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TMI Blog2012 (6) TMI 689X X X X Extracts X X X X X X X X Extracts X X X X ..... g the hearing of this appeal." 2. At the outset, none appeared before us on behalf of the assessee nor submitted any request for adjournment. Considering the nature of issue and findings of the ld. CIT(A), the Bench proceeded to dispose of the appeal after hearing the ld. DR. 3. Facts, in brief, as per relevant orders are that return declaring nil income after adjusting brought forward loss of Rs. 10,74,016/-. under the normal provisions and book profits of Rs. 8,67,496/- in terms of the provisions of section 115JB of the Income-tax Act, 1961 (hereinafter referred to as the Act) filed on 22.09.2008 by the assessee, running a hotel, was selected for scrutiny with the service of a notice u/s 143(2) of the Act. During the course of assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 50,000/-pm paid to shri Keshwani, reasonable. 4. On appeal, the assessee reiterated their submissions before the AO while relying upon decisions in Beta Naphthol (P) Ltd. v. Dy. CIT, 50 TTJ (Ind.) 375; Hathiwala Silk Mills v. Income-tax Officer, 19 TTJ (Ahd.) 284; Shriram Pistons & Rings Ltd. v. IAC, 39 TTJ (Delhi) 132 and CIT v. Walchand & Co. (P) Ltd., 65 ITR 381 (SC).Inter alia, it was contended that an employer fixing the remuneration, is entitled to consider the extent of business, the nature of duties to be performed, the special aptitude of the employee, future prospects of extension of the business and a host of other related circumstances. It is erroneous to think that increased remuneration can only be justified if there is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. The AO disallowed an amount of Rs. 30 lacs out of total salary of Rs. 36 lacs, in terms of provisions of sec. 40A(2)(a) of the Act while the ld. CIT(A) deleted the disallowance. Before proceeding further, we may refer to the provisions of section 40A(2) (a) of the Act, the relevant portion of which read as follows : "40A(2)(a). Where the assessee incurs any expenditure in respect of which payment has been or is to be made to any person referred to in clause (b) of this sub-section, and the Assessing Officer is of the 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 professi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO to be excessive or unreasonable. Therefore, it becomes apparent that the AO is required to record a finding as to whether the expenditure is excessive or unreasonable in relation to any one of the three requirements prescribed, which are independent and alternative to each other. All the three requirements need not exist simultaneously. In a given case, if any one condition is shown to be satisfied the provision can be invoked and applied, if the facts so warrant. Thus, only so much of the expenses, if paid to a person referred to in clause (b), are allowable which are found to be not excessive and unreasonable and the excessive or unreasonable portion has to be disallowed. It is well settled that the provisions of section. 40A(2)(a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e director. 6.2 Now we may have a look at the decision in Eastern Condiments (P) Ltd. (supra) relied upon by the ld. DR. In the said case, the assessee-company was engaged in the manufacture and export of spices. Export was done by a proprietorship concern of the managing director of the assessee-company. Though normal commission paid by the assessee for marketing its products was at 5 per cent, for the sales effected to the proprietorship concern of the managing director, the assessee paid commission at 10 per cent and claimed the same as deduction on the ground that additional commission was attributable to the packing cost incurred by the managing director. The AO noticed that the managing director had purchased machinery for packing in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court remanded the matter to the AO for giving an opportunity to the assessee as well as to the managing director to prove that packing was done by the managing director to justify additional discount granted and if the assessee failed to do so, disallowance could be made in the assessment. Now how this decision helps the Revenue ,has not been explained by the ld. DR.A mere glance at this decision reveals that facts and circumstances in the said decision are altogether different from the facts and circumstances of the case, especially when the AO nowhere established that the remuneration to director was excessive having regard to either (a) fair market value of the services or facilities; or (b) the legitimate needs of the business of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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