TMI Blog2008 (3) TMI 352X X X X Extracts X X X X X X X X Extracts X X X X ..... ime director. Various facts, circumstances and legal position as submitted were not properly appreciated. The observations made by the authorities below in the order while making the above addition were legally tenable. 2. At any rate without prejudice the addition as made is excessive. The appellant reserves its right to add, amend or modify the grounds of appeal." Rival contentions have been heard and record perused. Facts in brief are that the assessee-company is engaged in the business of manufacturing and trading of cotton canvas bags, cotton webbing bags, leather bags, handloom beds etc. and exporting the goods to the UK, the USA, Canada and Australia. From the details filed by the assessee, it was noticed by the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord to show that the whole time director withheld his services if such payment was not made and making such payment was necessary or expedient in order to retain his services. Thus, the Assessing Officer held that the expenditure of Rs. 2,77,676 were of personal nature and not allowable under section 37(1). Hence, the Assessing Officer made an addition of Rs. 2,77,676. By the impugned order, the Commissioner of Income-tax (Appeals) confirmed the action of the Assessing Officer by observing that the Assessing Officer was justified in making the addition of Rs. 2,77,676 on account of personal expenses incurred for treatment of whole time director Shri B.S. Sarna. Aggrieved by the above order of the Commissioner of Income-tax (Appeals), th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so resolved that Shri B.S. Sarna was entitled for reimbursement of actual medical expenses including his dependent family members' medical expenses. As per the resolution passed by the board of directors of the company, reimbursement of actual medical expenses became the contractual liability of the assessee-company. When Shri B.S. Sarna suffered from cancer, he was physically unable to go abroad as a result of which turnover of the assessee-company could not go up as expected. Shri B.S. Sarna was diagnosed cancer in December 2003 and firstly he was treated at Sir Gangaram Hospital wherein surgery was advised abroad. As the expenses at abroad was very high, finally surgery was undertaken at Breach Candy Hospital, Mumbai, in March 2004 and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... board of directors and the same was paid on account of commercial expediency, no disallowance can be made. The hon'ble Supreme Court in the case of Shahzada Nand and Sons v. CIT [1977] 108 ITR 358 observed that commercial expediency does not mean that an employer should not make any payment to an employee unless the employee is entitled to it under a contract. Even where there is no contract, an employer may pay commission to an employee, if he thinks that it would be in the interest of his business to do so. However, in the instant case is at a better footing wherein as per the terms of the board resolution, Shri Sarna was entitled for getting reimbursement of medical expenses and the assessee-company also fully demonstrated the benefits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by way of documentary evidence, facts and figures that the payment was on account of commercial expediency. Similarly, in the case of CIT v. Sambandam Spinning Mills P. Ltd. [2003] 263 ITR 115, the hon'ble Madras High Court declined deduction of medical aid to the managing director, on the plea that amounts so paid was outside its contractual obligation. However, in the instant case, the assessee-company was under a contractual obligation in view of the board's resolution dated March 31, 2000, wherein not only the remuneration of Shri Sarna was increased but reimbursement were also allowed for actual medical expenses for themselves and their dependent family members. The learned authorised representative Shri Sapra also relied on the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
