2017 (11) TMI 1278

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....ame appears to be in order. No objection is raised against the same by Ld. Counsel for assessee [AR]. Hence, finding the appeal in order, we proceed further to decide the same on merits. 2.1 The assessee, in ITA No.3281/Mum/2015 has raised the following grounds of appeal:- 1. "The Learned Commissioner Of Income Tax (Appeal) erred in not deleting the service tax Rs. 3,11,135/- on the commission, which was not debited to the P &L A/c and claimed as service tax input credit, impliedly confirming the addition. 2. The Learned Commissioner of Income Tax (Appeal) erred in upholding the decision of the Learned AO as regards the commission of Rs. 80,64,887 paid to the two directors and M/s. Mercurial Corporate Pvt. Ltd and in upholding the addition/disallowance. 3. The Learned Commissioner of Income Tax (Appeal) failed to appreciate that the commission is paid on the basis of the services rendered and not as per the shareholding which is a basis for distributing dividend. 4. The Learned Commissioner of Income Tax (Appeal) failed to appreciate that the commission of Rs. 50,44,56/- paid to the two directors is also part of the remuneration paid to the di....

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....hurandhar 34,000 24,48,000 - 24,48,000 5 Nishad Dhurandhar Nishad Dhurandhar 3,400 3,82,600 - 3,82,600 6 - Mercurial Corporate Pvt Ltd 20,000 - 33,31,866 33,31,866       TOTAL 1,11,47,600 83,76,022 1,95,23,622   The above payments, in the opinion of Ld. AO, were covered by the provisions of Section 40A(2) read with Section 36(1)(ii). The Ld. AO also noted that the provisions of Section 198 of The Companies Act, 1956 put a ceiling of 11% of net profits on overall remuneration that could be paid to the directors and managers. Accordingly, the assessee was asked to justify the salary/commission payment in terms of Section 40A(2) and also asked to provide the details of services obtained against commission payment. The assessee pointed out that the assessee was in specialized line of business and the directors were handling promotional aspect of the business. Further, commission was paid to two directors based on sales achieved by the resp....

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.... wrongly taken by Ld. AO. Reliance was placed on several judicial pronouncements and CBDT Circular No.6P dated 06/07/1968 for the contention that disallowance was not justified in terms of Section 40A(2). 4.2 The Ld. CIT(A) after appreciating the nature of assessee's business confirmed addition of Rs. 83,76,022/- on account of commission on the premises that the assessee could not prove factum of receipt of services with cogent material. However, Ld. CIT(A) deleted addition of Rs. 41,18,308/- qua salary payment by placing reliance on the cited CBDT circular, various judicial pronouncements and upon noticing that the provisions of Section 198 of the Companies Act, 1956 were not applicable to the assessee company. 4.3 Qua disallowance of Rs. 31.49 Lacs on account of commission paid to outsiders, the assessee pointed out that this amount included an amount of Rs. 30,20,731/- which was a part of the earlier disallowance of Rs. 83,76,022/- and hence there was a double disallowance. It was further demonstrated that the balance commission was paid to three independent parties against receipt of services and therefore, no disallowance was justified. The Ld. CIT(A) concurred with the ....

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....s only four directors and Nishad Dhurandhar is not the director of the company. Secondly, it is noted that commission has been paid only to two directors and the same is not in proportion to their shareholdings as evident from perusal of above table. Further, the directors, in their respective return of income, as evident from placed on Page Nos. 74 to 77 of the paper book, have reflected the aggregate payment as above under the head 'salary income' and all the directors fall in the highest tax bracket. The assessee is making the salary and commission payment, in similar manner, to the directors since AY 2004-05, the details of which are available on Page-73 of the paper book. 9. On the basis of above facts, we find that the provisions of Section 36(1)(ii) has no applicability since the commission payment are not in proportion to the respective shareholdings and moreover, the commission has been paid only to two directors out of four directors. The assessee has asserted that the commission has been paid in proportion to the performance achieved by respective branches being controlled by them and this fact is nowhere controverted by the revenue. Undisputedly, the provisions of Se....