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TMI Blog2013 (3) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... r employees so as to encourage them to work hard, expand the business, or for a host of other commercial considerations and the matter has to be looked at from the view point of the company. Applying the principles laid down in the case of Abbas Wazir(P) Ltd. vs. Commissioner of Income-tax, [2003 (9) TMI 50 - ALLAHABAD HIGH COURT] to the facts of the present case we find that in the case in hand the assessing authority has considered all the relevant factors viz. The agreement, the work done in the new factory as also the quantum of amount paid with relation to the production done in the old as well as the new factory and had acted from the view point of a prudent businessman while introducing the provision of Section 40A(2) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pose and for the technical expertise of Sri Habib Akhtar in preparing the exportable quality of tobacco?" Briefly stated the facts giving rise to the present Reference are as follows: The Reference relates to the Assessment Year 1977-78 to which the previous year is the year ending on 31st March, 1977. The applicant-assessee is a partnership firm, which enjoys the income from manufacture and sale of tobacco. For the assessment year in question it had filed its return of income declaring an income of Rs.2,01,438/- The proceeding under Section 143(2) of the Act was undertaken by the Assessing Authority and during the course of assessment proceedings it was noticed that the assessee had paid a commission of Rs.36,078/- to one Sri Habib A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fumed tobacco and by his effort the production was increased almost 100% and, therefore, the commission of Rs.36,078/- paid to Sri Habib Akhtar was fully justified and the view to the contrary taken by the authorities including that by the Tribunal is erroneous and cannot be sustained. Learned Standing Counsel relying upon the order of the Tribunal submitted that Sri Habib Akhtar was a man of 21 years of age and was studying. He had no expertise and moreover, the payment of commission did not relate to the services rendered by him. It was done only to reduce the profits, therefore, the Assessing Officer had rightly invoked the provisions of Section 40A(2)(a) of the Act. We have given our thoughtful consideration to the various plea rais ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat in the new factory he was preparing mixture of tobacco perfumed mixture, purchase of tobacco and despatch of goods. He used to purchase the tobacco of different qualities. He also decided as to the extent in which one quality tobacco will be mixed with another. He claims to have acquired this art since his childhood because that was done in his presence. He claims to have made the purchases from different places, such as Haji Nawab Ali, Sadiq Ali of Rampur from Chandausi though he does not remember other places from where he had purchased. He used to send the bills after his signatures as and when the goods were received. Let us now compare the said statement with the agreement entered into between the assessee and Habib Akhtar. Accordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s excessive. It would be fair and reasonable to consider an expenditure of Rs.6,000/- to be reasonable having regard to the services rendered and the legitimate needs of the business of the assessee or the benefit derived by or accruing to it therefrom. As such, the disallowance will be of Rs.30,078/-. We hold likewise." From the findings recorded by the Tribunal it is absolutely clear that Sri Habib Akhtar was aged about 21 years during the previous year relevant to the assessment year in question and was still studying. He had no expertise in preparing tobacco mixtures. Even though he claimed to have made purchases and placed orders he could only remember the names of two sellers and did not remember the names of the other sellers. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax Officer for allowing an expenditure as a legitimate business expenditure, the approach of the Income-tax Officer(or other income-tax authority) has to be that he has to look at the matter from the view point of a prudent businessman, and not from his own view point, and then ascertain whether the said expenditure has been incurred for the purpose of commercial expediency or not. In other words, the Income-tax Officer must try to put himself in the shoes of a prudent businessman and try to look at the matter from that point of view. The Court has further held that a businessman may make an expenditure , which he is under no legal obligation to make, but if he does so as a measure of commercial expediency, it must be allowed under Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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