TaxTMI 
TaxTMI 
2017 (11) TMI 1278
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.... 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 directors and accordingly is allowable as such. 2.2 The revenue, in IT....
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.... 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 respective branches being controlled by them. It was also pointed out that the provisions of Section 198 of the Companies Act, 1956 were applicable only to public limited companies and could not be applied to assessee since it was private limited company. However, not convinced, Ld. AO disallowed commission aggregating Rs. 83,76,022/- paid to three parties by applying the provisions of Section 36(1)(ii), Section 37(1) & Section 40A(2) since the impugned payments, in the opinion of Ld. AO,....
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....- 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 same and deleted the addition of Rs. 31.49 Lacs. 5. Aggrieved, the revenue as well as assessee is in appeal before us. The assessee is aggrieved by confirmation of addition to the extent of Rs. 83,76,022/- whereas revenue is aggrieved by deletion of addition of Rs. 41,18,308/- on account of director's salary paid by the assessee. 6. The Ld. Counsel for Assessee [AR] contended that commission paid to the directors was part of remuneration and the same was based upon the performance of respective....
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.... 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 Section 198 of the Companies Act, 1956 could not be applied to assessee since the same was applicable only to Public Companies and not to Private Companies. Lastly, in terms of provisions of Section 40A(2)(a), the disallowance could be made only if the Assessing Officer was of opinion that such expenditure was excessive or unreasonable having regard to the fair market value of goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him therefrom. However, the revenue is unable to point out as to how the payment were excessive or unreasonable having regard to fair market value of such services. 10. Finally, at this juncture, we are inclined to reproduce the observation....