Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2016 (1) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2016 (1) TMI 366 - AT - Income TaxDisallowance of commission paid to the Directors / shareholders - enhancement of income - assessee had claimed expenditure of ₹ 1 crore on account of commission paid to three main directors - CIT(A) had disallowed the claim of the assessee on the premise that where dividend was to be paid out of the profits of the assessee company, the payment of commission to the directors was hit by the provisions of section 36(1)(ii) of the Act - Held that:- The CIT(A) has not held the payment made to the directors to be excessive in view of the provisions of section 40A(2) of the Act, which is a safeguard for controlling the payment to relatives or connected persons. Under the amended provisions of section 36(1)(ii) of the Act, there is no restriction on the quantum of payment. However, the spirit of section that where the expenditure has been incurred in connection with carrying on of the business, the same is allowed as deduction, the commercial exigency is to be viewed in the light of the requirement of business and the actual services rendered by the persons concerned. Looking at the nature of sub-contract executed by the assessee which is in specialized field, it cannot be held that the same was carried out without the efforts of concerned directors. In any case, the businessman is the best person to decide its affairs and expenditure cannot be disallowed on any surmises. We find merit in the plea of the learned Authorized Representative for the assessee that in case the concerned entity was a partnership concern, under the provisions of section 40(b) of the Act, 60% of the profits of business could be allowed as remuneration to the partners of the said entity. The assessee has furnished the details of directors’ remuneration and commission paid to the directors and the total of the same does not exceeds 60% of the profits. Merely because the assessee is a private limited company and had agreed to pay the commission to the directors by passing Resolution in this regard before the close of year, the same cannot be brushed aside and the said expenditure was disallowed in the hands of assessee on mere surmises. In view thereof, we hold that where the directors had given services and in recognition thereof, there was proposal to pay commission to the said directors, then the same could not be questioned merely on the basis of speculation by the Revenue that the same was to avoid payment of dividend tax. The assessee company had paid the commission to the directors, who in turn had declared the same in their individual return of income, on which taxes have been paid and applying the simili laid down by CIT. Vs. Indo Saudi Services (Travel) Private Limited [2008 (8) TMI 208 - BOMBAY HIGH COURT ] in such circumstances, no disallowance was warranted in the hands of payer as there was no attempt to avoid tax.t the assessee is entitled to the claim of deduction on account of commission paid to the directors for the services rendered by them at ₹ 1 crore. Accordingly, we direct so. - Decided in favour of assessee Disallowance of deduction on account of expenditure incurred on construction of road and RCC chambers - Assessing Officer had re-computed the work in progress of the assessee by including the aforesaid amounts as part of work in progress - CIT(A) deleted the addition - Held that:- As held that the construction of site road is not capital expenditure and the same is allowable as revenue expenditure. The A.O. has held that the site road from Rigaon is to be included in W.I.P. In this regard the appellant has pointed out that the contractee is not required to pay any consideration towards site road and hence the said expenditure cannot form the part of W.I.P. This contention of the appellant is supported by tender document. In view of the above facts, it is of the considered view that the A.O. is not justified in making the addition by holding that the site road is to be included in WIP. The addition is therefore, deleted. As regards the expenditure on RCC chambers, it has been noticed that the appellant has incurred the expenditure and paid the same to the sub-contractor M/s.SMPL, who carried out the said work. As per the standard practice all the irrigation projects are to be approved by Central Design Organization, Nashik i.e. CDO, Nashik. The CDO has reviewed the irrigation projects and recommended latest surge protection devices, which needed to be imported from abroad. As per the recommendation of the,CDO, Nashik the revised Board Conceptual Layout (BCL) was finalized on 10/2/2009 with deletion of delivery chambers and on later date, the appellant was informed about the revised BCL. In support of the above claim the appellant has filed copy of Boards Conceptual Design, with relevant letters and enclosures. In view of the above facts the contention of the appellant that the expenditure incurred by the appellant on RCC Chambers is lost and cannot be included in WIP as at 31/3/2009 is found to be correct and hence accepted. The addition is therefore, deleted. - Decided in favour of assessee
|