Director’s remuneration allocation in ratio of turnover upheld for deduction u/s 80IA as director’s involvement was minimal
In a recent judgment, ITAT has upheld the allocation of Directors remuneration in the ratio of turnover for deduction u/s 80IA as directors involvement was minimal.
ABCAUS Case Law Citation:
ABCAUS 3927 (2024) (03) ITAT
In the instant case, the Revenue had challenged the order passed by the CIT(A) in in restricting the apportioned expenditure on directors’ remuneration in the ratio of turnover towards the Steel Manufacturing Unit and Power Plant.
The respondent assessee company was engaged in manufacturing steel items. The assessee had also established a Thermal Power Plant. Electricity generated from the thermal power plant was captively used in steel plant. As and when there was excess electricity generated, it was given to the State Electricity company.
The assessee had claimed deduction u/s 80IA on the profit of the power plant, the power plant/Captive Power Plant (CPP). Out of total amount debited under the head ‘Directors Remuneration’ the assessee had allocated less than 2 percent for CPP as expenditure.
The assessment order was passed u/s 143(3). Subsequently, Pr. CIT passed an order u/s 263 of the Act on the issue of allocation of Director’s remuneration to Captive Power Plant. Assessing Officer passed an order u/s.143(3) r.w.s.263 holding that the amount allocated by the assessee was inappropriate. Assessing Officer allocated approx. 20 per cent of total director’s remuneration to CPP for working out the deduction u/s. 80IA(10) of the Act.
The CIT(A) allocated the Directors remuneration on the basis of the turnover of the steel plant and turnover of the power plant which had the effect of enhancing the amount of deduction claimed u/s 80IA of the Act.
The order of the CIT(A) was challenged by the Revenue before the ITAT.
The Tribunal observed that the Assessing Officer had not provided any basis for the said allocation. Rather the allocation was arbitrary.
The Tribunal observed that the CIT(A) had allocated the Directors remuneration in the ratio of turnover to steel plant and power plant respectively.
The Tribunal agreed with the contentions of the assessee that once the power plant was established, director’s involvement was not required in day to day operations. The power plant was mainly for captive consumption. The excess power is automatically sold to Govt., which gave credit in the electricity bill to the assessee. Thus, directors involvement in power plant is minimal.
Accordingly, the appeal of the Revenue was dismissed.
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