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TMI Blog2010 (2) TMI 915X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 - ITA No. 703/Bang/2009 - - - Dated:- 26-2-2010 - Shailendra Kumar Yadav, A. Mohan Alankamony, JJ. Swati S. Patil for the Appellant V. Srinivasan for the Respondent ORDER A. Mohan Alankamony: These are two appeals - (i) one by the Revenue and (ii) another [Cross O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch huge remuneration and there was no justification for payment of substantial portion of the profit of the business as remuneration to the trustees; - both the husband and wife apportioned the profits; the remuneration was exorbitant because the trustees have not drawn salary earlier; the authorization of payment of remuneration was self-serving document; and thus restricted it to Rs.12 lakhs to Sunil Gupta and Rs.6 lakhs to Mrs.Simi Gupta; and - the balance of Rs.1.51 crores was added to the income of the assessee by invoking the provisions of s.40A(2)(b) of the Act. 5.2. With regard to the claim of Rs.13.88 lakhs being foreign travel expenses incurred by the Managing Trustee, the AO was of the view that since the immigration passes do not specify that the trips undertaken only for business purposes, there was a possibility of business trips coupled with pleasure trips, he had disallowed 50% of such a claim. 6. Aggrieved, the assessee had approached the CIT(A) for redressal. After giving due weight-age to the assessee's well-netted contentions backed with a number of judicial precedents in favour of it, the. Ld. CIT(A) has observed thus- "7.................... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ummarized as under: (i) the original trust deed was executed by Mrs. W.M.Barclay on 16.10.83 and D.N.Gupta and Sunit Gupta were appointed as the trustees who also formed the Board of trustees; - in the Supplementary deed executed on 1.12.83, D.N.Gupta and Sunit Gupta were the trustees who constituted the members of the Board of trustees; - the third deed which was executed on 1.12.86 was only a deed of assignment wherein one the beneficiaries - Mrs. Asha Gupta w/o D.N.Gupta assigned 10% out of 20% of her beneficial interest to Mrs. Simi Narula - known as Simi Gupta for a consideration of Rs.1 lakh; - In the PandL account, remuneration of Rs.1.69 crores was debited out of which Simi Gupta and Sunil Gupta were paid remuneration of rs.67.91 lakhs and Rs.1.01 crores respectively and the balance of Rs.82.51 lakhs were apportioned among the beneficiaries which had not been shown in any of the statement of account filed by the assessee; - The said remuneration was paid as per Resolution passed on 20.8.04 - unsigned true copy of resolution was furnished; - The remuneration was paid as per clause 6(s) of the Indenture of Trust deed dt. 16.10.83 which reads: "Clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st due to the efforts of these trustees - considering these facts, the Board of trustees took a business decision to pay remuneration to the trustees of the assessee trust for the year under appeal and had passed resolution authorizing the said payment; - the remuneration to the trustees for the first time does not mean that the remuneration paid was excessive or unreasonable. The reasonability of the expenses must be tested, considering the businessmen yardsticks and view points and there cannot be a subjective opinion of the AO in this regard; - with regard to the observation that the resolution was passed by one of the trustees, in fact the Board of Trustees consisted of various trustees and they had passed the resolution in the meeting of the Board and there can be no doubt in this regard; - the accounts of assessee trust were accepted and adopted by the Board of Trustees and, therefore, the payment of remuneration was also accepted being in accordance with the Board's resolutions and the trust deed; - furnishing of the unsigned extracts of the resolutions passed by the Board of Trustees were due to oversight; - the AO had allowed the remuneration of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impugned assessment order, we find that the AO had, in fact, analyzed the issue at length and also after due deliberations had opined that "However, the remuneration that is provided is for services rendered by the trustees." After much deliberations, he had arrived at a conclusion that "Hence, a total sum of Rs.1800000/- towards remuneration for ser vices rendered in respect of both the Trustees is allowed in the current assessment year. " 8.2. Further, it is pertinent to mention here that during the course of hearing before this Bench, the Revenue had not objected to the stand of the AO, but, was opposed to the finding of the CIT(A) in directing the AO to delete the entire addition. 8.3. Thus, the focal point before us is confined to "Whether there was a justification for payment of substantial portion of the profits of the business as remuneration to them? 8.4. It was posed by the AO that all the earlier years, no remuneration was provided and suddenly why there was payment of substantial amounts as remuneration? As rightly highlighted by the Ld. A R, the remuneration was paid to Sunit Gupta and Smt. Simi Gupta for the first time during the existence of the trust, co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, would be the guiding factor in terms of section 40A(2) of the Act. In the case on hand, though the Assessing Officer has chosen to give 5 per cent., the Commissioner himself has chosen to increase the same to 6 per cent and only 4 per cent is disallowed. Even that 4 per cent is not absolute and it is after deductions in terms of the agreement. Taking into consideration the long standing relationship and also taking into consideration the reputation of the brand and the agent and also taking into consideration that there is no intention to avoid tax, the Tribunal rightly in our view has chosen to accept the case of the assessee with regard to 4 per cent commission. We, therefore, do not find any unreasonableness in the given circumstances. In fact this Bench recently has chosen to consider some what a similar case in Recon Machine Tools P. Ltd. vs. CIT [2006] (Karn); [2006] ILR 2006 Karn 2459 and thereafter this court has chosen to hold that reduction from 5 per cent to 2 per cent is an arbitrary reduction. An overall view of the matter would compel us to confirm the order of the Tribunal in the given circumstances ". 8.7. In an overall consideration of the facts and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... records. It is a fact that the assessee was in the business of export of furnishings and most of its customers were in foreign countries. To explore the possibilities and to spread its business of exports in various countries, its Managing Trustee had to undertake business trips in those countries, while doing so, he must have traveled under business visa, tourist visa and so on so forth depending upon the immigration restrictions which were being insisted upon by different countries. This cannot be a valid reason to disallow the expenses as claimed. As a matter of fact, the AO had not brought on record any documentary evidence to contradict the assessee's claim. The AO's reasoning that "there is a possibility that the business is combined with pleasure trips" which clearly exhibits that it was merely a presumption that the Managing Trustee could have undertaken such foreign jaunts combined with pleasure trips. A presumption, in our considered view, cannot be a well founded reasoning to restrict the expenditure claimed by the assessee. 11.1. We have also duly considered the case laws on which the CIT(A) had placed reliance to justify the stand of the AO. In brief, we shall anal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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