2022 (7) TMI 22 - AT - Income Tax

Addition u/s 40A(A)(2)(B) - Disallowance of part of remuneration to the directors considering the same as excessive - HELD THAT - In the case of Union of India v. Kaumudini Narayan Dalal 2000 (12) TMI 101 - SC ORDER Hon ble Supreme Court had an occasion to consider whether it is open to revenue to accept a judgment in the case of one assessee, and appeal, against the identical judgment in the case of another. Their Lordships held that such a differential treatment on the same set of facts was not permissible in law, and observed that, it is not open to revenue to accept the judgment in the case of the assessee in that case and challenge its correctness in the case of another assessee, without just cause. When it is not possible for the revenue to challenge an order of the appellate authority in one case and when it has accepted identical order of the appellate authority in another case, it cannot at all be open to the Assessing Officer to challenge the order of CIT(A) on an issue on which relief has been given by CIT(A), in an earlier year, which has been not been challenged in appeal by the Assessing Officer. It is not the case of the Assessing Officer that the earlier year s CIT(A) s order was not challenged on account of low tax effect or any other technical reason. Once the stand of the CIT(A), on an issue, is accepted in one year, unless there are good and sufficient reason to take a different stand later, similar findings for a subsequent year cannot be challenged in further appeal either. For this reason alone, the grievance raised by the revenue is not maintainable in law and deserves to be rejected in limine. - Appeal dismissed.

Summary

Issues:
Challenge to the correctness of the order dated 04th December 2019 passed by the CIT(A) regarding assessment under section 143(3) of the Income Tax Act, 1961 for the assessment year 2014-15.

Detailed Analysis:

Issue 1: Disallowance of part of remuneration to directors
The Assessing Officer (AO) challenged the order of the CIT(A) which deleted the additions made of Rs. 2,46,00,000 by disallowing part of the remuneration to the directors. The AO contended that the increased remuneration was excessive and disallowed it under section 40A(2)(b) of the IT Act. The AR argued that the turnover increase justified the enhanced remuneration, and there was no revenue loss due to tax neutrality. The AR also highlighted that the AO failed to provide evidence justifying the excessive remuneration. The CIT(A) observed that the AO did not justify the excessiveness of the remuneration and failed to consider the turnover increase and efforts of the directors. Considering the arguments and judicial decisions, the CIT(A) directed the AO to delete the addition, stating that it was not made on strong footing and could not sustain the test of appeal.

Issue 2: Permissibility of deviation in filing an appeal
The AO filed an appeal despite the CIT(A) decision being accepted by the revenue authorities in a previous year, where no appeal was filed against the same issue. The Tribunal referred to legal precedents stating that it is impermissible for the revenue to challenge an order in one case and accept it in another without just cause. The Tribunal emphasized that once a CIT(A) decision is accepted in one year, there must be good and sufficient reasons to challenge it in a subsequent year. As there was no valid reason provided by the AO for the deviation in filing an appeal, the Tribunal held that the grievance raised by the revenue was not maintainable in law and dismissed the appeal.

In conclusion, the Tribunal dismissed the appeal, emphasizing the impermissibility of challenging a CIT(A) decision in a subsequent year without valid reasons. The detailed analysis of the disallowance of remuneration to directors highlighted the importance of providing evidence and justification for such actions under relevant tax provisions.