2019 (7) TMI 1916 - AT - Income Tax

Disallowance u/s 14(A) read with Rule 8D - HELD THAT - During the year, the AO has acted in accordance with the provisions applicable to the assessment year 2008-09 2011 (8) TMI 749 - ITAT DELHI onwards and determine the disallowance in accordance with the provisions of Rule 8D(2). Both the parties fairly accepted for the facts on record. Hence, we decline to interfere with the order of the Ld. CIT(A) on this ground. Disallowance u/s 36(1)(ii) of bonus paid to Directors - HELD THAT - As relying on own case 2019 (3) TMI 277 - ITAT DELHI allowability of expenditure on account of bonus or commission u/s 36(1)(ii) is concerned, it applies to all employees including shareholder employees. The disallowability is restricted only shareholders as only in those cases, payment could be in lieu of profit or dividend. The special bench, therefore, rejected the arguments of the assessee that the provisions of Section 36(1)(ii) apply only to non shareholder employees. The legal position is that any expenditure on account of payment of commission to an employee will be allowable as deduction under the provisions of Section 36(1)(ii) irrespective of the fact whether the employee is a shareholder or not or whether the commission has been paid for some extra services or for the some services. Only condition is that the payment is not in lieu of dividend. In case extra services have been rendered for payment of commission, it will be one of the relevant factors to consider while deciding whether the case is covered by exception provided in Section 36(1)(ii) i.e., whether the payment of commission is in lieu of dividend. According to us, both the directors would have got the above amount of dividend had there not been any payment of such bonus or commission by the assessee company. Further the claim of the assessee that the issue has been squarely covered by the decision of the coordinate bench in assessee s own case for the assessment year 200-08 is also of no consequence as noted by the learned CIT appeal that the disallowance was under section 40A (2) of the act in that year - we hereby confirm the addition made by the Assessing Officer.

Summary

Issues:
1. Disallowance under section 14(A) read with Rule 8D of the Income Tax Rules, 1962.
2. Disallowance under section 36(1)(ii) of bonus paid to Directors.

Issue 1: Disallowance under section 14(A) read with Rule 8D of the Income Tax Rules, 1962:

The assessee earned dividend income and interest on tax-free bonds claimed as exempt. The Assessing Officer (AO) disallowed a sum under section 14A of the IT Act r.w. Rule 8D of IT Rules. A co-ordinate Bench held that Rule 8D was inapplicable for the relevant assessment year. The AO was directed to make the disallowance under Section 14A after considering all facts. The AO determined the disallowance in line with Rule 8D(2) applicable from 2008-09 onwards. Both parties accepted the facts, leading to no interference with the CIT(A)'s order.

Issue 2: Disallowance under section 36(1)(ii) of bonus paid to Directors:

The AO disallowed a bonus paid to Directors under section 36(1)(ii). The matter was previously adjudicated for the assessment year 2011-12. The decision highlighted that the bonus or commission paid was not allowable as a deduction under section 36(1)(ii) since it would have increased the company's profit. The case distinguished from precedents, emphasizing the unique circumstances. Various decisions and legal positions were discussed, emphasizing that payment of commission to an employee, including shareholder employees, could be allowed as a deduction under Section 36(1)(ii) if not in lieu of dividend. The Tribunal confirmed the addition made by the AO, as the issue had been previously adjudicated, with no material changes. Consequently, the appeal was dismissed.

In conclusion, the Tribunal upheld the disallowances made by the AO under sections 14(A) and 36(1)(ii) in the absence of any material changes or new evidence. The decision was based on legal interpretations, precedents, and specific circumstances related to the disallowances, leading to the dismissal of the assessee's appeal.