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Facts
The assessee's appeals are against the CIT(A)'s order confirming the disallowance of director's remuneration. The Assessing Officer (AO) recalculated the remuneration based on gross profit ratio, while the assessee relied on turnover for allocation of common expenses.
Held
The Tribunal found an inadvertent error in the CIT(A)'s order, which, despite relying on a Jaipur tribunal's decision, confirmed the AO's finding. The Tribunal agreed with the Jaipur tribunal's decision and set aside the lower authorities' orders.
Key Issues
Whether the director's remuneration should be calculated based on profit ratio or turnover for allocation of common expenses, and whether the CIT(A) correctly applied the principles laid down by other tribunals.
Sections Cited
143(3), 250
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Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI
Before: SHRI SS VISWANETHRA RAVI & SHRI AMITABH SHUKLA
(अपीलार्थी/Appellant) (प्रत्यर्थी/Respondent) अपीलार्थी की ओर से/ Assessee by : Shri Bhupendran, Advocate प्रत्यर्थी की ओर से /Revenue by : Ms. E.Pavuna Sundari, Addl.CIT सुिवाई की तारीख/Date of Hearing : 08.01.2025 घोर्णा की तारीख /Date of Pronouncement : 07.02.2025 आदेश / O R D E R PER AMITABH SHUKLA, A.M :
These appeals are filed by the assessee against the order bearing DIN & Order No.ITBA / NFAC / S / 250 / 2024-25 / 1067178346(1) and No.ITBA/NFAC/S/250/2024-25/1067197027(1) dated 31.07.2024 of the Learned Commissioner of Income Tax [herein after “CIT(A), National Faceless Appeal Center[NFAC], Delhi, for the assessment years 2018-19 & 2020-21. Through the aforesaid appeal the assesse has challenged order u/s 250 dated 31.07.2024 passed by NFAC, Delhi.
Page - 1 - of 5 and 143(3) dated 23.03.2021 and 20.09.2022 for AY-2018-19 and AY-202021 respectively. The facts of cases for both the appeals have been reported to be identical by the assessee and hence for the purposes of convenience both appeals are adjudicated by way of this common order. For the purposes of this adjudication, the facts and figures for AY-2018- 19 have been taken and the decision in AY-2020-21 would apply mutatis mutandis.
3.0 The Ld. Counsel for the assessee informed that the only issue seminal to the controversy is the addition made by the Ld. AO in respect of disallowance of director’s remuneration amounting to Rs. 37,47,600/-. The Ld. AO had noted that the assessee had calculated its profit @ 16% for the Wind Mill division for calculating director’s remuneration. The Ld. AO however noted that the gross profit as per ITR was Rs.2,96,39,381/- and the corresponding ratio was 69.4%. The Ld. AO recalculated the director’s remuneration and made the impugned addition of Rs.37,47,600/-. The Ld. Counsel of the assessee submitted that before the Ld.AO it had relied upon the decision of the Hon’ble Coordinate Bench of Jaipur tribunal in the case of Rajasthan State Mines Ltd, ITA
Page - 2 - of 5 No.704/JP/2018 dated 05.11.2018 wherein it was concluded that common expenses were to be allocated based upon the turnover of the division and not based upon the profits of the division. Accordingly a request was made to the Ld. AO to add expenses related to the Wind Mill Division which was rejected. The Ld. Counsel for the assessee argued that though the Ld. First Appellate Authority concurred with its submission of reliance upon the order of the Hon’ble Jaipur tribunal as evident on page 7 of the order of the Ld. CIT(A) dated 31.07.2024 made vide DIN order No.ITBA / NFAC / S / 250 / 2024-25 / 1067178346(1), it still erroneously proceeded to confirm the finding of the Ld. AO as evident from the last para of his order. The Ld. DR would like to make us believe upon the correctness of the order of the lower authorities. It was contended that the profit indicators adopted by the Ld. AO are true indicators for estimation of director’s remuneration. The Ld. DR however could not controvert the dichotomous anomaly pointed out the by the Ld. Counsel for the assessee in the order of Ld. First Appellate Authority.
4.0 We have heard rival submissions in the light of material available on records. There is no denying the fact that while adjudicating the appeal the Ld. CIT(A) has indeed concurred with the findings of Hon’ble Jaipur tribunal in the case of Rajasthan State Mines Ltd supra. There is however an inadvertent error in his adjudication where, in spite of relying
Page - 3 - of 5 upon the impugned order, he proceeded to confirm the decision of the Ld. AO. We have considered the order of the Hon’ble Jaipur tribunal in the case of Rajasthan State Mines Ltd supra and are in full agreement with the decision taken therein. Accordingly, the orders of lower authorities are set aside and we direct the Ld. AO to recalculate the director’s remuneration in conformity with the decision of the Hon’ble Jaipur tribunal in the case of Rajasthan State Mines Ltd supra. Accordingly, all the grounds of appeal raised by the assessee in for AY-2018-19 are allowed for statistical purposes.
5.0 The Ld. Counsel for the assessee has informed that the facts of the case for AY-2020-21 are identical to those available in for AY-2018-19. Consequently, the decision taken in supra shall apply in ITA No.2184 also mutatis mutandis. Accordingly, all the grounds of appeal raised by the assessee in AY-2020-21 are also allowed for statistical purposes.
Page - 4 - of 5
Order pronounced on 7th , February-2025 at Chennai.