2021 (7) TMI 237 - AT - Income Tax

Disallowance u/s. 36(1)(ii) bonus and commission paid to the directors as per agreements of appointment - CIT(A) confirming the disallowances of bonus and commission to Directors by stating that these were not linked to any specific service rendered and without going through the facts that the whatever be the nomenclature the remuneration within the prescribed limit as per company law is allowable. - HELD THAT - As bonus and commission paid to the directors paid as per the agreement of their appointment with the assessee; and since amount given to the directors were within the prescribed limit as per the Company Law, the claim of expenditure ought to have been allowed by the AO. As decided in own case 2019 (3) TMI 1894 - ITAT KOLKATA CIT(A) upheld the disallowance on the ground that the agreements are generally worked. In our view, this is not a valid ground to make this disallowance. Agreements are to be understood in such a way in which both the parties to the agreement, desired and understood. Section 36(1)(ii) does not apply in this case. Hence, we allow the grounds of the assessee

Summary

Issues: Disallowance of bonus and commission paid to directors under section 36(1)(ii) of the Income Tax Act, 1961.

Analysis:
The appeal was against the order of Ld. CIT(A)-4, Kolkata for AY 2014. The appellant contested grounds 2 and 3 relating to the disallowance of bonus and commission paid to directors amounting to ?15,99,169. The Ld. AR argued that since the payments were within the prescribed limit as per Company Law, they should have been allowed. Referring to a previous Tribunal decision, the AR emphasized that a similar issue was resolved in favor of the assessee for AY 2013-14, where the Tribunal allowed the claim based on the interpretation of section 36(1)(ii) of the Act. The Tribunal held that the payments made to directors were within the legal limits and not subject to disallowance based on the agreements provided to the Revenue. The Tribunal found the CIT(A)'s reasoning for disallowance invalid and allowed the grounds of the assessee.

The Tribunal noted that since the issue had already been decided in favor of the assessee in a previous case with no change in facts or law, they followed the previous decision and directed the AO to delete the addition of ?15,99,169. Consequently, the appeal was partly allowed, and the order was pronounced on 5th May, 2021.