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Income Tax Appellate Tribunal, DELHI BENCH “G”, NEW DELHI
Before: SH. N. K. SAINI & SMT. BEENA A. PILLAI
ORDER PER BEENA A. PILLAI, JM:
The present appeal has been filed by assessee as well as revenue against order dated 11.11.2013 passed by Ld. CIT(A)- XI for assessment year 2010-11 on the following grounds of appeal:
1. “On the facts and circumstances of the case, the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.1,51,61,188/- made by the AO on account of commission paid to Managing Director and whole time director u/s 36(l)(ii) of the Income Tax Act, 1961” 2. “On the facts and circumstances of the case, the Ld. CIT(A) has erred in law and on facts in deleting the addition on account of foreign travelling expenses made by the AO by treating the same as personal in nature." 3. "On the facts and circumstances of the case, the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.6,76,6557- made by the AO on account of being Credit balance written off". 4. "The appellant craves to amend modify, alter, add or forego any ground of appeal at any time before or during the hearing of this appeal." ITA No. 650/del/2014
1. The learned CIT(A) erred in law and on facts in uphold the disallowing Rs. 3,00,000 out of the HRA of Rs.1202400/- paid to Managing Director as excessive in nature.
Brief facts of the case are as under:
Assessee is a Private Limited Company engaged in the business of manufacture of fine and tube type cooling and condensing coils of all types of air conditioners and refrigerators. Assessee filed its return of income on 27.09.2010 at Rs.16,66,81,360/- which was subsequently revised on 05.10.2010. The case was selected for scrutiny and notice under section 143(2) was sent to assessee. Ld. AO while completing the assessment made the following additions:
Particulars Amount (Rs) Reasons considered by AO for disallowance 1,51,61,188 Commission paid to Disallowed u/s 36(l)(ii) Managing director /whole time director Out of foreign travel expenses 1,79,704 Held personal in nature Credit balance written back 74,943 Written back trading liability is the deemed income u/s 41(1) 3,00,000 Out of HRA paid to Held as excessive u/s 40A(2)(b) Managing Director
Aggrieved by order of Assessing Officer assessee preferred an appeal before Ld. CIT(A). Ld. CIT(A) deleted the addition made by AO in respect of the commission paid to the managing director, travel expenses incurred by assessee and the credit balance that was written off in the profit and loss account. However, Ld. CIT(A) confirmed the addition on account of HRA paid to the managing director as excessive in nature.
Aggrieved by the order passed by Ld. CIT(A) assessee as well as revenue is in appeal before us now.
Ground No. 1 (revenue’s appeal)
At the outset Ld. AR submitted that ground No. 1, stands covered by the order of Hon’ble High Court in the case of assessee for assessment years 2008-09 and 2009-10, he referred to order of Hon’ble High Court in placed at page 1 to 2 of the paper book. Hon’ble High Court vide order dated 19.07.2013 has observed as under:
“This appeal, which relates to Assessment Year 2008- 09, has to be (Jismissed in view of the decision of the Delhi High Court in AMD Metplast Private Limited versus DC1T, (2012) 341 1TR 563 (Del.). The respondent, M/s Spirotech Heat Exchangers Private Limited had paid commission to the Managing Director/Director (Operations)! The contention of the Revenue is that the said amount is hit and covered under Section 36(l)(ii) of the Income Tax Act, 1961. The respondent-assessee had 12 shareholders and payment has been made to the Managing Director/Director (Operations) in terms of resolution passed by the Board of Directors. The payment made is for the work done and performed by them. The commission paid was for services rendered and as per terms of employment. This cannot and could not have been paid as dividend or bonus. Similar view has been taken by the Delhi High Court in Commissioner of Income Tax-I versus CIT Shipbrokers Private Limited (ITA no. 672/2012 decided on 7th December, 2012. The appeal is dismissed in limine.” 5. Ld. DR on the contrary relied upon the order passed by assessing officer.
We have perused the submissions advanced by both the sides in the light of the documents placed on record.
It is observed that it is in assessee’s own case accountable High Court has allowed the commission paid to the managing director for the services rendered as per the terms of the employment. As the revenue has not brought any distinguishing factor to deviate from the decision of Hon’ble High Court, respectfully following the same we dismiss ground No. 1 raised by revenue.
Ground No. 2
In respect of the addition that has been deleted by Ld. CIT(A) made on account of foreign travelling expenses treating the same as personal in nature.
Ld. DR relied upon the orders passed by the assessing officer.
Ld. AR submitted that assessee incurred Rs. 8,98,520/- on account of foreign travelling during the year by the directors. The statement of the foreign travel expenses has been filed along with details of directors, their passport copies, copies of bills of expenses and the comparative party wise detail of the export sales made by the assessee during the year under consideration as well as the preceding years were filed before Ld. CIT(A). It has been submitted by Ld. AR that the addition made by assessing officer was on an ad hoc basis.
Ld. AR supported the order passed by Ld. CIT(A).
We have perused the submissions advanced by both the sides and the light of the documents placed on record before us.
