TMI Blog2019 (2) TMI 1128X X X X Extracts X X X X X X X X Extracts X X X X ..... sment years are unsustainable. - Decided in favour of assessee. - I.T.A. No. 6663/Mum/2017 - - - Dated:- 15-1-2019 - SH. SANDEEP GOSAIN, JM AND SH. G. MANJUNATHA, AM For The Appellant : Shri Jeet Kamdar, AR For The Respondent : Shri Arvind Kumar, DR ORDER Per Sandeep Gosain, Judicial Member: The present Appeal filed by the assessee is against the order of Ld. CIT (Appeal) 6, Mumbai dated 04.09.17 for AY 2013-14. 2. The solitary contested ground raised by the assessee relates to challenging the order of Ld. CIT(A) in upholding the disallowance made by AO u/s 40A(2) of the I.T. Act. 3. Ld. AR appearing on behalf of the assessee submitted before us that this ground is covered by the order of Hon ble ITAT in ITA No. 7171/Mum/10 (for AY 2007-08), 7141/Mum/11 (for AY 2008-09), 1576/Mum/13 (for AY 2009-10) and 3949/Mum/14 (for AY 2010-11) in assessee s own case, wherein the identical ground raised in the present appeal has already been decided on merits. 4. On the other hand, Ld. DR fairly agreed to the contention of Ld. AR that the issue is covered in favour of assessee. 5. We have heard both the parties and we have also perused the mate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccruing to the assessee, the Assessing Officer called upon the assessee to explain why the remuneration paid to the directors should not be disallowed in terms of section 40A(2)(a) of the Act. Further, the Assessing Officer observed, to escape the rigors of the provisions of section 2(22)(e) of the Act, the assessee has camouflaged the payments made to the directors as remuneration. In response to the query raised by the Assessing Officer, though, the assessee justified the payments made by stating that the directors were having considerable wealth of experience in the newspaper and printing industry and have been working with the newspaper for 5 The Bombay Samachar Pvt. Ltd. several years. It was submitted, the remuneration paid to the directors is not excessive or unreasonable compared to the remuneration paid in the private sector for similar services rendered. The Assessing Officer, however, did not find merit in the submissions of the assessee and held that the payment of remuneration to the director is excessive and unreasonable having regard to the provisions of section 40A(2)(b) of the Act, hence, not allowable. The Assessing Officer observed, in assessment year 2003 04, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on account of remuneration paid even in scrutiny assessments. The learned Sr. Counsel submitted, compared to the remuneration paid in assessment year 2006 07 which was allowed by the Assessing Officer in scrutiny assessment, the remuneration paid in the impugned assessment year is lesser. Therefore, he submitted, the remuneration paid to directors cannot be considered as excessive or unreasonable. The learned Sr. Counsel drawing our attention to the provisions of section 40A(2) of the Act submitted, before invoking the said provision the Assessing Officer must bring material on record to demonstrate that the payment of remuneration to directors is excessive or unreasonable compared to the market rate of payment for such services. He submitted, no material has been brought on record by the Assessing Officer to establish such fact. He submitted, the only reason for which the Assessing Officer disallowed remuneration in the impugned assessment year is because of loss shown by the assessee. He submitted, loss shown by the assessee is due to substantial reduction in advertisement revenue. Therefore, that by itself cannot be a criteria to invoke provisions of section 40A(2) of the Act. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 40A(2)(a) of the Act in the assessment years under appeal, it is necessary and relevant to look into the provisions contained under section 40A(2) of the Act. On a careful reading of the said provision, it is apparent, in the relevant previous year the assessee did make payment to persons referred to under clause (b) of section 40A(2) of the Act. However, before invoking the provisions of section 40A(2)(a) of the Act, the following conditions have to be satisfied: i) The payment made is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made; or ii) The expenditure incurred is excessive or unreasonable having regard to the legitimate business needs of the assessee s business; or iii) Expenditure incurred is excessive or unreasonable having regard to the benefit derived by or accruing to the assessee from the payment. 8. Keeping in view the aforesaid legal position, if we examine the facts of the present case, it is evident that the assessee had been paying remuneration to the concerned directors from past several years. In fact, the Assessing Officer himself in the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stimate basis without having any relevance to the actual facts on record including the fact that in the immediately preceding assessment year the assessee has not only paid remuneration of ₹ 1.56 crore to the concerned directors but the Assessing Officer has also allowed such payment in scrutiny assessment. As regards the observations of the Assessing Officer that to avoid the mischief of section 2(22)(e) of the Act, the assessee has camouflaged loan / advances to the directors as remuneration, we do not find any substance in such allegation. Undisputedly, the assessee had been paying remuneration to the concerned directors from past several years. Moreover, from the shareholding pattern of the company, it appears that the total share holding of the aforesaid three directors combined together constitutes only 15%. Therefore, it cannot be said that for escaping the rigors of section 2(22)(e) of the Act the assessee has paid remuneration to the directors. The object behind introduction of section 40A(2) of the Act is for preventing evasion of tax through shifting of profit by making payment to related parties. 13 The Bombay Samachar Pvt. Ltd. Therefore, it is of paramount impor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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