TaxTMI 
TaxTMI 
2008 (10) TMI 280
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....e has raised only one ground for disallowance of Rs. 60,000 and filed a Resolution of Meeting of the Board of Directors. It was submitted that as per the provisions of Companies Act section 317, a qualified person can be whole-time Director in two Companies and the Director was paid Rs. 20,000 and no other perquisite allowable to him. The payment was lump sum. The Director is MBA from Pune University and looks day-to-day affairs, it is admitted by the learned counsel for the assessee that during the previous year the same person was paid Rs. 10,000. But looking to the contribution by the Director the increase was made by resolutions of the Company. The increase of Rs. 10,000 per month to Rs. 20,000 per month is looking to the contribution of the Director. Therefore, the disallowance is unjustifiable and relied on order in Abbas Wazir (P.) Ltd. v. CIT [2003] 133 Taxman 702 (All.). 5. The learned Sr. DR submitted that during the previous year the same person was paid Rs. 10,000 and there were no circumstances to prove before the Assessing Officer for increase in the salary of the Director. Therefore, orders of the Assessing Officer and the learned CIT(Appeals) may be confirmed. Th....
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..... CIT v. Kuber Singh Bhagwandas [1979] 118 ITR 379 (MP)(FB), CIT v. Sinnar Bidi Udyog Ltd. [2002] 123 Taxman 559 (Bom.) and CIT v. Dalmia Cement (Bharat) Ltd. [2002] 254 ITR 377 (Delhi). The Assessing Officer and the learned CIT-DR has not brought on record any reason for disallowing the higher payment being personal benefit or not for business purpose. 9. Therefore, we are of the definite view that the disallowance made by the Assessing Officer and confirmed by the learned CIT(Appeals) in appeal is unjustified and unreasonable, to be set aside. 10. In the result, the appeal of the assessee is allowed. Per P.M. Jagtap, Accountant Member.-This appeal by the assessee is directed against the order of the learned CIT(Appeals), Raipur dated 23-11-2006 and in the solitary ground raised therein, the assessee has disputed the addition of Rs. 60,000 made by the Assessing Officer and confirmed by the learned CIT(Appeals) by way of disallowance out of Director's remuneration under section 40A(2)(a). 2. The assessee in the present case is a company which is engaged in the business of running a Roller Flour Mill. The return of income for the year under consideration was filed by it ....
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....m, remuneration has been increased from Rs. 10,000 to Rs. 20,000 p.m. during the present period. Again the argument was put forth that the director is a MBA degree holder from Pune. The appellant has not made any advertisement for recruitment of young MBA holders for its business. It has decided to recruit the family member as director and it has already been stated that the appellant is closely held company running by the Goel group. As there was no recruitment from general public, hence the merit of the incumbent was not tested but he has been given the post director not because of his management skill but because of the fact that he belongs to the member of same family. As the company is engaged in various business activities through various concern, the same man has to be shown as director in several other concerns. On one side, the appellant in case of his sister concern has admitted that the said director Shri Aditya Goel was full time director and fully engaged in installation and commencement of the business of Sponge Iron, on the other side again the same argument was taken that he has fully engaged in the business of the present appellant. His salary has been increased fr....
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....hat Shri Aditya Goel was also working as a full time Director with M/s. Ind Agro Synergy Ltd., a sister concern of the assessee-company and was fully engaged in installation and commencement of business of Sponge Iron of the said concern at Raigarh during the year under consideration. It is no doubt true that there is no bar for Shri Aditya Goel to work as full time Directors of two companies simultaneously as submitted by the learned counsel for the assessee before us. However, this aspect was material to clearly indicate that the increase in his remuneration by the assessee-company from Rs. 10,000 per month to Rs. 20,000 per month was not justifiable and the same was excessive and unreasonable. Similarly, the discontinuation of manufacturing activity by the assessee-company and restricting its business only to carrying out of job work of its sister concern again was sufficient to show that the remuneration paid by the assessee-company to Shri Aditya Goel at the rate of Rs. 20,000 per month was excessive and unreasonable. As such considering all the facts and circumstances of the case, we are of the view that the disallowance of Rs. 60,000 made by the Assessing Officer out of remu....
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....erefore, the undersigned shall not be able to appear before the Hon'ble Bench on appointed date. 3. That the President of Income-tax Bar Association, Raipur, with reference to his telephonic talk with the Hon'ble President of ITAT, has informed that the Bench is likely to Camp at Raipur from 17-11-2008 onwards. It is, therefore, earnestly requested to re-fix the case in Raipur Camp." The request of the counsel for the assessee is uncalled for since the Division Bench at Raipur cannot hear the matter which was to be heard by Third Member nominated by the Hon'ble President, ITAT. Accordingly, The Registry was directed to contact the counsel for the assessee on telephone and inform that such request cannot be acceded to and the adjournment, if any, can be given for a day or two. In pursuance of the said direction, the Registry has put a note dated 13-10-2008 wherein it has been stated that the counsel for the assessee was unable to attend on the fixed date and he had no objection if the case is heard ex parte. In view of the same the undersigned has proceeded to hear the appeal ex parte on the fixed date i.e., 14-10-2008. It may also be mentioned that none appeared on behalf ....
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....h payment is found to be excessive or unreasonable. Since the provisions of section 40A(2)(b) were attracted, such payment was liable to be examined under the said provision. After considering the facts recorded by the Assessing Officer, the learned Accountant Member upheld the addition made by the Assessing Officer. 5. On the other hand, the learned Judicial Member was of the view that no disallowance could be made under section 40A(2)(a) of the Act inasmuch as the remuneration paid to Shri Aditya Goel, director of the assessee-company could not be said to be excessive or unreasonable since (i) the appointment of the director was made as per the resolution passed by the Board of Directors in their meeting held on 30-9-2003, (ii) that Shri Goel was to look after the production, sales, administration, finance and legal matters without any perquisites, (iii) that it is the prerogative of the company as how to run and manage the daily affairs of the company and, therefore, the same could not be challenged and (iv) that increase in the salary was supported by the resolution passed by the Board of Directors as usual and there is no embargo under the Companies Act to have directorship....
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....t of expenditure is made to the persons specified under sub-section (2)(b) of section 40A of the Act. The expenditure on account of remuneration paid to employees is governed by the provisions of section 37 of the Act. According to the said section, the expenditure is allowable if it is incurred wholly and exclusively for the purpose of business. It is not in dispute that such expenditure is otherwise allowable under section 37 of the Act. However, apart of the expenditure can be disallowed if it is shown - (i) that the payment was made to the persons specified in clause (b) of section 40A(2) of the Act and (ii) If it is found that expenditure is excessive or unreasonable, having regard to the fact that the market value of the goods, services or facilities for which the payment is made. Undisputedly, the payment to the director falls under clause (b) of section 40A of the Act and, therefore, the Assessing Officer was duty bound to make enquiry whether such expenditure was excessive or unreasonable having regard to the fair market value of the services rendered. To that extent, I am in agreement with the observations of the learned Accountant Member. However, no enquiry was made by ....