2020 (2) TMI 954 - HC - Income Tax

Allowance of incentives to 99.99% shareholder-director affirmed; revenue's disallowance under s.36(1)(ii) rejected as business expense

HC upheld the Tribunal's allowance of incentives/commission paid to a shareholder-director (holding 99.99% shares) and rejected the revenue's disallowance ... Disallowance u/s 36(1)(ii) - payment of incentive / commission to the shareholder who held 99.99% shares of the assessee and but for the resolution to pay the commission, the sum so paid would have been passed on to him as dividend - HELD THAT:- Identical claims in respect of the incentive paid to Mr. Anshuman Magazine, Director of the assessee-Company, which stood allowed for the previous years, the Tribunal has allowed the claim of the assessee [2016 (4) TMI 82 - ITAT DELHI] . The revenue has indeed accepted the claim for the preceding years as well as for the subsequent years and therefore, the incentive paid to Mr. Anshuman Magazine for AY 2004-05 onwards has been assessed as ‘salary’. We find no error in the approach of the Tribunal. We also do not find any merit in the contention of the revenue that the observations of the Tribunal qua the findings of the Assessing Officer and CIT(A). Irrespective of the observations of the Tribunal, the fact remains that the reasoning of the CIT (A) for disallowance under Section 36(1)(ii) of the Act has been consistently rejected by the Tribunal for the previous years. The identical expenditures stood allowed in the preceding years as also in the succeeding assessment years. We are also unable to find any cogent material that would indicate that the expenditure was not for the purpose of the business of the assessee. This factual background does not give rise to any substantial question of law for our consideration. Issues involved:1. Exemption application.2. Condonation of delay in filing appeal.3. Condonation of delay in re-filing appeal.4. Appeal under Section 260A of the Income-Tax Act for AY 2009-10.Detailed Analysis:1. The judgment begins with the court allowing the exemption application subject to all just exceptions.2. The court then addresses the application seeking condonation of a 1-day delay in filing the appeal, which is granted based on the reasons provided in the application.3. Another application seeks condonation of an 87-day delay in re-filing the appeal, which is also granted for the reasons stated.4. Moving on to the main issue, the appeal under Section 260A of the Income-Tax Act for AY 2009-10 is discussed. The Principal Commissioner of Income Tax appeals an order passed by the Income-Tax Appellate Tribunal (ITAT) in favor of the Respondent-Assessee.5. The facts of the case involve a private limited company where the issue revolves around the disallowance of excess remuneration paid to a director. The CIT (A) disallowed the remuneration, citing reasons related to dividend distribution tax avoidance and lack of approval from the Central Government.6. The ITAT overturned the CIT (A) decision in favor of the assessee, citing consistency in previous assessment orders and lack of reasoning for disallowance. The Tribunal emphasized the principle of consistency and previous orders in favor of the assessee.7. The Revenue appeals the ITAT decision, arguing that the Tribunal erred in reversing the CIT (A) decision and overlooking the business purpose of the expenditure.8. The court, after considering the contentions, upholds the ITAT decision, emphasizing the principle of consistency and lack of substantial questions of law arising from the factual background.9. The court dismisses the appeal, concluding that the reasoning for disallowance has been consistently rejected by the Tribunal in previous and subsequent years, and there is no evidence indicating that the expenditure was not for the business purpose of the assessee.