2015 (7) TMI 907 - AT - Income Tax

Disallowance for excess remuneration paid to the Directors - A.O. made the disallowance simply relying on the erroneous Remark in Auditors Report - Held that - The assessee had made excessive payment of remuneration to the Director. but same was approved by the central government, as required by the Companies Act.1n these circumstances, we are of the opinion that there was no contravention of the provisions of the Act - Decided in favour of assessee. Disallowance ul/s.40(a)(ia) - non deduction of TDS - Held that - The assessee had filed additional evidences, that same were not admitted by the F AA, that the assessee had filed composite certificate of deducting taxes. It is found that Hon ble Delhi High Court has in the matter of Naresh Kumar(2013 (9) TMI 275 - DELHI HIGH COURT ) has held that the proviso was applicable with retrospective effect.Section 40(a)(ia) of the Income-tax Act, 1961is a provision incorporated with that objective and purpose in mind. It is not basically a penal provision as when the tax deducted at source is deposited, the amount on which deduction was made is allowed as an expenditure incurred in the previous year in which the payment of tax deducted at source is made. Thus, it results in shifting of the year in which the expenditure can be claimed, even if payment has been made to the recipient and is to be allowed as expenditure in another year. The principle of matching, i.e., matching of receipts with expenditure to the extent indicated in section 40(a)(ia), therefore, gets affected. The provision can work harshly and may be very stringent in some cases. The legislative purpose and the object is to ensure payment and deposit of tax deducted at source with the Government. Tax deducted at source results in collection of tax.The amended provisions are clear and free from any ambiguity and doubt. They will help curtail litigation. The amended provision clearly support the expression said due date used in clause A of proviso to unamended section refers to time specified in Section 139(1) of the Act. The amended section 40(a)(ia) expands and further liberalises the statue when it stipulates that deductions made in the first eleven months of the previous year but paid before the due date of filing of the return, will constitute sufficient compliance. The matter needs further verification. Therefore, in the interest of justice, we are remitting the matter to the file of the AO for fresh adjudication - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Excess remuneration paid to Directors.
2. Disallowance under section 40(a)(ia) of the Income Tax Act, 1961.

Issue 1: Excess Remuneration Paid to Directors

The appellant challenged the order of the CIT (A) confirming the disallowance of excess remuneration paid to the directors, amounting to Rs. 66,77,919. The appellant argued that the disallowance was made without verifying the facts and without considering the application for sanction of additional remuneration pending with the Central Government. The CIT (A) upheld the disallowance based on the auditor's report and previous ITAT orders. However, the ITAT, considering similar issues in the past, found that the excessive remuneration was approved by the Central Government as required by the Companies Act. Therefore, the ITAT reversed the order of the CIT (A) and decided in favor of the appellant.

Issue 2: Disallowance under Section 40(a)(ia)

The second issue pertained to the disallowance under section 40(a)(ia) of Rs. 18,72,166 due to non-deduction of TDS. The AO disallowed the amount as tax was not deducted as per the audit report. The appellant contended that TDS was paid before the due date, and all expenses were allowable. The CIT (A) did not admit additional evidence submitted by the appellant and upheld the disallowance. The ITAT, after considering the arguments and the judgment of the Hon'ble Delhi High Court, found that the proviso to section 40(a)(ia) had retrospective effect. The ITAT remitted the matter back to the AO for fresh adjudication, allowing the appeal in part.

In conclusion, the ITAT Mumbai, in the judgment dated March 25, 2015, addressed the issues of excess remuneration to directors and disallowance under section 40(a)(ia) comprehensively. The judgment provided detailed analysis, considering legal provisions, past decisions, and relevant facts to arrive at a fair decision in each issue.