M/s. Saffron Enterprises Pvt.Ltd., Ahmedabad V. The Income tax Officer,Ward-8(1), Ahmedabad

CO 3/AHD/2012

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7260 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 month(s) 23 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 26-07-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 25-07-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 03-01-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: T SHANKAR
• Assessee Lawyers: S N DIVETIA

Judgement Text

, , , , D, IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, D BENCH . .. . . .. . , !' !' !' !', , , , #$ #$ #$ #$ %& %& %& %& , , , , &' ( & &' ( & &' ( & &' ( & ' ' ' ' BEFORE S/SHRI G.C. GUPTA, VICE-PRESIDENT AND TEJ RAM MEENA, ACCOUNTANT MEMBER) ITA NO.2676/AHD/2011 WITH CO NO.3/AHD/2012 [ASSTT.YEAR : 2007-2008] ITO, WARD-8(1) AHMEDABAD. /VS. SAFFRON ENTERPRISES P. LTD. 114, SWAGAT PLAZA-II OPP: AMBALI GAM AMBALI BOPAL ROAD AHMEDABAD 382 456. PAN : AAJCS 6368 M ( (( (*+ *+ *+ *+ / APPELLANT) ( (( (,-*+ ,-*+ ,-*+ ,-*+ / RESPONDENT) ( . / &/ REVENUE BY : SHRI T. SHANKAR 1% . / &/ ASSESSEE BY : SHRI S.N. DIVETIA 2 . %3'/ DATE OF HEARING : 25 TH JULY, 2012 456 . %3'/ DATE OF PRONOUNCEMENT : 26-7-2012 &7 / O R D E R PER G.C. GUPTA, VICE-PRESIDENT: THIS APPEAL BY THE REVENUE AND THE CO BY THE ASSESSEE FOR THE ASSTT.YE AR 2007-2008 ARE DIRECTED AGAINST THE ORDER OF THE CIT(A)-XIV, DATED 29.08.2011. THESE ARE BEING DISPOSED OF WITH THIS CONSOLIDATED ORDER. ITA NO.2676/AHD/2011 WITH CO NO.3/AHD/2012 -2 ITA NO.2676/AHD/2011 (REVENUES APPEAL) 2. THE GROUND NO.1 OF THE REVENUES APPEAL READS A S UNDER: 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE TO RS.27,91,931/- MADE BY THE AO U/S.40(A)(IA) OF THE IT ACT. 3. THE LEARNED DR REFERRED TO THE RELEVANT PORTIONS OF THE ASSESSMENT ORDER IN SUPPORT OF THE CASE OF THE REVE NUE. HE SUBMITTED THAT THE ASSESSEE-COMPANY COULD NOT PROVE THAT IT R EPRESENTED ON BEHALF OF THE PRINCIPAL COMPANY AND NOT OF ITS OWN. HE HAS RELIED ON THE ORDER OF THE AO. THE LEARNED COUNSEL OF THE AS SESSEE SUBMITTED THAT THE ASSESSEE HAS NOT CLAIMED ANY DEDUCTION OF THE AMOUNT IN DISPUTE, AND THEREFORE NO DISALLOWANCE UNDER SECTIO N 40(A)(IA) OF THE ACT SHOULD BE MADE. HE SUBMITTED THAT IT WAS A CAS E OF REIMBURSEMENT OF THE EXPENSES, AND THEREFORE, THE A MOUNT WAS NOT TAKEN TO THE PROFIT AND LOSS ACCOUNT. HE RELIED ON THE ORDER OF THE CIT(A). 4. