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2018 (6) TMI 750 - AT - Income TaxDisallowance u/s 40A(2)(b) - addition 30% of total commission and legal & professional fees paid to related parties - Held that:- Lower authorities had carried out the disallowance u/s 40A(2)(a) on an adhoc basis without placing on record any material which could prove to the hilt that the payments were excessive or unreasonable, having regard to the fair market value of the services or keeping in view the legitimate needs of the business of the assessee - hence we are of the considered view that in the absence of satisfaction of the basic condition for invoking of Sec. 40A(2)(a) by both of the lower authorities, the disallowance of 30% of the related party expenses made u/s 40A(2)(a) cannot be sustained - thus deleted. Levy of interest u/s 234B, 234C and 234D - Held that:- Levy of interest under the above statutory provisions would be rendered as consequential in nature and thus disposed off. Disallowance u/s 36(1)(ii) for payment of commission - whether the commission paid by the assessee company to Mr. Darayus A. Bathena for sale orders procured by him as a sales agent for the company was allowable as an expense under Sec.36(1)(ii)? - Held that:- As observed Sec. 36(1)(ii) which contemplates the allowance of an amount paid as bonus or a commission to an employee of a company disallowance carved out in the exception contemplated under Sec.36(1)(ii), would be invoked only in a situation where the payment of the bonus or commission had been made to an employee, and not otherwise. We thus, are of the considered view that the qualification regulating the allowability of bonus or commission as an expense while computing the income of an assessee under Sec. 28, would only be applicable in a case where the same had been paid to an employee, and not otherwise - Sec. 36(1)(ii) is intended to prevent an escape from taxation by describing a payment as bonus or commission, when in fact ordinarily it should have reached the shareholder as profit or dividend In the case of the assessee company before us, as Mr. Darayus A. Bathena during the year under consideration was not an employee of the assessee company, thus the qualification or the rider embodied in the latter part of Sec. 36(1)(ii) would not come into play in the case of the assessee, on the said count itself - the rider or the exception carved out in Sec. 36(1)(ii) would apply only to an employee who is also a shareholder in the company - Decided against revnue
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