2018 (1) TMI 1369 - AT - Income Tax

Disallowance u/s 14A r.w. Rule 8D - Held that - Both the lower authorities follow their respective findings right from assessment year 2008-09 to 2011-12 in order to compute the impugned disallowance under the newly introduced computation provision i.e. Rule 8D of the Income Tax Rules. Case records reveal that the assessee s appeals against the said corresponding disallowance stand accepted on 08.04.2016 and 14.09.2017. It has come on record that the said co-ordinate benches have deleted identical disallowances in earlier assessment years. We therefore follow consistency to delete the impugned disallowance for want of an appropriate satisfaction u/s.14A(2) of the Act. The assessee s former substantive ground succeeds. Addition u/s 40(A)(2)(b) - Held that - There is hardly any denial of the fact that the CIT(A) has followed his predecessors orders for assessment years 2008-09 to 2011-12. We notice in this factual backdrop that the above co-ordinate bench s order has reversed the CIT(A) s findings under challenge therein in partly affirming Assessing Officer s identical action; although involving different amounts paid as remuneration to assessee s Directors and other specified parties. Learned Departmental Representative is fair enough in not drawing any distinction on facts as well as law. We thus accept assessee s latter substantive ground as well as its main appeal. Closing stock addition as made by the Assessing Officer u/s.145A - Held that - There is no dispute that the CIT(A) has followed his preceding assessment year s findings to delete the impugned addition. We find that the above latter co-ordinate bench in its order dated 14.09.2017 has upheld the same in preceding assessment year 2011-12. We therefore adopt judicial consistency qua the instant issue to uphold the CIT(A) s findings under challenge deleting the impugned closing stock addition. - Decided against revenue

Summary

Issues:
1. Disallowance under Section 14A r.w. Rule 8D
2. Disallowance of excessive directors' remuneration under Section 40A(2)(b)
3. Revival of closing stock addition under Section 145A

Issue 1: Disallowance under Section 14A r.w. Rule 8D
The Appellate Tribunal, ITAT Ahmedabad, addressed the first issue involving the disallowance under Section 14A r.w. Rule 8D. The assessee's appeal sought to reverse the lower authorities' action of disallowing a specific amount. The Tribunal noted the consistency in decisions across assessment years and previous acceptance of the assessee's appeals against similar disallowances. Due to the lack of appropriate satisfaction under Section 14A(2) of the Income Tax Act, the Tribunal decided to delete the impugned disallowance, ruling in favor of the assessee.

Issue 2: Disallowance of Excessive Directors' Remuneration under Section 40A(2)(b)
The second issue involved the disallowance of excessive directors' remuneration under Section 40A(2)(b). The CIT(A) upheld the disallowance, citing substantial increases in remuneration without corresponding improvements in services or company turnover. The Tribunal considered the provisions of Section 40A(2) and previous decisions, emphasizing the need for reasonableness in directors' remuneration. Despite the appellant's arguments, the Tribunal found the remuneration excessive and restricted it in line with Section 40A(2). The Tribunal's decision was based on the lack of evidence showing improved services or substantial turnover increase, leading to a partial allowance of the appeal.

Issue 3: Revival of Closing Stock Addition under Section 145A
The final issue dealt with the revival of closing stock addition under Section 145A. The Tribunal reviewed the appellant's accounting method and valuation policies, considering previous decisions and legal precedents. Citing various case laws, the Tribunal concluded that the addition in the valuation of closing stock was not maintainable. Relying on judicial consistency and precedents, the Tribunal upheld the CIT(A)'s decision to delete the closing stock addition, rejecting the Revenue's appeal.

In conclusion, the Appellate Tribunal, ITAT Ahmedabad, allowed the assessee's appeal related to the disallowances under Section 14A and excessive directors' remuneration, while dismissing the Revenue's appeal regarding the closing stock addition. The Tribunal's detailed analysis and reliance on legal provisions and precedents ensured a comprehensive and just resolution of the issues presented in the case.