Tribunal directs deletion of disallowances on commission & excess remuneration, citing consistency.

The Tribunal allowed the appeal, directing the AO to delete the disallowances of commission paid to the director under section 36(1)(ii) and excess remuneration paid, citing consistency with previous years' treatment of similar payments. The Tribunal found no grounds for disallowance under section 36(1)(ii) and instructed the AO to verify and avoid double addition in the case of excess remuneration.

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Issues Involved:
1. Disallowance of commission paid to the director under section 36(1)(ii) of the Income Tax Act.
2. Disallowance of excess remuneration paid to the director.

Issue-wise Detailed Analysis:

1. Disallowance of Commission Paid to the Director under Section 36(1)(ii):

The primary contention revolves around the disallowance of Rs. 6,64,64,442/- paid as commission to the director, Sh. Anshuman Magazine, by invoking section 36(1)(ii) of the Income Tax Act. The Assessing Officer (AO) observed that the commission could have been paid as a dividend, which would have attracted dividend distribution tax, thus reducing the company's taxable income. The AO inferred that the payment was made to avoid such tax. The CIT(A) upheld this disallowance, noting that the director held a significant shareholding (24%) and that the resolution for commission payment was intended to avoid dividend distribution tax. The CIT(A) distinguished this case from others, emphasizing that the resolution was passed when the director held 99.99% of shares, indicating an intention to avoid tax.

The Tribunal, however, found that the facts of this year were identical to the preceding years where similar disallowances were deleted by the CIT(A) and upheld by the Tribunal. The Tribunal noted that the revenue did not challenge the Tribunal's order for the preceding years and had allowed similar commission payments in subsequent years. Thus, following the principle of consistency, the Tribunal set aside the CIT(A)'s order and allowed the grounds of appeal, stating that no disallowance under section 36(1)(ii) was warranted.

2. Disallowance of Excess Remuneration Paid to the Director:

The second issue concerns the disallowance of Rs. 7,77,69,909/- on account of alleged excessive remuneration paid to the director. The AO disallowed this amount, noting that the assessee failed to obtain prior approval for the remuneration expenses. The CIT(A) upheld the disallowance, stating that any payment made in contravention of the Companies Act, even if waived, cannot be considered an allowable expense under the Income Tax Act if it was not for the business purpose and was a device to reduce tax liability.

The Tribunal found merit in the assessee's argument that Rs. 3,04,30,061/- related to the preceding assessment year 2008-09 and was already disallowed under section 36(1)(ii), thus it could not be disallowed again in the current year. The Tribunal directed the AO to verify this and ensure no double addition. Regarding the remaining Rs. 4,73,39,848/-, the Tribunal noted that the approval for excess remuneration was obtained from the competent authority, albeit after the payment date, but it related back to the year under consideration. The Tribunal also observed that the amount was part of the Rs. 6,64,64,442/- disallowed under section 36(1)(ii), which was already deleted. There was no finding that the expenditure was not for business purposes, and similar expenditure was allowed in preceding and succeeding years. Thus, the Tribunal directed the AO to delete the disallowance.

Conclusion:

The Tribunal allowed the appeal for statistical purposes, setting aside the CIT(A)'s order on both issues and directing the AO to delete the disallowances after due verification.

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