TaxTMI 
TaxTMI 
TaxTMI 
2017 (3) TMI 980
X X X X Extracts X X X X
X X X X Extracts X X X X
....follows:- "Did the ITAT fall into error in restoring the disallowance of 50% of Rs. 48 lakhs paid to the appellant/assessee employee for the relevant assessment year validly under Section 40A(2)(b) of the Income Tax Act, 1961?" 4. The Assessing Officer (AO) had, for Assessment Year 2009-10, disallowed 50% of the payments made on account of professional remuneration to Mr. Preetpal Singh from the assessee's claims. The AO had required details of the remuneration and the nature of services provided by Mr. Preetpal Singh. The AO felt that the assessee had not adequately addressed the concerns with respect to the time spent for its work, having regard to the qualifications and expertise of the said expert, and therefore, disallowed 50%....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re was excessive and unreasonable having regard to the Fair Market Value of the goods services or facilities for which the payments was made or legitimate needs of the business or profession of the appellant or the benefit derived. However nowhere has the AO given any such finding. The AO has not made any attempt to find out the salary which would have been payable to a person with similar qualifications. The AO has nowhere discussed the legitimate needs of the business and profession and why the payment was not justified. On the other hand the appellant on being asked to justify salary of four lakhs per months to Sh Preetpal Singh has furnished copy of a letter from Swastik Outsourcing which states:- 'We have been in touch with at l....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and concluded that disallowance to the tune of 50% made by the AO in respect of Rs. 48 lakhs paid to Mr. Preetpal Singh was warranted and based on a rational principal. 6. Learned counsel for the assessee relies upon the ruling of this Court in Commissioner of Income Tax Vs. Modi Revlon (P.) Ltd. [2012] 26 taxmann.com133 (Delhi) and the previous decision in Hive Communication (P.) Ltd. Vs. Commissioner of Income Tax [2011] 26 taxmann.com 287 (Delhi). Learned counsel for the Revenue, on the other hand, urged that the findings of the ITAT are based upon sound reasons and that the mere inability of the AO to make any comparison cannot invalidate the disallowance. 7. Section 40A(2) of the Act reads as follows:- "40A Expenses or payments not....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... The Court also relied upon the Calcutta High Court's ruling in CIT Vs. Edward Keventer (P.) Ld. [1972] 86 ITR 370. In Edward Keventer's case (supra), the Court had stated that the reasonableness or otherwise of the expenditure should take into account firstly the legitimate business needs of the assessee or the company, secondly, benefits derived by or accruing to the company, and that while doing so, the view point of the company or concern having regard to prudent business practices, should prevail. This decision was affirmed by the Supreme Court in CIT Vs. Edward Keventer (P.) Ltd. [1978] 115 ITR 149. Pertinently, the Calcutta High Court in Edward Kevender (P.) Ltd. (supra) summarised the position as follows:- "13..................It ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....art from the fact that no such exercise was undertaken by the AO, the Court sees that the assessment order went off into a tangent, in following a method that was clearly inapplicable. The annual cap of Rs. 30 lakh payable to managerial personnel applied to public limited companies, and not those such as the assessee. This aspect was noticed by the CIT (A) who set aside the disallowance. The Tribunal upheld that finding. Such view (of admissibility of similar consultancy charges) is supported by several decisions, which have been noticed in the detailed order of the CIT (A). This Court finds no valid grounds to interfere with those findings, which are both sound and reasonable." 10. Having regard to the above position, this Court is of th....