M.R PRODUCTIONS P.LTD,MUMBAI vs. ITO WD 11(1)(2), MUMBAI

The assessee is aggrieved by the decision of learned CIT(A) in confirming the disallowance of remuneration paid to the directors to the extent of ` 4.50 lakhs.

We have heard the parties and peruse the record. The assessee company is engaged in the business of producing films. The Assessing Officer noticed that the remuneration paid to the directors has been claimed as ` 9.60 lakhs as against claim of ` 5.10 lakhs made in the immediately preceding year. Since the assessee did not produce Board resolution authorising increase of remuneration and since the said fact was not mentioned in the director’s report, the Assessing Officer considered the increment of ` 4.5 lakhs as 2 M/s. M.R. Productions Pvt. Ltd.

We have noticed that the remuneration of ` 9.60 lakhs has been paid to four directors at the rate of ` 2.4 lakhs each. The same works out to ` 20,000/- per month per director. At the time of hearing the assessee submitted that all the directors are having more than twenty years experience and also furnished copies of income tax returns filed by the directors. A perusal of the same shows that all the four directors have duly disclosed the salary received from the assessee-company. We have noticed that the tax authorities have made disallowance only for the reason that there is no Board resolution authorising the increase in remuneration. In this regard, the Ld A.R submitted that these directors constitute Members of Board also and the increment has been given with concurrence of all. Further, remuneration of ` 20,000/- per month per director, in our view, does not appear to be unreasonable amount, when one takes into account the experience of the directors. Further we notice that the increment given to the directors also work out to around Rs.9000/- per director per month. The provisions of sec. 40A(2)(a) shall apply only if it was shown that the expenditure incurred by the assessee on the related persons are excessive or unreasonable vis-à-vis the fair market value of the services or the legitimate needs of the business. We notice that the tax authorities have not brought any material on record to show that the payment of remuneration is excessive vis-à-vis fair market value or did not they show that the increment was not for the legitimate needs of business. Hence, we are unable to agree with the decision taken by learned CIT(A) on this issue and accordingly we set aside the order of learned CIT(A) passed on this issue and direct the Assessing Officer to delete the impugned addition.

In the result, appeal filed by the assessee is allowed.