TaxTMI 
TaxTMI 
2010 (2) TMI 915
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....rt of its claim. II. Cross Objection No: 47/09 - [By the assessee]: 3. The assessee has raised six grounds of cross objections. Ground Nos.1 and 6 being general and no specific issues involved, they are dismissed as non-consequential. In the remaining grounds, the grievance of the assessee is that: (i) The authorities below were not justified in disallowing Rs.6.94 lakhs from out of foreign travel expenses; and (ii) The assessee itself denies liable to be charged interest u/s 234B and 234D of the Act. Common Order: 4. As the issues raised by the either party are pertaining to the same assessment year, both the appeals were heard, considered together and disposed off in this common order for the sake of convenience and cohesion. Brief: 5. The assessee - a private trust ('the assessee' in short) carries on the business of manufacture and export of furnishings. During the course of assessment proceedings, the AO found that the assessee had paid remuneration to its trustees, namely, Sunit Gupta and Smt. Simi Gupta, totaling to Rs.1.69 crores for services rendered to the trust in pursuance of clause 6(s) of Indenture of Tru....
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....ving regard to the nature of services rendered by the trustees to develop the business. It is a fact that the appellant trust could derive such high income solely on the efforts of these trustees and there is no material other than mire suspicion and surmise in the possession of the AO for holding the claim of remuneration is excessive and unreasonable. It is a fact that the remuneration received was disclosed in the respective individual return of income for the AY 06-07..................................The said remuneration was disclosed in their returns of income. Sunit Gupta paid tax of Rs.4290611/- and Mrs. Simi Gupta paid tax of Rs.2750960/- accordingly. The returns were accepted by the ACIT, C 10(1) and this fact has been acknowledged by the AO in his remand report. The AO has not brought any material on record to show that the remuneration paid was bogus. He has not come to any logical conclusion or has any cogent reason to justify the disallowance of the claim of the appellant as excessive and unreasonable as per provision of section 40 A(2)(b). In view of this, I do not agree with the view of the AO. If the action of the AO is to be confirmed the same will amount to doubl....
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....nt for the period relevant to the AY 2005-06, there was loss to the revenue in not filing the ROI and consequential payment of tax; - out of total profits of Rs.2.52 crores, Rs.1.01 crore was paid as remuneration to Sunit Gupta and Rs.67.921 lakhs to an assignee of the beneficiary - Smt. Simi Gupta who was not a trustee. Thus, the salary paid works out to 67.29% of the profits of trust wherein the provisions of s.40A(2)(b) of the Act are hit, as the trustee (Sunit Gupta) is son of another trustee and Smt. Simi Gupta was the daughter-in-law of D.N.Gupta; and - the assessee trust has to prove that the payment made was not excessive or unreasonable which it had failed to do so. 7.2. On the other hand, the Ld. A R vehemently Veiterated more or less what has been contented before the first appellate authority. In furtherance, the submissions made by him are summarized as under: (i) remuneration was paid to the trustees of the trust for the first time during the existence of the trust considering the services rendered by the said trustees in the development of the business of the trust and the said remuneration to the trustees of the appellant trust was al....
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....by them in the year in which the same as assessable in accordance with the method of accounting and, therefore, there was no basis for such observation of the AO; - applicability of the provisions of s.40A(2)(b) of the Act, it was contented that the trustees cannot be considered as relatives within the meaning of sub-clause (b) and therefore the provisions of s.40A(2)(b) of the Act were not attracted; - with regard to applicability of s.40A(2)(b) of the Act, the AO must prove that such expenditure is excessive or unreasonable having regard to the fair market value of the goods , services or facilities for which the payment is made or the legitimate needs of he business or profession of he assessee or the benefit derived by or accruing to him there-from, so much of the expenditure as is so considered by him to be excessive or unreasonable. However, no efforts were made by the AO in this direction; - How the AO considered Rs.18 lakhs could be reasonable as the market value of the services rendered by the trustees? - Neither the AO had considered the nature of services rendered by the trustees nor made reference to any comparative case for arriving at s....
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.... Builders vs. CIT (A) and Another reported in 288 ITR 1 had agreed with the view taken by the Delhi H.C reported in 254 ITR 377 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......." With due respects, we concur with the ruling of the Hon'ble Supreme Court that the Board of Directors of a Company or a trust, as the case may be, are the best judges to gauge and decide how much is reasonable expenditure to be incurred having regard to the circumstances of the case and that the Revenue, in our considered view, cannot sit on the judgment on it. 8.6. With regard to the payment of remuneration of such a proportion, according to the AO, is violative of the provisions of s.40(A)(2)(b) of the Act. However....
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....or soliciting business and, accordingly, travel expenses to the tune of Rs.13.88 lakhs were claimed. However, the AO, after scrutinizing some of the copies of visas which did not specify the trips for 'business', was of the view that since the business consists of export of textiles, garments, the possibility of combining the business with pleasure trips cannot be ruled out. Accordingly, he had restricted the expenditure to the extent of 50% of total claim. 9.1. When the assessee trust took up the issue with the Ld.CIT (A) for relief, the CIT(A), drawing strength from judicial precedents - as set out in his impugned order - concurred with the view of the AO on this count. 10. Aggrieved, the assessee trust has come up with the present appeal by way of a cross objection. The contention of the assessee was that it carries on the business of export of furnishings and most of the customers were in abroad. For the purposes of meeting the business obligations of the assessee and for the promotion of the business of exports, the Managing trustee had to travel world-wide and incur expenses on such travels. However, the AO had resorted to restrict the expenditure to 50% on a ....
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....foreign tours for the sole purpose of business only. The AO had not brought on record any proof to contradict it. Hence, in our view, this ruling has of no help to the Revenue. (ii) In Tirupati Trading Co. vs. CIT (2000) 242 ITR 13 (Cal) - no details were furnished before the ITO as to whom the partners of the firm had contacted abroad for the purpose of sales promotion, but, evidence on record showed that tour was for business purposes as per the permissions of RBI- matter remanded In the case on hand, the foreign travels undertaken by the Mg. trustee was not in dispute. The AO had not contradicted the assessee's assertion with any proof. This ruling doesn't fit to the issue before us. (iii) Shahibag Entrepreneurs (P) Ltd. vs. CIT (1994) 210 ITR 998 (Guj) the issue before the Gujarat H.C was expenditure claimed on foreign tour of directors in connection with setting up new projects abroad in collaboration with foreigners which ventures were not part and parcel of existing units, was entitled to deduction. The issue before us is on the different footing and not applicable to the facts of the case cited supra since the Mg.Trustee of the assessee had g....