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TMI Blog2012 (11) TMI 64X X X X Extracts X X X X X X X X Extracts X X X X ..... ionate increase in remuneration to the Managing and Executive Directors - CIT(A) deleted the addition - Sec. 40A(2)(a) - Held that:- The assessee is a public limited company and is governed by the provisions of Companies Act, 1956. Schedule XIII of the Companies Act provides the remuneration payable to Directors based on the effective capital and net profits of the Company. As per the provisions of Schedule XIII, the assessee is entitled to pay Rs.73.21 lacs as remuneration to its Directors but has paid only Rs.48.25 lac which is well within the limits prescribed by the Companies Act - As decided in CIT Versus Shriram Pistons And Rings Limited [1989 (8) TMI 51 - DELHI HIGH COURT] when the Company Law Board (CLB) had approved the remunerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the matter before CIT (A). 4. CIT (A) after considering the submissions of the assessee gave direction to A.O. to work out the deduction u/s. 80HHC without excluding dividend, interest etc. and accordingly the deduction was worked out at Rs.10,34,524/-. Pursuant to further order dated 5-2-2012 of CIT (A), deduction u/s.80HHC was determined at Rs.15,29,144/-. Aggrieved by the order of CIT (A), Revenue preferred appeal before Hon ble Tribunal. Hon ble ITAT vide order dated 28-6-2006 set aside the order of CIT (A) as well as of the A.O. and directed the A.O. to re-compute the deduction u/s.80HHC after taking into consideration the directions stipulated therein. On the aforesaid issue of deduction u/s. 80HHC A.O. initiated penalty vide o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .O. On the other hand Ld. A.R. submitted that no material fact has been concealed by the assessee. The assessee s claim u/s.80HHC was made under a bonafide belief that it was entitled to deduction u/s. 80HHC. The addition was due to difference of opinion. In view of these facts it was submitted that no penalty is leviable. He thus supported the order of CIT (A). 7. We have heard the rival submissions and perused the material on record. The penalty in the present case has been levied on the deduction u/s. 80HHC claimed by the assessee. The dispute with respect to quantum was a debatable issue in view of the fact that the matter was decided by Hon ble ITAT. CIT (A) has given a finding that since the issue being a debatable and complex one m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness of manufacturing and trading of Chemicals. For Assessment Year 2004-05 it filed its return of income on 30-11-2006 declaring total income at Rs.5,87,57,250/- and the taxable income was determined at Rs.6,43,37,093/-. For this year the assessment was completed u/s.143 (3) r.w.s. u/s. 147 of the Act vide order dated 20-12-2007. During the course of reassessment proceedings it was observed by A.O. that the assessee has claimed remuneration of Managing and Executive Directors of Rs.48.25 lakhs as against Rs.27.62 lakhs claimed in immediate preceding year. A.O. did not find the explanation of the assessee to be satisfactory and according to him the claim of salary made by assessee was disproportionate as compared to earlier year and the iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble. As per the provisions contained therein, the company could have paid any remuneration upto 10% of the net profits of the company for the year. Thus, the company was entitled to pay to its two directors, i.e. Managing Director and the Executive Director a combined total of Rs.73,27,000/- by way of remuneration. Against this, the company had paid only Rs.48.25 lakhs. Where the payment of managerial remuneration is less than the limits prescribed by the Central Government in Schedule XIII to the Companies Act, it cannot be said that the payment was unreasonable or excessive. Accordingly, it is held that the A.O. was not justified in making the disallowance of Rs.20.63 lakhs, which is directed to be deleted. 12. Against this order of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence fixes remuneration which is considered as reasonable, it should not ordinarily be open to Income Tax authorities to regard such fixation as unreasonable unless there are some other factors which can lead to the conclusion that there was no proper application of mind by the CLB or that a full and true disclosure has not been made before CLB at the time of the said Board fixing the remuneration. 15. In view of the aforesaid facts we are therefore of the view that CIT (A) has rightly deleted the addition made by A.O. and therefore no interference is called for in the order of CIT (A). We thus, dismiss both the grounds of the Revenue. 16. In the result, both the appeals filed by the Revenue are dismissed. - - TaxTMI - TMITax - Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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