ACIT, Bangalore v. M/s Swadeshi Internationals, Bangalore

ITA 703/BANG/2009 | 2005-2006
Pronouncement Date: 26-02-2010 | Result: Dismissed

Appeal Details

RSA Number 70321114 RSA 2009
Bench Bangalore
Appeal Number ITA 703/BANG/2009
Duration Of Justice 7 month(s) 11 day(s)
Appellant ACIT, Bangalore
Respondent M/s Swadeshi Internationals, Bangalore
Appeal Type Income Tax Appeal
Pronouncement Date 26-02-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 26-02-2010
Date Of Final Hearing 28-01-2010
Next Hearing Date 28-01-2010
Assessment Year 2005-2006
Appeal Filed On 15-07-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI SHAILENDRA KUMAR YADAV JUDICIAL MEMBE R AND SHRI A. MOHAN ALANKAMONY ACCOUNTANT MEMBER ITA NO. 703/BANG/2009 ASSESSMENT YEAR : 2005-06 THE ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE 10(1) BANGALORE. : APPELLANT VS. M/S. SWADESHI INTERNATIONALS NO.731 KRISHNA NAGAR INDUSTRIAL LAYOUT HOSUR MAIN ROAD BANGALORE 560 029. : RESPONDENT C.O. NO.47/BANG/2009 (IN ITA NO. 703/BANG/2009) ASSESSMENT YEAR : 2005-06 M/S. SWADESHI INTERNATIONALS NO.731 KRISHNA NAGAR INDUSTRIAL LAYOUT HOSUR MAIN ROAD BANGALORE 560 029. : CROSS OBJECTOR VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE 10(1) BANGALORE. : RESPONDENT ITA NO.703/B/09 & CO 47/B/09 PAGE 2 OF 16 REVENUE BY : SMT. SWATI S. PATIL ASSESSEE BY : SHRI V. SRINIVASAN O R D E R PER A. MOHAN ALANKAMONY ACCOUNTANT MEMBER THESE ARE TWO APPEALS (I) ONE BY THE REVENUE AND (II) ANOTHER [CROSS OBJECTIONS] BY THE ASSESSEE TRUST - BOTH A RE DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-V BANGALORE IN ITA NO:48/2/AC 10(1)/CIT(A)-V/08-09 DATED: 4.5.2009 FOR THE ASSESS MENT YEAR 2005-06. I. ITA NO: 703/-09 [ BY THE REVENUE] : 2. THE REVENUE HAS RAISED FOUR GROUNDS OF APPEAL. HOWEVER ON A PERUSAL GROUND NO: 1 BEING GENERAL AND NO SPE CIFIC ISSUE INVOLVED IT HAS BECOME NON-CONSEQUENTIAL. IN THE REMAINING GRO UNDS THE SUBSTANCE OF THE ISSUE IS CONFINED TO - (I) THE CIT(A) WAS ERRONEOUS IN DELETING THE REMUNERATI ONS PAID TO SUNIT GUPTA AND SMT. SIMI GUPTA; - HOLDING THAT THE PROVISIONS OF S.40A(2)(B) WERE NOT APPLICABLE; & - IN EARLIER YEARS NO SUCH REMUNERATION WAS PAID AND NO DETAILS/DOCUMENTS PRODUCED IN SUPPORT OF ITS CLAIM. II. CROSS OBJECTION NO: 47/09 [ BY THE ASSESSEE] : 3. THE ASSESSEE HAS RAISED SIX GROUNDS OF CROSS OB JECTIONS. GROUND NOS.1 AND 6 BEING GENERAL AND NO SPECIFIC IS SUES INVOLVED THEY ARE DISMISSED AS NON-CONSEQUENTIAL. IN THE REMAINI NG GROUNDS THE GRIEVANCE OF THE ASSESSEE IS THAT : ITA NO.703/B/09 & CO 47/B/09 PAGE 3 OF 16 (I) THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN DISALLO WING RS.6.94 LAKHS FROM OUT OF FOREIGN TRAVEL EXPENSES; & (II) THE ASSESSEE ITSELF DENIES LIABLE TO BE CHARGED INT EREST U/S 234B & 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 O F FURNISHINGS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE HAD PAID REMUNERATION TO ITS TRUSTEES NAMELY SUNI T GUPTA AND SMT. SIMI GUPTA TOTALING TO RS.1.69 CRORES FOR SERVICES REND ERED TO THE TRUST IN PURSUANCE OF CLAUSE 6(S) OF INDENTURE OF TRUST DT.1 6.10.83. 