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2008 (10) TMI 280 - ITAT NAGPUR [LB]Disallowance out of Director's remuneration u/s 40A(2)(a) - excessive or unreasonable - difference of opinion between the Members - Third Member Appointment - business of running a Roller Flour Mill - AO noted that the assessee had discontinued its manufacturing activities and instead carried on the job work of its sister concern. It was also noted that Shri Aditya Goel was also working director in M/s. Ind Agro Synergy Ltd., where he was fully engaged in installation and commencement of business of Sponge Iron Unit of the said concern. Therefore, AO was of the view that the increase in the salary to Shri Aditya Goel was excessive. Consequently, disallowance made u/s 40A(2)(a). CIT(A) upheld the order of AO. HELD THAT:- The payment to the Director was made as per resolution within the provisions of Companies Act which prevails over Income-tax Act. The revenue cannot be replaced for Board of Directors. It is prerogative of the Board of Directors to run the industry in the national interest keeping in view the social responsibility. Since the increase in the salary was supported by Board of Directors Resolution and there is no embargo under the Companies Act to have Directorship in two companies and the payment made to the Director after having increase in turnover and profitability of the company during the relevant assessment year which is brought on record by the assessee. Therefore, we conclude that the increased payment is due to commercial exigency and not unreasonable. Our view get support from orders in Addl. CIT v. Kuber Singh Bhagwandas [1978 (10) TMI 134 - MADHYA PRADESH HIGH COURT], CIT v. Sinnar Bidi Udyog Ltd. [2002 (6) TMI 33 - BOMBAY HIGH COURT] and CIT v. Dalmia Cement (Bharat) Ltd.[2001 (9) TMI 48 - DELHI HIGH COURT]. The AO and the CIT has not brought on record any reason for disallowing the higher payment being personal benefit or not for business purpose. Therefore, we are of the definite view that the disallowance made by the AO and confirmed by the CIT(A) in appeal is unjustified and unreasonable, to be set aside. On the other hand, the ld JM was of the view that no disallowance could be made u/s 40A(2)(a) inasmuch as the remuneration paid to Shri Aditya Goel, director of the assessee-company could not be said to be excessive or unreasonable since (i) the appointment of the director was made as per the resolution passed by the Board of Directors in their meeting held on 30-9-2003, (ii) that Shri Goel was to look after the production, sales, administration, finance and legal matters without any perquisites, (iii) that it is the prerogative of the company as how to run and manage the daily affairs of the company and, therefore, the same could not be challenged and (iv) that increase in the salary was supported by the resolution passed by the Board of Directors as usual and there is no embargo under the Companies Act to have directorship in two companies. Third Member order - In the absence of enquiry as contemplated by the provisions of section 40A(2)(a), no disallowance could have been made or sustained. The onus was on the AO to bring the material on record to prove that the payment made by the assessee was excessive or unreasonable having regard to the fair market value of the services rendered. If some material evidence is brought on record to indicate that payment appeared to be excessive or unreasonable then the onus would shift to the assessee to prove that the payment was not excessive or unreasonable. Since no enquiry as contemplated by the aforesaid provisions was made on this account, it cannot be said that the payment was excessive or unreasonable. Therefore, I find myself in agreement with the conclusions arrived at by the Ld JM though for different reasons. The matter may now be placed before the Division Bench for disposal of the appeal.
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