TaxTMI 
TaxTMI 
2022 (5) TMI 1223
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.... order dated 25.03.2015. 2. The only issue in this appeal of assessee is as regards to the order of CIT(A) and that of the AO in holding that the directors remuneration is excessive and thereby disallowing excess directors remuneration amounting to Rs.58,19,376/-. For this, assessee has raised various grounds which are argumentative and hence need not be reproduced. 3. Brief facts are that the assessee is a resident domestic company involved in software development and engineering designs. During the course of assessment proceedings, the AO required the assessee to reconcile the income declared in profit & loss account and the amount credited as per Form No.26AS. The AO noted that the assessee company has paid a sum of Rs.75,07,380/- towa....
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....the ground that only 20% of the net profit is allowable as expenditure and further, drawing inference from the provisions of section 198 of the Companies Act, which is applicable only to the public limited companies. The ld.counsel for the assessee referred to the provisions of section 198(1) of the Companies Act. The ld.counsel stated that the provision is applicable in the event of inadequacy of profits and only then remunerations paid to directors by Schedule XIII of the Companies Act, will apply and the provisions of section 198 of the Companies Act has laid down the manner in section 349 & 350 of the Companies Act for computation of net profit. The ld.counsel stated that the above provision will not apply to a private limited company u....
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....er decision of the Mumbai Bench of the Tribunal in the case of The Bombay Samachar Pvt. Ltd., vs. ACIT in ITA No.7171/Mum/2010 & others, order dated 24.10.2018 and the relevant findings in para 8 reads as under:- "8............. 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 assessment order passed for the impugned assessment year, we do not find any material brought on record by the As....
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....ayment to related parties. Therefore, it is of paramount importance to examine whether the assessee has made payment for evading tax through shifting of profit. In the facts of the present case, it is evident that the assessee had been showing loss continuously for past several years and the Assessing Officer has also accepted loss shown by the assessee. That being the case, there cannot be any intention on the part of the assessee to evade tax by shifting profit. It is equally important to note that the remuneration paid to the directors have been offered by them to tax while filing their individual tax returns for the respective assessment years. This fact is evident from the copies of the income tax returns of the concerned directors fil....
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....ne through facts and circumstances of the case. We noted that the Tribunal in the case of The Bombay Samachar Pvt. Ltd., supra, has considered the issue of applicability of provisions of section 40A(2)(b) of the Act to the directors remuneration and held that this provision will not apply to the directors payment for holding that the payment is excessive or unreasonable in the absence of any material brought on record to demonstrate that the payment is actually excessive or unreasonable having regard to market rate for the goods, services or facilities availed or the business need of the assessee or commensurate with the benefit derived by the assessee. In the present case before us also the AO has not carried out any exercise for holding t....