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TMI Blog2019 (4) TMI 1157X X X X Extracts X X X X X X X X Extracts X X X X ..... e-XIII of the Companies Act. The excess can be redone by an appropriate application to the Central Government u/s 309 of the Companies Act. Accordingly, the statutory auditors in their audit report vide para (g) made comments without quantifying in any manner the alleged excess. Further, we find that the entire excess which is paid by a valid resolution, sanctioning higher remuneration was repaid back to the company by a pro-tanto reduced remuneration for the subsequent 3 years. It shows that the payments made earlier and recovery later are within the four corners of law. There is no infraction of provisions of Income Tax Act. We delete the addition made by the AO - Decided in favour of assessee - ITA No. 767/MUM/2017 - - - Dated:- 18- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment year (AY) 2011-12 on 29.09.2011 declaring loss at ₹ 73,88,458/-. The nature of business of the assessee is selling art works and paintings. In the profit and loss account, the assessee had debited a sum of ₹ 72,00,000/- pertaining to Director s remuneration viz. Shri Sanjay Kumar of ₹ 24,00,000/- and Ms. Geeta Mehra of ₹ 48,00,000/-. During the course of assessment proceedings, the Assessing Officer (AO) noticed that in the auditor s report at point 4(g) annexed to the balance sheet, the auditor has mentioned that subject to note 3 regarding remuneration to Managing/Whole Time Directors, in excess of the limits specified u/s 198 r.w.s. 309 of the Companies Act, 1956, for which approval of the Central Govern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,642/- and added it to the total income. 4. In appeal, the Ld. CIT(A) observed that clearly it is a case where excess amount is paid in contravention to the Companies Act and duly mentioned by the auditors in their report annexed to the balance sheet. This amount is to be recovered and it is also submitted by the assessee that the excess amount is otherwise adjusted in subsequent years. On the above reasons, the Ld. CIT(A) confirmed the disallowance of ₹ 28,86,642/- made by the AO. 5. Before us, the Ld. counsel of the assessee files a Paper Book (P/B) containing (i) Issue for Consideration, (ii) Extract of EGM dated 07/04/2011 and explanatory statement thereto, (iii) Copy of MCA order dated 03/01/2012 for Ms. Geetha Mehra for r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dule XIII of the Companies Act, which excess can be cured by an appropriate application to the Central Government u/s 309 of the Companies Act. Accordingly, the statutory auditors in their audit report vide para (g) made comments without quantifying in any manner the alleged excess. It is stated that the managerial remuneration paid during the year and in earlier years is in excess to the limits prescribed u/s 198. The company s application to the Central Government for approval of excess remuneration paid is pending. The Ld. counsel also submits that an imaginary excess has been unilaterally derived by the AO without any show cause notice in this regard to the assessee during the assessment proceedings. It is stated that the manner of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee-company granting approval by the shareholders for payment of enhanced remuneration of ₹ 4,90,000/- p.m for both the Directors effective from 01.04.2011, which works out to ₹ 1,17,60,000/-, being far more than the actual payment of ₹ 72,00,000/- in the aggregate, as also showing the manner of recovery of excess remuneration in the subsequent 3 years, in accordance with the directions of the Ministry aggregating in all to ₹ 62,44,020/-. In other words, the entire excess which is paid by a valid resolution sanctioning higher remuneration was repaid back to the company, by pro-tanto reduced remuneration for the subsequent 3 years which proves that in effect, the payments made earlier and recovery later on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rival submissions and perused the relevant materials on record. In the instant case, after the closure of the books and audit of accounts for the year ended 31.03.2011 (AY 2011-12), being the impugned year, the auditors noticed that the remuneration sanctioned by the EGM and paid to the Directors was in excess of the limits set out in Schedule-XIII of the Companies Act. The excess can be redone by an appropriate application to the Central Government u/s 309 of the Companies Act. Accordingly, the statutory auditors in their audit report vide para (g) made comments without quantifying in any manner the alleged excess which is reproduced below: In our opinion to the best of our information and according to the explanations given to us, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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