Treatment of salary and incentives paid to the Directors u/s 40A(2)(a) of the IT Act

Last updated: 11 September 2021

Court :
ITAT Delhi

Brief :
The present appeal has been filed by the assessee against the order of ld. CIT(A)-2, New Delhi dated 11.05.2018.

Citation :
ITA No. 5199/Del/2018

IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH ‘B’, NEW DELHI
Before Sh. Kul Bharat, Judicial Member
Dr. B. R. R. Kumar, Accountant Member
(Through Video Conferencing)
ITA No. 5199/Del/2018 : Asstt. Year : 2014-15

Changex Services Pvt. Ltd.,
D-134, 1st Floor, East of Kailash,
New Delhi-110065

Income Tax Officer,
Ward-6(1),
New Delhi

Assessee by : Sh. Sharad Shah, CA
Revenue by : Ms. Alka Gautam, Sr. DR
Date of Hearing: 26.08.2021 Date of Pronouncement: 01.09.2021
ORDER

The Assessing Of ficer disal lowed the salary and incentives paid to the Directors of Rs.1,05,00,000/- u/s 40A(2)(a). The ld. CIT (A) conf irmed the addition to the extent of 75% and al lowed 25% of the claim holding it as reasonable.

2. The assessee company was incorporated in March 2011, engaged in Consultancy Services, having two shareholder Directors namely, Mr. Shalabh Sahai and Rahul Nainwal.

3. The AO had questioned the transaction under Section 40A(2)(a) of the Act between the assessee company and the two Shareholder/ Directors and sought for submission of documents to substantiate/ prove the 'reasonableness of the payment along with supporting evidences' .

4. In a nutshell, the disallowance made by the authorities u/s 40A(2)(a) without examining any analogous cases cannot be sustained.

5. In the result, the appeal of the assessee is allowed.
Order Pronounced in the Open Court on 01/09/2021.

Please find attached the enclosed file for the full judgement