2021 (1) TMI 1036 - AT - Income Tax

Disallowance of interest - HELD THAT - We agree with the contention of the Ld. Counsel for assessee that there was no case for disallowance of the amount on account of interest expenses. We direct the AO to delete this amount. Accordingly, first ground of appeal is allowed. Disallowance of rent paid - HELD THAT - The assessee has also made a reference to Section 38 of I.T. Act for apportionment of expenses U/s 38 of I.T. Act. Under Section 38 of I.T. Act, a portion of the expenses is allowable to the assessee as deduction, having regard to use of the premises / building for the purposes of assessee s business. We find that the lower authorities the AO as well as the Ld. CIT(A) - have not considered the applicability of Section 38 of I.T. Act; and further, that the relevant facts are not available on the records on the basis of which fair apportionment can be made. Moreover, neither the assessee has furnished details for such apportionment; nor the lower authorities - the AO as well as the Ld. CIT(A)-have considered apportionment of expenses U/s 38(1) - We are of the view that the relevant facts for deciding this ground of appeal are not available on records of the Tribunal; and that these relevant facts are needed to be brought on record. Therefore, we set aside this issue to the file of the AO with the direction to pass a fresh order as per law for deciding the issue regarding allowability of rent paid after providing the assessee a reasonable opportunity. Disallowance towards director remuneration - HELD THAT - Whether the assessee has deducted tax at source under Section 192 of I.T. Act in respect of the disputed amount of enhanced remuneration paid to the Director, is also not available on our record. We find that the lower authorities, AO as well as Ld. CIT(A), have also not examined these aspects; and have not brought relevant facts on record. We find that for the purposes of Section 40A(2) relevant facts pertaining to enhanced remuneration paid to the Director, such as free market value, legitimate needs of assessee s business and benefit derived by / accruing to the assessee are not available on the records. For deciding this ground of appeal are not available on records of the Tribunal; and that these relevant facts are needed to be brought on record. Therefore, we set aside this issue to the file of the AO with the direction to pass a fresh order as per law on the dispute under second ground of appeal.

Summary

Issues Involved:
1. Disallowance of ?1,00,66,740 on account of interest expenses.
2. Disallowance of ?6,00,000 on account of Director's remuneration.
3. Disallowance of ?54,00,000 on account of rent paid for premises used by the Director.

Detailed Analysis:

1. Disallowance of ?1,00,66,740 on Account of Interest Expenses:
The first ground of appeal concerns the disallowance of ?1,00,66,740 on account of interest expenses. The assessee contended that this amount was not claimed as an expenditure in the return of income, as ?1,16,43,087 was already disallowed suo-moto. The Tribunal found that there was no dispute on this factual position and agreed with the assessee's contention. The Tribunal directed the AO to delete the disallowance of ?1,00,66,740 as it was not claimed by the assessee. Thus, the first ground of appeal was allowed.

2. Disallowance of ?6,00,000 on Account of Director's Remuneration:
The second ground of appeal pertains to the disallowance of ?6,00,000 out of ?12,00,000 paid as Director's remuneration. The AO and Ld. CIT(A) alleged that this was an attempt to divert funds to reduce the tax burden. The Tribunal noted that the lower authorities had not examined whether the assessee and the Director were in the highest tax bracket and whether tax was deducted at source under Section 192 of the I.T. Act. The Tribunal also found that relevant facts such as fair market value, legitimate needs of the business, and benefits derived were not on record. Consequently, the Tribunal set aside this issue to the AO for a fresh decision, directing the AO to consider these aspects. The second ground of appeal was partly allowed for statistical purposes.

3. Disallowance of ?54,00,000 on Account of Rent Paid for Premises Used by the Director:
The third ground of appeal involves the disallowance of ?54,00,000 on account of rent paid for premises used by the Director. The Tribunal noted that the lower authorities had not examined whether the rent paid was a perquisite under Section 17(2) of the I.T. Act and whether tax was deducted at source under Section 192. The Tribunal also observed that the lower authorities did not consider the applicability of Section 38 of the I.T. Act for apportionment of expenses. The Tribunal set aside this issue to the AO, directing a fresh decision after considering these aspects and providing the assessee a reasonable opportunity. The third ground of appeal was partly allowed for statistical purposes.

Conclusion:
The Tribunal allowed the appeal partly, directing the AO to reconsider the issues related to Director's remuneration and rent paid for premises used by the Director, while deleting the disallowance of interest expenses. The order was pronounced in open court on 28/01/2021.