TMI Blog2008 (10) TMI 282X X X X Extracts X X X X X X X X Extracts X X X X ..... a qualified person can be whole-time director in two companies and the director was paid ₹ 20,000 and no other perquisite allowable to him. The payment was lump sum. The director is MBA from Pune University and looks day-to-day affairs. It is admitted by the learned counsel for the assessee that during the previous year the same person was paid ₹ 10,000. But looking to the contribution by the director the increase was made by resolutions of the company. The increase of ₹ 10,000 per month to ₹ 20,000 per month is looking to the contribution of the director. Therefore, the disallowance is unjustifiable and relied on order Abbas Wazir (P) Ltd. vs. CIT (2003) 185 CTR (All) 152 : (2003) 133 Taxman 702 (All). 5. The learned senior Departmental Representative submitted that during the previous year the same person was paid ₹ 10,000 and there were no circumstances to prove before the AO for increase in the salary of the director. Therefore, orders of the AO and the learned CIT(A) may be confirmed. The AO has arrived at a conclusion that the salary paid to the director for the year under consideration is beyond reasonableness by invoking s. 40A(2)(b). 6. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lmia Cement (Bharat) Ltd. (2002) 174 CTR (Del) 188 : (2002) 254 ITR 377 (Del). The AO and the learned CIT-Departmental Representative has not brought on record any reason for disallowing the higher payment being personal benefit or not for business purpose. 9. Therefore, we are of the definite view that the disallowance made by the AO and confirmed by the learned CIT(A) in appeal is unjustified and unreasonable, to be set aside. 10. In the result, the appeal of the assessee is allowed. P.M. JAGTAP, A.M.: October, 2007 This appeal by the assessee is directed against the order of the learned CIT(A), Raipur dt. 23rd Nov., 2006 and in the solitary ground raised therein, the assessee has disputed the addition of ₹ 60,000 made by the AO and confirmed by the learned CIT(A) by way of disallowance out of director's remuneration under s. 40A(2)(a). 2. The assessee in the present case is a company which is engaged in the business of running a roller flour mill. The return of income for the year under consideration was filed by it on 25th Oct., 2004 declaring total income of ₹ 3,08,380. During the course of assessment proceedings, it was noticed by the AO on exam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt has not made any advertisement for recruitment of young MBA holders for its business. It has decided to recruit the family member as director and it has already been stated that the appellant is closely-held company run by the Goel group. As there was no recruitment from general public, hence the merit of the incumbent was not tested but he has been given the post of director not because of his management skill but because of the fact that he belongs to the member of same family. As the company is engaged in various business activities through various concerns, the same man has to be shown as director in several other concerns. On one side, the appellant in case of his sister concern has admitted that the said director Shri Aditya Goel was full-time director and fully engaged in installation and commencement of the business of sponge iron, on the other side again the same argument was taken that he was fully engaged in the business of the present appellant. His salary has been increased from ₹ 10,000 to ₹ 20,000 per month. The AO has brought material evidence on record and he has critically discussed all relevant points and thereafter he has disallowed only ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year under consideration. It is no doubt true that there is no bar for Shri Aditya Goel to work as full-time director of two companies simultaneously as submitted by the learned counsel for the assessee before us. However, this aspect was material to clearly indicate that the increase in his remuneration by the assessee company from ₹ 10,000 per month to ₹ 20,000 per month was not justifiable and the same was excessive and unreasonable. Similarly, the discontinuation of manufacturing activity by the assessee company and restricting its business only to carrying out of job work of its sister concern again was sufficient to show that the remuneration paid by the assessee company to Shri Aditya Goel at the rate of ₹ 20,000 per month was excessive and unreasonable. As such considering all the facts and circumstances of the case, we are of the view that the disallowance of ₹ 60,000 made by the AO out of remuneration paid by the assessee company to its director invoking the provisions of s. 40A(2)(b) was sustainable and the learned CIT(A) was fully justified in confirming the same. His impugned order on this issue is, therefore, upheld dismissing this appeal f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nch is likely to camp at Raipur from 17th Nov., 2008 onwards. It is therefore, earnestly requested to refix the case in Raipur Camp. The request of the counsel for the assessee is uncalled for since the Division Bench at Raipur cannot hear the matter which was to be heard by Third Member nominated by the Hon'ble President. Tribunal. Accordingly, the Registry was directed to contact the counsel for the assessee on telephone and inform that such request cannot be acceded to and the adjournment, if any, can be given for a day or two. In pursuance of the said direction, the Registry has put a note dt. 13th Oct., 2008 wherein it has been stated that the counsel for the assessee was unable to attend on the fixed date and he had no objection if the case is heard ex parte. In view of the same the undersigned has proceeded to hear the appeal ex parte on the fixed date i.e., 14th Oct., 2008. It may also be mentioned that none appeared on behalf of the Revenue despite proper service of notice. Even no application for adjournment has been filed on behalf of the Revenue. In view of the above, I proceed to express my opinion after considering the reasons given by both the Members. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that no disallowance could be made under s. 40A(2)(a) of the Act 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 30th Sept., 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. In view of the same, it was held by him that the payment of remuneration to the directors could not be said to unreasonable in view of the various decisions reported as Addl. CIT vs. Kuber Singh Bhagwandas (1979) 9 CTR (MP)(FB) 94 : (1979) 118 ITR 379 (MP)(FB), CIT vs. Sinnar Bidi Udyog Ltd. (2002) 176 CTR (Bom) 215 : (2002) 123 Taxman 559 (Bom), and CIT vs. Dalmia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is allowable if it is incurred wholly and exclusively for the purpose of business. It is not in dispute that such expenditure is otherwise allowable under s. 37 of the Act. However, a part of the expenditure can be disallowed if it is shown-(i) that the payment was made to the persons specified in cl. (b) of s. 40A(2) of the Act; and (ii) if it is found that expenditure is excessive or unreasonable, having regard to the fact that the market value of the goods, services or facilities for which the payment is made. Undisputedly, the payment to the director falls under cl. (b) of s. 40A of the Act and, therefore, the AO was duty bound to make enquiry whether such expenditure was excessive, or unreasonable having regard to the fair market value of the services rendered. To that extent, I am in agreement with the observations of the learned AM. However, no enquiry was made by the AO to ascertain whether the payment was excessive or unreasonable having regard to the fair market value of the services. On the other hand, the AO made the enquiry in a different direction i.e., whether the increase in the salary as compared to the salary paid in last year was justified on facts or not. Such e ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