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND HAVE PE RUSED THE ORDERS OF THE AO AND THE CIT(A). WE FIND THAT THE SUBMISSIONS OF THE ASSESSEE THAT IT WAS A CASE OF REIMBURSEMENT OF THE EXPENSES AND NO PART OF THE DISPUTED AMOUNT HAS BEEN CLAIMED AS DED UCTION BY THE ASSESSEE, AND THEREFORE THE PROVISIONS OF SECTION 4 0(A)(IA) OF THE ACT DOES NOT APPLY, COULD NOT BE CONTROVERTED ON BEHALF OF THE REVENUE. THE CIT(A) HAS RECORDED THAT THE ASSESSEE HAS INCUR RED CERTAIN EXPENSES FOR ADVERTISEMENT AND PUBLICITY, WHICH HAV E BEEN REIMBURSED BY THE PRINCIPAL COMPANY, M/S.ADITYA BIR LA NUVO LTD. AND THAT NO PART OF THE EXPENSES HAVE BEEN CLAIMED BY T HE APPELLANT IN ITS ITA NO.2676/AHD/2011 WITH CO NO.3/AHD/2012 -3 P&L ACCOUNT, AND THEREFORE THE PROVISIONS OF SECTIO N 40(A)(IA) OF THE ACT ARE NOT APPLICABLE AND NO DISALLOWANCE COULD BE MADE WHILE COMPUTING THE INCOME OF THE APPELLANT. THERE BEING NO MISTAKE IN THE ORDER OF THE CIT(A) ON THIS ISSUE, WE CONFIRM THE S AME AND THE GROUND NO.1 OF THE REVENUE IS DISMISSED. 5. THE GROUND NO.2 OF THE REVENUES APPEAL READS AS UNDER: 2. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN D ELETING THE DISALLOWANCE OF RS.2,73,467/- MADE BY THE AO ON ACCOUNT OF FOREIGN TRAVEL EXPENSES AS NON-BUSINESS PURPOSES . 6. THE LEARNED DR SUBMITTED THAT THE BUSINESS OF TH E ASSESSEE IS THAT OF FRANCHISEE OF M/S.ADITYA BIRLA NUVO LTD. AN D IS ENGAGED IN SELLING THE PRODUCTS OF ITS PRINCIPAL MAINLY COMPRI SING OF READY-MADE GARMENTS AND THE ASSESSEE WAS NOT SUPPOSED TO CARRY OUT ANY OTHER ACTIVITIES OTHER THAN SELLING AND DISTRIBUTING THE PRODUCTS OF THE PRINCIPAL. HE SUBMITTED THAT THE CONTENTION THAT T HE DIRECTORS HAD TRAVELLED TO USA/CHINA FOR ANALYZING THE LATEST FAS HION TREND, DID NOT HOLD GROUND. HE SUBMITTED THAT THE ASSESSEE WAS SP ECIFICALLY ASKED TO FURNISH ANY EVIDENCE IN SUPPORT OF ITS CLAIM OF BUS INESS PURPOSE IN INCURRING OF TRAVELLING EXPENSES, BUT THE ASSESSEE COULD NOT FURNISH ANY EVIDENCE IN SUPPORT OF ITS CLAIM. THERE IS NO MATERIAL BROUGHT ON RECORD BY THE ASSESSEE TO SUGGEST THAT THE TRAVELLI NG BY THE DIRECTORS TO FOREIGN LAND HAVE ENHANCED AND BROUGHT VALUE TO ITS OWN BUSINESS AND IN FACT THESE EXPENSES DID NOT HAVE ANY RELEVANCE T O THE BUSINESS OF THE ASSESSEE. HE REFERRED TO THE RELEVANT PORTIONS OF THE ASSESSMENT ORDER IN SUPPORT OF THE CASE OF THE REVENUE. THE L EARNED COUNSEL FOR THE ASSESSEE HAS OPPOSED THE SUBMISSIONS OF THE LEA RNED DR. HE ITA NO.2676/AHD/2011 WITH CO NO.3/AHD/2012 -4 SUBMITTED THAT ONE OF THE DIRECTORS HAS GONE TO USA AND OTHER DIRECTOR HAS GONE TO CHINA FOR BUSINESS PURPOSE ONLY WITHOUT TAKING ANY OF ITS FAMILY MEMBERS WITH HIM TO THE FOREIGN TRIP. HE RE FERRED TO THE LETTER OF M/S.ADITYA BIRLA NUVO LTD. DATED 5.8.11 THAT YO UR INPUTS AND SAMPLES ON THE FAMOUS BRANDS IN AMERICA DURING THE TRADE SHOW MEET AS WELL DURING OUR CONVERSATION REALLY HELPED US. IT IS ALSO MY PLEASURE TO TELL YOU THAT IT IS YOUR INSIGHT ON THE CURRENT FASHION THAT IS MAKING LOT OF GOOD THINGS TO WORK IN YOUR TERRITORY . THE LEARNED COUNSEL FOR THE ASSESSEE REFERRED TO THE LETTER OF THE DIRECTOR SHRI SHAILESH KHATTAR ADDRESSED TO THE ASSESSEE-COMPANY DATED 20.7.2007 REPORTING HIS VISIT TO STORES IN AMERICA. LIKEWISE ANOTHER DIRECTOR SHRI SUMIT KHATTAR HAS WRITTEN A LETTER DATED 15.09 .2007 ADDRESSED TO THE ASSESSEE-COMPANY REPORTING TOWARDS FOREIGN VISI T TO CHINA AND COPY OF THE SAME IS PLACED IN THE COMPILATION FILED BY THE ASSESSEE BEFORE THE TRIBUNAL. HE SUBMITTED THAT IT IS NOT P OSSIBLE TO SECURE CONFIRMATION FROM VARIOUS MARKETS/MALLS IN THE FORE IGN LAND TO PROVE THAT THE DIRECTORS OF THE ASSESSEE-COMPANY HAVE VIS ITED THE BUSINESS PREMISES OF FAMOUS BRANDS FOR INSIGHT ON THE CURREN T FASHION ETC. HE RELIED ON THE ORDER OF THE CIT(A). 7. WE HAVE CONSIDERED RIVAL SUBMISSIONS CAREFULLY A ND HAVE PERUSED THE ORDERS OF THE AO AND THE CIT(A) AS WELL AS COPIES OF VARIOUS DOCUMENTS/CORRESPONDENCES FILED IN THE COMP ILATION BEFORE THE TRIBUNAL. WE FIND THAT THE FACT THAT TWO DIREC TORS OF THE ASSESSEE- COMPANY HAVE VISITED USA/CHINA, IS NOT IN DISPUTE. HOWEVER, THE BUSINESS PURPOSE OF THESE VISITS COULD NOT BE ESTAB LISHED BY THE ASSESSEE-COMPANY. THE ASSESSEE WAS GIVEN A SPECIFI C OPPORTUNITY TO SHOW CAUSE THE BUSINESS PURPOSE OF THE FOREIGN TRAV ELING EXPENSES ITA NO.2676/AHD/2011 WITH CO NO.3/AHD/2012 -5 VIDE ORDER SHEET ENTRY DATED 19.11.2010 BY THE AO. THE AO HAS RECORDED THAT THE ASSESSEE COULD NOT FURNISH ANY EV IDENCE IN SUPPORT OF THIS CLAIM. THERE IS FORCE IN THE ARGUMENT OF THE AO RECORDED IN THE ASSESSMENT ORDER THAT THE ASSESSEES BUSINESS IS TH AT OF FRANCHISEE OF ADITYA BIRLA NUVO LTD., AND THE ASSESSEE WAS ENGAGE D IN SELLING THE PRODUCTS OF ITS PRINCIPAL MAINLY COMPRISING OF READ Y-MADE GARMENTS AND AS PER THE PREVAILING BUSINESS NORMS, THE AGREE MENT AND GENERAL PRACTICES, THE ASSESSEE WAS NOT SUPPOSED TO CARRY O UT ANY OTHER ACTIVITY OTHER THAN SELLING AND DISTRIBUTING THE PRODUCTS OF THE PRINCIPAL. THE AO HAS RECORDED THAT ALL SUCH MARKET RESEARCH AND R ELATED BUSINESS ACTIVITIES FALL IN THE DOMAIN OF ADITYA BIRLA NUVO LTD. AND THEREFORE TRAVELING OF THE DIRECTORS OF THE ASSESSEE-COMPANY HAS NOTHING TO DO WITH THE BUSINESS OF THE ASSESSEE AS A FRANCHISEE. THE ASSESSEE ALSO COULD NOT JUSTIFY HOW THE TRAVELLING BY THE DIRECTO RS WOULD HAVE ENHANCED OR BOUGHT VALUE TO ITS OWN BUSINESS AND TH ESE EXPENSES HAVE ANY RELEVANCE TO THE BUSINESS OF THE ASSESSEE. WE FIND THAT IN REPLY TO A SPECIFIC QUESTION FROM THE BENCH AS TO THE DATE-W ISE DETAILS OF FOREIGN VISIT BY TWO DIRECTORS OF THE ASSESSEE-COMP ANY, THE SAME COULD NOT BE PRODUCED BEFORE US ON BEHALF OF THE ASSESSEE . ONUS IS ON THE ASSESSEE TO PROVE THE BUSINESS PURPOSE OF THE EXPEN SES TO CLAIM DEDUCTION, AS THE SAME IS OUT OF ITS TAXABLE INCOME , WHICH IN THIS CASE, THE ASSESSEE HAS FAILED TO DISCHARGE. THE ASSESS EE WAS EXPECTED ATLEAST TO MAINTAIN A DATE-WISE DETAILED PROGRAMME OF THE DIRECTORS DURING THEIR FOREIGN TRAVELLING. IN REPLY TO ANOTH ER SPECIFIC QUESTION FROM THE BENCH, THE LEARNED COUNSEL FOR THE ASSESSE E COULD NOT PRODUCE