Court Upholds Disallowance of Director's Salary, Refers Expenditures Question to Tribunal (3)

The court upheld the disallowance of a portion of the managing director's salary due to violation of a condition set by the Company Law Board. The addition of excess sugar price realized was deemed irrelevant based on previous court decisions. The court referred the question of an addition under section 40A(3) regarding certain expenditures for its opinion, directing the Tribunal accordingly, despite a related petition being dismissed by the Supreme Court.

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Issues:
1. Disallowance of salary to managing director
2. Addition of excess sugar price realized
3. Addition under section 40A(3) regarding expenditure

Analysis:
1. The first issue pertains to the disallowance of a portion of the managing director's salary. The Company Law Board had approved the appointment of the managing director with a condition that he shall not become involved in any selling agency of the company without prior approval. The managing director was found to be a director of a selling agency of the company, violating this condition. However, it was established that he was a director of the agency since its inception and did not acquire any interest post-approval. The court found the condition clear and upheld the decision of the Commissioner (Appeals) and the Tribunal, dismissing the need for further reference.

2. The second issue involves the addition of excess sugar price realized by the assessee, which the Income-tax Appellate Tribunal had deleted. The petitioner conceded that a similar matter had been decided against the Department by the court previously, and the Supreme Court had dismissed the special leave petition. Hence, this question was deemed irrelevant.

3. The third issue concerns an addition under section 40A(3) of the Income-tax Act regarding certain expenditures made by the assessee. The provision disallows deductions for expenditures exceeding a specified amount not made via a crossed cheque or bank draft. Payments made on a particular day, each below the threshold but cumulatively exceeding it, raised the question of whether the provision applied. The court considered this an important legal question, especially in light of a precedent from the Orissa High Court. Despite the dismissal of a related petition by the Supreme Court, the court deemed it necessary to refer this question for its opinion, directing the Tribunal accordingly.

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