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TMI Blog2013 (8) TMI 447X X X X Extracts X X X X X X X X Extracts X X X X ..... nefit of higher turnover and higher income to the Company. It is submitted that the disallowance being totally incorrect, illegal and unjustified as the remuneration paid is absolutely reasonable as compared to the market rate, the same be allowed. Without prejudice to the above the learned C.I.T. (Appeals) erred in comparing the remuneration paid in the earlier year. It is submitted that the previous remuneration which was very low is not a criteria for invoking provisions of section 40A(2)(b) of the I.T. Act. It is submitted that the remuneration paid to Directors is absolutely as per the market rate of what such Directors would receive if they are working outside and therefore treating them as excessive and unreasonable is incorrect and unjustified and the addition confirmed of Rs.30,00,000/- be deleted. 2. The order passed by the learned C.I.T. (Appeals) is bad in law and contrary to the provisions of law and facts. It is submitted that the same be held so now." Grounds of ITA No. 319/Ahd/2013 (Revenue's appeal) "1. The Ld. CIT(A)-XX, Ahmadabad has erred in facts and circumstances of the case in reducing the addition u/s 40A(2)(b) of Rs.59,09,560/- to Rs.29,09,500/- by igno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ither not capable of rendering any services to the company or have not given any services to the company. It is an undisputed fact that the profits and the turnover of the appellant company has substantially increased as compared to preceding year and therefore the decision of the company to share a part of its profits with those involved in the achievement of such profits cannot be questioned. The Board resolutions mentioned supra clearly indicate that the payments made by the appellant company had the requisite sanction of Board. The only issue which is now left to be decided is as to the adequacy of the payment made by the appellant company. The learned AO has held that given the inflationary factor the payments made can be increased by 10% from previous year. Notwithstanding the totality of the facts of the case i.e. the profits of the appellant company has increased overwhelmingly, the directors are reportedly involved in all the affairs of the company since its inception their does exist an element of payments made to the directors which can be deemed as excessive when strictly compared with prevailing market parameters. It is therefore, considered fair and reasonable to rest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing facts on Page no. 9 Para3,2 of the order: 1) As far as the comparative case analysed by the A.O. is concerned it is seen that the A.O. has while making the comparison not made a comparison with equivalent variables. 2) The comparison is inadequate in as much as the Ld. A.O. ought to have also compared the comparative profits of his comparative cases with that of Appellant of company. To the extent the argument of Ld. A.O. suffer from vice of incomplete and inaccurate comaparisons. 3) The Ld. A.O. has also not brought any evidence on the record to indicate that the concerned directors were either not capable of rendering any services to the company or have not given any services to the company. 4) It is an undisputed fact that the profits and the turnover of the Appellant of the company has substantially increased as compared to preceding year and therefore the decision of the company to share a part of its profits with those involved in the achievement of such profits can not be questioned. 5) The Board Resolutions mentioned supra clearly indicate that the payments made by the Appellant company had the requisite sanction of Board. As the Ld. ClT(A) has himself accepted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the company. In the recent decision of ITAT Mumbai Bench in the case Royal Hydraulic Pvt. Ltd. [ ITA No.8814/ Mum /2010] it has been held that it is a well-settled proposition that the Assessing Officer cannot direct the assessee to conduct its business in a particular manner. It is for the assessee to decide how to conduct its business and how much to pay to the directors. It has been held on the basis of Supreme Court decision in the case of CIT vs. Edward Keventer Pvt. Ltd. [ 115 ITR 149 (SC) ], wherein Hon'ble Supreme Court held that no part of remuneration paid to director could be regarded as excessive or unreasonable if it was for legitimate business need and benefit was derived by the company. The copies of all above decisions are duly submitted to the Ld. CIT(A) with written submission filed. In the appellant's case legitimate business need is clear as all the work from purchase to production, to sales , to accounts are handled by these six Directors and therefore, the legitimate needs are proved very clearly. All of them are with the company since beginning rather since birth. Therefore, the legitimate need having been satisfied it is absolutely clear that the consequ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company also increased from Rs. 1.11 crore to 2.12 crore. The appellant paid remuneration and commission in A.Y. 08-09 at Rs. 13,98,000/- which was increased to Rs.75,73,299/-. The comparable case referred by the A.O. shows that the turnover in case of Patel Salt & Marine Chemical Pvt. Ltd. increased from Rs. 3.58 crore in A.Y. 2008-09 to Rs. 4.21 crore in A.Y. 2009-10. In case of Gandhar Salt & Chemical Pvt. Ltd. from Rs.2.25 crore in A.Y. 2008-09 to Rs. 3.15 crore in A.Y. 2009-10. Hon'ble Bombay High court in case of CIT vs. V. S. Dempo & Co.(P.) Ltd. (supra) held that buying ore at rate higher than market rate, there was no deduction in the amount of tax payable. Thus, the order of the ITAT confirmed. Thus, both were paying tax at same tax rate. Hon'ble Bombay High Court in case of CIT vs. Indo Saudi Services (Travel)(P.) Ltd. (supra) held that Revenue was not in a position to point out how the assessee evaded payment of tax by alleged payment of higher commission to sister concern since the sister concern was also paying tax at higher rate and held that disallowance of alleged excess commission paid to the sister concern was not justified. Similar view also expressed by the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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