2014 (7) TMI 1314 - AT - Income Tax

Commission paid to Directors - HELD THAT - The first two directors namely Shri Umesh Srivastava and Ms. Suman Srivastava are holding shares to the extent of 19.8% and 122.4% respectively. These directors are engineers and Management graduates and are having experience of 50 years and 15 years respectively. In respect of these two directors the Tribunal in assessment years 2005-06 and 2006-07 had held in favour of the assessee. Besides the above Tribunal order in the earlier years a number of judgements has been relied upon by the A.R. before Ld. CIT(A) which hold that payment to directors in the form of commission is covered by the definition of remuneration. The Hon ble Supreme Court in the case of Gestetner Duplicators Ltd. Vs CIT 1978 (12) TMI 1 - SUPREME COURT has held that commission paid at a fixed percentage on the turnover is nothing but payment as salary - the commission paid by the assessee would clearly fall within the expression salary . Similarly Hon ble Gujarat High Court in the case of CIT Vs Rohit Mills Ltd. 1995 (10) TMI 23 - GUJARAT HIGH COURT held that the commission paid to directors is distinctly remuneration paid for the services rendered by him. Even if it is not covered by the definition of remuneration it would be covered by any benefit resulting directly or indirectly to such director at the cost of the company. In view of the above judicial precedents we hold that the disallowance of commission was not warranted Depreciation of Computer Peripherals printer and UPS - HELD THAT - Since the expenditure is with regard to the computer peripherals printers UPS which can not be used stand alone therefore in view of the decision relied upon by the appellant agree that in the facts and circumstances of the appellant s case he is entitled for depreciation @ 60% . Disallowance on account of advances reimbursables written off - HELD THAT - Appellant has credited both the fees as well as out of pocket expenses to the Profit and loss account hence Assessing Officer s observation is not correct that debt has not been taken into account while computing the income. Further in view of the accounting treatment regularly followed by the appellant and by relying on the judgement of Apex Court in the case of TRF Limited Vs CIT 2010 (2) TMI 211 - SUPREME COURT the claims of bad debt is allowed Disallowance u/s 14A - HELD THAT - We are of the opinion that fixed maturity plans offered by mutual funds definitely require much less professional expertise as compared for making investments in equity related schemes and therefore less expenditure is involved in managing such schemes. Moreover before upholding partial disallowance u/s 14A Ld. CIT(A) should have considered the submissions of assessee that a part of investments were not for earning dividends but were strategic investments. In view of the above we are of the opinion that the issue of disallowance be readjudicated by the Assessing Officer and the AO should decide the disallowance on the basis of his objective findings after giving a reasonable opportunity to the assessee of being heard. In view of the above the appeal of the assessee is allowed for statistical purposes

Summary

Issues Involved:
1. Disallowance of commission paid to Directors.
2. Depreciation on computer peripherals.
3. Writing off of advances and reimbursable amounts.
4. Disallowance under Section 14A of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Disallowance of Commission Paid to Directors:
- Assessment Year 2008-09 (I.T.A.No. 1672/Del/2012): The assessee contested the disallowance of Rs. 1,05,02,874/- paid to Directors as commission. The Tribunal referred to its own decision for the assessment years 2005-06 and 2006-07, where similar payments were allowed. The Tribunal noted that the directors held significant shares and had substantial experience. Citing judicial precedents, including the Hon'ble Supreme Court's decision in Gestetner Duplicators Ltd. Vs CIT, the Tribunal concluded that commission paid to directors is a form of remuneration and thus allowed the appeal of the assessee.
- Assessment Year 2009-10 (I.T.A.No. 4706/Del/2012): The Revenue's appeal against the deletion of Rs. 1,07,50,748/- commission paid to Directors by the CIT(A) was dismissed. The Tribunal upheld its previous ruling that such payments constitute remuneration.

2. Depreciation on Computer Peripherals:
- Assessment Year 2008-09 (I.T.A.No. 2584/Del/2012): The CIT(A) allowed depreciation at the rate of 60% on computer peripherals, printers, and UPS, treating them as integral parts of the computer system. The Tribunal agreed with this decision, referencing judicial precedents that support the classification of these items as part of the computer system, thus dismissing the Revenue's appeal.

3. Writing Off of Advances and Reimbursable Amounts:
- Assessment Year 2008-09 (I.T.A.No. 2584/Del/2012): The CIT(A) allowed the write-off of Rs. 16,60,818/- as bad debts, which included fees and reimbursable expenses. The Tribunal upheld this decision, relying on the Hon'ble Supreme Court's judgment in TRF Limited Vs CIT, which states that it is sufficient if the bad debt is written off as irrecoverable in the accounts of the assessee. Thus, the Revenue's appeal was dismissed.

4. Disallowance under Section 14A:
- Assessment Year 2009-10 (I.T.A.No. 4563/Del/2012): The assessee contested the disallowance of Rs. 31,23,402/- under Section 14A. The Tribunal noted that the CIT(A) did not consider the assessee's argument regarding the nature of investments, which included group companies and debt-related mutual funds. The Tribunal directed the Assessing Officer to re-adjudicate the issue, considering the nature of investments and the expenditure involved, thus allowing the assessee's appeal for statistical purposes.
- Assessment Year 2009-10 (I.T.A.No. 4706/Del/2012): The Revenue's appeal against the partial relief of Rs. 75,450/- given by the CIT(A) was partly allowed for statistical purposes. The Tribunal instructed the Assessing Officer to reconsider the disallowance under Section 14A, taking into account the assessee's submissions.

Conclusion:
- The Department's appeal in I.T.A.No. 2584/Del/2012 is dismissed.
- The Department's appeal in I.T.A.No. 4706/Del/2012 is partly allowed for statistical purposes.
- The assessee's appeal in I.T.A.No. 1672/Del/2012 is allowed.
- The assessee's appeal in I.T.A.No. 4563/Del/2012 is allowed for statistical purposes.

Order Pronounced:
- The order was pronounced in the open court on 07th July, 2014.