2018 (3) TMI 1347 - AT - Income Tax

Appeal dismissed, cross objection partly allowed. Commission disallowance upheld, foreign travel expenses justified, excessive HRA remanded.

DCIT Circle-9 (1) New Delhi Versus Spirotech Heat Exchangers (P) Ltd. And Vice-Versa

The Revenue's appeal was dismissed, and the cross objection of the assessee was partly allowed for statistical purposes. The ITAT upheld the CIT(A)'s ... Disallowance of Commission paid to the Managing Director u/s 36(1)(ii) - Held that:- As decided in assess'e own case Hon’ble High Court held that the disallowance made on account of commission to Managing Director and to a whole time Director under Section 36(1)(ii) of the Act was correctly deleted by the ITAT. Disallowance of excess HRA paid to Managing Director - Held that:- The same is also decided by the ITAT for A.Y. 2010-11. In present Assessment Year also the Assessing Officer made assumption that the assessee is providing undue benefit to the directors in the shape of high rentals and there was no adverse material/finding/evidence pointed out by the Assessing Officer. In fact, the HRA paid to the directors have to considered as perquisites in the hands of the Directors. Therefore, following the earlier decision of the ITAT we set aside this issue to Assessing Officer to verify whether such income has been treated as perquisites in the hands of the Managing Director and decide the issue accordingly. Issues:1. Disallowance of commission paid to Managing Director under section 36(1)(ii) of the Income Tax Act, 1961.2. Disallowance of foreign travel expenses of directors as personal in nature.3. Disallowance of excessive House Rent Allowance (HRA) paid to Managing Director.Analysis:Issue 1: Disallowance of Commission Paid to Managing DirectorThe appeal and cross objection were filed against the order passed by CIT(A) for Assessment Year 2011-12. The Assessing Officer disallowed the claim of commission paid to the directors under Section 36(1)(ii) of the Income Tax Act, 1961, stating that it was diverted profit that should have been paid as dividend. The CIT(A) partly allowed the appeal of the assessee. The Revenue appealed against this decision. The ITAT upheld the CIT(A)'s decision based on previous judgments in favor of the assessee for other assessment years, stating that the disallowance made on account of commission to Managing Director was correctly deleted by the ITAT in previous cases.Issue 2: Disallowance of Foreign Travel ExpensesThe Assessing Officer made an ad-hoc disallowance of foreign travel expenses of directors as personal in nature. The CIT(A) partly allowed this disallowance based on the ITAT's decision in the assessee's own case for a previous assessment year. The ITAT considered that in the present assessment year, there was no travel with the family, and thus, the disallowance was not justified. The cross objection filed by the assessee on this issue was allowed.Issue 3: Disallowance of Excessive HRA Paid to Managing DirectorThe Assessing Officer disallowed a portion of the HRA paid to the Managing Director as excessive. The CIT(A) upheld this disallowance. However, the ITAT set aside this issue to the Assessing Officer to verify if the HRA paid to the directors should be considered as perquisites in their hands. The ITAT directed the Assessing Officer to decide the issue after providing the assessee with an opportunity of hearing following principles of natural justice. The cross objection filed by the assessee on this issue was partly allowed for statistical purposes.In conclusion, the appeal of the Revenue was dismissed, and the cross objection of the assessee was partly allowed for statistical purposes. The ITAT's decision was based on previous judgments and the specific circumstances of the case regarding the disallowed expenses and allowances.