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2016 (9) TMI 1439 - AT - Income TaxDisallowance U/s.40A(2) - payments of commission - payment as excessive and unreasonable having regard to the market value of the goods/services - Held that:- It is not correct for the Assessing Officer to begin a fresh litigation in the absence of any new material or change in the circumstances on the premise that there are new views, closer and more intelligent analysis. Assessing Officer had not doubted the genuineness of the payment and Shri E.K. Parthasarathy, Managing Director has admitted the receipt as his income in his return of income and paid the relevant taxes. Therefore, we do not find any infirmity in the order of Ld.CIT(A) and the order of Ld.CIT(A) is upheld and the ground raised by the revenue on the addition of profit commission to Mr. E.K. Parthasarathy stands dismissed. Payment of commission to guarantors - allowable busniss expenditure - Held that:- The company has chosen to make the payment of guarantee commission as a source of income to the directors and the facts of the Hon’ble Karnataka High court in the case of United Breweries [2011 (10) TMI 443 - KARNATAKA HIGH COURT ] are clearly applicable in the assessee’s case. Accordingly, we hold that the payment of commission to guarantors is not wholly and exclusively incurred for the purpose of business and is not allowable deduction u/s. 37(1) of income tax act. Accordingly, the addition made by the AO is confirmed - decided against assessee. Addition u/s 40A(2)(a) - commission paid to John Bruce (UK) LTD. - the expenditure was not incurred wholly and exclusively for the purpose of business - Held that:- The paper book submitted by the AR is not certified by either assessee or the AR. Therefore, we are of the opinion that the material placed before the Bench is not made available to the AO. The assessee had submitted the details of commission paid, and the invoice amounts, but not placed the copies of invoices to verify whether the sales were made through the JBUK or not? CIT(A) examined the agreements and came to conclusion that the expenditure was incurred for the purpose of business but he has not given any opportunity to the AO. This issue requires further verification to examine the genuiness of expenditure. Disallowance u/s 40A(2)(a) - payment of profit commission to Ms.Priya Sriram, D/o. Mr.Parthasarathy - Held that:- As evident from the above trading results that there were no additional efforts or services rendered by Mrs.Priya Sriram to make the payment of profit commission over and above the fixed salary. Since the fixed was already increased from ₹ 35.50 lacs in 2010-11 to ₹ 60.01 lacs there was no reason for payment of commission on overall profit of the company without incremental benefit. Though there are three whole time Directors and senior officers working in the company only Mrs. Priya Sriram was paid profit commission on the total profit without considering and evaluating the incremental benefit derived by the company. The A.R has not substantiated the additional responsibilities or services given to her and discharged by her with the terms and conditions of employment. Therefore we are in agreement with the AO that no additional services were rendered by Mrs. Priya Sriram for payment of profit commission and the payment was not in the business interest. Accordingly we set aside the order of CIT(A) and restore the order of the AO. - Decided in favour of revenue Disallowance U/s.40A(2)(a) - payments of rent in respect of accommodation leased from Mr.Sriram Sivaram son in Law of Mr.E.K.Parthasarathy CMD of the company - Held that:- Mr.Sriram Sivaram is a whole time director and there are other directors but no such facility was extended to any of the other directors. The leased accommodation is a taxable perquisite in the hands of Mr.Sriram Sivaram, which is much lower in rate. Mr.Sriram Sivaram is a Director of the company and drawing salary. Section 40A(2) was brought into Act to curb the incidence of tax evasion, curbing such practice of distributing profits without making the payment of legitimate tax. Therefore, we agree with the CIT(A)’s order and the entire transaction is nothing but an arrangement wherein benefit is bestowed upon individual of the family rather than the company deriving any benefit. Therefore, AO has rightly disallowed the expenditure as unreasonable - Decided in favour of revenue
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