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TMI Blog2016 (4) TMI 1196X X X X Extracts X X X X X X X X Extracts X X X X ..... lief of Rs. 49,75,054/- even when no evidence brought on record to establish that the policy holders Arpit Bangur and Shweta Jajoo were ACIT,2(1), Ujjain vs. M/s. Shriji Polymers Private Limited, Ujjain even qualified/skilled enough to be considered as Keymen. 5. directing relief of Rs. 23,23,241/- being commission disallowed on the ground that services were rendered without taking note of the fact that to unrelated parties commission paid at lower rate. 3. The short facts of the case are that the assessee is a Company carrying on the business of manufacturing of HDPE containers and closures. Return of income was filed declaring total income of Rs. 6,52,57,590/- on 22.09.2011. The books are audited and audit report alongwith TAR was filed. The AO made addition of Rs. 49,75,054/- by disallowing of premium paid towards "Keyman Insurance Policy". The AO observed that the assessee failed to furnish the very basic document i.e. copy of insurance policy issued by the Insurance Company. In the absence of any documentary evidence i.e. copy of insurance policy and relevant authenticated documents proving Smt. Shweta Jajoo and Shri Arpit Bangur, Directors of the Company as keyman, the clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uct of the company and also suggesting ways and means to improve the quality of the product, cost cutting measures to be adopted by the company and promptly attending the complaints received from the customers and attending them to minimize the same. Similarly, Smt. Shweta Jajoo is B. Com graduate and she is looking after all the administrative and HRD related work. Thus, both these keypersons were playing vital role in the affairs of the company. The company has taken said policy in order to protect the business against the financial loss which may occur from the Director's premature death, termination of employment etc. A 'Keyman' is an employee or a director, whose services are perceived to have a significant effect on the profitability of the business. We find that the assessee could not furnish copy of insurance policy before the AO as the same was not available at that time, but it was submitted afterwards before the CIT(A). We have perused the CBDT Circular no. 762 dated 18.2.1998, which has provided Explanatory Notes on the provisions relating to Direct Taxes contained in Finance (No.2) Act, 1996. The matter relating to Keyman insurance ACIT,2(1), Ujjain vs. M/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xation if the said amount is disallowed ACIT,2(1), Ujjain vs. M/s. Shriji Polymers Private Limited, Ujjain and added to the income under present assessment year. Our interference is not required. Ground of the Revenue fails. 8. Next ground relates to the deletion of addition by the ld. CIT(A) of Rs. 23,23,241/- on account of disallowance of commission u/s 40A(2)(a) and 40A(2)(b) of the Act. 9. The short facts of the case are that the AO found that the Company has paid commission of Rs. 71,02,500/- to M/s. Padma Polytex (India) Pvt.Ltd. @ 5.74 % and commission of Rs. 35,98,604/- to M/s. Arpit Plastics Pvt.Ltd. @ 4.20 % on sales realized through these parties. The AO observed that there are common Directors in the above Companies and commission is paid at very higher rate as comparison with other parties to whom commission payment is made. Therefore, commission payment made to these parties was restricted to 4% of sales realized through them. The AO made addition of Rs. 23,23,241/- out of commission on sale paid to above two parties invoking provisions of Section 40A(2)(a) and 40A(2)(b) of the Act. 10. The matter carried to the ld. CIT(A) and the ld. CIT(A) deleted this addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rendered by the above parties, higher rate of commission was paid to them. TDS has ACIT,2(1), Ujjain vs. M/s. Shriji Polymers Private Limited, Ujjain been deducted on the commission payment and the recipients have shown the same as their income. Thus the assessee has proved beyond doubt the services were rendered and commission was paid. While comparing the rates with the other parties, the Ld. AO has not considered the fact that commission to these other parties were paid on fix amount basis and not on the rate applying on sales registered through these persons. Therefore, the basis of comparison by the Id. AO itself was not correct. The scope of inquiry under the provision of section 40A(2) is with reference to fair market value of the services rendered or goods supplied. In the absence of an enquiry, as contemplated by the provisions of section 40A(2), no disallowance can be made. The onus is on the Assessing Officer to bring the material on record to prove that the payment made by the assessee is excessive or unreasonable having regard to the fair market value of the services rendered or goods supplied. The ld. Authorized Representative further contended that the Id. AO. conce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the authorities below and case laws cited. We found that in this case the Id. AO has not given emphasis on the nature and scope of the work and the services rendered. Section 40A(2) itself makes it apparent that regard must be had to the 'fair market value' of the services, as well as to the 'legitimate needs of the business'. These two criteria are satisfied and hence no disallowance is warranted. We observed that in the case of Hive Communication (P.) Ltd. v. CIT [2011) 201 Taxman 99/12 taxmann.com 287, the Hon'ble Delhi High Court observed that the question whether the expenditure was excessive or unreasonable in a given case had to be examined, keeping in mind the actual services for which payment was made, and that, in the process, the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to the assessee from such services was also to be kept in mind. The Hon'ble High Court also cited reference to the decision of the Calcutta High Court in the case of CIT v. Edward Keventer (P.) Ltd. [1972] 86 ITR 370, later affirmed by ACIT,2(1), Ujjain vs. M/s. Shriji Polymers Private Limited, Ujjain the Supreme Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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