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2015 (7) TMI 868 - ITAT MUMBAI

2015 (7) TMI 868 - ITAT MUMBAI - [2015] 43 ITR (Trib) 155 (ITAT [Mum]) - Disallowance for alleged excess remuneration paid to the Directors - Held that:- Issue before us is covered by a co–ordinate bench of the Tribunal, Mumbai Benches, in assessee’s own case for the assessment year 2008–09 and 2009–10 wherein held the assessee had made excessive payment of remuneration to the Director but same was approved by the central government, as required by the Companies Act.1n these circumstances, we ar .....

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tor, for ₹ 51,00,000, respectively. Thus, after these approval letters, it cannot be said that the remuneration paid to the director is in excess of the limits prescribed under the relevant law. - Decided in favour of assessee. - ITA no.5960/Mum./2013 - Dated:- 22-7-2015 - Shri D. Manmohan and Shri Sanjay Arora, JJ. For the Petitioner : Shri Nishit Gandhi For the Respondent : Shri Sacchidanand Dubey ORDER Per Sanjay Arora, A.M.: The present appeal preferred by the assessee is directed agai .....

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the A.O. made the disallowance simply relying on Remark in Auditors' Report dt. 26.08.2010, disregarding subsequent sanctions granted by the Central Govt. available with him while dealing with the appeal, and further not appreciating that the Central Govt. is vested with the authority to sanction the excessive remuneration paid or to be paid to the Directors. (3) The C.I.T.(A) has not appreciated the Auditors' remark in correct perspective. (4) The C.I.T.(A) erred in not appreciating tha .....

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-10 and 30-9-10 were duly received before the assessment was made on 4.3.2013 by the A.O. and the appeal was decided by the C.I.T.(A) on 20.8.2013 and therefore, the A.a. ought not to have made the said disallowance and the C.I.T.(A) ought not to have confirmed the said disallowance. 2. Brief facts of the case are that the assessee company is engaged in the business of manufacture, export and domestic sale of blister packing and allied machines used in pharmaceutical industry and manufacture of .....

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the directors should not be disallowed in view of the auditors comments and past history of the case. In response, the assessee submitted that an application to the Central Government for approval of excess remuneration to the directors was filed and the same was approved. The Assessing Officer, however, did not accept the reply of the assessee company and proceeded to add the excess remuneration of 29,63,051, paid to the directors to the total income of the assessee company. 3. Being aggrieved, .....

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a- tion paid to Directors was confirmed. Relevant para of the said order is reproduced hereunder:- "6.1 I have carefully and dispassionately considered the facts and circumstances of the case. It is not disputed that the appellant's own auditor in Audit report submitted along with the appellant's return of income and in the prescribed Form No.3CB vide Note No.3 has reported that the appellant had paid excessive remuneration in excess of limits prescribed under the Company's Act .....

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o. 6.2 During the course of remand proceedings, the LAO vide letter No. DCIT 5(2)/Appeal/CIT(A)/11-12 dated 11.10.2011 submitted a report on the additional evidences submitted by the appellant, the relevant part of which may be reproduced as under:- "Before proceeding further, for the sake of convenience and ready reference, relevant part of provision of section 309 of Companies Act 1962 is reproduced as under: (5A) If any director draws or receives, directly or indirectly, by way of remune .....

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eration amounting to ₹ 36,40,038/- to the Director over and above the limit prescribed as per the Companies Act. It is an undisputed fact that such excess remuneration was paid without the prior sanction of the Central Government. Therefore, such payment amounts contravention of provision under explanation to section 37(1) of the IT Act. Therefore, in my opinion, such sum paid by the assessee calls for disallowance under explanation to section 37(1) of the IT Act being sum paid which is pr .....

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he excessive remuneration paid. Such excessive remuneration is not allowable under section 37(1) of the Act because it is paid over and above the limits prescribed under the Companies Act and also prohibited by law. The LAO's action of disallowance of excessive remuneration of ₹ 36,40,038/- is confirmed. Grounds of appeal No.7(1) to 7(7) are not allowed. 5.2. It is seen that neither the LAR has been able to point out any infirmity in the said appeal order of my Ld. predecessor, nor I f .....

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. Aggrieved by the aforesaid order passed the learned CIT(A), the assessee is in further appeal before the Tribunal. 4. Before us, the learned Counsel for the assessee submitted that the issue of excess remuneration paid to the directors has been decided in favour of the assessee company by a co-ordinate bench decision of the Tribunal, Mumbai Benches, in assessee s own case in ITA no.378/Mum./2012, for the assessment year 2008-09, order dated 13th March 2015 and in ITA no.6577/Mum./2012, order d .....

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ited supra, wherein the Tribunal, while deciding the issue in favour of the assessee, observed as follows:- For the A.Y. 2008-09 9. We have heard the rival submissions and perused the material before us. We find that the assessee had made excessive payment of remuneration to the Director, but same was approved by the central government, as required by the Companies Act. In these circumstances, we are of the opinion that there was no contravention of the provisions of the Act. Therefore, reversin .....

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AO found that the auditor inform no.3CB, vide note no.3,had reported that the assessee had paid ₹ 36,40,038/- in excess of limits prescribed under the Companies Act. He asked the assessee to show cause as to why such excessive remuneration paid in contravention to the provisions of the companies Act should not be disallowed uls.37(1) of the Act. After considering the submission of the assesse, the AO held that there was no dispute about the total remuneration debited and the remarks made .....

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ion, that an application was made in Form NO.25A to the Central Government for approval of excess remuneration which was sanctioned vide letter dated 14.04.2010, that the excess remuneration paid to the Directors was an allowable expenditure. After considering the submissions of the assessee and the assessment order, the FAA held that assesse's own auditor had reported the payment of excess remuneration, that a copy of sanctioned letter granted by the Central Government for excessive remuner .....

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eration was not allowable u/s. 37(1) of the Act, that it was paid over and above the prescribed limits of the Companies Act. He confirmed the disallowance made by AO. 8. Before us, the AR argued that the Central government had allowed payment of excess remuneration to the Directors that sanction letter was made available to the FAA, that provisions of Explanation to section 37(1) were not applicable with regard to the payment. He referred to the page no.38 of the paper book. He also relied upon .....

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