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2015 (11) TMI 1205 - ITAT DELHI

2015 (11) TMI 1205 - ITAT DELHI - TMI - Addition under section 40A(2)(b) - CIT(A) deleted addition - Held that:- The assessee has failed to substantiate the work performed by Mr. Preetpal Singh. The ld. AR also could not controvert the argument of the ld. SR DR that the salary paid by the assessee company to Mr. Preetpal Singh for the post of Vice President Marketing was much higher than the salary paid by the sister concern of the assessee to him for the role of Director of that company. Thus, .....

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the learned Commissioner of Income-tax is only an imaginary figure which never materialized. In our view, the assessee has failed in all tests laid down in decision of Spark Hotels (P) Ltd (2012 (6) TMI 689 - ITAT DELHI ) with regard to remuneration paid to Mr. Preetpal Singh. In view of the facts and circumstances of the case and we are of the opinion that allowance of salary/ remuneration to Mr. Preetpal Singh restricted by the Assessing officer to 50% of the amount paid is justified and ther .....

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is established that services are performed outside India, the provision of section 9 are not applicable in the case of foreign residents. The learned Commissioner of Income-tax (Appeals) has discussed the applicability of the circular of the CBDT and we are in agreement with the conclusion of the learned Commissioner of Income-tax (Appeals) on this issue as the assessee was not required to deduct tax at source on the payment made to foreign selling agents - Decided against revenue - ITA No. 622 .....

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e addition of ₹ 24,00,000/- made by the AO. under section 40A(2)(b) of the Income tax Act, 1961. 2. The ld CIT(A) erred on facts and in law in deleting the addition of ₹ 15,00,149/- made by the AO under section 40(a)(ia) on account of commission paid of foreign agents. 2. The facts in brief as culled out from the orders of lower authorities are that the assessee was engaged in the manufacturing of auto rubber parts in the previous year relevant to assessment year. The assessee filed .....

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ment schedule etc. or documentary evidences in support of duties, work or responsibilities assigned. The learned Assessing Officer also observed that there was no improvement in the financial position of the company after joining of Mr. Preetpal Singh. In view of above observations, the learned Assessing Officer disallowed 50% of remuneration paid to Mr. Preetpal Singh in terms of section 40A(2)(b) of the Act, being excessive and unreasonable expenditure. The learned Assessing Officer also obser .....

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ed the commission amount paid in terms of section 40(a)(ia) of the Act in the assessment order passed u/s 143(3) of the Act on 19.10.2011. 3. Aggrieved, the assessee filed an appeal before the learned Commissioner of Income-tax (Appeals). Before the learned Commissioner of Income-tax (Appeals), the assessee made detailed submission in respect of educational qualification and experience of Mr. Preetpal Singh. The assessee also forwarded legal arguments that the learned Assessing Officer had not o .....

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or deduction and hence disallowance made u/s 40(a) (ia) of the Act was not proper. The learned Commissioner of Income-tax (Appeals) after considering the copy offer of Swastik Outsourcing to Mr. Preetpal Singh and other submissions of the assessee and various case laws, decided the first issue in favour of the assessee. On second issue, the learned Commissioner of Income-tax (appeals) held that the commission did not fall in the category of Fees for Technical Services ( FTS) as the person to who .....

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)(ia) of the Act invoking section 195 of the Act. The relevant finding of the learned Commissioner of Income-tax (Appeals) is reproduced as under: The AO quoted circular 7 of 2009 while making the addition and disallowed the claim of the appellant. Circular No.7 of 2009 was issued on 22/10/09, therefore it will not be applicable to AY 09-10. As per the decision of the ITAT Lucknow Bench in the case of CIT vs Sanjiv Gupta, "Circular No.7 will be operative only from 22/10/09 and not prior to .....

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e (in short Sr. DR) relied on the order of the learned Assessing Officer and submitted that this is first year when Mr. Preetpal Singh has joined the company and in the history of the assessee no remuneration of such a huge amount was paid. Further, he submitted that on enquiry by the learned Assessing Officer, in respect of the work performed by Mr. Preetpal Singh, the reply submitted by the assessee shows that he was solely responsible for all the activities of the assessee, which was not poss .....

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SA, and has provided a direction to the company and the company has been benefited in subsequent years. He further argued that the learned Assessing Officer has not made any proper comparison in respect of the salary paid to Mr. Preetpal Singh. The ld. AR then reiterated his submission made before of the learned Commissioner of Income-tax (appeals) and the relied on judgements cited before him. The ld AR also submitted recent decision of ITAT Delhi G Bench in the case of DCIT, Circle 9(1), New D .....

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eld as under: "6.2 A mere glance at the aforesaid provision reveals that the expenditure mentioned therein is in relation to any person referred to in clause (b) of the subsection and the expenditure has to be considered in relation to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to the assessee therefrom. Hon'ble Gujarat High Court obse .....

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e of the goods, services or facilities for which the payment is made or (b) the legitimate needs of the business of the assessee; or (c) the benefits derived by or accruing to the assessee on receipt of such goods, services or facilities, then the AO shall not allow as a deduction so much of the expenditure as is so considered by the AO to be excessive or unreasonable. Therefore, it becomes apparent that the AO is required to record a finding as to whether the expenditure is excessive or unreaso .....

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has to be disallowed. It is well settled that the provisions of section 40A(2)(a) of the Act cannot have any application unless it is first concluded that the expenditure was excessive or unreasonable, as held in the case of Upper India Publishing House (P) Ltd. Vs. CIT (1979) 117 ITR 569/1 Taxman 365 (SC). In the instant case, there is nothing to suggest that the AO found the payment of remuneration to director excessive having regard to either (a) fair market value of the service or facilities .....

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sion of Tribunal In Spark Hotels (p) Ltd ( supra). 6.3. In the instant case, Mr. Preetpal Singh is relative in terms of section 40A(2)(b) the AO and Payment of ₹ 48 lakhs has been made by the assessee. On perusal of the copy of the biodata of Mr. Preetpalsingh, which is placed at page 13 of the assesee s paper book, we find that Mr. Preetpal singh has completed his degree of Bachelor of Engineering in the period from the year 1997 to 2000, from Cleaveland State University and during this p .....

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ained any special qualifications nor having any experience in the field of software etc., which were claimed before the Assessing Officer as part of responsibilities of Mr. Preetpal singh. We agree with the contention of the ld. Sr. Dr that before the Assessing Officer, the assessee has shown as such Mr. Preetpal singh was responsible for almost all day to day activities of the company, which is not possible for a human being the assessee. The assessee has failed to substantiate the work perform .....

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ntion of the ld. Sr DR that the assessee failed to explain and substantiate the needs of the business of the assessee for hiring services of Mr. Peetpal Singh and the benefit accrued to the business of the assessee by inducting Mr. Peetpal Singh. The offer price in letter of Swastik Outsourcing , submitted by the assessee before the learned Commissioner of Income-tax is only an imaginary figure which never materialized. In our view, the assessee has failed in all tests laid down in decision of S .....

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2 the ld Sr. DR relied on the order of the learned Assessing Officer and submitted that the assessee has not complied with the provisions of section 195 of the Act and made remittance without deduction of tax at source. Further, he submitted that the CBDT Circular No.786 of 2000 was not applicable in the case of the assessee and therefore, the learned Assessing Officer has rightly disallowed the commission payment in absence of deduction of tax at source by the assessee. On the other hand, the l .....

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