TaxTMI 
TaxTMI 
2015 (11) TMI 1205
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....assessment year. The assessee filed return of income declaring total income of Rs. 68,96,250/- on 30.09.2009. The case was selected for scrutiny. In the course of scrutiny, the learned Assessing Officer noticed that Mr. Preetpal Singh, who was the person specified u/s 40A(2)(b) of the Income Tax Act, 1961 (in short 'Act'), was paid a remuneration of Rs. 48 lacs for responsibility of alleged management of day to day affairs of every kind, without any appointment letter or copy of contract containing terms of contract and payment schedule etc. or documentary evidences in support of duties, work or responsibilities assigned. The learned Assessing Officer also observed that there was no improvement in the financial position of the company after joining of Mr. Preetpal Singh. In view of above observations, the learned Assessing Officer disallowed 50% of remuneration paid to Mr. Preetpal Singh in terms of section 40A(2)(b) of the Act, being excessive and unreasonable expenditure. The learned Assessing Officer also observed that the assessee had paid commission Rs. 15,00,149/- to foreign selling agents but no tax was deducted by the assessee on such payment. The learned Assessing Officer ....
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.... of the learned Commissioner of Income-tax (Appeals) is reproduced as under: "The AO quoted circular 7 of 2009 while making the addition and disallowed the claim of the appellant. Circular No.7 of 2009 was issued on 22/10/09, therefore it will not be applicable to AY 09-10. As per the decision of the ITAT Lucknow Bench in the case of CIT vs Sanjiv Gupta, "Circular No.7 will be operative only from 22/10/09 and not prior to that date." In view of circular No.786 of 2000 and the decisions cited by the appellant, I am in agreement with the appellant that tax shall not be deducted at source from the payment of commission. The addition of Rs. 15,00,149/- is therefore deleted. This ground of appeal is ruled in favour of the appellant." 4. Aggrieved with the action of the learned Commissioner of Income-tax (Appeals), the Revenue is before us. 5. At the time of hearing the learned Senior Departmental Representative (in short Sr. DR) relied on the order of the learned Assessing Officer and submitted that this is first year when Mr. Preetpal Singh has joined the company and in the history of the assessee no remuneration of such a huge amount was paid. Further,....
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....e Act, a plain reading of the provision reveals that where an assessee incurs any expenditure in respect of which payment is required to be made or has been made to any person referred to in clause (b) of section 40A(2) of the Act and the AO is of the opinion that such expenditure is excessive or unreasonable having regard to (a ) fair market value of the goods, services or facilities for which the payment is made or (b) the legitimate needs of the business of the assessee; or (c) the benefits derived by or accruing to the assessee on receipt of such goods, services or facilities, then the AO shall not allow as a deduction so much of the expenditure as is so considered by the AO to be excessive or unreasonable. Therefore, it becomes apparent that the AO is required to record a finding as to whether the expenditure is excessive or unreasonable in relation to any one of the three requirements prescribed, which are independent and alternative to each other. All the three requirements need not exist simultaneously. In a given case, if any one condition is shown to be satisfied the provision can be invoked and applied, if the facts so warrant. Thus, only so much of the expenses, if paid....
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.... the assessee has shown as such Mr. Preetpal singh was responsible for almost all day to day activities of the company, which is not possible for a human being the assessee. The assessee has failed to substantiate the work performed by Mr. Preetpal Singh. The ld. AR also could not controvert the argument of the ld. SR DR that the salary paid by the assessee company to Mr. Preetpal Singh for the post of Vice President Marketing was much higher than the salary paid by the sister concern of the assessee to him for the role of Director of that company. Thus, we find that payment of remuneration to Mr. Preetpal Singh was excessive having regard to the fair market value of services rendered by him. We also agree with the contention of the ld. Sr DR that the assessee failed to explain and substantiate the needs of the business of the assessee for hiring services of Mr. Peetpal Singh and the benefit accrued to the business of the assessee by inducting Mr. Peetpal Singh. The offer price in letter of 'Swastik Outsourcing', submitted by the assessee before the learned Commissioner of Income-tax is only an imaginary figure which never materialized. In our view, the assessee has failed in all t....