TMI Blog2015 (5) TMI 581X X X X Extracts X X X X X X X X Extracts X X X X ..... yed. Therefore, the remuneration amounting to ₹ 11,40,000/- and ₹ 15,68,050/- respectively received by them from the assessee cannot be said to be excessive by keeping in view, their previous experiences and earlier employment. Moreover, the AO had not brought any material on record to substantiate that as to how and in what manner the remuneration paid to the Directors was excessive. He had also not given any basis for allowing the remuneration @ 20% of the total receipts. Thus the disallowance made by the AO and sustained by the Ld. CIT(A) was not justified. Accordingly, the same is deleted. - Decided in favour of assessee. - ITA No. 1610/Del/2013 - - - Dated:- 17-4-2015 - Shri N.K. Saini And Shri C.M. Garg JJ. For the Appellant : Sri S. Srinivasan, CA For the Respondent : Smt. Y Kakkar, DR ORDER Per Shri N.K. Saini, AM: 1. This is an appeal by the assessee against the order dated 17.04.2012 of CIT(A)-V, New Delhi. 2. The following grounds raised in this appeal are reproduced:- 1. The Learned Commissioner of Income Tax (Appeals) has erred - a) in disallowing a sum of ₹ 14,93,657/- by restricting the remuneration to 20% of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing amount of ₹ 14,93,657/- was disallowed and added to the income of the assessee u/s 40A(2(b) of the Act. 5. Being aggrieved, the assessee carried the matter to the Ld. CIT(A) and submitted as under:- The Company had 2 full time professional Directors who were earlier employed in the holding company viz. M/s. Fabindia Overseas Pvt. Ltd. as detailed below: i) Ms. Dilpreet Sokhi Singh joined the Fabindia Overseas Private Limited as Chief Financial Officer on 1st February 2003. The Company is the retail Brand Company and major retail player in Indian niche market. The Product range consist of Garments for men, women, children and home furnishing such as bed linen, bath linen, table Linen, Floor Covering, Kitchen Linen. Fabindia exports to over 25 Countries worldwide both to wholesalers as well as retailers. It has 75 retail stores all over India. She was controlling the finance of all the stores all over India. She took over as Market Region Head of Fabindia Overseas Pvt. Ltd. And coordinated with all store Managers to increase sales of the Company in April 2005. She is a qualified Chartered Accountant and also qualified CPA from the USA. ii) Mr. Prakash Tripat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Remuneration 2,708,050.00 2,923,152.00 2,778,240.00 Ratio % % % Director Remuneration /total Income 44.60 19.94 16.10 While framing the assessment order, the Learned Income Tax Officer without appreciating the fact has invoked the provisions of Section 40A(2)(b) and disallowed an amount of ₹ 14,93,657/- by restricting the Directors remuneration to 20% of the receipt. The copy of our letter dated 20.12.2010 filed before the learned Income Tax Officer is enclosed at Annexure-1 wherein it would be amply clear that i) Ms. Dilpreet Singh was hitherto getting salary from M/s. Fabindia Overseas Pvt. Ltd. as per Form 16 issued by the company; and ii) Mr. Prakash Tripati was getting salary from M/s. Desert Artisans Handicrafts Pvt. Ltd. as per Form 16 issued by the company. These 2 Directors were earlier associated win the above cited companies i.e. Ms. Dilpreet Singh in Fabindia Overseas Pvt. Ltd. and Mr. Prakash Tripati in Desert Artisans' Handlcrafts Pvt. Ltd. and were dr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee confirmed the disallowance made by the AO by observing in Para 4 of the impugned order which reads as under:- 4. The issue involved and the submissions made by the appellant have been considered. As submitted by the appellant the appellant company is a fully owned subsidiary of M/s. Fabindia Overseas Pvt. Ltd. It has 2 full time professional Directors who were earlier employed in the holding company viz. M/s. Fabindia Overseas Pvt. Ltd. These directors were paid ₹ 27,08,050/- as remuneration which works out to 56.57% of total salary expenses and 44.6% of total receipts of ₹ 60,71,967/-. The AO has found the remuneration claimed in respect of these directors as unreasonable keeping in view the provisions of the Section 40A(2)(b) and has disallowed ₹ 14,93,657 /- restricting the remuneration to 20% of receipts which works out to ₹ 12,14,393/-. Section 40A(2)(b) deals with expenditure which is found unreasonable keeping in view the legitimate business needs of an assessee and the services rendered by the 'person'. The ratio of the judgements of the Calcutta High Court and of the Supreme Court referred to by the appellant speak of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grown to Managing Director in the said company by 2007, therefore, both the Directors were well qualified and having the requisite experience in finance and community managed company. In the instant case, the contention of the ld. counsel for the assessee that no disallowance was made in the subsequent year was not rebutted. It is also noticed that Ms. Dilpreet Singh was getting a remuneration of ₹ 29,54,990/- when she was earlier employed with M/s Fabindia Overseas Pvt. Ltd. and Mr. Prakash Tripathi was getting a remuneration of ₹ 13,02,471/- from M/s Desert Artisans Handicrafts Pvt. Ltd. Jodhpur wherein he was earlier employed. Therefore, the remuneration amounting to ₹ 11,40,000/- and ₹ 15,68,050/- respectively received by them from the assessee cannot be said to be excessive by keeping in view, their previous experiences and earlier employment. Moreover, the AO had not brought any material on record to substantiate that as to how and in what manner the remuneration paid to the Directors was excessive. He had also not given any basis for allowing the remuneration @ 20% of the total receipts, We, therefore, by considering the totality of the facts as discu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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