Tribunal disallows payment to ex-employee for tax deduction & gifts, expenses not deemed business-related

The Tribunal upheld the disallowances of payment to the ex-employee for non-deduction of TDS under section 40(a)(ia) and expenses on gifts and rewards under section 37(1) of the Income Tax Act, 1961. The Tribunal found the payment to the ex-employee constituted commission, not compensation, and the expenses on gifts and rewards were deemed personal, not wholly and exclusively for business purposes. The miscellaneous application was dismissed, with the Tribunal stating that the arguments presented did not justify a review of the decision.

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Issues Involved:
1. Disallowance of payment to ex-employee for non-deduction of TDS under section 40(a)(ia) of the Income Tax Act, 1961.
2. Disallowance of expenses on gifts and rewards under section 37(1) of the Income Tax Act, 1961.

Analysis:

Issue 1: Disallowance of Payment to Ex-Employee for Non-Deduction of TDS
The assessee filed a miscellaneous application against the Tribunal's order disallowing the payment made to an ex-employee for non-deduction of TDS under section 40(a)(ia) of the Income Tax Act, 1961. The assessee argued that the payment was in the nature of compensation, not commission, and cited relevant case laws to support its plea. However, the Tribunal found that the payment was indeed in the nature of commission, and since TDS was not deducted as required under section 194H, the disallowance was justified. The Tribunal considered the arguments and case laws presented by the assessee but concluded that they were not applicable to the facts of the case, hence dismissing the miscellaneous application.

Issue 2: Disallowance of Expenses on Gifts and Rewards
Regarding the disallowance of expenses on gifts and rewards given to employees, dealers, customers, and other business associates under section 37(1) of the Income Tax Act, 1961, the Tribunal rejected the assessee's arguments. The Tribunal held that such expenses were personal in nature and not incurred wholly and exclusively for the purpose of business. The assessee relied on various decisions, including the case of Hansraj Mathurdas vs ITO, to support its claim that the expenses were business-related due to the payment of Fringe Benefit Tax (FBT). However, the Tribunal found that the expenses did not meet the criteria for business deductions and dismissed the miscellaneous application, stating that the arguments presented did not warrant a review of the decision.

In conclusion, the Tribunal dismissed the miscellaneous application filed by the assessee, upholding the disallowances of both the payment to the ex-employee and the expenses on gifts and rewards. The Tribunal found no prima facie mistake apparent on the record that would warrant rectification under section 254(2) of the Income Tax Act, 1961. The decision was pronounced in open court on 28.07.2020.

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