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TMI Blog2015 (5) TMI 581X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s Desert Artisans Handicrafts Pvt. Ltd. Jodhpur wherein he was earlier employed. Therefore, the remuneration amounting to 11,40,000/- and 15,68,050/- respectively received by them from the assessee cannot be said to be excessive by keeping in view, their previous experiences and earlier employment. Moreover, the AO had not brought any material on record to substantiate that as to how and in what manner the remuneration paid to the Directors was excessive. He had also not given any basis for allowing the remuneration @ 20% of the total receipts. Thus the disallowance made by the AO and sustained by the Ld. CIT(A) was not justified. Accordingly, the same is deleted. - Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... 57/- was disallowed and added to the income of the assessee u/s 40A(2(b) of the Act. 5. Being aggrieved, the assessee carried the matter to the Ld. CIT(A) and submitted as under:- "The Company had 2 full time professional Directors who were earlier employed in the holding company viz. M/s. Fabindia Overseas Pvt. Ltd. as detailed below: i) Ms. Dilpreet Sokhi Singh joined the Fabindia Overseas Private Limited as Chief Financial Officer on 1st February 2003. The Company is the retail Brand Company and major retail player in Indian niche market. The Product range consist of Garments for men, women, children and home furnishing such as bed linen, bath linen, table Linen, Floor Covering, Kitchen Linen. Fabindia exports to over 25 Countries worldwide both to wholesalers as well as retailers. It has 75 retail stores all over India. She was controlling the finance of all the stores all over India. She took over as Market Region Head of Fabindia Overseas Pvt. Ltd. And coordinated with all store Managers to increase sales of the Company in April 2005. She is a qualified Chartered Accountant and also qualified CPA from the USA. ii) Mr. Prakash Tripath, a Commerce Graduate, started his car ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer without appreciating the fact has invoked the provisions of Section 40A(2)(b) and disallowed an amount of ₹ 14,93,657/- by restricting the Directors remuneration to 20% of the receipt. The copy of our letter dated 20.12.2010 filed before the learned Income Tax Officer is enclosed at Annexure-1 wherein it would be amply clear that i) Ms. Dilpreet Singh was hitherto getting salary from M/s. Fabindia Overseas Pvt. Ltd. as per Form 16 issued by the company; and ii) Mr. Prakash Tripati was getting salary from M/s. Desert Artisans Handicrafts Pvt. Ltd. as per Form 16 issued by the company. These 2 Directors were earlier associated win the above cited companies i.e. Ms. Dilpreet Singh in Fabindia Overseas Pvt. Ltd. and Mr. Prakash Tripati in Desert Artisans' Handlcrafts Pvt. Ltd. and were drawing more salary and as such no disallowance U/s 40A(2)(b) is called for." 6. The assessee also referred to the paras 72 and 74 of the Circular No. 6P(LXXXVI-66) 1968 of the CBDT and submitted that the reasonableness of the expenditure has to be judged having regard to (a) fair market value of the goods, services or facilities for which the payment is made; (b) the legitimate needs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany viz. M/s. Fabindia Overseas Pvt. Ltd. These directors were paid ₹ 27,08,050/- as remuneration which works out to 56.57% of total salary expenses and 44.6% of total receipts of ₹ 60,71,967/-. The AO has found the remuneration claimed in respect of these directors as unreasonable keeping in view the provisions of the Section 40A(2)(b) and has disallowed ₹ 14,93,657 /- restricting the remuneration to 20% of receipts which works out to ₹ 12,14,393/-. Section 40A(2)(b) deals with expenditure which is found unreasonable keeping in view the legitimate business needs of an assessee and the services rendered by the 'person'. The ratio of the judgements of the Calcutta High Court and of the Supreme Court referred to by the appellant speak of the normal circumstances and is applicable in normal circumstances. In the appeal under consideration the appellant is a loss making concern-it has-declared loss of ₹ 30,28,331/- on gross receipts of ₹ 60r71,967/-. The claim of payment of remuneration of ₹ 27,08,050/- to two directors in the aforesaid circumstances does not satisfy the test of human probability. Moreover, to control unreasonable pa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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