5.1. BRUSHING ASIDE THE ASSESSEES CONTENTIONS TH E AO HAD DISALLOWED THE SAME ON THE REASONING THAT (I) THE TRUST HAD NOT PAID REMUNERATION TO TRUSTEES IN THE PAST; - THE INDENTURE STATED THAT THE TRUSTEES SHOULD BE EN TITLED TO SUCH REMUNERATION FOR SERVICES RENDERED TO THE TRUST AS THE BOARD MAY DEEM FIT; - THE RESOLUTION WAS SIGNED BY A TRUSTEE AND NOT BY T HE BOARD OF TRUSTEES AND HENCE NOT A VALID RESOLUTION; ITA NO.703/B/09 & CO 47/B/09 PAGE 4 OF 16 - THERE WAS NO REASON TO PAY SUCH HUGE REMUNERATION A ND 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 SE LF-SERVING DOCUMENT; AND THUS RESTRICTED IT TO RS.12 LAKHS TO SUNIL GUPTA AND RS.6 LAKHS TO MRS.SIMI GUPTA; & - THE BALANCE OF RS.1.51 CRORES WAS ADDED TO THE INCO ME 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 BE ING FOREIGN TRAVEL EXPENSES INCURRED BY THE MANAGING TRUSTEE THE AO W AS OF THE VIEW THAT SINCE THE IMMIGRATION PASSES DO NOT SPECIFY THAT TH E TRIPS UNDERTAKEN ONLY FOR BUSINESS PURPOSES THERE WAS A POSSIBILITY OF B USINESS 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 ASSE SSEES WELL-NETTED CONTENTIONS BACKED WITH A NUMBER OF JUDICIAL PRECED ENTS IN FAVOUR OF IT THE LD. CIT(A) HAS OBSERVED THUS 7.THE ONLY GROUND ON WHICH THE AO DID NOT ALLOW THE ENTIRE REMUNERATION CLAIMED BY THE APPELLANT IS THAT THE SAME WAS HIGH AND CLAIMED FOR THE FIRST TIME. IT IS SEEN TH AT THE PROVISIONS OF S.40A(2)(B) OF THE ACT ARE NOT APPLICABLE AT ALL AN D THAT THE AO FAILED TO APPRECIATE THAT THE TRUSTEES HAD OFFERED THE SAI D REMUNERATION TO TAX FOR THE ASSESSMENT YEAR 2006-07 ON RECEIPT OF THE S AME IN ACCORDANCE WITH THE METHOD OF ACCOUNTING FOLLOWED BY THEM. IN THE PRESENT CASE NO DISALLOWANCE IS CALLED FOR ON THE GROUND THAT SU CH REMUNERATION WAS NOT GIVEN IN THE PAST OR THAT THE SAME IS VERY HIGH BECAUSE THE PAYMENT OF REMUNERATION WAS DUE TO COMMERCIAL EXPED IENCY AND HAVING REGARD TO THE NATURE OF SERVICES RENDERED BY THE TRUSTEES TO DEVELOP THE BUSINESS. IT IS A FACT THAT THE APPELL ANT TRUST COULD DERIVE ITA NO.703/B/09 & CO 47/B/09 PAGE 5 OF 16 SUCH HIGH INCOME SOLELY ON THE EFFORTS OF THESE TRU STEES AND THERE IS NO MATERIAL OTHER THAN MIRE SUSPICION AND SURMISE IN T HE POSSESSION OF THE AO FOR HOLDING THE CLAIM OF REMUNERATION IS EXCESSI VE AND UNREASONABLE. IT IS A FACT THAT THE REMUNERATION R ECEIVED WAS DISCLOSED IN THE RESPECTIVE INDIVIDUAL RETURN OF INCOME FOR T HE AY 06- 07.THE SAID REMUNERATION WAS DISCLOSED I N THEIR RETURNS OF INCOME. SUNIT GUPTA PAID TAX OF R S.4290611/- AND MRS. SIMI GUPTA PAID TAX OF RS.2750960/- ACCORDINGL Y. THE RETURNS WERE ACCEPTED BY THE ACIT C 10(1) AND THIS FACT