TaxTMI 
TaxTMI 
2016 (9) TMI 762
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....Under the circumstances, as the Bench cannot be allowed to collapse, I reject some of these applications filed by the Revenue for adjournments and dispose of the case ex parte qua the Revenue on merits. 3. Heard Shri M.P.Rastogi, Ld.Counsel for the assessee. 4. I find that the Assessing Officer (A.O.) in this case has not brought out any comparables before disallowing 50% of remuneration paid to Smt.Kiran Qureshi on adhoc basic u/s 40A(2)(b) of the Income Tax Act, 1961 (the Act). The assessee justified the payment by demonstrating that, Smt.Kiran Qureshi is having more than two decades of experience in the job and she is well education and widely travelled. It was further pointed out that she has wide exposure to different aspects of import, export and aviation business and is a Promoter Director of the assessee company and that she is also on the Board of Directors of M/s Hind Industries Ltd. and M/s Hind Agro Industries Ltd. It was further submitted that Smt.Kiran Qureshi pays tax at the maximum marginal rates and hence there is no diversion of taxable income. 5. In this case there is no evasion of tax. The Co-Ordinate Bench of the Delhi Tribunal in the case of Amserve C....
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....hardship in bona fide cases. (Emphasis ours). From this Circular of the CBDT, it is clear that the provision was made specifically to check tax avoidance. Thus when there is no tax avoidance, the applicability of this section would not be appropriate. 12.5. The Hon'ble Supreme Court in the case of CIT-IV, New Delhi vs. M/s Glaxo Smithkline Asia P.Ltd. (supra) held as follows. "The larger issue is whether Transfer Pricing Regulations should be limited to cross-border transactions or whether the Transfer Pricing Regulations be extended to domestic transactions. In domestic transactions, the under-invoicing of sales and over-invoicing of expenses ordinarily will be revenue neutral in nature, except in two circumstances having tax arbitrage such as where one of the related entities is (i) loss making or (ii) liable to pay tax at a lower rate and the profits are shifted to such entity; Complications arise in cases where the fair market value is required to be assigned to transactions between related parties u/s 40A(2). The CBDT should examine whether Transfer Pricing Regulations can be applied to domestic transactions between related parties u/s 40A(2) by maki....
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....90-91 also the claim of the assessee @9 1/2 per cent has been allowed though the same has not been dealt with by the AO specifically in the order. (iv) For asst.yrs. 1993-94 and 1994-95 the assessment has been made by the AO under section 143(3) and handling charges paid to the sister concern @ 9.5 per cent have been considered to be reasonable and allowed. (iv) The sister concern of the assessee M/s Middle East International is also assessed to tax and income assessed for the asst. yr. 1991-92 is Rs. 9,38,510 and for asst.yr. 1992-93 is Rs. 14,65,880 and the said assessment orders have been placed on record. (v) Under the CBDT Circular No. 6-P, dated 6th July, 1968 it is stated that no disallowance is to be made under section 40A(2) in respect of the payments -made to the relatives and sister concerns where there is no attempt to evade tax. 5. In view of the aforesaid admitted facts we are of the view that the Tribunal was correct in coming to the conclusion that the CIT(A) was wrong in disallowing half per cent commission paid to the sister concern of the assessee during the asst. yrs. 1991-92 and 1992-93. The ld.advocate appearing for the appellant was....
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.... of the Act, the reasonableness of the expenditure for the purpose of business has to be judged from the point of view of a businessman and not that of the revenue. The approach has to be that of a prudent businessman and the reasonableness must be looked into from businessman point of view. Similar view is held by the Madras High Court in CIT v. Computer Graphics Ltd. [2006] 285 ITR 84/155 Taxman 612. In CIT v. Edward Keventer (P.) Ltd. [1972] 86 ITR 370 , the Calcutta High Court considering identical provision in 1922 Act, it was held that the section places two limitations in the matter of exercise of the power. The section enjoins the Assessing Officer in forming any opinion as to the reasonableness or otherwise of the expenditure incurred must take into consideration (i) the legitimate business needs of the company and (ii) the benefit derived by or accruing to the company. The legitimate business needs of the company must be judged from the view point of the company itself and must be viewed from the point of view of a prudent businessman. It is not for the Assessing Officer to dictate what the business needs of the company should be and he is only to judge the legitimacy of ....