TaxTMI 
TaxTMI 
2014 (11) TMI 1151
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....or of the company. 3. The brief facts of the case are that the Assessing Officer (hereinafter referred to as the AO) noted that the assessee had debited the above noted amount to the profit and loss account under directors' remuneration on account of commission at the rate of 1% of the net profit paid to Shri G.D. Kelkar and Shri R. Vaze. The AO further noted that Shri G.D. Kelkar & Shri R. Vaze had held 10082 and 6049 shares respectively in the company because of which they were also entitled to receive dividend. The AO also noted that the assessee company had substantial reserve and surplus. The AO therefore held that the commission paid to Shri G.D. Kelkar & Shri R. Vaze would have otherwise been payable to them as dividend if the same benefit would not have been paid as commission. He therefore disallowed the claim of deduction in respect of payment of commission to the above said directors in view of the provisions of section 36(1)(ii). 4. In first appeal, it was pleaded before the Ld. CIT(A) that the payment of commission to the above said directors was for commercial expediency being reasonable consideration for their qualification and experience and was a part of their sa....
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....sonable and was part of the salary of the directors and as such the disallowance made by the lower authorities was not justified. On the other hand, the ld. D.R., while relying upon the decision of the special bench of the Tribunal in the case of "Dalal Broacha Stock Broking P. Ltd. v. Addl. CIT" (2011) 131 ITD 36, has contended that the disallowance made by the lower authorities was justified. 7. We have considered the rival submissions. A perusal of the impugned order of the Ld. CIT(A) reveals that the amount of salary plus commission paid to the directors has not been held to be excessive by the lower authorities. There is no denial of the fact that the amount paid was reasonable in comparison to the remuneration paid for the services in the market. There is no denial of the fact that the dividend of Rs. 3 crore was declared in the year under consideration. There seems merit in the contention of the ld. AR that the company has 29 shareholders and 4 directors whereas the commission was paid to two working directors only. So far the reliance of the Ld. D.R. on the special bench decision of the Tribunal in the case of "Dalal Broacha Stock Broking P. Ltd. v. Addl. CIT" (supra) is c....
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....11. The Ld. A.R. has further relied upon the order dated 04.09.09 of Company Law Board to show that the accounts of the assessee were not approved, hence, there was a reasonable cause for not declaring the dividend. The evidence sought to be produced by the assessee was not filed before the lower authorities. The documents sought to be produced, in our view, are necessary for the just decision of the case. 11.1 We, therefore, allow the application of the assessee to produce additional evidence and remand the issue to the file of the AO for decision afresh. The AO will properly appreciate the documents produced as additional evidence by the assessee and thereafter decide the issue afresh in accordance with law. This appeal of the assessee is allowed for statistical purposes. ITA No.678/M/2012 (A.Y. 2008-09) 12. In this appeal, the assessee has taken the following grounds of appeal: A) Sustaining disallowance of Rs. 10,94,18,059/- being the excise duty to the valuation of closing stock of finished goods, raw materials, packing material, fuel etc. 1. The learned Commissioner of Income Tax (Appeals) [CIT(A)] erred on facts and circumstances of the case in sustaining the disallo....
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....expenses were wholly and exclusively incurred for the purposes of business and hence, were allowable in nature. 12. The appellant prays to your honour to delete the disallowance of Rs. 1,32,74,005/- being the consultation and legal charges incurred during the year. E) General: 13. The above grounds of appeal are without prejudice to one another and the appellant craves leave to add alter, amend, delete or modify any of the above grounds of appeal." 13. The Ld. A.R. of the assessee has stated at bar that as per the instructions of his client he does not press ground Nos.1 to 3. Accordingly, the grounds Nos.1 to 3 are dismissed as being not pressed. Ground Nos.4 to 6 14. Ground Nos.4 to 6 are relating to disallowance of commission of Rs. 84 lakhs under section 36(1)(ii) of the Act. The facts of this case being identical to assessment year 2007-08 and in view of the application for additional evidence of the assessee dated 16.01.14 and further in view of our observations made above during disposal of ITA No.7257/M/2010 (A.Y.2007-08), this issue is restored to the file of the AO for decision afresh accordingly. Ground Nos.7 to 9: 15. The issue taken by the assessee through....
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....mily' on account of dispute regarding changes made in share holding pattern and the valuation of assets etc. The AO observed that the said expenses were not incurred wholly and exclusively for the purpose of business of the assessee rather the same were the expenditure for settlement of inter-se dispute between the directors. He thereafter made the following observations in respect of some of the expenditure claimed by the assessee. "Consultancy Charges: - (i) Rs. 40,30,050/- paid to Wealthtree: The expenditure claimed to have been incurred for preparing data as required by DDR auditors. For this purpose, the past records of the company including of tax matters and physical verification of assets was carried out. This shows that the expenditure claimed has not been incurred wholly and exclusively for the purpose of the business of the assessee. The consultancy fees paid for preparation for business report is capital expenditure. Reliance is placed on the decision in the case Vazir Sultan Tobacco Co. V CIT [1987] 35 Taxman 406 (AP). (ii) Rs. 25,28,100/- raid to Interlink Professional: The expenditure claimed to have been incurred for a new project which was aborted in the mi....
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....e group of members of director. Thus, the expenditure was for settlement of dispute between the directors and not against the company. Therefore, the expenditure incurred were not wholly and exclusively for the purpose of assessee's business. The above expenses claimed under the head 'consultation charges and legal expenses' are not deductible under sections 30 to 36 and hence their allowability has to be considered u/s. 37. As per the provision of section 37, the expenditure not being in the nature of capital expenditure or personal expenses of the assessee, laid out or expended wholly and exclusively for the purpose of business shall be allowed. Unless the entire expenditure incurred is exclusively with sole motive of promoting the business, the expenditure will not qualify for deduction as upheld by various high courts. Further, commercial expediency and direct and immediate benefit to trade of the assessee are relevant factors, which in the case of assessee are not established. The expenses incurred must be directly and intimately connected with the character of assessee as trader, and not as a owner of assets as held in the case of Travancore Titanium Product Limit....
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.... These research activities of new formulations and recipes and inventions are done by the Managing Director and Working Director and their family members. Because of the continuous research and experience of your appellant company Managing Director and Working Director for the last more than 50-55 years which has enabled the company to maintain its status of market leader and had also led your appellant company to successfully overcome the competition from some of the foreign companies such as Givaudan, International Flavours and Fragrances etc. * Due to disagreement on certain decisions of the Board of Directors a group of shareholders, viz. Ajit S. Vaze, Mr. Girish S. Vaze and their families filed a operation u/s. 397-398 of the Companies Act against the company with the Company Law Board. The company was managed by 3 divisions of Kelkar Vaze family headed by Mr. G. D. Kelkar (who expired recently on 2nd March 2010) and 2 divisions of Vaze family (Ramesh Vaze faction and Ajit Vaze faction) which ultimately resulted in separation of these two factions from the company viz. The Ajit Vaze Faction and The G. D. Kelkar Faction. * Because of this separation, there was every likelih....