2017 (12) TMI 751 - AT - Income Tax

Addition on account of discrepancies in brokerage income - discrepancy in the income shown by the assessee and income reflected in Form no.26AS uploaded by the insurance company - Held that - The assessee has filed the revised Form no.26AS, issued by the Insurance Company, as per which the total brokerage income received by the assessee is ₹ 44,00,963, which is claimed to be lesser than the brokerage income offered by the assessee from the said Insurance Company. Since, the aforesaid revised Form no.26AS was obtained after disposal of appeal by the learned Commissioner (Appeals), the assessee had no opportunity to produce it before the Departmental Authorities. In view of the aforesaid, we restore the issue to the file of the Assessing Officer with a direction to verify assessee s claim by taking note of the revised Form no.26AS issued by the insurance company and decide the issue after due opportunity of being heard to the assessee. This ground is partly allowed for statistical purposes. Disallowance of director s remuneration paid - addition u/s 40A - Held that - The assessee has submitted before us that such payment of salary is due to contractual obligation, however, no such documentary evidence has been brought on record to prove such facts and also to indicate the exact nature of work being done by the concerned director and the effect of such work on the business of the assessee to justify such increase in salary. The assessee has to prove that the salary paid to the concerned director is commensurate with his work and not unreasonable as per section 40A(2)(b) of the Act. To afford one more opportunity to the assessee to prove the aforesaid fact by bringing cogent material on record, we set aside the impugned order of the learned Commissioner (Appeals) on this issue and restore the matter back to the file of the Assessing Officer for denovo adjudication after due opportunity of being heard to the assessee. This ground is allowed for statistical purposes.

Summary

Issues:
1. Addition of brokerage income due to discrepancies.
2. Disallowance of director's remuneration.

Analysis:

Issue 1: Addition of Brokerage Income
The assessee challenged the addition of ?15,60,133 on account of discrepancies in brokerage income. The Assessing Officer noted differences between the brokerage income in the books and Form no.26AS. The assessee tried to reconcile the discrepancies but was unsuccessful. The first appellate authority upheld the addition. The assessee contended that the revised Form no.26AS from the Insurance Company showed a lower brokerage income than declared. The Tribunal acknowledged the revised form obtained post-appeal and restored the issue to the Assessing Officer for verification based on the new information.

Issue 2: Disallowance of Director's Remuneration
The assessee contested the disallowance of director's remuneration amounting to ?55 lakh. The Assessing Officer observed a significant increase in salary compared to the previous year, particularly due to a substantial raise in ex-gratia payment to a director. The Assessing Officer invoked section 40A(2) and disallowed ?50 lakh of the enhanced salary. The first appellate authority upheld this decision. The assessee argued that the director played a crucial role in the company's growth, leading to a lucrative sale to Aditya Birla Group. However, the Tribunal found the justification for the salary increase lacking in documentary evidence. The matter was remanded to the Assessing Officer for a fresh assessment with an opportunity for the assessee to provide substantial proof justifying the increased remuneration.

In conclusion, the Tribunal partially allowed the appeal for statistical purposes, directing the Assessing Officer to re-examine both the brokerage income addition and the director's remuneration disallowance after affording the assessee a fair opportunity to substantiate their claims.