The Jodhpur Bench of Income Tax Appellate Tribunal (ITAT) no disallowance shall be made on the part of director’s remuneration when the business is stopped due to temporary lull.
The assesseeDevkripa Textile Mills company was engaged in manufacturing of synthetic fabrics on job work basis for other parties. It was also engaged in trading of synthetic fabrics during the year. It filed its return on 27.10.2015 and the case was selected for complete scrutiny under CASS.
During assessment proceedings the assessing officer noticed that the business of the assessee had been carried on up to July, 2014 only. However, the assessee had paid remuneration to the directors for the whole year.
The assessee had also claimed depreciation for the full year. Since the business operations had been stopped in July, 2014, AO took the view that the above said directors’ remuneration and depreciation could not be allowed for the whole of the year. Accordingly, he restricted the salary expenses and disallowed the balance amount. Since the assets were put to use for less than 180 days only, the AO disallowed 50% of depreciation claimed by the assessee. The AO also disallowed a sum from out of other expenses, since some of the expenses were supported by selfmade vouchers.
Gautam Chand Baid who appeared on behalf of the assessee submitted that the assessee had not completely stopped the business and there was only suspension of business for a temporary period and had been revived in the succeeding year. He further submitted that the tax authorities were not justified in making disallowances out of director’s remuneration out of depreciation and out of other expenses
Nidhi Nair appeared on behalf of the revenue.
The two-member Bench of B. R. Baskaran, (Accountant Member) and S. Seethalakshmi, (Judicial Member), in view of the decision of the DelhiTribunal in the case of Ishwar Builders P Ltd vs. DCIT the Bench allowed this ground of appeal and held that there was no requirement of disallowing part of director’s remuneration and depreciation when the business was stopped due to temporary lull.
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