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2013 (11) TMI 140 - AT - Income TaxDisallowance of commission paid to directors Held that - Following AMD Metplast (P) Ltd 2011 (12) TMI 320 - Delhi High Court - Commission is part and parcel of salary and is subject to tax deduction at source Contrarily, dividend is a return on investment and not salary or part thereof Managing Director and whole time Director (Operations) were paid commission on the basis of duly passed Board Resolution and was in accordance with the provisions of the Companies act. The payment of Commission is necessarily a part of salary as defined in section 17 Decided against Revenue. Disallowance of bad debts written off Held that - With regard to bad debts copies of invoices were furnished by the assessee - As per amendment in section 36, there is no requirement to show that efforts had been made to recover the amounts from debtors Decided against revenue. Disallowance of foreign travel expenses Held that - Since spouses had also accompanied with the directors of the company there must be some element of personal nature in the expenses Decided against assessee.
Issues Involved:
1. Deletion of addition made by AO under section 36(1)(ii) on commission paid to Directors. 2. Deletion of addition made by AO on account of Bad Debts Written Off. 3. Disallowance of foreign travel expenses treated as personal. Detailed Analysis: 1. Deletion of Addition on Commission Paid to Directors: The revenue contested the deletion of Rs. 48,16,429/- added by the AO under section 36(1)(ii) for commission paid to Directors. The AO argued that the commission was a means to avoid tax, as it would have been taxable if paid as dividends. The assessee countered that the commission was a legitimate business expense, justified by the directors' qualifications and contributions, and was authorized by the Board of Directors. The CIT (A) accepted the assessee's argument, noting that the commission was part of the directors' remuneration and was tax neutral since both the company and directors were in the highest tax bracket. The Tribunal upheld the CIT (A)'s decision, referencing the case of AMD Metplast (P) Ltd. vs. DCIT, where similar circumstances led to the conclusion that commission payments were genuine business expenses. 2. Deletion of Addition on Bad Debts Written Off: The revenue appealed against the deletion of Rs. 15,77,102/- added by the AO for bad debts written off. The AO argued that the assessee did not provide evidence of efforts to recover the debts. The assessee contended that post-1989 amendments to section 36(1)(vii) removed the requirement to show recovery efforts, only necessitating that bad debts be written off in the books. The CIT (A) agreed with the assessee, referencing the Supreme Court judgment in TRF Limited vs. CIT, which supported the assessee's position. The Tribunal upheld the CIT (A)'s decision, confirming that the write-off met the conditions of section 36(1)(vii) and (2). 3. Disallowance of Foreign Travel Expenses: The assessee filed a cross objection regarding the disallowance of Rs. 1,40,685/- (20% of foreign travel expenses) by the AO, which was upheld by the CIT (A). The AO disallowed the expenses, suspecting a personal element since directors were accompanied by their spouses. The assessee argued that the travel was entirely for business purposes, providing detailed itineraries and meeting schedules. However, the Tribunal agreed with the CIT (A) and AO, noting that the presence of spouses indicated a personal element, justifying the disallowance. Conclusion: The Tribunal dismissed both the revenue's appeal and the assessee's cross objection, upholding the CIT (A)'s decisions on all counts. The commission paid to directors was deemed a legitimate business expense, the bad debts write-off was valid under amended section 36(1)(vii), and the disallowance of foreign travel expenses due to personal elements was justified.
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