TMI Blog1981 (9) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... f the entertainment allowance of Rs. 60,000 paid to Kudilal, a director of the company ? " The assessee concerned is Govindram Bros. Private Ltd. and we are concerned in this reference with the assessment year 1957-58. At the relevant time the assessee-company carried on the business of managing agents of Seksaria Sugar Mills Ltd. It was also a partner of M/s. Agarwal and Co., which firm was the managing agent of United Mills Ltd. and supplied stores to all the Seksaria group of industries. In the course of assessment one of the items for consideration before the ITO was a surplus of Rs. 3,37,396 on the sale of shares held by the assessee in India United Mills Ltd. The assessee had purchased 10,000 shares in 1950 and sold them in June ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts order in appeal recorded that the Department had treated the balance amount as capital loss. It allowed the assessee to raise an additional ground praying for the aforesaid direction, and gave the necessary direction which was to the effect that the ITO was directed to allow to carry forward to the subsequent year in accordance with law. It is this aspect of the matter which is sought to be raised in question No. 1. We are of opinion that the Tribunal was in no error in allowing the additional ground to be raised or in giving the necessary direction thereafter. Indeed, up to that stage the assessee was contending that the gains in the two transactions were capital in nature, which contention was given up only before the Tribunal at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge of his duties. Under the same resolution Kudilal Seksaria was also allowed the use of a motor car with driver, cleaner, etc., at the cost of the company. He was also given the use of rent-free quarters fully furnished. This is what the ITO has stated while disallowing the amount under s. 10(4A) of the Indian I.T. Act, 1922: "...On going through the account of the company, it found that the assessee has already debited substantial amounts by way of entertainment expenses, etc. Shri Kudilal Seksaria, however, takes the money in cash, and no account whatsoever is available as to how the money is spent. In view of the fact that the personal file of Shri Kudilal Seksaria does not show any Withdrawal for his personal expenses the amount mig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the Tribunal that a reference has been made by the Commissioner, which is reflected in question No. 2. It has to be noted that the disallowance was made by the ITO under s. 10(4A) of the Indian I.T. Act, 1922. What is required to be considered by the said provision is whether the allowance or expenditure in the nature of remuneration or benefit to a director is excessive or unreasonable, having regard to the legitimate business, needs of the company and the benefit derived by or accruing to it therefrom. It would appear to us that both the ITO and the AAC embarked upon the erroneous enquiry as to whether any entertainment was done by Kudilal Seksaria and whether in respect of the amount given to him by the company as entertainme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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