HA S BEEN ACKNOWLEDGED BY THE AO IN HIS REMAND REPORT. THE A O HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW THAT THE REM UNERATION PAID WAS BOGUS. HE HAS NOT COME TO ANY LOGICAL CONCLUSI ON OR HAS ANY COGENT REASON TO JUSTIFY THE DISALLOWANCE OF THE CL AIM OF THE APPELLANT AS EXCESSIVE AND UNREASONABLE AS PER PROVISION OF S ECTION 40 A(2)(B). IN VIEW OF THIS I DO NOT AGREE WITH THE VIEW OF TH E AO. IF THE ACTION OF THE AO IS TO BE CONFIRMED THE SAME WILL AMOUNT TO D OUBLE TAXATION IN THE HANDS OF THE APPELLANT.. 7. DISILLUSIONED WITH THE STAND OF THE LD. CIT(A) THE REVENUE HAS COME UP WITH THE PRESENT APPEAL. 7.1. THE LD. D R HAD STOUTLY DEFENDED THE ACTION O F THE AO IN DISALLOWING THE REMUNERATION PAID TO THE TRUSTEES A ND ALSO JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT BUT AT THE SAME TIME SHE WAS NOT IMPRESSED UPON THE STAND OF THE CIT(A) IN REVERSING THE ADDITION MADE BY THE AO ON THIS SCORE. THE SUBMISS IONS OF THE LD. D R ARE SUMMARIZED AS UNDER: (I) THE ORIGINAL TRUST DEED WAS EXECUTED BY MRS.W.M.BAR CLAY ON 16.10.83 AND D.N.GUPTA AND SUNIT GUPTA WERE APPOINT ED 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 M EMBERS OF THE BOARD OF TRUSTEES; - THE THIRD DEED WHICH WAS EXECUTED ON 1.12.86 WAS ON LY A DEED OF ASSIGNMENT WHEREIN ONE THE BENEFICIARIES MRS. ASH A 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 CONSID ERATION OF RS.1 LAKH; ITA NO.703/B/09 & CO 47/B/09 PAGE 6 OF 16 - IN THE P&L ACCOUNT REMUNERATION OF RS.1.69 CRORES WAS DEBITED OUT OF WHICH SIMI GUPTA AND SUNIL GUPTA WERE PAID REMU NERATION OF RS.67.91 LAKHS AND RS.1.01 CRORES RESPECTIVELY AND THE BALANCE OF RS.82.51 LAKHS WERE APPORTIONED AMONG THE BENEFICIA RIES WHICH HAD NOT BEEN SHOWN IN ANY OF THE STATEMENT OF ACCOUNT F ILED BY THE ASSESSEE; - THE SAID REMUNERATION WAS PAID AS PER RESOLUTION PA SSED 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: CLAUSE 6(S): THE MEMBER OF BOARD OF TRUSTEES SHALL BE ENTITLED TO SUCH REMUNERATION FOR SERVICES RENDERED TO THE TRUS T AS THE BOARD MAY DEEM FIT FROM TIME TO TIME AND SUCH REMUNERATIO N SHALL BE TREATED AS EXPENDITURE IN DETERMINING THE PROFIT OR LOSSES. - THUS THE BOARD OF TRUSTEES ALONE WERE ENTITLED TO RECEIVE REMUNERATION NAMELY D.N.GUPTA AND SUNIT GUPTA AND NOT MRS. SIMI GUPTA WHO WAS ONLY AN ASSIGNEE OF THE BENEFICI ARY; - PAYMENT OF THE REMUNERATION TO AN ASSIGNEE OF THE B ENEFICIARY WAS BEYOND THE POWERS OF THE BOARD OF TRUSTEES; - THOUGH THE REMUNERATION OF RS.1.69 CRORES WAS DEBIT ED TO P & L ACCOUNT 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 CRO RE 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 TRU STEE . THUS THE SALARY PAID WORKS OUT TO 67.29% OF THE PROFITS OF T RUST WHEREIN THE PROVISIONS OF S.40A(2)(B) OF THE ACT ARE HIT AS TH E TRUSTEE (SUNIT GUPTA) IS SON OF ANOTHER TRUSTEE AND SMT. SIMI GUPT A WAS THE DAUGHTER-IN-LAW