1978 (9) TMI 109 - AT - Income Tax

Summary

Issues:
Appeal by Revenue against additions made in assessment for asst. yr. 1977-78 including salary to Directors, commission payment to agent, and expenditure on coffee to visitors.

Analysis:
The Revenue appealed against the assessment for the year 1977-78, challenging three additions made by the Income Tax Officer (ITO). The first addition was related to the salary and allowance paid to Directors, which was restricted to 50% due to low profits. The second addition was commission payment to an agent for a new chit series, which the ITO disallowed as not pertaining to the accounting year. The third addition was for coffee provided to visitors. The assessee appealed to the AAC, who ruled in favor of the assessee on all three counts. The AAC held that the Directors' remuneration was sanctioned by the Articles of Association, making the disallowance unwarranted. The agent's commission was deemed admissible as it was paid in the relevant accounting period. The expenditure on coffee for visitors was also considered legitimate due to the business volume and customer base.

The Departmental Representatives contended that high remuneration and commission were unjustified due to business losses. They relied on a precedent to support the disallowance of coffee and tea expenditure. However, the assessee's counsel argued that the Directors' salary was reasonable and supported by resolutions. The traveling expenses component was specifically justified. The Tribunal examined the facts and concluded that the traveling expenses were legitimate and should be fully allowed. The increment in Directors' salaries was nominal and in line with industry standards, warranting no disallowance. The Tribunal upheld the AAC's decision on this matter.

Regarding the commission payment, the Tribunal disagreed with the ITO's view that it did not relate to the accounting period. The agents had already performed services by canvassing for a new business series during the relevant period. Therefore, the full commission amount was deemed admissible. The Tribunal upheld the AAC's decision in this regard. Concerning the expenditure on coffee and tea for visitors, the Tribunal followed a precedent and upheld the AAC's decision, dismissing the Department's appeal.