TaxTMI 
TaxTMI 
2011 (7) TMI 82
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....Act (hereinafter referred to as the Act) at a total income of Rs.62,37,332/-. While making this assessment, the AO found that Directors of the assessee company were paid remuneration. The two Directors namely Mr. R.P. Singh and Mr. Vishal Sharma were receiving the remuneration of Rs.7.20 lacs and Rs.9.60 lacs respectively. According to the Assessing Officer since the job profile of both the Directors were same namely client management, remuneration paid to Mr. Vishal Sharma was excessive by Rs.2.40 lacs in comparison with the remuneration given by Mr. R.P. Singh thus invoking the provisions of Section 40A (2) of the Act. The AO disallowed a sum of Rs. 2.40 lacs paid to Mr. Vishal Sharma thereby bringing the remuneration of both the persons ....
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....on paid to Mr. Vishal Sharma holding that the same was not excessive. However, the deletion in respect of Mr. Sushil Pandit in the sum of Rs. 13.20 lacs had been upheld. It would be pertinent to mention that the Tribunal has held the view that comparison to Utopia is incorrect for the reasons that Utopia was not being remunerated on an ongoing basis as the payment was made only in respect of one project and whereas Mr. Sushil Pandit was working throughout the year as its Managing Director with media consultancy portfolio. Still the Tribunal has upheld the disallowance on the basis of share holding of the directors taking note of the fact that Mr.Sushil Pandit was holding 65% in the company and his remuneration was much more than the remuner....
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....hich the payment is made. This yardstick is provided in sub Section (2) of Section 40A which reads as under:- "40A Expenses or payments not deductible in certain circumstances. (1)...... (2) (a) Where the assessee incurs any expenditure in respect of which payment has been or is to be made to any person referred to in clause (b0 of this sub-section, and the [Assessing] Officer is of opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made for the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him therefrom, so much of the expenditure as is so considered by him to be excessive or....
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....y. Once that basis is locked out, nothing remained for comparison. However, the Tribunal adopted another comparison namely that Mr. R.P. Singh to whom the remuneration of Rs.7.20 lacs was paid, there was an internal comparable case. In the process what is totally glossed over and ignored by the Tribunal is that Mr. R.P. Singh was having the job profile of the client management whereas the job profile of Mr. Sushil Pandit was that of Media Consultant. Therefore, the case of Mr. R.P. Singh was also comparable. 10. It is to be kept in mind that the assessee is in the business of advertising and media. In such a business, the role of a media consultant is much more important than of the role of a client management. In fact, considerin....
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.... Computer Graphics Ltd. (2006) 285 ITR 84. 13. In CIT Vs. Edward Keventer (Private) Ltd. (19720 86 ITR 370, the Calcutta High Court considering identical provision in 1922 Act, it was held that the section places two limitations in the matter of exercise of the power. The section enjoins the Assessing officer in forming any opinion as to the reasonableness or otherwise of the expenditure incurred must take into consideration (i) the legitimate business needs of the company and (ii) the benefit derived by or accruing to the company. The legitimate business needs of the company must be judged from the view point of the company itself and must be viewed from the point of view of a prudent businessman. It is not for the Assessing Offi....