Salary Paid to Vice President of Company allowable as Expenditure u/s 37(1) of Income Tax Act: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT) Delhi held that salary paid to vice president of company should be allowed as expenditure under Section 37(1) of Income Tax Act, 1961

Assessee, Ebony Retail Holdings Ltd. is a company engaged in the retail business. The assessee filed its return of income declaring a loss of Rs. 1,03,17,179/- and book profit of the loss at Rs. (-) 85,08,756/- under Section 115JB of the Income Tax Act calculating the tax payable at Nil. Thereafter, the assessee’s case was selected for scrutiny.

During the proceedings, it was determined by the Assessing Officer (AO) that the salary paid to Vice President (Finance and Accounts) was found to be not justified and allowable under Section 37(1) of the Income Tax Act as the same was not found wholly and exclusively for the business of the assessee.

Aggrieved by the order, the assessee filed an appeal before the Commissioner of Income Tax (Appeal), who allowed the Employee Benefit Expenses claimed by the assessee.

Thereafter the revenue filed another appeal before tribunal against the order of Commissioner of Income Tax (Appeals)[CIT(A)].

Counsel for revenue submitted that there was no evidence to show that huge expenses incurred were to facilitate the earning or at least protecting the income of the assessee.

Further the counsel argued that low electricity and water expenditure and other expenditures were rightly relied upon by AO to conclude that there were no business operations and still substantial expenditures were made for employee benefit expenses.

The Counsel for the assesee submitted that the Vice President of the assessee company possesses an experience of more than 20 years and represents various litigation matters related to the company before VAT authorities. His services is also being utilized to oversee any and every potential opportunities including the investment in Sandur bypass

Therefore, the entity exists and has a lot of assets and liabilities which were managed by the Vice President (Finance and Accounts).

It was observed by the tribunal that CIT(A) had prudently examined the issue that there was sufficient evidence on record that the business activity of the company was still subsisting and the service of the Vice President was indispensable.

The tribunal after reviewing the facts and submissions of the both parties, the two member bench of N.K.Billaiya (Accountant Member ) andAnubhav Sharma ( Accountant Member) observed that dismissed the appeal filed by the revenue and held that salary paid to vice president of company has allowed as expenditure under Section 37(1) of Income Tax Act.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates