2012 (11) TMI 64 - AT - Income Tax

Penalty u/s.271(1)(c) - excess claim of deduction u/s. 80HHC - Held that - No material facts were concealed by the appellant. No income has been detected or unearthed which was not disclosed by the assessee. The addition has arisen only on account of different views having been taken as to the nature of certain items of income. This is purely a debatable matter. More than one view was clearly possible. As the D.R. could not controvert the finding of CIT (A) by bringing any contrary material on record no infirmity in the order of the CIT (A) in deleting the penalty - in favour of assessee. Disproportionate increase in remuneration to the Managing and Executive Directors - CIT(A) deleted the addition - Sec. 40A(2)(a) - Held that - The assessee is a public limited company and is governed by the provisions of Companies Act, 1956. Schedule XIII of the Companies Act provides the remuneration payable to Directors based on the effective capital and net profits of the Company. As per the provisions of Schedule XIII, the assessee is entitled to pay Rs.73.21 lacs as remuneration to its Directors but has paid only Rs.48.25 lac which is well within the limits prescribed by the Companies Act - As decided in CIT Versus Shriram Pistons And Rings Limited 1989 (8) TMI 51 - DELHI HIGH COURT when the Company Law Board (CLB) had approved the remuneration it could not be said that the expenditure was excessive or unreasonable - in favour of assessee.

Summary

Issues:
1. Penalty cancellation under section 271(1)(c) for inaccurate particulars of income related to claim of excess deduction under section 80HHC for assessment year 1991-92.
2. Disallowance of excess remuneration to Managing and Executive Directors under section 40A(2)(a) for assessment year 2004-05.

Analysis:

Issue 1: Penalty cancellation under section 271(1)(c) for inaccurate particulars of income (A.Y. 1991-92):
- The appellant, a company, filed its return of income for A.Y. 1991-92, claiming deduction under section 80HHC.
- The Assessing Officer (A.O.) disallowed part of the deduction, leading to a penalty of Rs. 2,60,000 imposed under section 271(1)(c).
- The Commissioner of Income Tax (Appeals) [CIT (A)] deleted the penalty, stating that the issue of deduction under section 80HHC was debatable, involving legal interpretation, with no concealment of income.
- The Income Tax Appellate Tribunal (ITAT) upheld the CIT (A)'s decision, emphasizing that the matter was complex, debatable, and involved differing views, indicating no concealment or inaccurate particulars of income.
- The ITAT dismissed the Revenue's appeal, affirming the cancellation of the penalty for A.Y. 1991-92.

Issue 2: Disallowance of excess remuneration to Managing and Executive Directors (A.Y. 2004-05):
- The appellant, a public limited company, claimed remuneration for Directors, which the A.O. found disproportionate compared to the previous year, invoking section 40A(2)(a).
- The CIT (A) directed deletion of the disallowance, citing Schedule XIII of the Companies Act, which governs Director's remuneration based on net profits.
- The ITAT noted that the appellant's remuneration to Directors was within the limits prescribed by the Companies Act, leading to the deletion of the addition.
- Referring to precedent, the ITAT highlighted that once the Company Law Board approves remuneration, it is considered reasonable unless there are specific factors indicating otherwise.
- Consequently, the ITAT upheld the CIT (A)'s decision, dismissing the Revenue's appeal against the disallowance of excess remuneration for A.Y. 2004-05.

In conclusion, both issues were meticulously analyzed, considering legal provisions and precedents, resulting in the dismissal of the Revenue's appeals in both cases.