Tribunal rules in favor of assessee, allowing disallowed professional fee and director's remuneration.

The Tribunal allowed the appeal of the assessee, ruling in favor of both issues presented. The disallowed professional fee was considered a current year charge as the liability arose during the relevant assessment year. The disallowed director's remuneration was allowed as it was found to be reasonable and in compliance with CBDT Circular and industry norms, with an exemption for unlisted companies in cases of losses. The Tribunal overturned the decisions of lower authorities, deeming the expenses allowable.

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Issues:
1. Disallowance of professional fee as prior period expenditure.
2. Disallowance of remuneration paid to director.

Issue 1 - Disallowance of Professional Fee:
The appeal concerns the disallowance of professional fees of Rs. 62,500 by the AO, treating it as prior period expenditure. The CIT(A) upheld the disallowance, considering it capital in nature. However, the Tribunal found that the liability crystallized during the relevant assessment year, making it a current year charge. The advocate raised the invoice in July 2011 for services provided in 2010, and the payment was made in 2011. As the AO did not question the genuineness of the expense and the liability arose in the current year, the Tribunal allowed the claim, setting aside lower authorities' orders.

Issue 2 - Disallowance of Director's Remuneration:
The second issue involves the disallowance of part of the remuneration paid to the managing director under section 40A(2) of the Act. The AO disallowed Rs. 8,41,528, stating it exceeded limits without Central Government permission. The CIT(A) affirmed this decision. However, the Tribunal noted that the managing director had no equity shares in the company and the company was taxed at the highest slab rate due to substantial losses. Citing a CBDT Circular and industry norms, the Tribunal found no tax evasion and reasonableness in the remuneration. Additionally, a Ministry of Corporate Affairs notification exempted unlisted companies from approval requirements for higher remuneration in cases of losses. As a result, the Tribunal allowed the expenditure, overturning the lower authorities' decisions.

In conclusion, the Tribunal allowed the appeal of the assessee, ruling in favor of both issues presented before it. The judgments of the lower authorities were reversed, and the expenses in question were deemed allowable.

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