M/S. AUTO IGNITION LIMITED,NEW DELHI vs. DCIT, NEW DELHI

PER KULDIP SINGH, JUDICIAL MEMBER :

The order passed by the Hon'ble C!T(A) is unlawful and against the principles of Natural Justice. 1) Grounds of Appeal No.1 Excess remuneration paid to Managing Director of the company amounting to Rs.19,26,105/- The Hon'ble CIT(A) has erred in law and on facts in maintaining the disallowance made by the Ld. A.O. on the managerial remuneration paid to Managing Director of Rs.19,26,105/- Whereas, the remuneration was paid to the Managing Director rewarding his performance and the approval from Company Law Board was pending. However, the same was shown as Income by the Managing Director in his Income Tax Return paying maximum rate of Income Tax. Therefore, the disallowance upheld by the Hon'ble CIT(A) is arbitrary, unlawful and prayed to be allowed. 2) Grounds of Appeal No.2 Addition of Rs.14,73,104/- on account of interest not provided by the assessee company on loan given to a subsidiary company which has closed its operations The Hon'ble CIT (A) has erred in law and on facts in maintaining the addition of Rs. 14,73,104/- made by the Ld. A.O. on account of non providing of interest on loan to subsidiary company which has closed its operation. In other words, the loan was given to subsidiary company of the assessee which has closed its operation and the amount was not recoverable. Therefore, no interest income was booked by the assessee on the amount of loan which was not recoverable, as there is no point to create an income which is not recoverable. Therefore, the addition upheld by the CIT(A) is arbitrary, unjustified and prayed to be deleted in full. 3) The assessee company craves mercy to add/ amend any grounds of appeal at the time of hearing.”

2. Briefly stated facts of this case are : the assessee is into the business of manufacturing of auto electrical parts being supplied in domestic as well as export market. During scrutiny proceedings, Assessing Officer noticed that during the year under assessment, assessee declared gross profit ratio at 13.17% against the total turnover of Rs.1567.63 lakhs as compared to the gross profit rate of 14.12% out of the total turnover of Rs.12016.06 lakhs immediately in the preceding year. AO also noticed that during the year under assessment, remuneration has been paid to the Managing Director and whole-time Director in excess of the limit prescribed under section 198 and 309 of the Companies act to the extent of Rs.22,91,309/-. On failure of the assessee to explain, the AO disallowed the remuneration paid to the Managing Director of Rs.19,26,105/-. AO also noticed from the audit report that the company has granted loan to a company covered in the register maintained under section 301 of the Companies Act, 1956 and the maximum amount involved during the year was Rs.2,78,67,338/- and in the audit report, it is pointed out that out of the total loan, an amount of Rs.29,25,679/- could not be recovered during the year including interest of Rs.14,73,193/-. Finding the reply filed by the assessee not satisfactory, the AO made an addition of Rs.14,73,193/- on account of interest to the taxable income and assessed the total income of the assessee at Rs.2,31,77,920/-.