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Income Tax Appellate Tribunal, DELHI BENCH ‘SMC’, NEW DELHI
Before: MS. SUSHMA CHOWLA
आदेश / ORDER
PER SUSHMA CHOWLA, VP The present appeal filed by assessee is against order of CIT(A)-9, New Delhi dated 25.10.2018 relating to assessment year 2012-13 against order passed under section 143(3) of the Act.
The first issue which is raised is against the disallowance of the business loss amounting to Rs. 39,30,602/- on the ground that no business activity was carried on by the assessee. The assessee is also Rs. 36 Lacs paid to the Managing Director.
The present appeal is fixed before the Tribunal in the second round of appeal. In the first round, the Tribunal, vide order dated 20.01.2017 had remitted the issue back to the file of AO to consider the additional evidences filed. The AO in the second round of proceedings has noted that against the rental income of Rs. 54,57,708/-, the assessee had adjusted business loss of Rs. 39,30,602/-, which mainly constitutes of remuneration of Rs. 36 Lacs paid to the Director Shri. Anshul Chawla.
The AO noted that there was only one transaction of purchase of Rs. 86067/- and sale of only Rs. 110433/-. Since there was no business activity, the AO was of the view that high remuneration paid to the Director was not in connection with the business activity of the assessee but was against rental income offered by the assessee. Hence the claim of the assessee was denied against which the present appeal.
On the perusal of record and after hearing both the authorized representatives, the limited issue which arises is against the disallowance of the managerial remuneration paid to the Managing Director Sh. Anshul Chawla of Rs. 36 Lacs.
The Hon’ble Bombay High Court in CIT Vs. Indo Saudi Services (Travel) (P.) Ltd. (2008) 219 CTR 562 (Bom) had laid down the proposition that where the assessee and its subsidiary were in the same tax bracket and paid same rate of tax, there was no question of diversion of funds by paying higher rate to the subsidiary company and hence no disallowance
40(A)(2) of the Act. Applying the said proposition to the facts of the case where the Director Shri. Anshul Chawla is assessed to tax and has paid taxes on the said remuneration received by him then it cannot be said that there was diversion of funds by the assessee to its Managing Director for tax avoidance. Hence there is no merit in making any disallowance on account of the said managerial remuneration paid to the Managing Director. Accordingly, we direct the AO to allow expenditure of Rs. 36 Lacs. The grounds of appeal raised by the assessee are allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 21st February, 2020.