TMI Blog2017 (8) TMI 1252X X X X Extracts X X X X X X X X Extracts X X X X ..... en by the Ld. AR that the assessee company does not own vehicles despite huge turnover, only to avoid various overhead expenses was thereon record before the Assessing Officer. The AO has made the disallowance on the ground that the amounts are not shown as perquisites. The Ld. AR’s contention that payments of Conveyance expenses by way of fixed reimbursement cannot be treated as perquisites is just and proper and whether the same is exempt or taxable has to be examined in the case of directors and not the company. Moreover, there is no dispute about the genuineness of payment or its verifiability. Thus, the appeal of the assessee on both the issues is allowed. - I.T.A .No. 6107/DEL/2013 - - - Dated:- 18-8-2017 - Shri R. K. Panda, Accountant Member And Ms Suchitra Kamble, Judicial Member Appellant by : Sh. V. K. Agarwal, Adv Respondent by : Sh. R. C. Dande, Sr. DR ORDER Per Suchitra Kamble, JM The appeal is filed by the assessee against the order dated 29/8/2013 passed by CIT(A)-IV, New Delhi for Assessment Year 2010-11. 2. The grounds of appeal are as under:- 1. Under the facts and circumstances of the case, the appellate order passed by the Ld.CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot given proper opportunity of hearing. The query regarding ground handling charges was raised by the AO for the first time on 17/12/2012 and the compliance was required on 24/12/2012. The assessment order was passed on 28/12/2012. Therefore, the assessment order was passed within 11 days of raising the query. The AO completely ignored the written submissions filed by the assessee on 24/12/2012. Therefore, the Ld. AR submitted that it is clearly established that proper opportunity of hearing was not provided. The Ld. AR further submitted that the disallowance of the claim on ground handling charges is made on the ground that the payment is made to the two ladies who are wives of the directors and certain details were not filed. The Ld. AR submits that ground handling services were to be provided by the assessee only to the clients to whom Aeroplanes have been given on lease. Since the ground handling service is a very complicated affair and the assessee did not have any infrastructure to provide the same, the services were outsourced. The Ld. AR further submits that ground handling involves general administration, baggage, freight and mail handling, loading and unloading of aircraf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ority or independent companies. It makes the task even tougher for ground handlers whose efficiency relies on technology-advanced equipment, coordination of staff and information support systems. To provide efficient services to avoid penalty clause or loss of contract or black listing in the field of providing expertise services, the service provider has to take all possible measures including competent, qualified expertise efficient administrative staff. The Ld. AR submits that directors were not in a position to handle the above mentioned work independently and they had to take the expertise services of outside agencies/persons. They also approached the outside agencies/persons including Ms. Rupam Malik and Ms. Zinnia Singh. The work was allotted on the basis of the lowest quotation. Both said female experts have good experience of this kind of work. It is pertinent to mention here that in the past both were working as air hostess in private airlines having good knowledge, expertise command over the entire Ground handling work, need of prompt and perfect services. The charges payable to both females to handle the above mentioned work were lesser than the other parties. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eedings, that the payments were not made or not verifiable. As regards the recipient being wives of the directors, the Ld. AR submitted that the ladies competed with other service providers in the open market and were engaged on the basis of competitive bids and not relationship. As regards salary to staff, it is not for ground handling services but for the six employees who were looking after the routine office work like secretarial work, liasioning with various Authorities like Airport Authority, DGCA etc., accounts etc. (Page 36, PB). Under section 37(1) of the Act, deduction is admissible for expenditure incurred wholly and exclusively for purposes of business. Expenditure justified by business considerations and incurred out of commercial expediency is allowable deduction. The settled position of law is' that the reasonableness of the expenditure has to be seen from the point of view of businessman and not that of the Revenue. The Ld. AR relied on the following case laws:- (i) CIT v. Dalmia Cement (P.) Ltd: 254 ITR 377 (Del) wherein it is held that once it is established that there was a nexus between the expenditure and the purpose of business, the revenue cannot justi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wer. 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 the business needs of the company from the point of view of a prudent businessman. The benefit derived or accruing to the company must also be considered from the angle of a prudent businessman. The term benefit to a company in relation to its business, it must be remembered, has a very wide connotation and may not necessarily be capable of being accurately measured in terms of pound, shillings and pence in all cases. Both these aspects have to be considered judiciously, dispassionately without any bias of any kind from the view-point of a reasonable and honest person in business. The aforesaid judgment of Ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inding and adjudication by Commissioner and his observations were based on mere suspicion and certainly uncertain-Commissioner was unsure whether or not bifurcation was right.... 6. As relates to ground no. 4, the Ld. AR submitted that the assessee company reimbursed the conveyance expenses to its directors as per the Board Resolution (Page 34, PB). The assessee company does not own vehicles despite huge turnover, only to avoid various overhead expenses. If the company owns the vehicles, then the expenses on vehicle running including maintenance, depreciation, interest on vehicle finance and petrol will be much higher than the conveyance expenses reimbursed. The AO has made the disallowance on the ground that the amounts are not shown as perquisites. The payments of Conveyance expenses by way of fixed reimbursement cannot be treated as perquisites. Whether it is exempt or taxable has to be examined in the case of directors and not the company. Moreover, there is no dispute about the genuineness of payment or its verifiability. Payments were made by Account payee cheques as it is clearly evident from the bank statement. The CIT (A) has also mentioned that director remuneration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO has not referred to section 40A(2) yet it seems that the disallowance was made under this section because his emphasis for disallowance is only on the fact that the recipients are wives of the directors. Section 40A(2) can be invoked only if the amount paid is excessive or unreasonable w.r.t. the fair market value of the services rendered. Since the AO has not given any such finding, he could not make any disallowance u/s 40A(2). As relates to Ground No. 4, the assessee company reimbursed the conveyance expenses to its directors as per the Board Resolution (Page 34, PB). The explanation given by the Ld. AR that the assessee company does not own vehicles despite huge turnover, only to avoid various overhead expenses was thereon record before the Assessing Officer. The AO has made the disallowance on the ground that the amounts are not shown as perquisites. The Ld. AR s contention that payments of Conveyance expenses by way of fixed reimbursement cannot be treated as perquisites is just and proper and whether the same is exempt or taxable has to be examined in the case of directors and not the company. Moreover, there is no dispute about the genuineness of payment or its verifiab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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