9911796707
TMI Blog2012 (11) TMI 1195X X X X Extracts X X X X X X X X Extracts X X X X ..... es etc. For the assessment year 2007-08, it filed its return of income on 31.10.2007 declaring an income of ₹ 73,65,280/-. The assessment was taken up for scrutiny by issuance of notice under section 143(2) of the Act. The scrutiny assessment under section 143(3) of the Act was completed vide order dated 24.11.2009 fixing the total income at ₹ 92,15,280/-. The Assessing Officer added a sum of ₹ 18,50,000/- under section 40A(2) of the Act being Directors remuneration paid and debited to P&L account. 2.1 The brief facts in relation to the above disallowance are as under:- During the year ending 31st March, 2007, the assessee company paid salary to the Directors as per the details given below:- Amount in Rs. Mr. Nandkisho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent efforts put in by the directors, the assessee reached a comfortable financial position. Therefore, taking into account the financial position of the company and extra efforts put by the directors, the remuneration was increased from ₹ 36 lakhs in assessment year 2006-07 to ₹ 66 lakhs in assessment year 2007-08. 5. The CIT(A) did not agree with the contention of the assessee company and dismissed the appeal of the assessee. 6. The assessee being aggrieved is in appeal before us raising the following grounds of appeal:- i) That the order of the authorities below for the assessment year 2007-08 in so far as they are pre- judicial to the interests of the appellant is bad and erroneous in law and against the facts and circum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company. It was submitted that the financial position of the assessee in the earlier years did not permit the payment of salary commensurate with qualifications and efforts put in by the directors. 7.1 The learned counsel further contended that the Income-tax authorities have not conducted proper enquiry to determine whether the remuneration paid to directors is excessive or not. It was submitted that unless the authorities come to a categorical finding, the payment made is excessive in regard to the fair market value of services, disallowance under section 40A(2) cannot be made. For the above proposition, the learned counsel relied on the orders of the Tribunal in the case of Jagadama Roller Flour Mills Ltd. v AC IT (316 ITR (AT) 422 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to last year to the tune of 129%. 9.1 It is the case of the assessee that directors are qualified and experienced and one of them is a graduate from IIM, Calcutta. It was submitted that in the course of hearing that the directors were looking after the complete business including planning, evolving strategies, execution and day to day management of the assessee company. The company was formed in the financial year 1995 and since its inception; the directors were not drawing remuneration commensurate with their qualification and work due to the low key of the operations and financial position of the assessee company. It was contended that the turnover had increased from 6.41 crores for the financial year 2005-06 to ₹ 16.12 crores for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. On the other hand, the Assessing Officer made the enquiry in a different direction, i.e. whether the increase in the salary as compared to the salary paid to last year was justified on facts or not. Such enquiry, in my view, is not required to be made as per the provisions of section 40A(2)(a). The scope of enquiry under the above provision is with reference to the fair market value of the services rendered. In the absence of enquiry as contemplated by the provisions of section 40A(2)(a), no disallowance could have been made or sustained. The onus was on the Assessing Officer to bring the material on record to prove that the payment made by the assessee was excessive or unreasonable having regard to the fair market value of the services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... namely 2007-08. It is to be mentioned here that the salary for all the employees increased in the current assessment year, except for one employee, namely, Sowmya. It is not clear whether she has left the service of the assessee company during the current assessment year which had resulted in reduction in her salary. The total salary outgoing for the current assessment year is lower than the assessment year 2006-07 only on account that many of the employees had left the services during the current assessment year and the assessee company had not filled the vacancies immediately. In the light of the above reasoning, we are of the view that disallowance of remuneration paid to the directors on the facts of this case is not justified and acco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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