TMI Blog2022 (5) TMI 1223X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 the payment of remuneration to the directors that the same is unreasonable or not in consonance with the payment of directors or remuneration. We note that in this year the turnover is at Rs.1,42,13,393/- and profit earned is at Rs.84,40,020/- and remuneration paid to these three directors are at Rs.75,07,380/-. Even it is accepted position that the directors have paid taxes on these remu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t credited as per Form No.26AS. The AO noted that the assessee company has paid a sum of Rs.75,07,380/- towards directors remuneration and that is to the extent of 80% of the net profit. The AO noted that the directors remuneration are to the extent of Rs.75,07,380/- as against the net profit declared at Rs.84,40,020/-. The assessee s turnover is at Rs.1,42,13,393/-. The AO also brought out a comparative remuneration of last year which is nil as against the profit of Rs.1,28,55,033/- on a total turnover of Rs.1,85,54,513/-. The AO taking help of Companies Act, 1956, Schedule XIV which prescribes maximum remuneration payable to the directors i.e., managerial personnels which cannot exceed 11% of net profit, restricted the allowance of remu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of net profit. The ld.counsel stated that the above provision will not apply to a private limited company unless it is a subsidiary of a public limited company. The ld.counsel contended that the assessee is a private limited company and it is not subsidiary of any public limited company. Further, it was contended that all the three directors are tax assessees and have included the remuneration in the respective returns of income filed by them and paid the taxes at the maximum margin and hence, there is no revenue loss to the Department. The ld.counsel for the assessee also stated that these three directors are main directors and they are actively participating in the day to day business of the company. The ld.counsel also relied on the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment order passed for the impugned assessment year, we do not find any material brought on record by the Assessing Officer to demonstrate that the payment made by the assessee is excessive and unreasonable having regard to the market rate or business needs or benefit derived by the assessee. As could be seen, the Assessing Officer by simply taking the remuneration paid in assessment year 2003 04 as a base has determined the reasonable remuneration payable to directors. This, in our view, is purely on estimate 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 Rs.1.56 crore to the concerned directors but the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment years. This fact is evident from the copies of the income tax returns of the concerned directors filed before us by the learned Sr. Counsel. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit derived by the assessee. In the present case before us also the AO has not carried out any exercise for holding the payment of remuneration to the directors that the same is unreasonable or not in consonance with the payment of directors or remuneration. We note that in this year the turnover is at Rs.1,42,13,393/- and profit earned is at Rs.84,40,020/- and remuneration paid to these three directors are at Rs.75,07,380/-. Even it is accepted position that the directors have paid taxes on these remunerations on maximum margin rate and there is no revenue loss to the Department. In view of the above, we are of the view that in the absence of any findings by the AO that the directors remunerations are excessive and unreasonable, we reverse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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