Tribunal grants appeals to K.L. Steels & K.L. Concast. Disallowance of commission rejected. Section 14A disallowance upheld.

The Tribunal allowed the appeals partly for K.L. Steels Pvt. Ltd. and fully for K.L. Concast Pvt. Ltd. The disallowance of commission paid to the Managing Director under Section 36(1)(ii) was not justified as it was treated as part of the salary, following precedent. The disallowance on account of remission/cessation of liability under Section 41(1) was also rejected. However, the disallowance under Section 14A for both assessment years was upheld as the assessee did not press the grounds.

---

---

Issues Involved:
1. Disallowance of commission paid to the Managing Director under Section 36(1)(ii).
2. Disallowance on account of remission/cessation of liability under Section 41(1).
3. Disallowance under Section 14A of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Disallowance of Commission Paid to the Managing Director under Section 36(1)(ii):

The primary issue revolves around the disallowance of Rs. 75,40,000/- paid as commission to the Managing Director, Shri Raj Kumar Bardeja, by the assessee company. The Assessing Officer disallowed this commission under Section 36(1)(ii), arguing that the payment was not justified. The assessee contended that the commission was part of the salary, and tax was deducted under Section 192, not Section 194H, as previously upheld by the ITAT and the Hon'ble Jurisdictional High Court in earlier years. The assessee cited decisions from the Hon'ble Jurisdictional High Court in AMD Metplast P.Ltd. and Career Launcher India Ltd., asserting that the commission was part of the salary as per the Board's Resolution and disclosed under the head 'salary' in the Managing Director's individual assessment.

The Tribunal found that the facts of the present case were similar to those in AMD Metplast P.Ltd., where the commission was treated as part of the salary, and tax was deducted at source. The Tribunal emphasized that the decision of the Hon'ble Jurisdictional High Court was binding, thus holding that the disallowance of the commission was not justified. Consequently, ground No.1 of the assessee's appeal was allowed.

2. Disallowance on Account of Remission/Cessation of Liability under Section 41(1):

The second issue concerns the addition of Rs. 58,667/- made by the Assessing Officer under Section 41(1) for remission/cessation of liability. The assessee argued that there was no remission or cessation of liability and that these liabilities were still shown in the books of account. The Tribunal referred to the ITAT Delhi Bench decision in Uttam Air Products (P) Ltd., which held that in the absence of any write-off by the assessee or evidence of the supplier giving up its claim, the liability could not be considered ceased.

Following this precedent, the Tribunal concluded that the CIT(A) was not justified in upholding the disallowance. Therefore, ground No.2 of the assessee's appeal was allowed.

3. Disallowance under Section 14A of the Income-tax Act:

For the assessment year 2007-08, ground No.3 of the appeal involved a disallowance of Rs. 1,91,533/- under Section 14A. No arguments were advanced by the assessee against this disallowance during the hearing, leading the Tribunal to infer that the assessee was not interested in pressing this ground. Consequently, ground No.3 was treated as not pressed and rejected.

For the assessment year 2008-09, a similar ground regarding disallowance under Section 14A amounting to Rs. 1,44,287/- was also not pressed by the assessee, and it was similarly rejected.

Appeals for K.L. Concast Pvt. Ltd.:

The issues in the appeals for K.L. Concast Pvt. Ltd. were similar to those in K.L. Steels Pvt. Ltd., involving disallowance of commission paid to directors. The Tribunal noted that while the commission payment was made for the first time in the assessment year 2007-08, the Assessing Officer had accepted that the payment was for services rendered. Therefore, following the rationale applied in K.L. Steels Pvt. Ltd., the disallowance of commission under Section 36(1)(ii) was deleted for both assessment years 2007-08 and 2008-09.

Conclusion:

In conclusion, the Tribunal allowed the appeals partly for K.L. Steels Pvt. Ltd. (ITA Nos. 4341/Del/2010 and 3985/Del/2011) and fully for K.L. Concast Pvt. Ltd. (ITA Nos. 4340/Del/2010 and 3986/Del/2011). The decisions were pronounced in the open Court on 26/03/2013.

---