TaxTMI 
TaxTMI 
TaxTMI 
2018 (11) TMI 1113
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....sing for consideration in these appeals by the assessee is disallowance made under section 40A(2)(a) of the Income Tax Act, 1961 (for short "the Act") on account of payment of remuneration to whole time directors. Since, facts relating to the issue in dispute are identical in all the appeals, for the sake of convenience we will advert to the facts as involved in ITA no.7171/Mum./2010. 3. Brief facts are, the assessee company publishes a newspaper in Vernacular language. As stated by the assessee, it is carrying on such activity for more than 150 years. For the assessment year under dispute, the assessee filed its return of income on 29th October 2007, declaring loss of ` 1,03,07,332. During the assessment proceedings, the Assessing Officer noticed that the assessee has paid remuneration @ ` 48,00,000 each to three whole time directors aggregating to ` 1,44,00,000. After calling for further information and verifying them, the Assessing Officer found that in financial year 2003-04, wherein the assessee had positive income, it has paid remuneration of ` 12,50,000 to each director totaling to ` 37,50,000. He found that in financial year 2004-05, the remuneration to the aforesaid three....
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....ee directors at ` 36,50,000 as against remuneration paid of ` 1,44,00,000. This resulted in disallowance of ` 1,06,50,000. Being aggrieved of the aforesaid disallowance, the assessee preferred appeal before the first appellate authority. 4. The learned Commissioner (Appeals), however, sustained the disallowance made by the Assessing Officer. In the like manner, the Assessing Officer completed assessments for assessment year 2008-09, 2009-10 and 2010-11. The only difference being in the quantum of remuneration allowed by the Assessing Officer at ` 48,00,000 as against ` 1,44,00,000 claimed by the assessee which resulted in additions of ` 1,02,000 in each of these assessment years. However, the fate of the additions made by the Assessing Officer remained the same before the learned Commissioner (Appeals). 5. Shri P.J. Pardiwala, learned Sr. Counsel appearing for the assessee submitted, before invoking the provisions of section 40A(2)(a) of the Act, the Assessing Officer must establish on record that the expenditure incurred by the assessee is excessive or unreasonable having regard to the fair market value of goods, services or facilities for which the payment is made. He submitted....
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....l, 15% shares of the company. Whereas, 85% other shareholders are there to whom the assessee would otherwise have to pay dividend. The learned Sr. Counsel submitted, the object behind introducing section 40A(2) to the Act is for preventing evasion of tax. He submitted, in the facts of the present case, there is no such occasion for evasion of tax considering the fact that ultimately the Assessing Officer has determined loss in all the assessment years and moreover the directors to whom remuneration was paid have not only offered such income in the return of income filed by them but they have paid tax at the maximum rate of 30%. Thus, he submitted, by payment of such remuneration there is neither evasion of tax nor leakage of revenue. Thus, he submitted, no disallowance by invoking provisions of section 40A(2) of the Act should be made. In support of his contention, the learned Sr. Counsel relied upon the following decisions:- i) CIT v/s Indo Soudi Services (Travel) Pvt. Ltd., [2009] 310 ITR 306 (Bom.); ii) CIT v/s V.S. Dempo & Co. Pvt. Ltd., [2011] 336 ITR 209 (Bom.); and iii) Chryscapital Investment Advisors (I) Pvt. Ltd. v/s DCIT, [2015] 376 ITR 183 (Del.). 6. The learned ....
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....iny assessments under section 143(3) of the Act. This is evident from the copies of the assessment orders for assessment years 2001-02, 2003-04 and 2004-05 placed before us. In fact, while completing the scrutiny assessment for assessment year 2006-07 under section 143(3) of the Act, which is evident from the assessment order dated 16th December 2008, the Assessing Officer has allowed payment of remuneration of ` 1.56 crore against loss determined at ` 3,16,68,518. Therefore, in comparison to payment of remuneration in assessment year 2006-07 i.e. the immediately preceding assessment year, the payment of remuneration to the directors in the impugned assessment years cannot be considered to be either excessive or unreasonable having regard to the facts and circumstances of the case. Further, while invoking the provisions of section 40A(2)(a) of the Act, the Assessing Officer must bring material on record to demonstrate that the payment made by the assessee is excessive or unreasonable having regard to the market rate for the goods, services, facilities availed or the business needs of the assessee or commensurate with the benefit derived by the assessee. On scanning through the asse....
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....It is also not disputed that the concerned directors are assessed to tax at the maximum rate of 30%. In the aforesaid facts and circumstances, we are of the considered view that the provisions of section 40A(2) of the Act are not attracted to the payment made to the directors. The decisions relied upon by the learned Sr. Counsel also support our aforesaid view. Whereas, the decisions cited by the learned Departmental Representative are factually distinguishable. Thus, on overall consideration of facts and circumstances of the case, we are of the view that the disallowance made under section 40A(2)(a) of the Act in the impugned assessment years are unsustainable. Accordingly, we deleted the disallowances made in all the assessment years under appeal. Grounds raised are allowed. 9. In the result, all these appeals are allowed. ITA no.35/Mum./2016 Revenue's Appeal - A.Y. 2008-09 10. Aforesaid appeal by the Revenue is against deletion of penalty imposed of ` 35 lakh under section 271(1)(c) of the Act. 11. Brief facts are, while completing the assessment for the impugned assessment year, out of the total remuneration paid of ` 1.44 crore paid to three directors, the Assessing Off....