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Income Tax Appellate Tribunal, DELHI BENCH: ‘G’ NEW DELHI
Before: MS SUCHITRA KAMBLE & SH. PRASHANT MAHARISHI
ORDER
PER SUCHITRA KAMBLE, JM
This appeal is filed by the assessee against the order dated 28/06/2018 passed by CIT(A)-8, New Delhi for assessment year 2012-13.
The grounds of appeal are as under:
“The Appellant respectfully submits that: On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals)-8, New Delhi [‘CIT(A)’] has erred in passing the order under section under section 250 of the Income Tax Act, 1961 (‘Act’), confirming the adjustments made by the Deputy Commissioner of Income Tax, Circle 23(2), New Delhi (‘AO’) in the assessment order passed under section 143(3) of the Act. Each of the ground is referred to separately, which may kindly be considered independent of each other.
1. Ground No. 1 - The order passed by learned CIT(A) is bad in law 1.1 On the facts and circumstances of the case and in law, the learned CIT (A) has erred in not appreciating the submissions as well as the case laws relied upon by the Appellant, while summarily rejecting it by relying on the order passed by the learned AO.
2. Ground No. 2 - Addition of remuneration paid to Director amounting to INR 30,55.082 2.1. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in confirming the action of the learned AO in disallowing remuneration paid to Director, despite of the same being approved by the Board of Directors of the assessee and the Central Government as well. 2.2. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in confirming the action of the learned AO in disallowing remuneration paid to Director amounting to INR 30,55,082 by treating the same as a non-genuine business expense under section 37 of the Act as well as capital expenditure and hence liable to be disallowed. 2.3. On the facts and circumstances of the case and in law, the Ld.CIT(A) /A.O have erred in holding that the assessee should have either recovered such advances or adjusted it in the subsequent years salary of the Director.
3. Ground No. 3-Interest u/s 234B of the Act. 3.1. On the facts and circumstances of the case and in law, the learned CIT(A)/AO has erred in levying/computing interest under section 234B of the Act.
4. Ground No. 4 - Initiation of penalty under section 271(l)(c) of the Act. 4.1. On the facts and circumstances of the case and in law, the learned CIT(A) has erred holding that the ground raised before his office against initiation of penalty proceedings under section 271(l)(c) of the Act is premature. All the above grounds are without prejudice to each other. The Appellant craves for leave to add, amend, vary, omit or substitute any of the aforesaid grounds at any time before or at the time of hearing of the matter with the Income Tax Appellate Tribunal.”
The assessee company is engaged in providing telecommunications services. The assessee started its commercial operations in AY 2009-10 and is currently engaged in providing National Long Distance (‘NLD’) as well as International Long Distance (‘ILD’) Telecom services to its Indian and overseas customers. The Assessee filed the return of income for the present assessment year on 30th November 2012 declaring a total income of Rs. 7,68,92,720 under normal provisions of the Act and Book Profit of Rs 5,10,27,746 under special provisions of Section 115.IB of the Act. The return of income was selected for scrutiny and assessment order under Section 143(3) of the Act dated 23rd March, 2016, was passed by the Assessing Officer thereby disallowing the advance written off amounting to Rs 30,55,082/- given to the Managing Director of the assessee company. Accordingly, the Assessing Officer determined assessed income of Rs. 7,99,47,803/- under normal provisions of the Act and raised a total tax demand of Rs. 14,59,820/- including interest under Section 234B and 234C of the Act amounting to Rs. 9,46,168/- and Rs. 5,16,979/-.
Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT (A) has dismissed the appeal of the assessee.
At the time of hearing none appeared for the assessee despite giving notices. Hence, we are proceeding on the basis of contentions taken by the assessee before the Assessing Officer and before the CIT(A).
The Ld. DR relied upon the assessment order and the order of the CIT(A).
We have heard Ld. DR and perused all the material available on record. It is pertinent to note that the remuneration paid to the Director was approved by the Board of Directors of the assessee and the Central Government as well. The resolution has been passed by the Board of Directors for writing off advance recoverable and necessary approvals have been taken from the Central Government for waiver of recovery of excess remuneration paid to Mr. Arun Dagar. These documents were produced before the Assessing Officer as well as before the CIT(A). The provisions of Section 37(1) clearly set out that once the proper approval has been taken the writing off advance recoverable cannot be disallowed. It is a genuine business expenses, the additions made by the Assessing Officer cannot be said to be in the nature of capital expenditure, since no enduring benefit accrues or arises to the assessee from advancing loan to the MD. Thus, the same accordingly acquires character of revenue expenditure. The said expense are being incurred wholly and exclusively for the purpose of the business of the assessee and hence, is fully deductable u/s 37(1) of the Act. Therefore, the Assessing Officer as well as the CIT(A) was not right in making addition to that extent. Hence, Ground No. 2, 2.1, 2.2 and 2.3 are allowed. As regards Ground No. 3, 3.1 and 4, 4.1 are consequential, hence, not adjudicated upon at this juncture.