2012 (9) TMI 695 - AT - Income Tax

Disallowance of remuneration paid to the Director - Held that - The director deemed to be receiving the remuneration here has done nothing substantive for the appellant so as to make it entitle for the remuneration to the extent of Rs.4.80 lacs as the total income shown by the assessee company is nil in its return of income. The remuneration paid to director concerned is excessive and unreasonable but does not commensurate to the benefits derived by the appellant therefrom. As the disallowance of Rs.3,60,000/- made by the A.O. and confirmed by Ld. CIT(A) is excessive the disallowance to the extent of Rs.2 lacs is justified to meet the ends of justice - partly in favour of assessee. Disallowance of expenses incurred on electricity, telephone and salary - Held that - The A.O. disallowed the expenses incurred on Krishna Kunj, Shahibaug of Rs.33,157/- on the ground that it is a residential property not being used for the purpose of business and the CIT(A) has confirmed this disallowance at Rs.17,000/- on account of expenses incurred for non business purposes, no infirmity in the order of Ld. CIT(A) as 50% of the expenses were incurred on electricity of Krishna Kunj - against assessee. Disallowance of traveling & entertainment expense - Held that - As no justification to travel to Delhi has not been established before the A.O. that the same was for business purpose & likewise entertainment expenses was incurred by Mrs. Neena Parekh on self made vouchers for entertaining the guests in restaurants but before the A.O., the assessee could not establish business connection of these expenses no infirmity in the order of Ld. CIT(A) in disallowing the expenses - against assessee. Disallowance of set off of brought forward business losses and security transaction tax (STT) - Held that - As on verification of CIT(A) s order, both these grounds have not been found place in the appellate order and the same were left unadjudicated. Sr. DR has fairly conceded that these two grounds of appeal had been lapsed by Ld. CIT(A) unadjudicated. Therefore, Ld. CIT(A) is directed to consider both these grounds and give specific finding as per law - in favour of assessee for statistical purposes.

Summary

Issues:
1. Disallowance of remuneration paid to the Director under section 40A(2)(b) of the Act.
2. Disallowance of expenses on electricity, telephone, and salary.
3. Disallowance of traveling and entertainment expenses.
4. Non-adjudication of set off of brought forward business losses and security transaction tax.

Issue 1: Disallowance of remuneration paid to the Director under section 40A(2)(b) of the Act:
The appellant appealed against the disallowance of Rs. 3.60 lacs out of the remuneration paid to the Director. The A.O. observed that the Director had not shouldered any responsibility of the company, and the remuneration paid was excessive and unreasonable. The CIT(A) confirmed the disallowance, stating that the remuneration did not commensurate with the services rendered. The ITAT partially allowed the appeal, reducing the disallowance to Rs. 2 lacs, considering the excessive nature of the payment.

Issue 2: Disallowance of expenses on electricity, telephone, and salary:
The A.O. disallowed expenses incurred on a property used as a registered office, stating it was not used for business purposes. The CIT(A) upheld the disallowance partially. The ITAT agreed with the CIT(A)'s decision, confirming the disallowance of Rs. 17,000 for non-business purposes.

Issue 3: Disallowance of traveling and entertainment expenses:
The A.O. disallowed traveling expenses to Delhi and entertainment expenses incurred without a clear business purpose. The CIT(A) confirmed the disallowance, stating lack of proof for business connection. The ITAT upheld the CIT(A)'s decision, rejecting the appeal on these grounds.

Issue 4: Non-adjudication of set off of brought forward business losses and security transaction tax:
The appellant raised grounds regarding the non-adjudication of set off of brought forward business losses and security transaction tax by the CIT(A). The ITAT noted that these grounds were left unadjudicated and directed the CIT(A) to consider and provide specific findings as per law. This issue was allowed for statistical purposes.

In conclusion, the ITAT partially allowed the appeal on the first issue, confirming the disallowance of expenses on the second issue, rejecting the appeal on the third issue, and directing the CIT(A) to consider the fourth issue for adjudication.