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| The Tax Publishers2019 TaxPub(DT) 8125 (Pune-Trib) INCOME TAX ACT, 1961
Section 40A(2)
Since before making disallowance under section 40A(2) in respect of commission paid by assessee-company to its director, the Revenue failed to examine the terms and conditions of appointment of the said director, the matter was remanded to AO for re-examination.
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Business disallowance under section 40A(2) - Excessive or unreasonable payment - Commission paid to director - Revenue failed to examine terms and conditions of appointment of director
Assessee-company paid commission to one of its director. Revenue disallowed such commission under section 40A(2) on the ground that the said director was appointed on the last date of relevant financial year and there was no plausible explanation for paying such huge commission to the director appointed on the last date of relevant financial year. Held: For making disallowance under section 40A(2), the onus is on Revenue to show that payments made by assessee to persons referred to in clause (b) are excessive or unreasonable with regard to fair market value of the goods or services received by the assessee. In subject case, Revenue failed to examine terms and conditions of appointment of the director to whom the commission was paid by assessee. If the terms of appointment allow payment of such commission at the time of appointment, the commission paid to the said director would be allowable, provided the commission paid was within the limits specified under Companies Act. Therefore, the matter was remanded to AO for re-examination.
REFERRED :
FAVOUR : In assessee's favour.
A.Y. : 2010-11
INCOME TAX ACT, 1961
Section 37(1)
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