2016 (2) TMI 198 - AT - Income Tax

Disallowance of Directors remuneration - CIT(A) deleted the addition - Held that - A.O had disallowed the expenses on comparing the expenses with that of earlier year. We further find that apart from the absolute increase in terms of expenses no material has been brought on record to demonstrate the excessiveness of remuneration. We also find that ld. CIT(A) while deleting the addition has noted that the two Directors to whom the remuneration was paid have shown the remuneration received from the Assessee as their income and has also paid the taxes. He has also given a finding that the payment of excess remuneration cannot be considered to be a diversion of income with a view to avoid taxes. Before us, Revenue has not placed any material on record to controvert the findings of ld. CIT(A). In view of the aforesaid facts, we find no reason to interfere with the order of ld. CIT(A) - Decided against revenue Disallowance of various expenses - CIT(A) deleted the addition - Held that - The perusal of provisions of Section 251(1)(a) reveals that CIT(A) in an appeal against an order of assessment can confirm, reduce, enhance or annul the assessment. The power of setting aside which was available to CIT(A), is no more available to CIT(A) by virtue of amendment made by Finance Act 2001 with effect from 1.06.2001. Thus it can be seen that in the present case CIT(A) has set aside the issue to the file of A.O, the powers of which are not available to him at the relevant time. We therefore are of the view that the matter needs to be restored to the file of CIT(A) for considering the submissions of the Assessee and thereafter deciding the issue on the basis of facts and circumstances of the case and in accordance with law and after recording a clear finding on the issue. - Decided in favour of Revenue for statistical purposes. Disallowance of PF and ESIC expenses - delayed deposit of employees contribution of PF - Held that - As decided in case of GSRTC 2014 (1) TMI 502 - GUJARAT HIGH COURT any sum with respect to the employees contribution as mentioned in s. 36(l)(va), assessee shall be entitled to the deduction of such sum towards the employees contribution if the same is deposited in the accounts of the concerned employees and in the concerned fund such as Provident Fund, ESI Contribution fund, etc provided the said sum is credited by the assessee to the employees accounts in the relevant fund or funds on or before the due date under the Provident fund Act, ESI Act, Rule, Order or Notification issued thereunder or under any Standing Order, Award, Contract or Service or otherwise. - Decided against assessee Disallowance u/s. 40A(3) - Held that - Appellant s contentions are general and vague since the A.R. of the appellant has not controverted the findings of the A.O., the disallowance made by the A.O is upheld - Decided against assessee

Summary

Issues Involved:

1. Deletion of disallowance of Directors' remuneration.
2. Deletion of disallowance of various expenses.
3. Deletion of addition of unsecured loans.
4. Deletion of disallowance of loss.
5. Disallowance of PF and ESIC expenses.
6. Disallowance under Section 40A(3) of the Act.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance of Directors' Remuneration:

The A.O. disallowed Rs. 3,00,000/- of Directors' remuneration, considering it excessive compared to the previous year. The CIT(A) deleted this addition, noting that the directors had declared the remuneration in their income and paid taxes accordingly. The Tribunal upheld the CIT(A)'s decision, finding no evidence of excessiveness or tax avoidance and dismissing the Revenue's ground.

2. Deletion of Disallowance of Various Expenses:

The A.O. disallowed Rs. 13,73,945/- in miscellaneous store purchases, professional and legal expenses, and telephone expenses, citing abnormal increases without justification. The CIT(A) directed the A.O. to verify and delete the disallowance. The Tribunal found the CIT(A) lacked the power to set aside issues post the 2001 amendment to Section 251 and restored the matter to the CIT(A) for a fresh decision, allowing the Revenue's ground for statistical purposes.

3. Deletion of Addition of Unsecured Loans:

The A.O. added Rs. 5,34,612/- as unproved cash credits due to lack of confirmations. The CIT(A) directed the A.O. to verify and delete the addition. The Tribunal noted the CIT(A)'s lack of power to set aside issues and restored the matter to the CIT(A) for a fresh decision, allowing the Revenue's ground for statistical purposes.

4. Deletion of Disallowance of Loss:

The A.O. disallowed Rs. 18,30,727/- of the claimed loss due to insufficient proof and non-production of books of accounts. The CIT(A) deleted the addition, finding no justification. The Tribunal linked this issue to grounds 2 and 3, setting it aside to the CIT(A) for a fresh decision, allowing the Revenue's ground for statistical purposes.

5. Disallowance of PF and ESIC Expenses:

The A.O. disallowed Rs. 27,282/- for delayed deposit of employees' PF contributions. The CIT(A) upheld the disallowance, referencing Section 36(1)(va) and Section 43B(b). The Tribunal, citing the Gujarat High Court's decision in GSRTC, found no reason to interfere and dismissed the Assessee's ground.

6. Disallowance under Section 40A(3) of the Act:

The A.O. disallowed Rs. 2,39,444/- (20% of Rs. 11,97,224/-) for payments made otherwise than by account payee cheques/drafts. The CIT(A) upheld the disallowance due to lack of contrary evidence from the Assessee. The Tribunal found no reason to interfere, as the Assessee failed to provide new evidence, and dismissed the Assessee's ground.

Conclusion:

The Tribunal partly allowed the Revenue's appeal for statistical purposes, setting aside certain issues to the CIT(A) for fresh consideration, and dismissed the Assessee's cross-objections. The order was pronounced in Open Court on 08-01-2016.