2021 (9) TMI 1036 - AT - Income Tax

Allowable revenue expenditure u/s 37(1) - Writing off of advance given to the Director - waiver of excess remuneration paid to the Director - HELD THAT - Remuneration paid to the Director was approved by the Board of Directors of the assessee and the Central Government as well. The resolution has been passed by the Board of Directors for writing off advance recoverable and necessary approvals have been taken from the Central Government for waiver of recovery of excess remuneration paid to Mr. Arun Dagar. These documents were produced before the AO as well as before the CIT(A). The provisions of Section 37(1) clearly set out that once the proper approval has been taken the writing off advance recoverable cannot be disallowed. It is a genuine business expenses, the additions made by the AO cannot be said to be in the nature of capital expenditure, since no enduring benefit accrues or arises to the assessee from advancing loan to the MD. Thus, the same accordingly acquires character of revenue expenditure. The said expense are being incurred wholly and exclusively for the purpose of the business of the assessee and hence, is fully deductable u/s 37(1) - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of remuneration paid to Director
2. Interest under section 234B of the Act
3. Initiation of penalty under section 271(l)(c) of the Act

Issue 1: Disallowance of remuneration paid to Director

The assessee, engaged in providing telecommunications services, filed an appeal against the order disallowing remuneration paid to the Director. The CIT(A) confirmed the disallowance, alleging non-genuine business expense. The Board of Directors and Central Government approved the remuneration. The Tribunal noted that the remuneration approval and advance write-off were genuine business expenses under Section 37(1) of the Act. The disallowance was deemed incorrect as it did not provide an enduring benefit or capital expenditure. Therefore, the disallowance was overruled, and Grounds 2, 2.1, 2.2, and 2.3 were allowed.

Issue 2: Interest under section 234B of the Act

The tribunal addressed the interest levied under section 234B of the Act. The assessee challenged the interest computation by the CIT(A) and the AO. However, the tribunal did not provide a detailed analysis or ruling on this issue in the judgment.

Issue 3: Initiation of penalty under section 271(l)(c) of the Act

The appeal also raised concerns about the initiation of penalty proceedings under section 271(l)(c) of the Act. The CIT(A) deemed the grounds premature. The tribunal did not delve into this issue in detail, stating that it was not adjudicated upon at that juncture. Therefore, the judgment did not provide a conclusive decision on the penalty initiation issue.

In conclusion, the tribunal partially allowed the appeal, specifically addressing the disallowance of remuneration paid to the Director. The judgment highlighted the importance of proper approvals for business expenses and the incorrect classification of such expenses as capital expenditure. However, the judgment did not provide detailed rulings on the issues related to interest under section 234B of the Act and the initiation of penalty proceedings under section 271(l)(c) of the Act.