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2014 (11) TMI 1151 - AT - Income TaxDisallowance u/s 36(1)(ii) being the commission paid to the managing director and working director of the company - Held that:- There is no denial of the fact that the amount paid was reasonable in comparison to the remuneration paid for the services in the market. There is no denial of the fact that the dividend of ₹ 3 crore was declared in the year under consideration. There seems merit in the contention of the ld. AR that the company has 29 shareholders and 4 directors whereas the commission was paid to two working directors only. So far the reliance of the Ld. D.R. on the special bench decision of the Tribunal in the case of “Dalal Broacha Stock Broking P. Ltd. v. Addl. CIT” (2011 (6) TMI 251 - ITAT, Mumbai) is concerned, we find that the facts of the present case are quite distinguishable. In the said case there were only three shareholders who were directors of the company and no dividend was declared and there was no explanation as to why the dividend was not declared. Under such circumstances, we find force in the contention of the Ld. A.R. that company was justified in paying the commission to the working directors which was quite reasonable. The lower authorities have not noticed these facts while deciding the issue under consideration. Disallowance of professional fees paid to three relatives under section 40A(2)(b) - Held that:- We find that the amount of remuneration paid was quite reasonable in view of the qualification of the said persons. It is not the case of the Revenue that the amount is excessive in comparison to market rates. The above said relatives of the assessee are duly qualified in their respective fields and in our view the assessee did not commit any illegality while availing their services and paying them reasonable remuneration for the purposes of business necessity. We, therefore, allow this issue in favour of the assessee. Disallowance being the consultation and legal charges - Held that:- Shri R. Vaze family filed a petition for operation and mismanagement before the Company Law Board. Due to the above disputes, company was not functioning efficiently with a view to bring settlement between the brothers/directors’ consultancy and legal fees were incurred for valuation purposes. The fee was also incurred for operation of new manufacturing facilities at Vashivali near Panvel, Raigad district. From the above arguments it is clear that most of the legal and consultancy charges were incurred were related to inter-se dispute between two factions of the directors of the company. Even the other expenses as observed by the AO are of capital nature and are not allowable as revenue in nature. We do not find any infirmity in the orders of the lower authorities while disallowing the said expenditure. This issue is accordingly decided against the assessee.
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