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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 ..... s; ii) The work done by the Directors and their qualification and experience. b) in disallowing the sum of Rs. 14,93,657/- only because the ratio of Directors remuneration was 44.60 percent of the total revenue and the company did not have profit in the year under consideration. c) in invoking Section 40A(2)(b) without appreciating that this is the first year and the turnover increased in the next years because of the Directors efforts. 2. The Learned Commissioner of Income Tax (Appeals) has erred in confirming the order without considering the submissions and the documents produced before him 3. The appellant prays tor appropriate relief based on the said grounds of appeal and the facts and circumstances of the case." 3. From the abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- was allowed and the remaining amount of Rs. 14,93,657/- 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, Ki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Madhya Pradesh and involved in forming the COCs and handling existing COCs. Presently, he is overall managing one of the COCs, Desert Artisans Handicrafts Jaipur Limited as Managing Director. Further since they were involved in the group and were expertise in finance & community managed companies respectively. Even before the learned Income Tax Officer the details were submitted regarding - a) the qualification and experience of Directors; b) the fact that they do now own any shares nor have any interest in the company excepting being professional Directors; and c) the remuneration paid to them is not excessive or unreasonable having regard to the fair market value for the services rendered by them. Since this is the first year of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of the business or profession; (c) the benefit derived by or accruing to the taxpayer from the expenditure. It was further stated that the AO could disallow u/s 40A(2) of the Act only that portion of the total expenditure which in his opinion was excessive or unreasonableness but the reasonableness was to be seen from the viewpoint of the businessman and not of the Revenue authorities. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 285 ITR 84 (Mad.) 7. The Ld. CIT(A) after considering the submissions of the assessee confirmed the disallowance made by the AO by observing in Para 4 of the impugned order which reads as under:- "4. The issue involved and the submissions made by the appellant have been considered. As submitted by the appellant the appellant company is a fully owned subsidiary of M/s. Fabindia Overseas Pvt. Ltd. It has 2 full time professional Directors who were earlier employed in the holding company viz. M/s. Fabindia Overseas Pvt. Ltd. These directors were paid Rs. 27,08,050/- as remuneration which works out to 56.57% of total salary expenses and 44.6% of total receipts of Rs. 60,71,967/-. The AO has found the remuneration claimed in respect of these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Ld. counsel for the assessee reiterated the submission made before the authorities below and further submitted that the AO without bringing any material on record was not justified in holding that the remuneration to the Directors was excessive and that the Ld. CIT(A) was not justified in confirming the action of the AO. Ld. counsel for the assessee further submitted that no disallowance was made in the subsequent years, therefore, the disallowance made by the AO and confirmed by the Ld. CIT(A) was not justified. 9. In her rival submissions, the Ld. DR strongly supported the orders of the authorities below and further submitted that the assessee was a loss making concern, but the remuneration given to the Directors was highly excessive. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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