OF D.N.GUPTA; & - THE ASSESSEE TRUST HAS TO PROVE THAT THE PAYMENT MA DE WAS NOT EXCESSIVE OR UNREASONABLE WHICH IT HAD FAILED TO DO SO. 7.2. ON THE OTHER HAND THE LD. A R VEHEMENTLY REI TERATED MORE OR LESS WHAT HAS BEEN CONTENTED BEFORE THE FIRST APPEL LATE AUTHORITY. IN FURTHERANCE THE SUBMISSIONS MADE BY HIM ARE SUMMA RIZED AS UNDER: (I) REMUNERATION WAS PAID TO THE TRUSTEES OF THE TRUST FOR THE FIRST TIME DURING THE EXISTENCE OF THE TRUST CONSIDERING THE S ERVICES RENDERED BY THE SAID TRUSTEES IN THE DEVELOPMENT OF THE BUSI NESS OF THE TRUST AND THE SAID REMUNERATION TO THE TRUSTEES OF THE AP PELLANT TRUST WAS ALSO PERMISSIBLE IN TERMS OF CLAUSE 6(S) OF THE TRUST DEED; ITA NO.703/B/09 & CO 47/B/09 PAGE 7 OF 16 (II) THE AO CONSIDERED THE REMUNERATION PAID TO THE TRUS TEES AS EXCESSIVE AND UNREASONABLE IN TERMS OF S.40A(2)(B) OF THE ACT AND RESTRICTED THE REMUNERATION PAYABLE TO SUNIT GUPTA AND MRS.SIMI GUPTA AT RS.12 LAKHS AND RS.6 LAKHS RESPECTIVELY; (III) THE BOARD OF TRUSTEES OF THE ASSESSEE TRUST HAD RES OLVED TO PAY THE REMUNERATION TO THE TRUSTEES FOR THE REASON THAT TH EY HAD RENDERED EXCEPTIONAL SERVICE IN THE DEVELOPMENT OF THE BUSIN ESS OF THE TRUST OVER THE YEARS AND SUBSTANTIAL PROFITS WERE ACHIEVE D BY THE ASSESSEE TRUST 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 AUT HORIZING 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 CONSI DERING THE BUSINESSMEN YARDSTICKS AND VIEW POINTS AND THERE CA NNOT 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 CONS ISTED 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 AD OPTED BY THE BOARD OF TRUSTEES AND THEREFORE THE PAYMENT OF RE MUNERATION WAS ALSO ACCEPTED BEING IN ACCORDANCE WITH THE BOARDS RESOLUTIONS AND THE TRUST DEED; - FURNISHING OF THE UNSIGNED EXTRACTS OF THE RESOLUTI ONS PASSED BY THE BOARD OF TRUSTEES WERE DUE TO OVERSIGHT; - THE AO HAD ALLOWED THE REMUNERATION OF RS.18 LAKHS AND THERE CAN BE NO DOUBT ABOUT THE ALLOWABILITY OF THE REMUNERAT ION; - THE TRUSTEES HAD IN FACT FILED THEIR RETURNS FOR THE AY 2006-07 AND HAD SHOWN THE RECEIPT OF THE REMUNERATION AND PAID TAXES AT THE HIGHEST RATES THUS THERE WAS NO LOSS OF REVENUE I N RESPECT OF REMUNERATION PAID TO THE TRUSTEES; - THE AOS OBSERVATION THAT THE TRUSTEES HAVE PAID TH E TAXES FOR THE NEXT AY AND THAT THEREFORE THE SAME CANNOT BE ALLOW ED AS DEDUCTION IN THE HANDS OF THE ASSESSEE IT WAS CONTESTED THAT THE TRUSTEES HAD PAID THE TAX ON THE REMUNERATION RECEIVED BY THEM I N THE YEAR IN WHICH THE SAME AS ASSESSABLE IN ACCORDANCE WITH THE METHOD OF ACCOUNTING AND THEREFORE THERE WAS NO BASIS FOR S UCH 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 ITA NO.703/B/09 & CO 47/B/09 PAGE 8 OF 16 THE MEANING OF SUB-CLAUSE (B) AND THEREFORE THE PRO VISIONS 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 UNREASO NABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS