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PM-STIAC discusses accelerating Industry-Academia Partnership for Research and InnovationIndia, Singapore hold dialogue over cyber policy44 bids received under 10th Round of Commercial Coal Mine AuctionsCops arrest former Dy PM of Nepal in cooperative fraud casePuri highlights India's Petrochemical potential at India Chem 2024UN reports record high cocaine production in ColombiaMinister unveils 'Aviation Park' showcasing India's Aviation HeritageED finds PFI wanted to start Islamic movement in IndiaBlocking Credit - Rule 86ASEBI says investors can use 3-in-1 accounts to apply online for securitiesI-T- Penalty u/s 271(1)(b) need not be imposed when assessee moved an adjournment application & later complied with notice u/s 142(1): ITAT4 Kanwariyas killed as vehicle runs over them in Banka, BiharI-T- Accounting principles do not prescribe maintaining of a day-to-day stock register, and the books of accounts cannot be rejected on this basis alone: ITATUN food looted and diverted to army in EthiopiaCus - Alleged breach of conditions for operating public bonded warehouse; CESTAT rightly rejected allegations, having found no evidence of any such breach: HCUS budget deficit surges beyond USD 1.8 trillionST - Onus for proving admissibility of Cenvat Credit rests with service provider under Rule 9(6) of the Cenvat Credit Rules, 2004: CESTATIf China goes into Taiwan, Trump promises to impose additional tariffsRussians love Indian films; Putin lauds BollywoodCus - Classification of goods is to be determined in accordance with Customs Tariff Act & General Interpretative Rules; Country-of-Origin Certificate may offer some guidance, but cannot solely dictate classification: CESTATCus - Benefit of such Country-of-Origin certificates cannot be denied if all relevant conditions are met under the applicable Customs Tariff rules: CESTATCuban power grid collapses; Country plunges into darknessCus - As per trite law, merely claiming a classification or exemption does not constitute mis-declaration or suppression - any misclassification does not equate to willful intent to evade duty: CESTATKarnataka mulling over 2% fee on aggregator platforms to bankroll gig worker welfare fundCus - Extended limitation cannot be invoked in case of assessee who is a regular importer with a consistent classification approach: CESTAT
 
I-T - Once entire excess sum paid to Director by resolution, stands returned to Company by pro-tanto reduced remuneration in subsequent years, no disallowance is warranted for infringing Companies Act: ITAT

 

By TIOL News Service

MUMBAI, MAR 12, 2019: THE ISSUE IS - Whether when entire excess paid to Director by a valid resolution sanctioning higher remuneration, is repaid back to Company by pro-tanto reduced remuneration for subsequent years, then no disallowance is warranted on account of contravention of Companies Act. YES IS THE ANSWER.

Facts of the case:

The assessee company, engaged in the business of selling art works & paintings, filed its return declaring loss at Rs.73,88,458/-. In its P&L A/c, the assessee had debited a sum of Rs.72,00,000/- pertaining to Director's remuneration viz. Shri Sanjay Kumar of Rs.24,00,000/- and Ms. Geeta Mehra of Rs.48,00,000/-. During the course of assessment proceedings, the AO noticed that in the auditor's report, it was mentioned that remuneration to Managing/Whole Time Directors was in excess of the limits specified u/s 198 r.w.s. 309 of the Companies Act, for which approval of the Central Government was pending to be filed and non-compliance of transactions entered u/s 297 of the Companies Act, for which prior approval of the Central Government was not obtained. In view of the same, the AO came to a finding that Ms. Geeta Mehra got excess remuneration of Rs.6,13,128/- not approved by the Central Government. He therefore disallowed the excess remuneration of Rs.28,86,642/- and added it to the total income.

On appeal, the CIT(A) observed that this was a case where excess amount was paid in contravention to the Companies Act and duly mentioned by the auditors in their report. He therefore, confirmed the disallowance of Rs.28,86,642/- made by AO.

Tribunal held that:

++ in the instant case, after the closure of the books and audit of accounts for the year ended Mar 31, 2011, the auditors noticed that the remuneration sanctioned by the EGM and paid to the Directors was in excess of the limits set out in Schedule-XIII of the Companies Act. The excess can be redone by an appropriate application to the Central Government u/s 309 of the Companies Act. Accordingly, the statutory auditors in their audit report made comments without quantifying in any manner the alleged excess. Further, it is found that the entire excess which is paid by a valid resolution, sanctioning higher remuneration was repaid back to the company by a pro-tanto reduced remuneration for the subsequent three years. It shows that the payments made earlier and recovery later are within the four corners of law. There is no infraction of provisions of Income Tax Act. In view of the same, the addition of Rs.28,86,642/- made by AO is deleted.

(See 2019-TIOL-622-ITAT-MUM)


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