2018 (4) TMI 1274 - AT - Income Tax

Addition on account of amount paid to Directors of the company as commission and exgratia - allowable expenditure u/s 36(1)(ii) as well as section 37(1) - CIT-A allowed the claim - Held that - AO has not established that such commission or exgratia paid to directors, who are also shareholders, was payable as profits or dividend of the company, therefore, the same cannot be disallowed u/s 36(1)(ii) of the Act. There is no change in the present assessment year also, therefore, we are expected to follow the orders of earlier years, resultantly, we find no infirmity in the conclusion drawn by the Ld. CIT(A), consequently, this ground of the Revenue is dismissed. Addition on account of profit received on sale of car - as per AO section 50(1) clearly state that any receipt arising from the transfer of short term capital asset shall be deemed to be the capital gains - CIT-A deleted the addition - Held that - The block of asset was perused by the Ld. CIT (A) and finally it was found that the assessee has deducted the sale value of the vehicle from the written down value of the concerned block of asset and duly complied with the provision of the Act and, therefore, claimed lesser depreciation on such block in the year. We find no infirmity in the conclusion drawn by the Ld. CIT (A) more specifically when the assessee correctly computed short term capital gain as Rs. Nil in the case of depreciable asset as per the provision of section 50 of the Act. - Decided against revenue

Summary

Issues:
1. Deletion of addition on account of commission and ex-gratia paid to Directors.
2. Deletion of addition on account of club expenses.
3. Treatment of profit on sale of a vehicle as short term capital gain.

Issue 1: Deletion of addition on account of commission and ex-gratia paid to Directors:
The Revenue contested the deletion of additions made on account of commission and ex-gratia paid to Directors, claiming it was not allowable under section 36(1)(ii) and section 37(1) of the Income Tax Act, 1961. The Assessing Officer disallowed these payments, considering them as not deductible. However, the CIT (A) deleted these additions for AYs 2011-12 & 2012-13, citing precedents and the nature of the payments as remuneration. The Tribunal upheld the CIT (A)'s decision, emphasizing consistency in previous rulings and the nature of the payments as remuneration, not dividends or profits. The Tribunal found no illegality in the CIT (A)'s decision and dismissed the Revenue's appeals.

Issue 2: Deletion of addition on account of club expenses:
The Assessing Officer disallowed club expenses claimed by the assessee, stating they were not incurred wholly and exclusively for business purposes. However, the CIT (A) deleted this addition, citing similar decisions in previous years and the business nature of the expenses. The Tribunal agreed with the CIT (A), finding no reason to disallow the expenses related to customer entertainment during business meetings. The Tribunal dismissed the Revenue's appeals on this issue for AY 2011-12.

Issue 3: Treatment of profit on sale of a vehicle as short term capital gain:
The Revenue challenged the treatment of profit on the sale of a vehicle as business income instead of short term capital gain under section 50(1) of the Act. The Assessing Officer made an addition based on this discrepancy. However, the CIT (A) found the assessee correctly computed the short term capital gain as per the Act and dismissed the addition. The Tribunal upheld the CIT (A)'s decision, stating no merit in the Revenue's appeal on this ground. Consequently, the Tribunal dismissed the Revenue's appeal on this issue.

In conclusion, the Appellate Tribunal ITAT DELHI upheld the decisions of the CIT (A) in deleting additions related to commission and ex-gratia payments to Directors, club expenses, and the treatment of profit on the sale of a vehicle. The Tribunal emphasized precedents, the nature of the payments, and compliance with relevant tax provisions in its rulings.