SER VICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE OR THE LEGITIMATE NEE DS 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 E FFORTS WERE MADE BY THE AO IN THIS DIRECTION; - HOW THE AO CONSIDERED RS.18 LAKHS COULD BE REASONAB LE AS THE MARKET VALUE OF THE SERVICES RENDERED BY THE TRUSTE ES? - NEITHER THE AO HAD CONSIDERED THE NATURE OF SERVIC ES RENDERED BY THE TRUSTEES NOR MADE REFERENCE TO ANY COMPARATIVE CASE FOR ARRIVING AT SUCH A CONCLUSION; - THE TRUSTEES HAVE OFFERED THE REMUNERATION TO TAX I N THEIR HANDS AND THUS NO AVOIDANCE OF TAX BY PAYMENTS OF THE REMUNER ATION TO THE TRUSTEES AND IN FACT THE REMUNERATION HAD ALSO SUFF ERED TAX AT THE HIGHEST RATES AND THUS NO ADVANTAGE WAS SECURED B Y THE ASSESSEE TRUST. - RELIANCE IS PLACED ON THE FOLLOWING CASE LAWS: (A) VOLTAMP TRANSFORMERS 129 ITR 105 (GUJ); & (B) SHAR-LEE FILTORITES PVT. LTD. V. ACIT (2008)-TIOL-5 00-ITAT- DEL. 8. WE HAVE DULY CONSIDERED THE RIVAL SUBMISSIONS PERUSED THE RELEVANT RECORDS AND ALSO THE LEGAL PRECEDENTS ON W HICH THE LD. AR HAD PLACED STOUT RELIANCE. 8.1. ON A CLOSE SCRUTINY OF THE IMPUGNED ASSESSMEN T ORDER WE FIND THAT THE AO HAD IN FACT ANALYZED THE ISSUE A T 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/- ITA NO.703/B/09 & CO 47/B/09 PAGE 9 OF 16 TOWARDS REMUNERATION FOR SER VICES RENDERED IN RESP ECT 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 O BJECTED 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 PORT ION OF THE PROFITS OF THE BUSINESS AS REMUNERATION TO THEM? 8.4. IT WAS POSED BY THE AO THAT ALL THE EARLIER Y EARS NO REMUNERATION WAS PROVIDED AND SUDDENLY WHY THERE WA S 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 CONSI DERING THE SERVICES RENDERED BY THEM IN THE DEVELOPMENT OF THE BUSINESS OF THE TRUST AND IN FACT THE AO HAD ALLOWED THE REMUNERATION PAID OF COURSE RESTRICTING THE SAME TO RS.18 LAKHS. THE BOARD OF TRUSTEES MUST HA VE RESOLVED TO PAY A HIGHER REMUNERATION TO SUNIT GUPTA AND MRS. SIMI GU PTA TO REWARD THEM SUITABLY FOR THE SERVICES RENDERED IN THE DEVELOPME NT OF THE BUSINESS OF THE ASSESSEE TRUST OVER THE YEARS. ITA NO.703/B/09 & CO 47/B/09 PAGE 10 OF 16 8.5. ON AN IDENTICAL ISSUE THE HONBLE HIGHEST JU DICIARY OF THE LAND IN THE CASE OF S.A. BUILDERS V. CIT (A) AND ANOTHE R REPORTED IN 288 ITR 1 HAD AGREED WITH THE VIEW TAKEN BY THE DELHI H.C RE PORTED 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 DIRE CTORS AND ASSUME THE ROLE TO DECIDE HOW MUCH IS REASONABLE EXPENDITURE H AVING REGARD TO THE CIRCUMSTANCES OF THE CASE. NO BUSINESSMAN CAN BE C OMPELLED TO MAXIMIZE HIS PROFIT. THE INCOME-TAX AUTHORITIES MUST PUT TH EMSELVES 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 B UT THAT OF A PRUDENT BUSINESSMAN. WITH DUE RESPECTS WE CONCUR WITH THE RULING OF THE HONBLE 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 CIR CUMSTANCES