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2020 (2) TMI 1499 - AT - Income TaxDisallowance of the business loss on the ground that no business activity was carried on by the assessee - AO in the second round of proceedings has noted that against the rental income assessee had adjusted business loss which mainly constitutes of remuneration of ₹ 36 Lacs paid to the Director As per AO there was no business activity, the AO was of the view that high remuneration paid to the Director was not in connection with the business activity of the assessee but was against rental income offered by the assessee - HELD THAT:- The Hon’ble Bombay High Court in CIT Vs. Indo Saudi Services (Travel) (P.) Ltd. [2008 (8) TMI 208 - BOMBAY HIGH COURT] had laid down the proposition that where the assessee and its subsidiary were in the same tax bracket and paid same rate of tax, there was no question of diversion of funds by paying higher rate to the subsidiary company and hence no disallowance under section 40(A)(2) of the Act. Applying the said proposition to the facts of the case where the Director Shri. Anshul Chawla is assessed to tax and has paid taxes on the said remuneration received by him then it cannot be said that there was diversion of funds by the assessee to its Managing Director for tax avoidance. Hence there is no merit in making any disallowance on account of the said managerial remuneration paid to the Managing Director. Accordingly, we direct the AO to allow expenditure - Decided in favour of assessee.
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