TMI Blog2019 (2) TMI 348X X X X Extracts X X X X X X X X Extracts X X X X ..... c to be deleted. - Decided in favour of assessee. - ITA No.778/Kol/2018 - - - Dated:- 25-1-2019 - Shri S.S, Godara, Judicial Member For The Appellant : Shri Miraj D. Shah, Advocate For The Respondent : Shri Imlimeran Jamir, Addl. CIT-DR ORDER This assessee s appeal for assessment year 2012-13, arises against the Commissioner of Income-tax (Appeals)-4, Kolkata s order dated 08.02.2018 passed in case No.97/ citda-4/C-10(1)/2015-16, involving proceedings u/s. 143(3) of the Income Tax Act, 1961; in short the Act . Heard both the parties. Case file perused. 2. The assessee s sole substantive ground challenges correctness of sec.40A(2) disallowance of salary paid to its directors to the tune of ₹5.50 lac. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stricted reasonably following the provisions as laid down in section 40A(2) of the Income Tax Act, 1961. The appellant in response to the show cause notice has submitted that the remuneration/ salary paid to the directors is as per the resolution approved and passed in the board meeting. The details of working responsibilities allotted to the directors, their qualification, experience etc. The relevant extract from the reply of the appellant is given here under:- That during the year under consideration, company has paid/incurred remuneration/ salary to the tune of ₹ 10,00,000/ - which is lower than the preceding previous year. That in the immediately preceding previous year the company has incurred remuneration/salary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b) of the Income Tax. Act, 1961. They are responsible for the work/ duties allotted to them and the remuneration is fully approved by the board of the company and comparable with the preceding year. The Learned Assessing Officer has passed an order u/s 143(3) of the Income Tax. Act, 1961 on 06/03/2015 and partly disallowed director remuneration/salary of ₹ 5,50,000/ - under section 40A(2) of the Income Tax. Act, 1961 by treating the same as extraneous and unreasonable with reference to the business exigency in the case of appellant without considering the fact that in the preceding previous year the director remuneration/salary was more than current previous year and to discharge the day to day affairs of the company the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emuneration for a director and disallow such part of the remuneration as he considered excessive or unreasonable, What applies to the Income-tax Officer equally applies to the appellate authorities including the Appellate Tribunal. Sir, in the case of Extrusion Process Put. Limited Versus Commissioner of Income- Tax, Bombay (1979) 119 1TR 287 (80m). The reasonableness of the remuneration has to be considered from the point of view of the businessman and, in our view, it was not open to the Tribunal to adopt a subjective standard with regard to the proper remuneration which should have been paid to the managing director, In our view, the Tribunal was clearly in error in holding that only a part of the increased remuneration for the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expenditure incurred must take into consideration (i) the legitimate business needs of the company and (ii) the benefit derived by or accruing to the company. The legitimate business needs of the company must be judged from the view point of the company itself and must be viewed from the point of view of a prudent businessman. It is not for the Assessing Officer to dictate what the business needs of the company should be and he is only to judge the legitimacy of the business needs of the company from the point of view of a prudent businessman. The benefit derived or accruing to the company must also be considered from the angle of a prudent businessman. The term benefit to a company in relation to its business, it must be remembered, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ri Shantilal Saraf, Smt. Rakhi Saraf and Smt. Shalini Jain even though they don't possess equal experience and don't have identical/ similar qualification. iii) The claim of the assessee that ₹ 3 lacs paid to Rakhi Saraf is on account of her looking after work to audit, timely filing of return etc. is not correct. Since this responsibility will be hardly take much time looking at a small business operation of the assessee and further since the assessee is debiting internal audit and audit fees separately in the accounts (petty amount of ₹ 15,000each). iv) Similarly the A.O. has made the cogent reason for making disallowance of salary paid to Smt. Sushma Jain in para 2.5 of his order. The case laws cited ..... X X X X Extracts X X X X X X X X Extracts X X X X
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