2014 (1) TMI 884 - AT - Income Tax

Disallowance of commission and directors remuneration - Held that - The AO made disallowance because of the failure of assessee to provide the nature of services rendered by the payees - assessee had filed confirmation letters from six persons in which they had stated and confirmed that they had received commission on purchase orders - The Assessing Officer do not mention about these facts and there is no copies of such letters in the appeal papers - In view of conflicting statements by Assessing Officer and CIT (A) the matter may be looked again by Assessing Officer matter remitted back to the AO for fresh adjudication. The AO made disallowance of 30% of remuneration paid to directors as excessive remuneration and in the absence of services proof of rendered by the directors the Assessing Officer does not mention about the fact of income tax returns of the directors - this point should also be readjudicated by the Assessing Officer in the light of income tax returns of directors having been filed before him Relying upon Assistant Commissioner of Income-tax Circle 3(1) New Delhi Versus Bony Polymers (P.) Ltd. 2009 (11) TMI 658 - ITAT DELHI - The Assessing Officer can compare the salary paid by assessee to its directors from their income tax returns and if the salary received from the assessee forms part of income of directors in their personal capacity wherein taxes has been paid then he can arrive at the right conclusion Decided in favour of Revenue.

Summary

Issues:
1. Disallowance of commission paid.
2. Disallowance of remuneration paid to directors.
3. Reassessment of the case by the Assessing Officer.

Analysis:
1. The case involved an appeal by the Revenue against the order of the Commissioner of Income Tax (Appeals) for the assessment year 2007-08. The Revenue contested the deletion of additions related to commission paid and remuneration to directors. The Assessing Officer disallowed the commission paid by the assessee due to lack of documentation justifying the expenditure. The CIT (A) overturned this decision based on evidence provided by the assessee, including confirmation letters from commission agents detailing services rendered and business generated. The ITAT remitted this issue back to the Assessing Officer for further review due to conflicting statements between the Assessing Officer and CIT (A).

2. Regarding the disallowance of remuneration to directors, the Assessing Officer had made a 30% disallowance citing excessive remuneration without proof of services rendered. The CIT (A) disagreed and deleted the disallowance, emphasizing that the directors had paid taxes on their salary income. The ITAT directed the Assessing Officer to re-examine this issue in light of the directors' income tax returns to determine if the salaries formed part of their taxable income and if taxes had been paid, following the precedent set by the ITAT judgment in a similar case.

3. The ITAT allowed the Revenue's appeal for statistical purposes, highlighting the need for the Assessing Officer to reassess both the disallowance of commission and remuneration to directors based on the evidence presented by the assessee and the directors' income tax returns. The judgment emphasized the importance of verifying tax compliance and justifying disallowances based on concrete evidence to prevent revenue loss.