TaxTMI 
TaxTMI 
2015 (4) TMI 795
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....ng the AO to disallow part of the expense incurred on bonus paid to shareholder employees amounting to Rs. 1,93,03,138 under section 36(1)(ii) of the Act. The Appellant prays that the aforesaid addition be deleted. The Appellant prays that the Ld. AO be directed to levy in accordance with law. The Appellant craves leave to add to, alter, amend or withdraw all or any of the above grounds of appeal. Assessee-company is engaged in the business of providing research advisory and other ancillary support services to two of its associate enterprises(AE) namely New Silk Route Advisors L.P., Cayman Islands (NSRI) and M/s NSR New Silk Route Mauritius Advisors LLC,(NSRM). It had filed its return of income on 30.09.2009,declaring a total income of Rs. 5,74,52,88/-.The AO completed the assessment on 24.01.2014,determining the income of the assessee at Rs. 11,74,20, 580/-. 2.First effective ground of appeal is about disallowance made u/s. 36(1)(ii) of the Act.During the course of assessment proceedings, from the details of expenses in respect of salary & allowances, filed by the assessee,the AO found that an amount of Rs. 5,94,07,087/-had been paid to following employees who were ....
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....above shareholders in the guise of bonus so as to avoid overall tax liability and also to evade payment of dividend distribution tax.Relying upon the case of McDowell and Co.Ltd.(154 ITR 148), the AO held that payment of dividend was a colourable device. 3.Aggrieved by the order of the order of the AO,the assessee made representation before the Dispute Resolution Panel(DRP).After considering the submissions of the assessee with regard to the payment of bonus,the DRP held that the four Director employees were holding 48.8% of the share holdings which constituted almost 50% of the share capital, that AO had held that other employees had been paid bonus at the rate of 55% of their salary, that in the case of the four shareholder-employees the bonus paid was 172% of their salary,that the bonus paid to the shareholder employees was disproportionate as to ratio of their salary,that the AO had asked the assessee to prove the nature of services rendered which entitled the employees for such extra bonus,that no evidence was placed on record by the assessee to show that the shareholder employees rendered adequate services warranting the payment of such heavy bonus,that the Company had sig....
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....ent of bonus to shareholder employees,that no evidence was placed on record as to what adequate services were rendered by the shareholders warranting the payment of heavy bonus.AO and the FAA were of the opinion that it was a device to evade tax. After deliberation upon the facts of the case we find that payment of bonus to shareholder-employees had resulted in payment of more taxes in comparison to tax payable had the same amount been paid as dividend to shareholders.We have gone through the chart giving details of tax paid the assessee-company and the shareholders with respect to the bonus payment.So,it cannot be held that it was a device to evade taxes.Not only this,it is found that the shareholders were professionally highly qualified.Payment of bonus is a business decision and till it is not proved that same was not paid actually,it cannot be disallowed.The assessee had claimed that it was based on performance evaluation and the AO had not contravened the fact.The assessee had deducted tax at source on the bonus paid to the shareholder directors and they have shown the receipt of bonus in their respective retruns.They are in the highest slabs of taxpayment. Here,we would al....
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....ersonal interest of the individual and believes that a business or undertaking is the product of the combined efforts of the employer and the employees and where there is sufficiently large profit, after providing for the salary or remuneration of the employer and the employees and other prior charges such as interest on capital, depreciation, reserves, etc., a part of it should in all fairness go to the employees. It is not necessary, for commission paid to an employee to be allowable under section 36(1)(ii), that it should be paid under a contractual obligation. It is now well-settled that the mere fact that the commission is paid ex gratia would not necessarily mean that it is unreasonable. We find that the facts of the case relied upon by the AO are different from the facts of the present case.As against that matter in the case under consideration condition of payment of bonus was part of the employment agreement and it was a performance based payment. Considering the above discussion and the peculiar facts and circumstances of the case,we are deciding first effective ground of appeal in favour of the assessee. 6.Next Ground of appeal is about Transfer Pricing Adjus....
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.... volatile, that ICSL was earning high margins in AY.2008-09,that comparable should be rejected on that count.He relied upon the cases of Adobe System India Private Limited(148TTJ122).Sonata Software Ltd.(ITA/3514/ Mum/2010)E Gain communication Pvt.Ltd.(118TTJ354).He finally argued that if the ICSL comparable was not considered then arithmetic mean of remaining two of the three comparables would be 24.24%(KIACL-27.82 +FCIAL-20.67),that the arithmetic mean OP/TC of comparable companies,after considering the above set,worked out @24.24 and it was within 5% range and allowable as per the proviso to section 92C(2)of the Act. 8.We have heard the rival submissions and perused the material before us.We find that the main functions carried out by the assessee consisted of providing general and specific information NSRCI and NSRM by carrying out research relating to particular economic/ industry sectors, investment opportunities, investigating potential investments, disinvestments and reinvestments. During the year under consideration,the assessee had provided non-binding research,advisory and other ancillary support services to these two entities, amounting to Rs. 29.72 crores.It used th....