OF THE CASE AND THAT THE REVENUE IN OUR CONSIDERED VIEW CANNO T 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 TH E PROVISIONS OF S.40(A)(2)(B) OF THE ACT. HOWEVER THE LD.CIT (A) HAD TAKEN AN OPPOSITE VIEW THAT OF THE AO BY DRAWING STRENGTH FROM VARIOU S JUDICIAL PRONOUNCEMENTS NOTABLY THE JURISDICTIONAL HONBLE HIGH COURT IN THE CASE OF DCIT V. MICROTEX SEPARATORS LTD REPORTED IN 293 ITR 451 WHEREIN THE HONBLE COURT AFTER DELIBERATING THE ISSUE AT LENG TH HAS RULED THAT ITA NO.703/B/09 & CO 47/B/09 PAGE 11 OF 16 .. SO LONG AS THERE IS NO INTENTION TO EVADE T AX AND SO LONG AS THE COMMISSION IS NOT SHOCKING THE SAID COMMISSION HAS TO BE ACCEPTED PARTICULARLY IN THE LIGHT OF THE WORDINGS OF SECTIO N 40A(2) OF THE ACT. IT IS NOT THE QUANTUM ALONE THAT GOVERNS IN SUCH CASES. FAIR MARKET VALUE OF THE GOODS SERVICES LEGITIMATE NEEDS OF THE BUSINESS O R PROFESSION OF THE ASSESSEE WOULD BE THE GUIDING FACTOR IN TERMS OF S ECTION 40A(2) OF THE ACT. IN THE CASE ON HAND THOUGH THE ASSESSING OFFICER H AS CHOSEN TO GIVE 5 PER CENT. THE COMMISSIONER HIMSELF HAS CHOSEN TO INCRE ASE 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 AGREEMEN T. TAKING INTO CONSIDERATION THE LONG STANDING RELATIONSHIP AND AL SO TAKING INTO CONSIDERATION THE REPUTATION OF THE BRAND AND THE A GENT AND ALSO TAKING INTO CONSIDERATION THAT THERE IS NO INTENTION TO AVOID T AX THE TRIBUNAL RIGHTLY IN OUR VIEW HAS CHOSEN TO ACCEPT THE CASE OF THE ASSES SEE WITH REGARD TO 4 PER CENT COMMISSION. WE THEREFORE DO NOT FIND ANY UNR EASONABLENESS IN THE GIVEN CIRCUMSTANCES. IN FACT THIS BENCH RECENTLY HA S CHOSEN TO CONSIDER SOME WHAT A SIMILAR CASE IN RECON MACHINE TOOLS P. LTD. V. 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 CONFI RM THE ORDER OF THE TRIBUNAL IN THE GIVEN CIRCUMSTANCES. 8.7. IN AN OVERALL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE ISSUE AS ANALYZED ABOVE AND ALSO DRAWING STRENG TH FROM THE JUDICIAL PRECEDENTS CITED SUPRA WE ARE OF THE FIRM VIEW THA T THE LD. CIT (A) IS JUSTIFIED IN HIS ENDEAVOUR IN REVERSING THE FINDING OF THE AO ON THIS SCORE. IT IS ORDERED ACCORDINGLY. . II. LET US NOW DEAL WITH THE GRIEVANCE OF THE ASSESSEE RAISED IN ITS CROSS OBJECTIONS: 9. DURING THE YEAR UNDER DISPUTE THE MANAGING TRU STEE SUNIT GUPTA HAD VISITED SEVERAL COUNTRIES ACCORDING TO THE ASSESSEE FOR SOLICITING BUSINESS AND ACCORDINGLY TRAVEL EXPENS ES TO THE TUNE OF RS.13.88 LAKHS WERE CLAIMED. HOWEVER THE AO AFT ER 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 ITA NO.703/B/09 & CO 47/B/09 PAGE 12 OF 16 POSSIBILITY OF COMBINING THE BUSINESS WITH PLEASURE TRIPS CANNOT BE RULED OUT. ACCORDINGLY HE HAD RESTRICTED THE EXPENDITUR E TO THE EXTENT OF 50% OF TOTAL CLAIM. 