Tuesday, July 15, 2014

No sec. 40A(2) disallowance if payment to director was authorized by CLB and taxed at maximum rate in his hands

Where payment made to director was authorised by CLB and said payment was taxed at maximum rate, no addition could be made under section 40A(2).


a)The assessee had made payment to its director which was disallowed by AO by invoking section 40A(2). b)However, addition made by AO was deleted by CIT(A) and Tribunal. Thus, the aggrieved-revenue filed the instant appeal.

The High Court held in favour of assessee as under:

1)Section 40A(2) permits the Assessing Officer to disallow certain expenses or payments, where he is of the opinion that such expenditure or payment is excessive or unreasonable; having regard to the fair market value of the goods, services or facilities for which the payment is made.

2)In the instant case, the members of the Company approved of the payment made to director in the annual general meeting and such payment was also approved by the Company Law Board. The salary was also taxed in the hands of director at maximum rate.

3)Nothing had been brought on record by the Revenue to controvert the findings of CIT(A) and, therefore, the impugned payment to director was to be allowed-[2014] 45 taxmann.com 478 (Gujarat)