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Issues Involved:
1. Classification of remuneration as salary vs. business income. 2. Addition of unexplained cash credits under Section 68 of the Income Tax Act. Detailed Analysis: Issue 1: Classification of Remuneration as Salary vs. Business Income Assessment Year 2004-05: The assessee, a director of M/s. Ganesh Laxmi Processors Pvt. Ltd., received remuneration of Rs. 7,25,400, which he claimed as business income. The Assessing Officer (AO) treated this remuneration as salary, citing the lack of an agreement or contract indicating the nature of the remuneration. The AO relied on precedents, including Ram Prasad Vs CIT and B. Nagi Reddy Vs CIT, to conclude that the assessee was a servant of the company, subject to the control and supervision of the Board of Directors, and thus, the remuneration should be treated as salary. The CIT(A) upheld the AO's decision, emphasizing the employer-employee relationship established by the Articles of Association and the Board's resolution. The Tribunal, however, disagreed, noting that the Articles of Association and the Board's resolution did not impose any supervisory control over the assessee. The Tribunal cited multiple precedents, including Ram Prasad Vs CIT, Sardar Harpeet Singh Vs CIT, and Dwijendra Chandra Chowdhury Vs CIT, to support its conclusion that the assessee was not a servant of the company. The Tribunal directed the AO to treat the remuneration as business income, thereby allowing the appeal. Assessment Year 2005-06: The issue was similar, with the assessee receiving Rs. 11,25,000 as remuneration. The CIT(A) followed its earlier decision for AY 2004-05, treating the remuneration as salary. However, the Tribunal, consistent with its decision for AY 2004-05, set aside the orders of the authorities below and treated the remuneration as business income, allowing the appeal. Issue 2: Addition of Unexplained Cash Credits under Section 68 Assessment Year 2004-05: The AO added Rs. 5,36,065 as unexplained cash credits, which the assessee claimed as long-term capital gains from the sale of shares. The AO's inquiries with stock exchanges and brokers revealed that the transactions were not conducted through recognized stock exchanges, leading the AO to treat the transactions as bogus and the amount as income from undisclosed sources. The assessee argued that the transactions were off-market and supported by contract notes, bills, and demat account statements. The CIT(A) upheld the AO's decision, noting the lack of evidence to substantiate the genuineness of the transactions and the non-compliance with SEBI's reporting requirements for off-market transactions. The Tribunal, however, found the transactions to be genuine, supported by documentary evidence, including demat account statements and confirmations from brokers. The Tribunal noted that the same CIT(A) had previously accepted similar transactions in another case, which was upheld by the Tribunal. Citing the decision in CIT Vs Anupam Kapoor, the Tribunal concluded that the transactions were genuine and directed the deletion of the addition, allowing the appeal. Conclusion: Both appeals for the assessment years 2004-05 and 2005-06 were allowed. The Tribunal directed the AO to treat the remuneration as business income and deleted the addition of unexplained cash credits under Section 68, finding the transactions to be genuine.
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