2016 (12) TMI 803 - AT - Income Tax

Disallowance of remuneration of 50% to lady director - Held that - As lady Directors are well qualified persons. The authorities below have drawn adverse inference that since they are occupied in other engagements also they cannot give time to this company. Find that this is a totally untenable surmise and conjecture devoid of any cogency. If the proposition advanced by the Revenue is accepted then no person can be allowed to be engaged as Directors or otherwise gainfully engaged in more than one concern. The authorities below have totally ignored submissions that these lady Directors have been engaged in the functioning of the company since the inception. There is no presumption that ladies engaged in medical profession cannot be engaged as Directors in company. Moreover on what basis learned CIT(Appeals) has held that they be paid for only 50% of the salary is also not comprehendible. It is not the case that the learned CIT(Appeals) has compared the services rendered with prevailing market price. Dehorse any cogent basis, it is an arbitrary order, which is not sustainable. The Revenue should not try to sit into the shoes of a businessman and decide how to conduct the business.Accordingly find that the lady Directors being well qualified persons and associated with the company since earlier period cannot be disallowed the remuneration of 50% as held by the learned CIT(Appeals). - Decided in favour of the assessee.

Summary

Issues involved:
1. Disallowance of 50% women's Directors remuneration under section 40A(2) of the I.T. Act.
2. Disallowance of transit damages and late fee under business expenditure.
3. Assessment of remuneration paid to lady Directors without proper justification.

Issue 1: Disallowance of 50% women's Directors remuneration under section 40A(2) of the I.T. Act:

The Assessing Officer disallowed the remuneration paid to the lady Directors under section 40A(2) of the Act, alleging that they were paid without performing any work for the company. The CIT(A) upheld the disallowance, stating that the Directors did not have the time or qualifications to carry out the claimed functions. However, the ITAT found the reasoning untenable, emphasizing that the Directors were well-qualified and had been involved in the company since its inception. The ITAT criticized the CIT(A) for not comparing the services rendered with prevailing market prices and for making an arbitrary decision to restrict the remuneration to 50%. The ITAT held that the Revenue should not interfere in business decisions and set aside the CIT(A)'s order, ruling in favor of the assessee.

Issue 2: Disallowance of transit damages and late fee under business expenditure:

The appellant raised grounds regarding the disallowance of transit damages and late fees under business expenditure. However, the counsel for the appellant decided not to press these grounds, leading to their dismissal as not pressed.

Issue 3: Assessment of remuneration paid to lady Directors without proper justification:

The appellant challenged the disallowance of 50% of the remuneration paid to the lady Directors, arguing that they were actively involved in the company's operations. The appellant cited various case laws to support their claim that the remuneration should be allowed. The CIT(A) partially upheld the disallowance, stating that the Directors did not have the time or qualifications to perform the claimed functions fully. However, the ITAT disagreed with this reasoning, emphasizing that the Directors were qualified and had been involved in the company since its inception. The ITAT found the CIT(A)'s order arbitrary and not based on a proper comparison of services with prevailing market prices. Consequently, the ITAT set aside the CIT(A)'s order and ruled in favor of the assessee.

In conclusion, the ITAT ruled in favor of the assessee, setting aside the CIT(A)'s order regarding the disallowance of 50% of the remuneration paid to the lady Directors. The ITAT emphasized that the Revenue should not interfere in business decisions and upheld the appellant's claim that the Directors were well-qualified and actively involved in the company's operations.