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TMI Blog1978 (11) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment year 1970-71, the assessee-company claimed the managing director's remuneration at the rate of Rs. 2,000 per month, apart from provident fund contribution and commission on sales. The ITO by his order of assessment dated 26th March, 1973, allowed the provident fund contribution and commission on sales. He, however, restricted the allowable salary to Rs. 1,000 per month and gave a deduction of Rs. 12,000 as against Rs. 24,000 as claimed by the assessee. In doing so he relied on the order of the AAC in respect of the assessment year 1969-70. The balance of Rs. 12,000 was disallowed " as being excessive and not dictated by the business needs of the company ". Being aggrieved by the same the assessee preferred an appeal. The AAC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g a claim for deduction. He has submitted that in the facts of this case the ITO has not properly exercised his jurisdiction and power. The ITO has merely relied on the AAC's order for the earlier year. Though the ITO has stated " in this order keeping in mind the trading results of the year ", it is not known what is meant by that because it appears from the order itself that the sales have been increased by Rs. 12,000 over the last year. He has submitted that each year's assessment is separate from the other and that an order in respect of the earlier year may be relevant, but the ITO cannot and should not automatically follow the order made in respect of the earlier year. He should apply his mind independently in respect of every year. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bstantial interest in the assessee-company, it is for the taxpayer to establish by evidence that the particular allowance is justifiable. If the taxpayer does not produce any evidence in respect of the claim for allowance, the ITO is not bound independently to collect evidence and decide that the allowance claimed is excessive or unreasonable having regard to the legitimate business needs of the assessee-company before the power under s. 10(4A) may be exercised. Mr. Naha has submitted that in this particular case the assessee did not produce any material, on the other hand, it did not appear at all before the Tribunal. In that view of the matter, the ITO and the Tribunal acted properly and within the scope of their duties and jurisdiction. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive characteristics of s. 10(2)(xv) justify any item of expenditure as wholly and exclusively laid out for the business of the company, the Income-tax Officer is enjoined and empowered to consider the reasonableness or otherwise of the quantum or the amount expended on the item, if the item of expenditure comes within the purview of s. 10(4A) and the ITO is not to allow the entire amount so spent, if the provisions of s. 10(4A) are attracted and the sum spent comes within the mischief of the said provisions. The ITO must, however, consider the entire position dispassionately and objectively and from the view-point of a prudent businessman. The ITO must appreciate that s. 10(4A) is not to be applied capriciously as a matter of routine and h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt businessman. The term 'benefit' to a company in relation to its business, it must be remembered, has a very wide connotation and may not necessarily be capable of being accurately measured in terms of pound, shillings and pence in all cases. Both these aspects have to be considered judiciously and dispassionately without any bias of any kind from the viewpoint of a reasonable and honest person in business." We may point out that this decision has been affirmed in appeal by the Supreme Court which is reported as CIT v. Edward Keventer (P.) Ltd. [1978] 115 ITR 149 wherein their Lordships of the Supreme Court have expressed their approval of the reasonings of the judgment of the Calcutta High Court. Applying this principle to the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he authorities concerned have acted automatically and have followed the order of the earlier year without applying their mind objectively or judiciously as they are bound to do under the Act. Nund Samont's case [1970] 78 ITR 268 (SC) is of no relevance to Mr. Naha. The facts are different. It is not a question of burden of proof but it is the question of the duty of the ITO. In that view of the matter, we accept the contention of Mr. Bhattacharyya. We answer the question in the negative and in favour of the assessee. In our opinion, on the facts and in the circumstances of the case, the Tribunal was not correct in holding that the managing director's remuneration allowable for the assessment year 1970-71 was only Rs. 1,200 per month. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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