considering the assessee's claim of a dividend and long-term capital gain. However, the Commissioner of Income Tax (Appeals) held that the AO made the disallowance without recording any reason, and the disallowance made by the assessee could not be accepted. The CIT(A) referred to various legal precedents and held in favor of the assessee. The Tribunal upheld the CIT(A)'s decision, noting that the AO did not provide a satisfactory explanation for the disallowance, and no distinguishing facts were presented by the Revenue.

Issue 2: Disallowance of commission paid to Managing Director under section 36(1)(ii)
The Revenue contested the deletion of an addition of Rs. 11,00,000 paid as commission to the Managing Director under section 36(1)(ii). The AO disallowed this amount, suspecting it could have been paid as profit or dividend. The assessee argued that the payment was in accordance with the terms of employment and cited past ITAT orders in their favor. The CIT(A) deleted the additions made by the AO based on past decisions and the terms of employment. The Tribunal, considering the consistent view taken in previous years and the absence of any new arguments from the Revenue, upheld the CIT(A)'s decision and dismissed the appeal of the Revenue.

In conclusion, the Tribunal upheld the CIT(A)'s decisions in both issues, emphasizing the lack of proper reasoning by the AO in making the disallowances and the consistency of past decisions in similar cases. The appeals of the Revenue were dismissed, and the orders were pronounced on 19th August 2015.