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2010 (2) TMI 915 - AT - Income TaxAddition on account of remunerations paid u/s 40A(2)(b) - CIT(A) deleted the remunerations paid holding that the provisions of s.40A(2)(b) were not applicable; and in earlier years no such remuneration was paid and no details/documents produced in support of its claim Held that - On an identical issue, the Hon ble highest judiciary of the land in the case of S.A. Builders vs. CIT (A) and Another 2006 (12) TMI 82 - SUPREME COURT had agreed with the view taken in Dalmia Cement (B.) Ltd. case 2001 (9) TMI 48 - DELHI High Court that the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the Board of Directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize his profit. The Income-tax authorities must put themselves in the shoes of the assessee how a prudent businessman would act. The authorities must not look at the matter from their own view point, but, that of a prudent businessman. CIT (A) is justified in his endeavour in reversing the finding of the AO on this score. Disallowing of foreign travel expenses Held that - Neither the AO nor the first appellate authority had established with any documentary evidence to justify that the claim of the assessee was excessive or not connected with the business expediency, authorities below were not justified in disallowing 50% of expenditure claimed on foreign travel. Interest u/s 234B and 234D of the Act - assessee itself denies liable to be charged interest u/s 234B and 234D of the Act Held that - Charging of interest u/s 234B of the Act is mandatory and consequential in nature and, thus, is dismissed as not maintainable, charging of interest u/s 234D of the Act, levy of interest u/s 234D is a purely legal ground and is chargeable following the order of the Special Bench in ITO vs. Ekta Promoters P. Ltd. (2008 (7) TMI 452 - ITAT DELHI-E ). It is ordered accordingly
Issues Involved:
1. Deletion of remunerations paid to trustees under s.40A(2)(b). 2. Disallowance of foreign travel expenses. 3. Charging of interest under sections 234B and 234D. Issue-wise Detailed Analysis: 1. Deletion of Remunerations Paid to Trustees Under s.40A(2)(b): The Revenue challenged the deletion of remunerations paid to trustees Sunit Gupta and Smt. Simi Gupta, arguing that the provisions of s.40A(2)(b) were applicable, and no such remuneration was paid in earlier years. The AO disallowed the remuneration on the grounds that the trust had not paid remuneration to trustees in the past, the resolution authorizing the payment was not valid, and the remuneration was excessive and self-serving. The AO restricted the remuneration to Rs.12 lakhs for Sunit Gupta and Rs.6 lakhs for Smt. Simi Gupta, adding the balance to the income of the assessee. The CIT(A) reversed the AO's decision, stating that the provisions of s.40A(2)(b) were not applicable and that the remuneration was due to commercial expediency. The CIT(A) noted that the trustees had offered the remuneration to tax in their individual returns, and there was no material evidence to support the AO's claim that the remuneration was excessive or unreasonable. The Tribunal upheld the CIT(A)'s decision, agreeing that the AO's disallowance was based on suspicion and not on concrete evidence. The Tribunal emphasized that the Board of trustees is best positioned to determine reasonable expenditure and that the Revenue cannot assume the role of deciding what constitutes reasonable expenditure. 2. Disallowance of Foreign Travel Expenses: The assessee contested the disallowance of Rs.6.94 lakhs from foreign travel expenses, arguing that the expenses were incurred wholly and exclusively for business purposes. The AO had disallowed 50% of the expenses, citing the possibility of combining business with pleasure trips, as some visas were visitor's visas. The CIT(A) upheld the AO's decision, but the Tribunal found that the AO's disallowance was based on mere presumption without any documentary evidence. The Tribunal noted that the assessee was in the business of export of furnishings, requiring international travel to meet business obligations. The Tribunal concluded that the authorities below were not justified in disallowing 50% of the foreign travel expenses and allowed the claim in full. 3. Charging of Interest Under Sections 234B and 234D: The assessee contested the charging of interest under sections 234B and 234D. The Tribunal held that charging of interest under section 234B is mandatory and consequential, thus dismissing this part of the appeal as not maintainable. However, the Tribunal acknowledged that the levy of interest under section 234D is a legal issue and followed the order of the Special Bench in ITO vs. Ekta Promoters P. Ltd., thereby allowing the appeal on this ground. Conclusion: - The Revenue's appeal was dismissed. - The assessee's cross-objection was partly allowed. - The Tribunal upheld the CIT(A)'s decision on the deletion of remunerations and allowed the full claim of foreign travel expenses while maintaining the charging of interest under section 234B and allowing the appeal on the charging of interest under section 234D.
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