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Income Tax Appellate Tribunal, BENCH “B”, MUMBAI
Before: SHRI D.KARUNAKARA RAO & SHRI PAWAN SINGH
Order Under Section 254(1) of Income Tax Act PER PAWAN SINGH, JM: 1. This appeal u/s 253 of the Income-tax Act (‘Act’) is directed by assessee against the order of Ld. Commissioner of Income-tax (Appeals) [for short ‘the CIT(A)] –9, Mumbai dated 13.02.2015 for Assessment Year (AY) 2010-11. The assessee has raised the following grounds of appeal: The Hon’ble Commissioner of Income Tax (CIT) is not justified in partially disallowing the addition of Rs. 10,00,000/- of Remuneration to Directors u/s 40A(2) ignoring the fact that the payment made is reasonable vis-à-vis the market conditions and having regard to the qualification, experience of the Directors, the exigencies of the business and benefit accruing to the appellant.
2. Brief facts of the case are that the assessee-company is engaged in the business of manufacturing of textiles processing, filed its return of income for relevant AY on 27.09.2010 declaring total income at Rs. Nil. The assessment was completed u/s 143(3) of the Act on 19.03.2013. The Assessing Officer (AO) while making the assessment besides the other addition and disallowance made the disallowance u/s 40A(2) of Rs. 22,00,000/- on account of remuneration paid to Directors. On appeal 2 Sunvin Industries Private Limited before the ld. CIT(A), the disallowance was restricted to Rs. 10,00,000/-. Thus, further aggrieved by the order of ld. CIT(A), the present appeal is filed by assessee before us.
3. None appeared on behalf of assessee despite the service of notice through RPAD. The notice was served on 22.11.2016 as AD Card of registered post is available on record. As none appeared on behalf of assessee despite waiting for sufficient time, we left no option except to hear the submission of ld. Departmental Representative (DR) for Revenue. The ld. DR for Revenue argued that assessee claimed Rs. 30,00,000/- on account of remuneration to two Directors i.e. Rs. 18,00,000/- as remuneration to Shri Vinod Khetrapal and Rs. 12,00,000/- to Shri Sunil Runtga. Out of the total deduction the AO disallowed Rs. 22,00,000/-. On appeal the ld CIT(A) restricted it to Rs. 10,00,000/-. It was argued that the assessee is not allowed for other or further relief and prayed for dismissal of the appeal.
We have considered the rival contention of the parties and gone through the orders of authorities below. During the assessment proceeding, the assessee was asked to file copy of Form No.16, 12BA issued to Directors, copy of Board resolution and the year wise details of remuneration paid to the Directors. The assessee filed only copy of Form 16 issued to the Directors and the copy of Board resolution in case of Sh. Vinod Khetrapal only. On the basis of details the AO observed from the Profit & Loss A/c, found that remuneration paid to Director in AY 2009-10 was Rs. 6,00,000/- and the assessee-company all of sudden decided to increase the remuneration by 500% to Rs. 30,00,000/- to the Directors. While the gross remuneration in AY 2009-10 to the Net Profit was 5.93%, it was jumped to 22.35% in the year under consideration and disallowed Rs. 22,00,000/- u/s 40A(2) holding as excessive and unreasonable. Before the ld. CIT(A), it was argued that the remuneration was paid as per market and business exigencies.The Directors to whom the remuneration was paid are responsible to carry out the function such as production, planning and marketing, financial planning and control. However, the ld. CIT(A) after referring the decision of Delhi High Court in Hive Communication Pvt. Ltd. vs. CIT (2011) 201 Taxman 99 held that the disallowance is on higher side and restricted the same to Rs. 10,00,000/- and granted partial relief to the assessee. We have seen that while making the disallowance, the onus is on the AO and the AO has not brought any material on 3 Sunvin Industries Private Limited record as to how the remuneration paid to two Directors are excessive, no comparable on the basis of region cum industry was referred by the AO or by the ld. CIT(A) while restricting the disallowance. Considering the fact that the order of ld. CIT(A) is of non-speaking order, we restore this ground of appeal
to the file of ld. CIT(A) to decide the issue afresh. Needless to say that the ld. CIT(A) will grant adequate and sufficient opportunity to the assessee before deciding the issue in accordance with law. The assessee is also directed to fully cooperate and to provide the necessary information and documents which may be required by ld CIT(A).
5. In the result, appeal of the assessee is allowed for statistical purpose. Order pronounced in the open court on this 9th December, 2016. Sd/- Sd/- (D.KARUNAKARA RAO) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 09/12/2016 S.K.PS Copy of the Order forwarded to :