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TMI Blog2013 (8) TMI 447X X X X Extracts X X X X X X X X Extracts X X X X ..... ri Sunil Talati, A.R. ORDER Per : T. R. Meena, Accountant Member These are cross appeals at the behest of assessee and Revenue which have emanated from the order of CIT(A)-XX, Ahmadabad, dated 07.11.2012 for assessment year 2009-10. These cross appeals were heard together and are being disposed of by way of this common order for the sake of convenience. The effective grounds of both appeals are as under: Grounds of ITA No. 2853/Ahd/2012 (Assessee's appeal) "1. The learned C.I.T. (Appeals) has erred in confirming the addition of Rs.30,00,000/- u/s. 40A(2)(b) of the Income Tax Act purely on the ground that the assessee has increased remuneration to its Directors. It is submitted that the assessee had justified increase in the remuneration to the Directors because of substantial increase in the work and corresponding benefit of higher turnover and higher income to the Company. It is submitted that the disallowance being totally incorrect, illegal and unjustified as the remuneration paid is absolutely reasonable as compared to the market rate, the same be allowed. Without prejudice to the above the learned C.I.T. (Appeals) erred in comparing the remuneration paid in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 on both the cases. 3. The assessees carried the matter before the CIT(A) who had allowed the appeal partly by observing as under: "3.2. I have carefully considered the facts of the case and the submission made by the appellant. As far as the comparative case analysed by the AO is concerned it is seen that the AO has while making the comparison not made a comparison with equivalent variables. The AO has made a comparison only with respect to payment of salary. The comparison is inadequate in as much as the learned AO ought to have also compared the comparative profits of his comparative cases with that of the appellant company. To the extent the argument of learned AO suffer from vice of incomplete and inaccurate comparisons. The learned AO has also not brought any evidence on record to indicate that the concerned directors were either not capable of rendering any services to the company or have not given any services to the company. It is an undisputed fact that the profits and the turnover of the appellant company has substantially increased as compared to preceding year and therefore the decision of the company to share a part of its profits with those involved in the achi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irectors who made all efforts to increase the turnover. Further, there is no specific role of the directors in the company. They have to perform all kind of works require for the benefit and smooth functioning of the company. They are continuously making the efforts for the progress of the company and take the company at the top. This is only possible due to sincere efforts of the directors only. Therefore, the reason mentioned by the Ld. A.O. with regard to the disallowance in the assessment order passed are completely wrong and unjustifiable. Further, the Ld. CIT(A) has partly disallowed the claim regarding remuneration expense u/s. 40A(2)(b) of the Act in his order passed without mentioning any reason in the order just by considering the same on Fair and reasonable basis. Contrary to the above , the Ld. CIT(A) himself admitted the following facts on Page no. 9 Para3,2 of the order: 1) As far as the comparative case analysed by the A.O. is concerned it is seen that the A.O. has while making the comparison not made a comparison with equivalent variables. 2) The comparison is inadequate in as much as the Ld. A.O. ought to have also compared the comparative profits of his comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b) Legitimate needs of the business, and (c) Benefits derived by or accruing to the assessee. It also held that Income tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would at. The authorities must not look at the matter from their own view point but that of a prudent businessman. A prudent businessman would certainly give incentive and commission to the Directors to whom token salaries of just Rs.20,000/- per month were paid and nothing was paid to Shri Arvindbhai Kamdar and Shri Khimjibhai Kamdar, who were working honorarily since last year. It was because of the sincere work of entire Directors that the company could earn double the profit and double turnover. The Assessing Officer has not been able to disprove the fact that all the six Directors were working wholly and exclusively for the purpose of the company. In the recent decision of ITAT Mumbai Bench in the case Royal Hydraulic Pvt. Ltd. [ ITA No.8814/ Mum /2010] it has been held that it is a well-settled proposition that the Assessing Officer cannot direct the assessee to conduct its business in a particular manner. It is for the assessee to decide how to conduct its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns and should not be applied in a manner which will cause hardship in bonafide cases. He further gave a comparable chart for A.Y. 2009-10 to 2012-13 and also argued that there is no revenue loss even remuneration and commission paid to the Director allowed by the Court as both assessee as well Directors are in same tax slab and paying both maximum rate of tax. At the outset, ld. Sr. D.R. vehemently relied upon the order of the A.O. and requested to confirm the order of the A.O. and argued that increase in the remuneration and commission is not reasonable and are excessive in compare to service rendered by them. 5. We have heard the rival contentions and perused the material on record. It is evident from the record that turnover in current year had gone up substantially which was Rs.4.24 core in A.Y. 2008-09 and Rs.7.64 crore in A.Y. 2009-10. The profit of the company also increased from Rs. 1.11 crore to 2.12 crore. The appellant paid remuneration and commission in A.Y. 08-09 at Rs. 13,98,000/- which was increased to Rs.75,73,299/-. The comparable case referred by the A.O. shows that the turnover in case of Patel Salt Marine Chemical Pvt. Ltd. increased from Rs. 3.58 crore in A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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