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Income Tax Appellate Tribunal, ‘D’ BENCH, CHENNAI
Before: SHRI A.MOHAN ALANKAMONY & SHRI DUVVURU RL REDDY
आदेश / O R D E R
Per A. Mohan Alankamony, AM:-
These appeals by the assessee and Revenue are directed against the orders passed by the Ld. Commissioner of Income Tax
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(Appeals)-18, Chennai, both dated 30.11.2016 in ITA No.246/2015- 16 & 143/2015-16 passed U/s. 250(6) r.w.s. 143(3) & 263 of the Act and 250(6) r.w.s.143(3) of the Act for the assessment years 2010-11 & 2012-13 respectively .
2 Assessee’s Appeal:- 2.1 ITA No.391 of 2017, Assessment year 2010-11:- The assessee has raised several grounds in its appeal however the crux of the issue is that the Ld.CIT(A) has erred in partly sustaining the addition made by the Ld.AO amounting to Rs.43,32,072/- towards managerial remuneration paid to its directors though the Ministry of Company Affairs have clarified that Government approval is not required with respect to the managerial remuneration paid by unlisted companies.
2.2 ITA No. 390 of 2017, Assessment year 2012-13:- The assessee has raised two grounds in its appeal however the crux of the issue is that the Ld.CIT(A) has erred in sustaining the disallowance of Rs.9,67,696/- towards non-deduction of TDS U/s.40(a)(ia) of the Act.
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Revenue’s Appeal: 3.1 ITA No.379 of 2017 for the Assessment year 2010-11:- The Revenue has raised three grounds in its appeal however the crux of the issue is that the Ld.CIT(A) has erred in allowing the expenses incurred towards managerial remuneration paid to the directors of the company amounting to Rs.57,96,216/- without getting prior approval from the Central Government in accordance with Section 309(5A) of the Companies Act.
3.2 ITA No.380 of 2017, Assessment year 2012-13:- The Revenue has raised three grounds in its appeal however the crux of the issue is that the Ld.CIT(A) has erred in deleting the disallowance made by the Ld.AO invoking the provisions of Section 40(a)(ia) of the Act, with respect to foreign bank charges paid amounting to Rs.40,61,463.55 and bank charges paid amounting to Rs.50,30,840.77.
The brief facts of the case are that the assessee is a private limited company engaged in the business of manufacturing handloom
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products, filed its return of income for the assessment years 2010-11 & 2012-13 on 20.09.2010 & 25.09.2012 admitting ‘Nil’ income for the assessment year 2010-11 and loss of Rs.5,92,566/- for the assessment year 2012-13. The case was selected for scrutiny and notice U/s.143(2) of the Act was issued on 24.08.2011 and 06.08.2013 for the assessment years 2010-11 & 2012-13 respectively. Finally assessment order was passed U/s.143(3) of the Act on 30.01.2016 & 30.03.2015 for the assessment years 2010-11 & 2012-13, wherein for the assessment year 2010-11 the Ld.AO made addition of Rs.1,01,28,288/- by disallowing the excess managerial remuneration paid against which the Ld.CIT(A) had sustained the disallowance at Rs.43,32,072/- and with respect to assessment year 2012-13, amongst other additions the Ld.AO had also made addition of Rs.1,00,60,000/- invoking the provisions of Section 40(a)(ia) of the Act against which the Ld.CIT(A) sustained the disallowance to Rs.9,67,697/-. Aggrieved by the Orders of the Ld.CIT(A) both the parties are in appeal before us.
Assessee’s Appeal, Assessment year 2010-11
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5 Ground No.2.1 : Addition of Rs.43,32,072/- towards managerial remuneration paid to its Directors:- During the course of scrutiny assessment proceedings, it was observed by the Ld.AO that the assessee had paid remuneration to directors in excess of the limits prescribed under the Companies Act. Therefore the Ld.AO disallowed the excess remuneration. On appeal the Ld.CIT(A) also upheld the order of the Ld.AO relying in the decision of the Hon’ble Rajasthan High Court in the case Mewar Sugar Mills Ltd., vs. CIT reported in 203 ITR 415. At the outset, the Ld.AR produced before us the publication dated 08.02.2011 by Press Information Bureau, Govt. of India, Ministry of Corporate Affairs, which states that Schedule XIII of Companies Act, 1956 is being amended to provide that unlisted companies (which are not subsidies of listed companies) shall not require approval for managerial remuneration in cases where they have no profits / inadequate profits, provided they meet the other conditions stipulated in the schedule. The Ld.AR also produced before us the letter from the Govt. of India, Ministry of Corporate Affairs dated 14.03.2011, addressed to the assessee which states as follows:
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“With reference to your application made vide SRN No.A81960981 dated 31/03/2010 you are informed that the approval of the Central Government is no longer necessary in the case of unlisted companies which are not subsidiaries of a listed company in view of amendments made in Schedule – XIII of Companies Act, 1956 vide Gazette of India Notification G.S.R. 70(E) published on 8th February,2011. It is presumed your company is not a listed company and is also not a subsidiary of a listed company, hence approval is not required. However if your company is a listed company or subsidiary company of a listed company, please write to the Ministry immediately stating the facts and quoting SRN number of your application.”
