2019 (11) TMI 1034 - AT - Income Tax

Disallowance u/s 40A(2)(a) - salary to the directors - HELD THAT - In sofaras salary of ₹ 22.00 lakh to Shri Rojit J. Kshirsagar is concerned, it is seen recorded in para no.4.8 of the assessment order that Shri Rohit J. Kshirsagar completed his Bachelor of Production Engineering in 2004 from MIT College, Aurangabad and the Masters in Manufacturing Engineering in the year 2005 from Royal Melbourne Institute of Technology, Melbourne, Australia. His statement was also recorded during the course of assessment proceedings, from which it is gathered that he worked for 18 months in Arcelor Mittal Steel GMBH, Hemburg, Germany and got salary of 4000 Euros per month, which is equivalent to ₹ 2.00 lakh per month. Considering the qualification, experience and his past salary, we are satisfied that remuneration of ₹ 22.00 lakh paid to Shri Rohit J. Kshirsagar is reasonable. It is further observed that the assessee paid remuneration of ₹ 24.00 lakh to Shri Rohit J. Kshirsagar during the immediately preceding year, which was uncontrovertedly stated to have been allowed. - order to delete the addition made in respect of salary paid to Shri Rohit J. Kshirsagar. As regards the salary of ₹ 22.00 paid to Smt. Pratibha Kshirsagar, it is seen that the AO recorded her statement during the assessment proceedings. She is a founder director of the assessee-company. As per the statement, she was engaged in areas like Production, Despatch and Feedback. It is further noticed that she was paid remuneration of ₹ 24.00 lakh during the immediately preceding assessment year which was stated to have been allowed in entirety. Such a contention of the assessee has not been disputed by the ld. DR. Remuneration paid to Smt. Pratibha Kshirsagar is also reasonable and does not call for any disallowance u/s.40A(2)(a) .Delete the entire addition. - Decided in favour of assessee.

Summary

Issues:
Confirmation of disallowance under section 40A(2)(a) of the Income-tax Act, 1961.

Analysis:
The appeal before the Appellate Tribunal ITAT Pune arose from an order passed by the Commissioner of Income-tax (Appeals)-I, Aurangabad concerning the assessment year 2014-15. The sole issue raised in the appeal was against the confirmation of disallowance amounting to ?40,89,500/- under section 40A(2)(a) of the Income-tax Act, 1961. The appellant, a private limited company engaged in manufacturing and sale of poly propylene mats, had paid remuneration to its three directors. The Assessing Officer (AO) observed the payments during limited scrutiny assessment proceedings and sought justification. The AO treated the salary paid to one director as reasonable, restricted the deductibility of another director's salary, and disallowed the entirety of the third director's salary. The ld. CIT(A) upheld the addition.

Upon hearing both sides and examining the relevant material, the Tribunal found the remuneration of ?22.00 lakh paid to one director to be reasonable based on qualifications, experience, and past salary. The Tribunal noted the director's educational background and work experience abroad, concluding the payment was justified. Additionally, considering the salary paid in the previous year, the Tribunal ordered the deletion of the disallowed amount related to this director. Regarding the remuneration of ?22.00 lakh paid to another director, who was a founder director of the company, the Tribunal found her remuneration reasonable based on her roles and responsibilities within the company. Noting the salary paid in the previous year, which was allowed without dispute, the Tribunal ordered the deletion of the entire disallowance amount related to this director. Consequently, the Tribunal allowed the appeal, ordering the deletion of the total disallowance amount.

In conclusion, the Appellate Tribunal ITAT Pune, through a detailed analysis of the facts and circumstances, found the remuneration paid to the directors to be reasonable and justified, thereby allowing the appeal and deleting the disallowance amount under section 40A(2)(a) of the Income-tax Act, 1961.