TMI Blog1987 (1) TMI 195X X X X Extracts X X X X X X X X Extracts X X X X ..... hmukh (Chalisgaon (Dist. Jalgaon.) 21-2-1977 3. Mrs. Sulochanabai Mohanrao Gade Kopargaon (Dist. Ahmednagar) 21-2-1977 4. Mrs. Sushilabai Fakirrao Deshmukh (Chalisgaon (Dist. Ahmednagar) 28-3-1977 5. Shri Pundlik Narayan Pai Kopargaon (Dist. Ahmednagar) 21-2-1977 6. Mrs. Bharati Pundlik Pai Kopargaon (Dist. Ahmednagar) 21-2-1977 7. Shri Bhagatsing Dayaram Sonawane Kopargaon (Dist. Ahmednagar) 21-2-1977 8. Shri Tarachand Kanhayalal Badjate Kopargaon (Dist. Ahmednagar) 29-8-1979 9. Shri Laxman Bhimaji Dixit Kopargaon (Dist. Ahmednagar) 29-8-1979 10. Shri Narayanarao govindrao Sagam Kopargaon (Dist. Ahmednagar) 28-3-1977 11. Shri Vadantrao Shankarrao Deshmukh Rui (Tal. Kopargaon, Dist. Ahmednagar) 21-2-1977 12. Mrs. Damayanti Wamanrao Patil Kopargaon (Dist. Ahmednagar) 21-2-1977 Shri Sathe referred to the above list to refute allegation of the ITO and the CIT(A) that the shareholders have appointed themselves as Directors and appropriated all the profits of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made applicable in respect of meeting held on 27th Sept., 1980 because on that day itself it was tentatively decided to raise the sitting fees. On 28th Aug., 1981 again with a proper resolution the sitting fees were raised to Rs. 1,000 per meeting and thus was made applicable in respect of meetings on 25th Feb., 1981 and 25th March, 1981 respectively. Shri Sathe then pointed out that the next argument of the ITO regarding mercantile system of accounting is not applicable because nothing has been claimed in respect of meeting held prior to 1st April, 1980 and the accounting period of the assessee is 1st April, 1980 to 31st March, 1981. Again, the ITO is not right in holding that the increase is abrupt. It was steady and was necessitated by the business needs of the company. Lastly the ITO is not right in finding fault with decision of the assessee-company to hold as many as 9 meetings. All these meetings were necessitated by the business needs. Apart from the minute books which recorded major decisions taken by the Directors and which were produced before the authorities below there is also further evidence to indicate that the Directors continued to take interest in the day to day ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... table in para 2 above. Again the CIT(A) has found fault with the adequacy of the work done during the directors meeting by referring to one item where the Directors decided to purchase 6 Moulds and 40 Rings. The cost of these items was more than Rs. 1 lakhs and could not certainly have been looked into merely by the Office Manager. Shri Sathe further submitted that the CIT(A) has again not realised the extent of efforts put in by some of the Directors, like Mr. P.N. Pai for obtaining cement in those days of cement shortage. Lastly, the CIT(A) has again erred in comparing the assessee's case with those of public limited company in respect of which the arguments have already been advanced by Shri Sathe above. The CIT(A) may be right in applying the test regarding the object of the expenses but the CIT(A) was not justified in holding that there is any element of personal or non-business expenditure embedded in the above payments to the Directors. The reference of CIT(A) to CIT vs. Navasari Cotton and Silk Mills Ltd. (1981) 23 CTR (Guj) 292 : (1982) 135 ITR 546 (Guj) is also apt but the CIT(A) has applied the negative test mentioned by their Lordships without seeing the facts either o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,000 for attending the Directors meeting. He also invited our attention to the phonomental growth attained by the company through the whole-hearted efforts of the Directors. 8. We have examined the various facts and the arguments. In our opinion, the authorities below were justified in holding that s. 40A is applicable, as far as the relationship between the company and the recipient is concerned. The fact that the ITO did not specifically refer to s. 40A in his order does not mean that he did not have the same in view, of reasonable presumption particularly from the tenor of ITO's order, would be that the ITO did apply the tests of s. 40A. This does not however, mean that in this case, any disallowance is warranted. Even after applying the test mentioned in s. 40A(1) there is no basis for any disallowance. Firstly, as rightly pointed out by Shri Sathe the company has no regular office establishment which would enable the Directors to delegate the powers of management to the office establishment consisting of one manager and one peon-cum-messenger. The fact that the Directors have not taken regular remuneration for day to day work but have remunerated themselves for their efforts ..... X X X X Extracts X X X X X X X X Extracts X X X X
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