Assessing officer in his order has recorded a finding that the assessee has furnished details of the managing director and director operations along with supporting documents. He has also admitted that the directors have travelled abroad for participation in an exhibition. The Assessing Officer further observed that on their visit to Germany for participating in exhibition, the directors have travelled to Canada and UAE. The purpose of travelling to Canada & UAE was not made clear, due to which Ld. AO treated the same as personal visits and had disallowed 20% of total travel expenses amounting to Rs.1,79,704/-. Before Ld. CIT(A) it is recorded that all the details relating to travel of all directors along with the bills and vouchers and passports have been tendered before Ld. CIT (A). Ld. CIT(A) on verification of the details have observed that none of the family members has been accompanying directors. There has been no contrary evidence is that has been brought on record by Ld. AO regarding any personal touch to the foreign travel expenses. It appears that Ld. AO without there being cogent material has made addition on mere surmises. Accordingly, we are inclined to uphold the findings of Ld. CIT(A).
In the result the ground raised by the revenue stands dismissed Ground No. 3
This ground has been raised by the revenue against the addition being deleted in respect of the credit balance written back.
At the outset Ld. AR submitted that this issue stands covered in favour of assessee by the order of this Tribunal for assessment year 2008-09 and 2009-10. It has been submitted by Ld. AR that the credit balance written off a is Rs.74,943/- instead of Rs.6,76,655/- being a typographic error in the grounds raised by revenue.
It has been submitted that this mistake while regarding figure has crept in from order of this Tribunal for assessment year 2009-10. Ld. AR relied upon the orders of Ld. CIT (A).
We have perused the submissions advanced by both the sides and the light of the records placed before us.
It is observed from the order passed by Ld. CIT(A) that during the year under consideration, there was a net write off Rs. 67,547/-. It is observed from order of Ld. CIT(A) that bad debts written off was Rs.1,42,490/- which are credit balance that has been written off amounts to Rs.74,943/-. These debts consists of outstanding, from the parties for sales. An identical issue has been decided by this Tribunal in assessee’s own case on similar facts for assessment year 2008-09 and 2009-10. Ld. CIT(A) has observed that assessee has shown the net amount of bad debts in the profit and loss account claiming the net expenses. It has been observed that assessee has included the credit balance written back in its income. It is on the similar principle that this Tribunal for assessment year 2008-09 and 2009-10 in assessee’s own case in with CO No. 234/Del/2011 and 5362/Del/2012 respectively, has allowed the claim of the assessee. This Tribunal has observed as under:
“11. We have carefully considered the submissions of both the sides and perused the material placed before us. So far as the addition for cessation of liability is concerned, we are of the opinion that the assessee itself has considered the cessation of liability as its income. Therefore, no further addition can be made. So far as allowability of bad debts is concerned, Hon'ble Apex Court in the case of T.R.F. Limited (supra) held as under:-
After the amendment of section 36(1)(vii) of the Income- tax Act, 1961, with effect from April 1, 1989, in order to obtain a deduction in relation to bad debts, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable : it is enough if the bad debt is written off as irrecoverable in the accounts of the assessee.
12. Therefore, the only requirement for allowability of the bad debts is that the assessee should write off the bad debts as irrecoverable in its accounts in the relevant year. Admittedly, the assessee has written off the bad debts to the extent of Rs. 2,59,041/- by way of debit to the profit & loss account. Therefore, in view of the above decision of Hon'ble Apex Court, the assessee was entitled to claim of bad debts debited to the profit & loss account. Moreover, there cannot be more disallowance than what is actually debited to the profit & loss account. In this case, debit to the profit & loss account was only for Rs. 2,59,041/- while the Assessing Officer made the disallowance of Rs. 9,35,706/-, at the same time also making separate addition for the cessation of liability. Be that as it may, we are of the opinion that the assessee is entitled to the deduction of bad debts in view of the above decision of Hon'ble Apex Court in the case of T.R.F. Limited. We, therefore, do not find any merit in ground Nos.3 & 4 of the Revenue's appeal. The same are rejected.”
Respectfully following the same, we uphold the order passed by Ld. CIT(A). Accordingly, ground raised by revenue stands dismissed.
In the result appeal filed by the revenue stands dismissed.
ITA No. 650/del/2014 (assessee’s appeal)
The only ground raised by assessee is in respect of disallowance upheld by Ld. CIT(A) in respect of HRA paid to the Managing Director as excessive in nature.
Ld. AR submitted that this addition has been made by Assessing Officer for the first-time under section 40A(2)(a) of the Act. Ld. AR submitted that HRA remunerated to directors, is inclusive of the package structure. It has been submitted that as assessee has not provided residential accommodation to its managing director instead it pays 60% of the basic salary as HRA, keeping in view of the total cost to the company package cost which is as per the policy laid down by the company. Ld. AR has submitted that HRA paid to Directors are supported by the resolution passed by assessee.
On the contrary Ld. DR is relied upon the orders of the authorities below.
We have perused the submissions advanced by both parties in the light of the records placed before us.
It is observed that Ld. CIT(A) has upheld addition made by AO on an assumption that the assessee is providing undue benefit to the directors in the shape of high rentals. There has been no adverse material/finding/evidence that has been brought on record by Assessing Officer based on which such assumption can be made out. In any event, HRA paid to the directors will be considered as perquisites in the hands of Directors. There cannot be evasion of tax as the directors are paying tax on the perquisites received. We are setting aside this issue to Ld. AO to verify whether such income has been treated as prerequisite in the hands of the Directors and to allow the same in the hands of assessee. Accordingly, the ground raised by the assessee stands allowed for statistical purposes.
In the result appeal filed by the assessee stands allowed.
Order pronounced in the open court on _____ February, 2017.