9911796707
|
Home
Issues involved: Disallowance under section 40A(2)(a) for lease agreement and compensation payment to directors.
For the disallowance related to the lease agreement, the Income Tax Officer (ITO) added back the difference in rent paid by the assessee under section 40A(2)(a). The CIT (Appeals) examined the genuineness of the agreement and found it to be valid, but required a working sheet to explain the basis for the lease rent. The CIT (Appeals) made an addition for excessive payment for a specific area, which was contested by the assessee. The Appellate Tribunal found the rate taken was not excessive and deleted the addition. Regarding the compensation payment to directors, the ITO added back the amount under section 40A(2)(a) as a device to reduce the company's profit. The CIT (Appeals) questioned the commercial expediency of the payment, concluding it was not laid out for business purposes. The assessee argued the payment was genuine and referenced various legal precedents to support their case. The revenue contended that the payment was unnecessary as the directors were already full-time and adequately compensated. The Appellate Tribunal disagreed with the revenue's stance, noting that the agreement to restrain directors from competing was not unusual in business practice. They cited legal principles and precedents to support the validity of the agreement. The Tribunal found the expenditure to be a revenue nature and not excessive, directing the ITO to assess the payment under section 40(c) to determine if the ceiling prescribed was exceeded. The appeal was treated as allowed.
|
