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TMI Blog2017 (11) TMI 1278X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee or the benefit derived by or accruing to him therefrom. However, the revenue is unable to point out as to how the payment were excessive or unreasonable having regard to fair market value of such services. - decided against revenue Addition made on account of commission paid to sister concern - Held that:- Upon perusal of the paper book, we find that the assessee has paid the said commission @5% of net sales achieved by Bangalore Gamma Facility pursuant to agreement dated 09/04/2007, which is effective for a period of five years starting from 01/04/2007. Apparently, the commission is being paid by the assessee over past several years and which is also evident from the fact that the assessee has debited similar commission of ₹ 22,45,962/- in immediately preceding Assessment year. The assessee, in the paper book, has placed complete details of commission payment viz. agreement, month-wise calculations, ledger extracts, respective invoices & detailed calculations of the amount of commission on Page Numbers 78 to 125, which establishes the claim of the assessee. Therefore, we are of the opinion that the impugned addition qua commission is not warranted for and therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces of the case and in law, the Ld. CIT(A) erred in directing the AO to delete the disallowance of the excess remuneration paid to the directors of the company under section 40A(2) of the IT Act without appreciating the fact that the AO has formed opinion on the facts that payment of remuneration to unreasonable with reference to the line of business of the assessee . 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the ceiling limit specified under Section 198 of the companies Act for remuneration to directors in the Public limited companies cannot be taken as a benchmark for deciding unreasonableness of the remuneration paid to the directors of the company under section 40A(2) of the IT Act. The other grounds raised in revenue s appeal have not been pressed during hearing before us and hence, the same are dismissed as being not pressed. 3.1 Briefly stated the assessee being resident corporate assessee engaged in sterilization business was assessed for impugned AY on 30/11/2013 u/s 143(3) at ₹ 6,94,71,050/- as against returned income of ₹ 5,37,82,810/- e-filed by the assessee on 22/09/2011. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment in terms of Section 40A(2) and also asked to provide the details of services obtained against commission payment. The assessee pointed out that the assessee was in specialized line of business and the directors were handling promotional aspect of the business. Further, commission was paid to two directors based on sales achieved by the respective branches being controlled by them. It was also pointed out that the provisions of Section 198 of the Companies Act, 1956 were applicable only to public limited companies and could not be applied to assessee since it was private limited company. However, not convinced, Ld. AO disallowed commission aggregating ₹ 83,76,022/- paid to three parties by applying the provisions of Section 36(1)(ii), Section 37(1) Section 40A(2) since the impugned payments, in the opinion of Ld. AO, were made in the garb of dividend and moreover, the assessee could not substantiate the work done by the respective parties so as to be entitled to get the impugned commission. 3.3 Similarly, the salary payment of ₹ 1,11,47,600/- to five persons as enumerated in the above table was restricted to ₹ 70,29,292/-, being 11% of net profits achiev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of commission paid to outsiders, the assessee pointed out that this amount included an amount of ₹ 30,20,731/- which was a part of the earlier disallowance of ₹ 83,76,022/- and hence there was a double disallowance. It was further demonstrated that the balance commission was paid to three independent parties against receipt of services and therefore, no disallowance was justified. The Ld. CIT(A) concurred with the same and deleted the addition of ₹ 31.49 Lacs. 5. Aggrieved, the revenue as well as assessee is in appeal before us. The assessee is aggrieved by confirmation of addition to the extent of ₹ 83,76,022/- whereas revenue is aggrieved by deletion of addition of ₹ 41,18,308/- on account of director s salary paid by the assessee. 6. The Ld. Counsel for Assessee [AR] contended that commission paid to the directors was part of remuneration and the same was based upon the performance of respective branches being controlled by them and had no correlation with their respective shareholding and therefore, disallowance was not justified. The attention is drawn to the fact that the payment of salary and commission, in this manner, is regular featur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as evident from perusal of above table. Further, the directors, in their respective return of income, as evident from placed on Page Nos. 74 to 77 of the paper book, have reflected the aggregate payment as above under the head salary income and all the directors fall in the highest tax bracket. The assessee is making the salary and commission payment, in similar manner, to the directors since AY 2004-05, the details of which are available on Page-73 of the paper book. 9. On the basis of above facts, we find that the provisions of Section 36(1)(ii) has no applicability since the commission payment are not in proportion to the respective shareholdings and moreover, the commission has been paid only to two directors out of four directors. The assessee has asserted that the commission has been paid in proportion to the performance achieved by respective branches being controlled by them and this fact is nowhere controverted by the revenue. Undisputedly, the provisions of Section 198 of the Companies Act, 1956 could not be applied to assessee since the same was applicable only to Public Companies and not to Private Companies. Lastly, in terms of provisions of Section 40A(2)(a), th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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