9.1. WHEN THE ASSESSEE TRUST TOOK UP THE ISSUE WIT H THE LD.CIT (A) FOR RELIEF THE CIT(A) DRAWING STRENGTH FROM J UDICIAL 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 FURNIS HINGS AND MOST OF THE CUSTOMERS WERE IN ABROAD. FOR THE PURPOSES OF MEET ING THE BUSINESS OBLIGATIONS OF THE ASSESSEE AND FOR THE PROMOTION O F THE BUSINESS OF EXPORTS THE MANAGING TRUSTEE HAD TO TRAVEL WORLD-W IDE AND INCUR EXPENSES ON SUCH TRAVELS. HOWEVER THE AO HAD RESORTED TO RE STRICT THE EXPENDITURE TO 50% ON A SOLE GROUND THAT IT WAS PERSONAL IN NAT URE BECAUSE SOME OF THE VISAS ISSUED WERE VISITORS VISA AND NOT BUSINE SS VISAS. IT WAS CONTENDED BY THE ASSESSEE THAT THE EXPENSES WERE IN CURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS AND THAT T HE AO HAD NOT CITED A SINGLE OCCASION [WITH PROOF] WHEREIN THE MANAGING T RUSTEE HAD CLUBBED HIS BUSINESS TOUR WITH PLEASURE TRIP AND THEREFORE PL EADED THAT THE SAME IS TO BE ALLOWED IN FULL. ITA NO.703/B/09 & CO 47/B/09 PAGE 13 OF 16 10.1. THE LD. D R PRESENT WAS OF THE VIEW THAT THE AUTHORITIES BELOW WERE JUSTIFIED IN RESTRICTING THE EXPENDITURE WHICH REQUIRES NO INTERFERENCE AND HENCE PLEADED FOR SUSTAINING THE SAME. 11. WE HAVE DULY CONSIDERED THE RIVAL SUBMISSIONS AND ALSO PERUSED THE RELEVANT RECORDS. IT IS A FACT THAT TH E ASSESSEE WAS IN THE BUSINESS OF EXPORT OF FURNISHINGS AND MOST OF ITS C USTOMERS WERE IN FOREIGN COUNTRIES. TO EXPLORE THE POSSIBILITIES AND TO SPR EAD ITS BUSINESS OF EXPORTS IN VARIOUS COUNTRIES ITS MANAGING TRUSTEE HAD TO U NDERTAKE BUSINESS TRIPS IN THOSE COUNTRIES WHILE DOING SO HE MUST HAVE TR AVELED UNDER BUSINESS VISA TOURIST VISA AND SO ON SO FORTH DEPENDING UPO N THE IMMIGRATION RESTRICTIONS WHICH WERE BEING INSISTED UPON BY DIFF ERENT COUNTRIES. THIS CANNOT BE A VALID REASON TO DISALLOW THE EXPENSES A S CLAIMED. AS A MATTER OF FACT THE AO HAD NOT BROUGHT ON RECORD ANY DOCUM ENTARY EVIDENCE TO CONTRADICT THE ASSESSEES CLAIM. THE AOS REASONIN G 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 P LEASURE TRIPS. A PRESUMPTION IN OUR CONSIDERED VIEW CANNOT BE A WE LL FOUNDED REASONING TO RESTRICT THE EXPENDITURE CLAIMED BY THE ASSESSEE . 11.1. WE HAVE ALSO DULY CONSIDERED THE CASE LAWS O N WHICH THE CIT(A) HAD PLACED RELIANCE TO JUSTIFY THE STAND OF THE AO. IN BRIEF WE SHALL ANALYZE THE SAME: ITA NO.703/B/09 & CO 47/B/09 PAGE 14 OF 16 (I) CIT V. DR.B.V.RAMAN (1966) 59 ITR 20 (MYS): IT WAS RULED BY THE HONBLE MYSORE HIGH COURT THAT NO DEDUCTION IS HOWE VER ALLOWABLE WHEN THE PURPOSE OF THE TOUR IS NOT BUSIN ESS; INCIDENTAL ADVANCE IS OF NO USE. WITH RESPECTS WE WOULD LIKE TO POINT OUT THAT IN T HAT CASE THE PURPOSE OF TOUR WAS NOT FOR BUSINESS AND THUS THE HONBLE CO URT RULED THAT NO DEDUCTION WAS ALLOWABLE. HOWEVER IN THE CASE ON H AND THE MG.TRUSTEE HAD UNDER TAKEN FOREIGN TOURS FOR THE SOLE PURPOSE OF BUSINESS ONLY. THE AO HAD NOT BROUGHT ON RECORD ANY PROOF TO CONTRADIC T IT. HENCE IN OUR VIEW THIS RULING HAS OF NO HELP TO THE REVENUE. (II) IN TIRUPATI TRADING CO. V. CIT (2000) 242 ITR 13 (C AL) NO DETAILS WERE FURNISHED BEFORE THE ITO AS TO WHOM TH E PARTNERS OF THE FIRM HAD CONTACTED ABROAD FOR THE PURPOSE OF SA LES PROMOTION BUT EVIDENCE ON RECORD SHOWED THAT TOUR WAS FOR BU SINESS PURPOSES AS PER THE PERMISSIONS OF RBI MATTER REM ANDED IN THE CASE ON HAND THE FOREIGN TRAVELS UNDERTAKEN BY THE MG. TRUSTEE WAS NOT IN DISPUTE. THE AO HAD NOT CONTRADICTED THE ASS ESSEES ASSERTION WITH ANY PROOF. THIS RULING DOESNT FIT TO THE ISSUE BE FORE US. (III) SHAHIBAG ENTREPRENEURS (P) LTD. V. CIT (1994) 210 I TR 998 (GUJ) THE ISSUE BEFORE THE GUJARAT H.C WAS EXPENDITURE CL AIMED ON FOREIGN TOUR OF DIRECTORS IN CONNECTION WITH SETTIN G UP NEW PROJECTS ABROAD IN COLLABORATION WITH FOREIGNERS W HICH VENTURES WERE NOT PART AND PARCEL OF EXISTING UNITS WAS ENT ITLED 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 GONE ABROAD WITH A POSSIBILITY OF EXPLORING THE EXI STING BUSINESS FORTUNES AND NOTHING ELSE. ITA NO.703/B/09 & CO 47/B/09 PAGE 15 OF 16 (IV) MACLEAN (INSPECTOR OF TAXES) V. TREMBATH (1957) 31 ITR 364 (CD); (V) CIT V. TIAM HOUSE LTD. (2000) 243 ITR 695 (MAD); & (VI) CIT V. BHOR INDUSTRIES (P) LTD (2006) 202 CTR 549 ( BOM) IN THE ABOVE CITED CASES THE ISSUES WERE EITHER TH E WIFE OF THE DIRECTOR ACCOMPANIED HIM ON A FOREIGN TRIP OR THE EXPENDITUR E CLAIMED BY THE ASSESSEE ON THE MEDICAL TREATMENT TRAVEL AND STAY OF THE EMPLOYEE HIS WIFE ETC. THESE CASE LAWS QUOTED BY THE LD. CIT(A) HAVE NO RELEVANCE TO THE ISSUE BEFORE US AND THUS NOT APPLICABLE. 11.2. NEITHER THE AO NOR THE FIRST APPELLATE AUTHO RITY HAD ESTABLISHED WITH ANY DOCUMENTARY EVIDENCE TO JUSTIF Y THAT THE CLAIM OF THE ASSESSEE WAS EXCESSIVE OR NOT CONNECTED WITH THE BU SINESS EXPEDIENCY. IN SUCH A SITUATION WE ARE NOT INCLINED TO TOE WIT H THEIR FINDINGS. ACCORDINGLY WE ARE OF THE FIRM VIEW THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN DISALLOWING 50% OF EXPENDITURE CLAIMED ON FOREIGN TRAVEL. IT IS ORDERED ACCORDINGLY. 12. THE OTHER GRIEVANCE OF THE ASSESSEE IS CHARGIN G OF INTEREST U/S 234B AND 234D OF THE ACT. CHARGING OF INTEREST U/S 234B OF THE ACT IS MANDATORY AND CONSEQUENTIAL IN NATURE AND THUS IS DISMISSED AS NOT MAINTAINABLE. WITH REGARD TO CHARGING OF INTEREST U/S 234D OF THE ACT LEVY OF INTEREST U/S 234D IS A PURELY LEGAL GROUND AND IS CHARGEABLE FOL LOWING THE ORDER OF THE ITA NO.703/B/09 & CO 47/B/09 PAGE 16 OF 16 SPECIAL BENCH IN ITO V. EKTA PROMOTERS P. LTD. (200 8) 113 ITD 719-ITAT DELHI E SPECIAL BENCH. IT IS ORDERED ACCORDINGLY. 13. IN THE RESULT (I) THE REVENUES APPEAL IS DISMISSED. (II) THE ASSESSEES CROSS OBJECTION (APPEAL) IS PARTLY ALLOWED . PRONOUNCED IN THE OPEN COURT ON THIS 26 TH DAY OF FEBRUARY 2010. SD/- SD/- (SHAILENDRA KUMAR YADAV ) (A. MOHAN ALANKAMONY ) JUDICIAL MEMBER ACCOUNTANT MEMB ER BANGALORE DATED THE 26 TH FEBRUARY 2010. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT BANGALORE.