TMI Blog2016 (6) TMI 801X X X X Extracts X X X X X X X X Extracts X X X X ..... articular year because there is no generation of revenue. The logic given by the revenue authorities in the instant case in our opinion is not justified. We therefore set aside the order of the CIT(A) and direct the AO to delete the disallowance out of remuneration to Directors. Disallowance of rent for residence of the Director - Held that:- It is an admitted fact that no such rent was paid in the preceding year when the business was going on. When there is no business activity during the year, there was no justification for giving rent of ₹ 2,43,000/- for residence of the Director. Further, the rent has been paid to the wife of the Director who is a specified person u/s.40A(2)(b). Similarly, the usage charge of ₹ 57,000/-, i.e. rent for the furniture also is uncalled for under the facts and circumstances of the case. We, therefore, uphold the order of the CIT(A) in disallowing the rent expenses of ₹ 3 lakhs. Disallowance of travelling, postage and telephone expenses - Held that:- We find the assessee has travelled to Bangkok, Malaysia and Kaulalumpur which are mainly tourist spots. Nothing has been produced before us that the assessee has gone to these pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of development and construction during the year. 3. It was submitted that the company was incorporated on 22-02-2001 and is in existence from A.Y. 2000-01. The company is primarily engaged in construction business and property development and allied services. It has completed 2 projects successfully in past assessment years and the company also provided project construction related services to the construction industry. Although the assessee has not received any revenue during this year, however, it does not mean that assessee company does not have any business set up or has ceased to do business activity. On the contrary the company as a going concern is in existence and owns reasonable infrastructure, assets and has employed labour force and is ready/in a position to execute contracts/render services. It was submitted that during the impugned assessment year the assessee company has incurred the following major expenses : Sr. No. Particulars Rupees 1. Personnel Costs 12,01,641 2. Site Development Charges 2,96,665 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... promotion and other expenses. 6. So far as Travelling and Telephone expenses are concerned, the AO noted that the assessee has claimed ₹ 2,96,232/- on travelling and ₹ 1,58,620/- on postage and telephone totalling to ₹ 4,52,852/-. He noted that the travelling expenses include travel to Bangkok, Malaysia and Kaulalumpur. The explanation of the assessee that it has been shown for venturing into a new business of mining was rejected by the AO. He accordingly disallowed an amount of ₹ 2,27,426/- being 50% out of the expenses of ₹ 4,54,852/-. The AO similarly disallowed an amount of ₹ 1,17,453/- being 50% of depreciation on cars for probable personal use. The AO disallowed ₹ 35,419/- out of Electricity charges of ₹ 63,389/- which related to the Bungalow where the parents of the assessee are residing and the residence of one of the Directors. The AO also disallowed an amount of ₹ 1,86,448/- out of the job works claimed by the assessee on the ground that substantial amount of job work expenditure pertains to Radhika s Bungalow and flat at Modibagh which are residential premises of the Director and his relatives. Thus, the AO made t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remuneration to Directors. It is the submission of the Ld. Counsel for the assessee that in the subsequent year the assessee company has started getting revenue receipts and the personnel cost has also gone up to ₹ 15.23 lakhs as against ₹ 12.01 lakhs during the year. The directors have been paid salary of ₹ 9,00,000/- each in A.Yrs. 2008-09 and 2009-10 and no disallowance has been made by the AO. We find force in the above submission of the Ld. Counsel for the assessee. Although no revenue receipts are generated during the year, however, the company is in existence and has started generating revenue in the next year, a fact stated by the Ld. Counsel for the assessee and not controverted by the Ld. Departmental Representative. In the immediately preceding assessment year, the company has paid remuneration of ₹ 9,00,000/- and no disallowance has been made. In our opinion, once a Director is in employment his salary should not be reduced in a particular year because there is no generation of revenue. The logic given by the revenue authorities in the instant case in our opinion is not justified. We therefore set aside the order of the CIT(A) and direct the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X
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