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TMI Blog2018 (12) TMI 104X X X X Extracts X X X X X X X X Extracts X X X X ..... has erred in confirming the addition of Rs. 3,19,797/- being adhoc disallowance of 25% of the total travelling expenses of Rs. 12,79,189/- without considering the explanation and details provided by the appellant company." 3. The first issue raised by the assessee in this appeal is that the ld.CIT(A) has erred in confirming the order of the AO by sustaining the disallowance of Rs. 6 lakhs being a payment made to relatives of the Directors under section 40A(2)(b) of the Act. 4. Briefly stated facts are that the assessee is a private limited company engaged in the business of trading in water tanks and their installations. The assessee during the year has paid salary to directors of Rs. 21 lakhs. All the directors were specified persons under section 40A(2)(b) of the Act. The details of payment made to the directors towards their salary/remuneration are as under: Sr.No. Name of directors Amount Qualification 1. Mr.D.B. Patel, Director 5,00,000 Engineering Graduate 2. Mr. Rustom Patel (Director 5,00,000 Engineering Graduate 3. Mr.Shivendra Singh Chawla (Relative of director) 11,00,000/- Technical graduate From the above, the AO noted that the qualifications of all t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot be more than Rs. 5,00,000/-. In view of these facts, he disallowed excessive salary of Rs. 6,00,000/- u/s. 40A(2)(b) of the Act. I find that both the Directors are qualified person and Shri Shivindersingh C. Chawla is also technically competent to render the services to the appellant company. The appellant has argued that the Directors were doing other business also, but Shri Shivindersingh C. Chawla was rendering services both in the technical as well as marketing areas. On perusal of copy of Return of Income of Shri Shivindersingh C. Chawla, it is noticed that he was also employee of Punjab Steel Rolling Mills Pvt. Ltd. and Reinhard Roto Machines during the year under consideration and earned salary of Rs. 3,00,000/- and Rs. 30,000/- respectively. Moreover, he was also carrying out separate business with Frontier Polymers Pvt. Ltd. and earned business income of Rs. 6,00,000/-. From the above mentioned facts, thus it is crystal clear that Shri Shivindersingh C. Chawla was also rendering services at three more places in addition to the appellant company and hence the time devoted to the appellant company was not sufficient to earn salary more than the regular Directors of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing] Officer is of opinion that such expenditure is excessive or unreasonable having regard 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 him therefrom, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction." From the reading of the above provisions, disallowance can be made under section 40A(2)(b) of the Act if it is found excessive and unreasonable in comparison to the prevailing market rate. In the case before us, the AO has not made such comparison justifying that salary paid to Shri Shivendra Singh Chawla was excessive in comparison to the market rate. The AO has made a comparison with existing directors of the company to whom a salary was paid of Rs. 6 lakhs each per annum. As per the submissions of the assessee, Shri Shivendra Singh had rich experience of 35 years both in technical and marketing areas. The AO has not pointed out any defect in the submission of the assessee. In our considered view the AO before comparing the salary with other directors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e inclined to set aside the order of the ld.CIT(A), and accordingly direct the AO to delete the addition made for Rs. 6 lakhs under section 40A(2)(b) of the Act. Hence, this ground of appeal of the assessee is allowed. 7. The issue raised in ground no.2 is that the ld.CIT(A) has erred in confirming the addition in part for Rs. 1,35,000/- on account of sales commission expenses. 8. The assessee during the year has claimed sales commission expenses of Rs. 12,33,454/- only. However, the assessee during the assessment proceedings failed to justify the commission expenses by documentary evidence. Therefore, the AO disallowed 50% of such expenses of Rs. 6,16,727/- and added to the total income of the assessee. 9. Aggrieved assessee preferred an appeal to the ld.CIT(A) who has deleted the addition made by the AO in part by observing as under: "4.1. Ground No. 2 pertains to 50% disallowance of sales commission resulting Into n addition of Rs. 6,16,727/-. Undisputedly, the appellant has paid commission to as many as 6 persons and also deducted the tax u/s. 194H. Since the Assessing Officer has disallowed only 50% of the commission, the genuineness of the services rendered doubted. O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the year. Thus, an excess commission of Rs. 5,000/- was paid for the year under consideration which was claimed as a deduction in the year under consideration. The ld.AR in support of his claim drew our attention towards ledger account of sales commission which is placed at page number 16 of the paper book. The ld.AR also drew our attention to the credit note dated 18.9.2012 for the payment of commission to the party for Rs. 1,40,000/- which is placed at page no.18 of the paper book. On the other hand, the ld.DR vehemently supported the order of the authorities below. 10. We have considered rival submission and perused the material available on record. In the present case, the AO has noted payment of commissions expenses of Rs. 6,16,727/- as bogus. Therefore the same was disallowed. However, the ld.CIT(A) has deleted entire addition except Rs. 1,35,000/- which was treated as a provision for commission expenses. As per the ld.CIT(A) provisions are not deductible expenses. Therefore the same was disallowed. From the preceding discussion, we note that the assessee has created the provisions for commission expense in the earlier years as evident from the copy of ledger ava ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the supervisor and director of the company. In case of traveling by directors of the Company, these were booked through travel agents. Therefore, the same was verifiable. The assessee in support of his claim filed a copy of the account of travel agents to the AO. However, the AO disregarded the contentions of the assessee by observing that these expenses were mostly incurred in cash and were supported on the basis of internal vouchers which were not fully verifiable. Therefore, the business exigency was not established by the assessee. Accordingly, the AO disallowed 25% of such traveling expenses amounting to Rs. 3,19,797/- and added to the total income of the assessee. 14. The aggrieved assessee preferred appeal before the ld.CIT(A). The assessee before the ld.CIT(A) submitted that all original invoices of traveling expenses above Rs. 5,000/- were produced at the time of hearing and no defect/discrepancies were pointed out by the AO. In all the traveling vouchers, details of sales and installation work were mentioned against which traveling expense has been incurred. Therefore, the same cannot be disallowed on adhoc basis without pointing out any error. However, the ld.CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 3,58,73,194/- against which travelling expenses of Rs. 12,79,189/- was claimed which works out to be 3.5% of the total turnover. Considering the nature of the business, we note that the assessee is supplying water tanks to various parties located in different areas. The assessee subsequently after supplying water tank is also providing installation services. Any of the lower authorities have not disputed this fact in their order. We also note that the accounts of the assessee were duly audited. The amount of such expenses claimed by the assessee are reasonable in comparison to the volume of the business of the assessee as there is no allegation from the Assessing Officer that the expenses claimed by the assessee are unreasonable or excessive. We also observe that external documents in such kind of expenses are not normally available. Therefore in the absence of external evidence the expenses cannot be disallowed. Accordingly, we are not inclined to uphold the order of Ld. CIT(A). In view of above, it is clear that the AO has not pointed out any specific defects in the expenses claimed by the assessee. In these circumstances, we are of the view that the estimated disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X
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