MARRIOTT PROPERTIES & DEVEOPERS P.LTD,MUMBAI vs. DCIT 10(2)(2), MUMBAI

The grounds of appeal

1. The learned CIT(appeals) erred in upholding Assessing Officer’s view of disallowing Director’s Remuneration of Rs.10,00,000/- debited to Profit & Loss account without any valid findings and reasoning only on personal notions and surmises.

During the course of scrutiny proceeding u/s. 143(3), the Assessing Officer noted that during the year under consideration, the assessee company has not carried out any business activity. The receipt credited to Profit & Loss account were on account of house property income, capital gains, accrued interest and miscellaneous income. the Assessing Officer further noted that though there was no business activity at all, however, the directors claim of remuneration were increased from Rs.5,00,000/- to Rs.10,00,000/-. On being asked to explain, it was submitted by the assessee company that the company required to maintain books of account, audits and other professional activities, which require certain expenses to be incurred. The Assessing Officer has pointed out that the interest credited was received from M/s. Kannav Associates and any expenditure against the said interest should be allowable, once it is incurred wholly and exclusively for the purpose of earning the interest. The Assessing Officer had allowed the incidental expenditure which the company has claimed such as audit fees, accounting charges, professional charges, ROC fees etc. Finally, the Assessing Officer concluded that the claim of remuneration of Director is (A.Y. 2012-13) M/s. Marriott Properties and Developers Pvt. Ltd. vs. DCIT inadmissible and disallowed the same. Against this, the assessee is in appeal before me.

Upon assessee's appeal, the ld. Commissioner of Income Tax (Appeals) confirmed the order of the assessing officer. He held as under: 5.1 I have carefully considered the arguments and submission of the AR of the Appellant. I have also gone through the assessment order and decision of the ITAT for A.Y.2010-11. It is undisputed fact that during the course of relevant previous year, no business activity has been carried out by the appellant company. The receipts are from "let out of commercial property", "interest on account of lending of money" and "Gain on sale of shop". Though, there is no business activity, however, the appellant has increased the claim from Rs.5,00,000/- to Rs.10,00,000/- on account of remuneration paid to the Directors. The claim of remuneration has to be examined from the receipt under reference i.e. house property income, income from other sources and capital gain. None of this activity requires the active involvement of Directors and claim of remuneration from such receipts has to be examined from the provisions under the Act, which allows the expenditure from such receipts. The AO has rightly pointed out that against income from other sources, the expenditure has to be allowed u/s.57(iii), if the same is wholly and exclusively incurred for the purpose of earning that income, which is not the case here. 5.2 The appellant has also made bald and general statement that the Directors were involved in exploring the business opportunities. Such general statement is devoid of any supporting evidence. Thus, this cannot be taken as a basis for allowance of remuneration. The appellant has also referred the decision of the Hon'ble ITAT for A.Y. 2010-1 1 . The Hon'ble Tribunal in this decision has stipulated that the expenses like professional charges, legal expenses, stamp duty, ROC expenses are to be allowed as for the existence of the company, such expenses are necessary even though, no business is being carried out. In fact, the AO has exactly done the same. He has allowed the expenses like audit fee, accounting charges, professional charges, ROC fees and other expenses which is necessary for the existence of the company. Thus, the reliance of the appellant on the decision of the ITAT for A.Y. 201 0-11 does not help the cause of the appellant. Considering the facts and circumstances of the case in totality, the disallowance made by the A.O. is upheld and the appeal filed by the appellant company is dismissed.

I have heard the learned departmental representative and perused the records.

I find that assessee has paid director’s remuneration. Assessee’s submission is that though there has not been any substantial business activity, the assessee's directors have been busy in exploring business avenues. The Assessing Officer has rejected this as he held that the assessee has not taken up any construction project in 2012-13. Hence, this plea has been rejected by the assessing officer and, accordingly, he has made a disallowance of the director’s remuneration. I find that the assessee is a corporate entity. No case has been made out that the remuneration paid is not in accordance with company’s act or is in violation of the provisions of managerial remuneration as mandated in the companies act. No case has been made out that necessary procedure as per corporate laws for increase in remuneration has not been followed. As expounded by the Hon’ble Apex Court, the Revenue should not sit into the issue of the businessman and decide what should be appropriate for the business.

On this issue, the assessing officer has given following finding:

No cogent submission on the part of the assessee countering the above has been submitted. Accordingly, I do not find any merit on this issue raised by the assessee. Accordingly, the same stands dismissed.

In the result, this appeal by the assessee stands partly allowed. Order pronounced in the open court on 01.01.2018 Sd/- (Shamim Yahya) लेखा सद�य / Accountant Member मुंबई Mumbai; �दनांक Dated : 01.01.2018 व.�न.स./Roshani, Sr. PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. ��यथ� / The Respondent 2. आयकर आयु�त(अपील) / The CIT(A) 3. आयकर आयु�त / CIT - concerned 4. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 5. गाड� फाईल / Guard File 6. आदेशानुसार/ BY ORDER,