The Ld.AR thereafter argued before us stating that by virtue of the same, the disallowance made by the Ld.Revenue Authorities with respect to the remuneration paid to the directors of the assessee company are erroneous and therefore it should be allowed as deduction. The Ld.DR on the other hand argued in support of the orders of the Ld.Revenue Authorities.
5.1 After hearing both sides, we find that the letter addressed by the Ministry of Corporate Affairs to the assessee company and the veracity of the information published by the Press Information Bureau, Govt. of India, Ministry of Corporate Affairs has not been examined by the Revenue Authorities while deciding the issue as it appears that they were not before them at the time of their respective proceedings. Therefore in the interest of justice, we hereby remit the
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entire matter with respect to payment of remuneration to the directors of the assessee company to the file of Ld.AO for de-nova consideration.
Assessee’s Appeal, Assessment year 2012-13 6. Ground No.2.2 : Disallowance of Rs.9,67,696/- towards non- deduction of TDS U/s.40(a)(ia) of the Act:- During the course of scrutiny assessment, it was observed by the Ld.AO that the assessee had not deducted tax at source with respect to certain payments regarding interest and commission and therefore the Ld.AO disallowed the expenditure incurred towards the same by invoking the provisions of Section 40(a)(ia) of the Act for an aggregate amount of Rs.1,00,60,000/-. On appeal, the Ld.CIT(A) sustained the disallowance at Rs.9,67,696/- and thereby granted relief of Rs.90,92,304/-.
5.2 At the outset the Ld.AR submitted that both the Revenue Authorities had not examined the issue in detail and thereby the additions was made and the Ld.CIT(A) though gave substantial relief sustained the addition of Rs.9,67,696/-. The Ld.AR further pleaded
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that the matter may be remitted back to the file of Ld.AO for de-nova consideration. The Ld.DR did not express any objection for the same. Therefore in the interest of justice, the entire matter is remitted back to the file of Ld.AO for de-nova consideration.
Revenue’s Appeal Assessment year 2010-11:- 7. Ground No.3.1 : Expenses incurred towards managerial remuneration:- Since the entire issue with respect to managerial remuneration raised in the assessee’s appeal has been remitted back to the file of Ld.AO for de-nova consideration herein above, the Revenue’s appeal also being on the very same issue is hereby remitted back to the file of Ld.AO for de-nova consideration.
Revenue’s Appeal Assessment year 2012-13:- 8. Ground No.3.2 : Deleting the disallowance of Rs.40,61,463.55 & Rs.90,92,304.32 invoking the provisions of Section 40(a)(ia) of the Act with respect to foreign bank charges and financial charges respectively by the Ld.CIT(A):-
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With respect to the assessee’s appeal on the very same issues, the entire matter is remitted back to the file of Ld.AO for de-nova consideration herein above. Accordingly we hereby remit the matter with respect to Revenue’s appeal also to the file of Ld.AO for de-nova consideration.
In the result the appeals of the assessee as well as that of the Revenue are allowed for statistical purposes.
Order pronounced on the 01st January, 2019 at Chennai.
Sd/- Sd/- (धु�वु� आर.एल रे�डी) (ए. मोहन अलंकामणी) ( Duvvuru RL Reddy ) ( A. Mohan Alankamony ) �या�यक सद�य /Judicial Member लेखा सद�य / Accountant Member
चे�नई/Chennai, �दनांक/Dated 01st January, 2019 RSR आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु�त (अपील)/CIT(A) 4. आयकर आयु�त/CIT 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF