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2016 (10) TMI 805 - ITAT MUMBAI

2016 (10) TMI 805 - ITAT MUMBAI - TMI - Dis-allowance of amount paid as commission to one whole time working Direcotr who had rendered extra service to the company - Held that:- Exceptional performance in profitability was due to the market boom and not otherwise. In case of assessee, high turnover and profits are have direct nexus with the efforts put in by the said Director - assessee did not pay commission when turnover and profits were both declining. In case of assessee, commission had been .....

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6 - SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER For The Appellant : Ms. Sanjukta Chowdhary, For The Repondent : Shri G. N. Makwana, D.R. ORDER PER RAJESH KUMAR, AM: Both appeals have been filed by assessee against the orders of Commissioner of Income-Tax (Appeals)-8, Mumbai, dated 19th October, 2012 for both A.Ys. i.e. 2009-10 & 2010-11. Since, these appeals pertain to same assessee and on almost similar issue, so they are being disposed of by commo .....

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ure to earning of tax free income and that the appellant had made composite use of funds. 2) The learned CIT (A) erred in confirming the disallowance of commission of ₹ 41,95,784/- paid to director without considering any submission made by the appellant. 3) The learned CIT (A) erred in confirming the disallowance of transport charges of '467500/- paid to Shri Ganesh Lifters based merely on the basis of disallowance in the previous years and without any independent verification of fact .....

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ical expense of the director ₹ 60,438/- considering the same as personal expense without having regard to the contractual obligation of provision of medical expenditure to the director. 3. Assessee is a Private Limited Company with four Directors. It involves in the business of custom house agency and supply chain management and freight forwarding activities. 3.1 First issue is with regard to confirmation of addition of disallowance of ₹ 4,07,771/- u/s.14A of the Act r.w. Rule 8D. As .....

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23;) to its Portfolio Manager. PMS charges had been apportioned in the earning of long term capital gain, short term capital gain and dividend income. On proportion basis, assessee claimed its PMS charges respectively against short term capital gain, long term capital gain and dividend income declared. According to assessee, no other expenditure had been incurred except PMS charges. Nothing has been borrowed. In this regard, ld. Authorized Representative submitted that assessee has incurred only .....

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see relied on following decisions: I. Walfort Shares & Securities vs. CIT [2010] 326 ITR 1 (SC) II. CIT vs. Hero Cycles Ltd. 323 ITR 518 (P&H) III. Maxopp vs. CIT 2003 Taxmann 364 (Del) In this background, it was claimed that no disallowance u/s.14A of the Act r.w. Rule 8D can be made without showing how assessee‟s calculation was wrong and only read expenses attributable to the dividend income earned. Dividend income can be disallowed. 3.3 We have heard the parties. We find that t .....

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g Term Capital Gains, Short Term Capital Gains and dividend income proportionately. The ld. AR submitted before us that in terms of section 14A(2) the AO has to record his satisfaction or dissatisfaction with respect to correctness of the claim of the assessee in respect of expenditure in relation to the exempt income as Rule 8D has no blind application. We find that in this cases the AO has mechanically applied the provision of rule 8D without recording any satisfaction making the disallowance. .....

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as made only under the provisions of section 14A r.w. rule 8D could be invoked. he similar issue has been decided by a co-ordinate bench of the Tribunal in number of decisions upholding that no application of section 14A r.w.r 8D can be invoked where the AO has not recorded his satisfaction as to the correctness of the claim or disallowance made sou mottu while filing the return of income. We, therefore, following the ratio laid down in the above mentioned case and also the decision of the co-or .....

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ting new clients both in India and abroad, decisions making, execution of assignments, management of filed staffs and office staffs, strictly adhering to time bound accomplishment of various assignments and whole hearted contribution for the growth of company. The turnover had progressively grew nearly 10 times what it was prior to 1995-96. The Board made resolution for the payment in question. The stand of assessee has been that for the business expediency, the payment of commission was duly co .....

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idends as dividend were prima facie an appropriation of profits which was paid to all the shareholders on the basis of their shareholding. All the shareholders had been paid dividend. The commission payment is a charge against profits only. Thus, the nexus of rendering of services and payment of commission was very co-related in the instant case and the same has not been properly considered by lower authorities. Assessing Officer mainly relied on the decision of Special Bench in case of Dalal Br .....

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dence on record was available to support the fact that the Directors had rendered any extra services for the payment of huge commission or remuneration. So, it was held that justification of firm has no merit in absence of service rendered but in case of assessee, the rendering of services by the said Director had been accepted by the lower authorities. In case before us, the whole-time Director had immensely contributed for the growth of company, the only single headed at the instance of contri .....

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cha Stock Broking Pvt. Ltd. (supra), assessee did not pay commission when turnover and profits were both declining. In case of assessee, commission had been paid steadily over the years in a consistent manner since 1995-96, besides assessee‟s dividend policy. 4.2 In case of assessee, services rendered by Director Shri Mahesh A Dharira, it is pertinent to mention here that payment has not been paid to other Directors. Thus, payment in question was with respect to services rendered by the sa .....

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because similar claim was disallowed in the preceding years as the party was not found genuine. Accordingly, disallowance was made. 5.1 In appeal, the stand of assessee has been that assessee had utilized the service of transporters as it was under contractual obligation to deliver the cargo at the customer‟s places located outside Mumbai and assessee was not having any transport vehicle of its own. Assessee has recovered the transportation charges from the customers and shown it as incom .....

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to consideration, the read service rendered by the said transporter to the assessee and also taking into consideration the earlier precedent and Assessing Officer can allow the claim in the facts and circumstances of the year under consideration and assessee has been rendered services of transporter of actual basis. 6. Next issue is with regard to disallowance of expenditure of ₹ 5 laks in connection with agency and cargo clearance against the disallowance of ₹ 1,86,879/-. In appeal, .....

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een rejected and no notice of enhancement was given by CIT(A). So, it shows that principle of natural justice has not been applied in this case. So, in the facts and circumstances of the case, addition in question is directed to be deleted. 7. Next issue is with regard to disallowance of foreign travel expense of ₹ 10,45,483/-. During assessment proceedings, assessee was asked to furnish the details of travelling expenses including foreign travel. On perusal of the details, Assessing Offic .....

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ere held in those trips and whether any actual benefit has been arrived from those trips due to which some extra business were generated, which was confirmed by CIT(A). 7.1 Before us, it was submitted that the company Howorth had discontinued their services since 2008-09. Two Directors had gone for negotiation with the said company in USA and Australia. So, visits were purely of business nature. We find that similar disallowance was made in earlier year but every year is independent year, so, sa .....

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proceedings, Assessing Officer found that the amount of expenditure had not been considered as perquisite in the hands of Director. Assessee was asked to explain the allowability of claim. No details were filed by assessee, the amount of ₹ 60,438/- was disallowed as medical expenses. Same was confirmed by CIT(A). 8.1 We find that there is nothing on record to suggest that above said expense has been incurred. No evidence in this regard has been rendered by assessee before lower authorities .....

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in particular against his full time rendering of services; thus the disallowance is uncalled for as the said payment is not an appropriation of profits or a payment in lieu of dividend but purely a charge of against profits. ii) Without prejudice to above, any payment made even to a director with substantial holding purely in terms of his appointment against the services rendered by him is outside the scope of Sec. 36(1)(ii); thus the same cannot be attributed as distribution of dividend or pro .....

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185/- The ld. CIT(A) erred in confirming the action of the Assessing Officer to enhance the disallowance u/s. 14A without appreciating that the Appellant by its own action had determined the share of direct and indirect expenses including PMS charges as attributable to earning of tax-free income as per the prescription of Rule 8D, therefore, enhancement of disallowance u/s. 14A is uncalled for without pointing out any defect in the method of computation adopted by the Appellant and the same may .....

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