9911796707
TMI Blog1978 (7) TMI 188X X X X Extracts X X X X X X X X Extracts X X X X ..... th the assessee company at the club. The AAC found that the distribution of the products of the assessee is done by the firm M/s. Patel Kamani Agencies, Jamshedpur as a sole distributor. The AAC confirmed the disallowance of Rs. 2,779 agreeing with the ITO that these are entertainment expenses in the club. 4. The learned Departmental Representative has submitted that the amount of Rs. 2,779 was spent on entertainment in the club and so it is not allowable expenditure. 5. The learned counsel for the assessee has filed a statement which shows that in the asst. yrs. 1973-74, 1974-75 and 1975-76 the assessee claimed total expenses of Rs. 12,747, Rs. 15,708 and Rs. 14,707 and these expenses were allowed in full by the ITO. Now, in the asst. yr. 1976-77, the assessee claimed expenses of Rs. 19,517 and the amount of Rs. 2,779 has been disallowed by the ITO which was paid for servicing coco-cola, tea, other drinks etc. to customers/dealers. The learned counsel for the assessee has contended that the amount of Rs. 2,779 will come to an expense of less than Rs. 8 per day and so the amount should be allowed in view of the fact that the assessed income is at Rs. 9,36,750. The learned cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Rs. 114 lacs in 1976-77. It was submitted before the AAC that Shri N.D. Kamani is a commerce graduate and has also successfully completed courses from X.L.R. I, Jamshedpur. 8. The AAC held that Shri N.D. Kamani left the college in 1971 and ever since his whole time occupation is with the assessee company. He also held that there was no justification to have aggregate payment of about Rs. 40,000 in a year on account of salary and commission on sales to Shri N.D. Kamani. The AAC held that the increase in sales over the past two years to the present level cannot by itself justify payment of such a fabulous remuneration and commission. He also held that no doubt the services rendered by Shri N.D. Kamani have helped the company to make a good deal of progress and Shri N.D. Kamani had fairly high degree of education. However, he held that the essential test in regard to the reasonableness of remuneration is whether in view of his experience, education and abilities, a payment of about Rs. 40,000 during one year would be justified. The AAC held that the question for consideration is whether he could command almost the same remuneration in the present day job market if these are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not justified. He has also pointed out that the Managing Director, a lady who looked after the office administration was paid a remuneration of Rs. 30,000 which was accepted and allowed by the Department and so the remuneration of Rs. 18,000 only paid to the Director Shri N.D. Kamani was very low and so the total amount of Rs. 18,000 plust Rs. 21,258 paid to Shri N.D. Kamani should be held to be reasonable. 11. The learned counsel for the assessee has filed a copy of the minutes of the meeting of the company held on 20th March, 76 at 2.30 p.m. which shows that Mrs. Kusumlata D. Kamani informed the Board that during the year 1975-76 most of the sales promotion work which was earlier handled by Mrs. Kusum D. Kamani had been substantially looked after by Mr. N.D. Kamani alone and so she did not claim the commission and waived her right and then the same was to be paid to Sri N.D. Kamani. A special resolution dt. 17th Jan., 1975 shows that Mrs. Kusumlata D. Kamani and Mr. Niranjan D. Kamani were allowed to receive commission @ Rs. 0.02 per case of all products of bottling unit with effect from 1st April, 1974. 12. Now the question is whether the commission paid should be allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of business or Profession." If in the opinion of the ITO any such expenditure is excessive or unreasonable having regard to the legitimate business needs of the company and the benefit derived by or accruing to it therefrom. 17. The learned counsel for the assessee has submitted that by giving remuneration to Shri N.D. Kamani, the assessee was not getting any benefit. He has filed the assessment order of Shri Niranjan D. Kamani for the asst. yr. 1976-77 which shows that he has been assessed on a total income of Rs. 69,220 and the tax payable will be 66 per cent. He has submitted that in the case of the assessee-company, the tax payable will be lesser amount. However, this cannot be a basis for the Tribunal to allow the entire claim of the assessee. The AAC has pointed out that Shri N.D. Kamani is already receiving salary of Rs. 18,000 and over and above, he has been paid a commission of Rs. 21,258. It cannot be doubted that Shri N.D. Kamani is looking after the sales promotional works and so some incentive by way of commission is needed to him. However, the commission of Rs. 21,258 appears to be excessive. We hold that for the legitimate business needs, the company could have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the circumstance that no specific item of disallowable nature has been pointed out by the lower authorities, we hold that the addition of Rs. 500 was not justified. We therefore delete the addition of Rs. 500. 24. The next ground of the assessee relates to the disallowance of Rs. 22,211 relating to the bad debt. The assessee claimed a sum of Rs. 22,211 as bad debt. It was stated before the ITO that the sum was given as advance and was considered good upto the year 1969 and legal steps were taken to recover the same but there is no trace of the party and so it was written off. The assessee also filed a copy of advocate's letter to the assessee in which the Advocate stated that no claim was filed against this firm as there was no trace of the firm. The ITO took the view that the firm could have been traced or atleast the proprietor of the firm could be traced when the full details were available. He, therefore, disallowed the amount of Rs. 22,211. 25. On appeal before the AAC it was pointed out that the entire claim relates to one account of Acta Engg. Corp., Jamshedpur. The assessee claimed before the AAC that the said party closed down its business and left the town without l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also submitted that the income for the asst. yr. 1973-74 was assessed by the ITO at Rs. 7,28,780 and the income for the asst. yr. 11976-77 was assessed by the ITO at Rs. 9,36,750 and the assessee being a private company, the rate of tax in both the years was the same and so there was no benefit or reason for postponing the write off of the debt from 1973-74 to 1976-77 except that the assessee had hope of realisation of the amount. 28. We have heard both sides on the matter. We find that the assessee has not produced any evidence to show that it was making efforts to recover the amount and so it has to be held that the claim became barred in the asst. yr. 1973-74. 29. The learned counsel for the assessee has relied on the case of T.S. PL.P. Chidambaram Chettiar vs. CIT Madras(5). However, the facts of the case will not be helpful in the case of the assessee. In the present case, the assessee has in the alternative admitted that the claim became time barred on 15th Jan., 73 and then the assessee has not able to place any material to show that the assessee took any action in this connection. 30. The AAC has held that it is a bad debt but the claim is time barred by limitation a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in making any deduction for bad debt or part thereof, the following provisions shall apply: (i) no such deduction shall be allowed unless such debt or part thereof (a) has been taken into account in computing the income of the assessee of that previous year, or of an earlier previous year or represents money lent in the ordinary course of the business of banking or money lending which is carried on by the assessee, and (b) has been written off as irrecoverable in the account of the assessee for that previous year. 35. We have already pointed out above that the asst. yrs. 1970-71 and 1971-72 the payments were made to Acta Engineering Group Jamshedpur for business purposes and the Acta Engineering Group was supplying wooden shells to the assessee and that this was done in the regular course of the business and it has to be held that in these assessment years, the amounts were considered and so we have to find out as to when debt became bad. We have already pointed out above that the debt became bad in the asst. yr. 1973-74 and so it was wrongly claimed in the asst. yr. 1976-77. 36. S. 36(2)(iv) of the said Act lays down that where any such debt or part of debt is written off ..... X X X X Extracts X X X X X X X X Extracts X X X X
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