TaxTMI 
TaxTMI 
2021 (1) TMI 1036
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.... sustaining the disallowance of Rs. 6,00,000 as made by the AO, which needs to be deleted. 3. That the learned CIT erred in not holding that the AO disallowed the rent of Rs. 54,00,000 for premises used partially for the residence of the Director and partially for business purposes u/s 37 of the Act contrary to the provisions of section 38 of the Act and as such the disallowance cannot be sustained." (B) The return of income was filed on 30.09.2013 by the Assessee showing total income of Rs. 66,03,420/-. Initial assessment order dated 18.01.2016 was passed by the Assessing Officer ("AO', for short) on 18.01.2016 making an addition of Rs. 39,950/- on account of interest on TDS; thereby assessing the total income at Rs. 66,43,370/-. Order under Section 263 of Income Tax Act ("I.T. Act", for short) dated 28.03.2018 was passed by Ld. Principal Commissioner of Income Tax, ("Ld. PCIT", for short), directing the AO to frame the assessment afresh. Fresh assessment order dated 03.12.2018 was passed by the AO under Section 263/143(3) of I.T. Act wherein the assessee's income was assessed at Rs. 2,26,70,161/- (rounded off to 2,26,70,160/-). In the aforesaid fresh assessment order dated 03.....
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....mpany must have a credible and transparent policy in determining and accounting for the remuneration of the directors. Directors or Promoters of a Private Companies cannot simply divert the funds from corporate accounts to their personal accounts in the name of remuneration, to reduce the tax burdens or for any other reasons. Hence the remuneration of Rs. 6,00,000/- enhanced during the year under consideration is being disallowed and added to the income of the assessee company. (Disallowance of Rs. 6,00,000/-) (iii) Rent Paid for property:_ The AR of the assessee submitted that the rented property was not utilized personally at all by the director's. This plea of the assessee is not acceptable as the plea is contravening the terms and conditions of the lease deed. Para 1(b) of the Lease Deed Clearly state that the premises shall be exclusively used for the residential purpose of Mrs. Geetanjali Behl, Chairperson of the Lease Company. Accordingly the expenses of Rs. 54,00,000/- claimed by assessee company is disallowed as the expenditure is not incurred wholly and exclusively for the purpose of business. (Disallowance of Rs. 54,00,000/-) 6.1 In view of the above, I have reas....
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....ereas AO has noted that business is going down. 6.5 During the appellate proceedings, the appellant has agitated that the AO has not mentioned any section under which the disallowance was made. It also submitted that if the disallowance has been made u/s 40A(2), the AO had to determine a reasonable remuneration which was not done. However, it is observed that the AO has already allowed Rs. 6,00,000/- as remuneration and disallowed only the increased part of remuneration during the year. 6.6 No justification was given during the appellate proceedings for this phenomenal increase in the remuneration of the director. The logic of the AO appears justified that this is nothing but a ploy to divert the funds from corporate accounts to personal accounts in order to suppress the taxable income of the company. The addition is, therefore, sustained and the ground is ruled against the appellant. 6.7 Ground no.3:- This ground is directed against addition of Rs. 54,00,000/- on account of disallowance of rental expenditure. The AO has noted that the lease deed for rented/leased property clearly shows that the premises were exclusively used by the director for residential purposes. However,....
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.... this amount was not even claimed from the assessee's side. The learned Senior Departmental Representative ("Ld. Sr. DR", for short) neither disputed this factual position, nor the contention made by the Ld. Counsel for the assessee. However, she relied on the orders of the Ld. CIT(A) and the AO. We find that there is no dispute on the fact that the aforesaid amount of Rs. 1,00,66,740/- disallowed by the AO, and sustained by the Ld. CIT(A), was not even claimed by the assessee as an expenditure in the return of income. That being the case, we agree with the contention of the Ld. Counsel for assessee that there was no case for disallowance of the amount of Rs. 1,00,66,740 on account of interest expenses. We direct the AO to delete this amount. Accordingly, first ground of appeal is allowed. (F) The third ground of appeal is regarding disallowance of rent paid, amounting to Rs. 54,00,000/-. Relevant portions of the order of the AO and Ld. CIT(A) have already been reproduced in foregoing paragraphs (B) and (C) of this order respectively. At the time of hearing before us, the ld. Counsel for assessee drew our attention to order of ITAT, Mumbai in the case of Acuity Holdings Pvt. Ltd. ....
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....2019 of Ld. CIT(A) she has noted the assessee's contention that rent paid for residential accommodation of the director is a business expenditure. However, on perusal of the records we find that details of whether any tax was deducted at source by the assessee on account of perquisite to the director by way of rent-free accommodation, within the meaning of section 17(2) of Income Tax Act read with section 192 of Income Tax Act; is not available on the records. Under Section 17(2) of Income Tax Act, rent free accommodation provided by employer to an employee is the employees' income under the head 'Salary', being a perquisite. Further, Under Section 192 of I.T. Act, the assessee was required to deduct tax at source in respect of salary payment made to the employee. We find that the lower authorities - the AO as well as the Ld. CIT(A) - have not examined this aspect; and the relevant facts are not available before us in the records. The assessee has also made a reference to Section 38 of I.T. Act for apportionment of expenses U/s 38 of I.T. Act. Under Section 38 of I.T. Act, a portion of the expenses is allowable to the assessee as deduction, having regard to use of the premises / bu....
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....ere is no attempt to evade tax-Whether since Assessing Officer had not brought any comparable case to demonstrate that payments made by assessee were excessive /unreasonable and fact that payees were also assessed to tax at same rate of tax, Commissioner (Appeals) had rightly deleted addition. The Ld. Counsel for assessee contended that the assessee company as well as the director to whom the remuneration was paid, both were in the highest tax bracket; and paid tax at the highest rate. Therefore, there was no case for any disallowance out of remuneration paid to the director. The Ld. Counsel for assessee also relied on order of co-ordinate Bench of ITAT, Delhi in the case of IKEA Trading (India)(P.)Ltd. vs. Deputy Commissioner of Income Tax [2012] 123 taxmann.com 129 (Delhi-Trib.). The Ld. Sr. DR for Revenue relied on the orders of the AO and the Ld. CIT(A). We have heard both sides. We have perused the materials on record. We have considered the judicial pronouncement brought to our attention. Although it has been contended by the Ld. Counsel for the assessee, for claiming benefit of CBDT Circular dated 6-7-1968, that the assessee company as well as the Director are both in the hi....