2015 (8) TMI 130 - AT - Income Tax

Disallowance of manufacturing and other expenses - CIT(A) allowed part relief - Held that - Undisputedly the assessee has gone to BIFR for revival of its industry and since there is temporary suspension of the business activities, therefore, minimum expenditure should be allowed. We accordingly find no merit in the arguments of the ld. D.R. Being convinced with the findings of the ld. CIT(A), we confirm the same. - Decided against revenue. Disallowance of Director s remuneration - CIT(A) allowed relief - Held that - CIT(A) has allowed the remuneration paid to the whole time Managing Director of the company, having observed that the assessee s business is temporarily suspended and there is every possibility of its revival, as the assessee has gone in BIFR for revival of its business. We, therefore, find no infirmity in the order of the ld. CIT(A) on this issue and accordingly we confirm the same. - Decided against revenue.

Summary

Issues:
1. Disallowance of manufacturing and other expenses
2. Disallowance of Director's remuneration
3. Disallowance of miscellaneous expenditure
4. Disallowance of Managing Director's remuneration

Analysis:
1. The first issue pertains to the disallowance of manufacturing and other expenses claimed by the assessee. The Assessing Officer disallowed the entire expenditure as no manufacturing activity was carried out during the year. However, the assessee argued that the business was temporarily suspended with intentions to resume, supported by proceedings before the BIFR. The CIT(A) granted relief of Rs. 5.55 lakhs, restricting the disallowance to 50%. The Tribunal upheld this decision, considering the temporary suspension and the intention to revive the business.

2. The second issue involves the disallowance of Director's remuneration and other expenses. The Assessing Officer disallowed the remuneration and other expenses, totaling Rs. 13.18 lakhs, due to the absence of business activity. The CIT(A) allowed the remuneration of Rs. 8.40 lakhs paid to the Managing Director, citing the need to keep the company alive during suspension. The Tribunal confirmed this decision, emphasizing the temporary suspension and the possibility of business revival.

3. The third issue addresses the disallowance of expenditure to maintain the business unit. The Assessing Officer disallowed the entire expenditure claimed by the assessee, which was later restricted to 50% by the CIT(A). The Tribunal confirmed the CIT(A)'s decision based on similar findings in a previous appeal for another assessment year.

4. The final issue concerns the disallowance of Managing Director's remuneration under miscellaneous expenditure. The Assessing Officer disallowed the remuneration, but the CIT(A) allowed it, recognizing the necessity to incur certain expenses to keep the commercial unit operational. The Tribunal upheld the CIT(A)'s decision, considering the Managing Director's crucial role and the need to maintain the company's operations.

In conclusion, the Tribunal dismissed the appeals of both the Revenue and the assessee, confirming the decisions of the CIT(A) regarding the various disallowances and allowances of expenses based on the circumstances of temporary business suspension and the potential for business revival.