EVEN A RESOLUTION FROM THE BOARD OF DIRECTO RS AUTHORISING THE FOREIGN VISIT BY TWO OF ITS DIRECTORS. WE FIND THA T THE LETTER OF ADITYA BIRLA NUVO LTD. DATED 5.8.11 IS AFTER MORE THAN FOU R YEARS FROM THE ITA NO.2676/AHD/2011 WITH CO NO.3/AHD/2012 -6 END OF THE RELEVANT PERIOD AND WHETHER THIS LETTER WRITTEN BY THE AREA MANAGER OF THE PRINCIPAL COMPANY AFTER MORE THAN FO UR YEARS, HAS ANY RELEVANCE TO THE FOREIGN VISIT UNDERTAKEN BY THE ON E OF THE DIRECTORS TO THE USA IS NOT ESTABLISHED. THE LETTERS OF THE TWO DIRECTORS DURING THE RELEVANT PERIOD ADDRESSED TO THE ASSESSEE-COMPANY M ENTIONING THE PLACES WHERE THEY HAVE VISITED DOES NOT INSPIRE CON FIDENCE. WE FIND THAT PREPONDERANCE OF PROBABILITIES ARE NOT IN FAVO UR OF THE ASSESSEE, AND THE ASSESSEE SHOULD HAVE LED MORE EVIDENCE TO E STABLISH THE BUSINESS PURPOSE OF THE FOREIGN VISIT BY ITS TWO DI RECTORS. IN THIS VIEW OF THE MATTER, WE HOLD THAT THE DISALLOWANCE WAS RI GHTLY MADE BY THE AO, AND ACCORDINGLY, THE GROUND NO.2 OF THE REVENUE IS ALLOWED. 8. GROUND NO.3 OF THE REVENUES APPEAL READS AS UND ER: 3. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN RESTRICTING THE DISALLOWANCE OF RS.2,00,000/- OUT OF TOTAL DISA LLOWANCE OF RS.6,00,000/- U/S.40A(2)(B) OF THE ACT, MADE BY THE AO ON ACCOUNT OF SALARY PAID TO TWO LADY DIRECTORS. 9. WE HAVE HEARD PARTIES. WE FIND THAT THE CIT(A) HAS PASSED A SPEAKING ORDER ON THIS ISSUE. THE ASSESSEE HAS CLA IMED SALARY OF RS.3 LAKHS EACH WITH REGARD TO TWO LADY DIRECTORS AND TH E CIT(A) AFTER CONSIDERING ENTIRE FACTS AND CIRCUMSTANCES OF THE C ASE AND QUALIFICATION OF THE LADY DIRECTORS AND THEIR CONTR IBUTION TO THE ASSESSEE-COMPANY HAS ALLOWED SALARY AT RS.2 LAKHS P ER ANNUM EACH OF THE LADY DIRECTORS AND DISALLOWANCE WAS RESTRICTED TO RS.2 LAKHS. THE CIT(A) HAS ALSO NOTED THAT THE HIGHEST SALARY PAID TO AN EMPLOYEE WAS RS.1,20,720/- AND THE DIRECTOR WAS HAVING MORE RESP ONSIBILITY AND HAVE HIGHER MANAGERIAL ROLE, AS THEY HAVE A DIRECT INTEREST IN THE BUSINESS. WE FIND THAT THE CIT(A) HAS TAKEN REASON ABLE VIEW IN ITA NO.2676/AHD/2011 WITH CO NO.3/AHD/2012 -7 RESTRICTING THE DISALLOWANCE OF RS.2 LAKHS, AND THE REFORE NO INTERFERENCE IN HIS ORDER ON THIS ISSUE IS CALLED F OR, AND ACCORDINGLY THE ORDER OF THIS CIT(A) ON THIS ISSUE IS CONFIRMED AND THE GROUND NO.3 OF THE REVENUES APPEAL IS DISMISSED. CO NO.3/AHD/2012 (ASSESSEES CO) 10. THE ONLY GROUND OF THE CO OF THE ASSESSEE IS AS UNDER: 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN P ARTLY CONFIRMING DISALLOWANCE OF RS.2 LAKHS OUT OF DIRECT ORS REMUNERATION. 11. WE HAVE HEARD BOTH THE PARTIES. FOR THE REASON S RECORDED WHILE DISMISSING THE GROUND NO.3 OF THE REVENUES APPEAL IN ITA NO.2676/AHD/2011 IN THE FOREGOING PARA OF THIS ORDE R, WE HOLD THAT THERE IS NO MISTAKE IN THE ORDER OF THE CIT(A) ON T HE ISSUE OF DISALLOWANCE OUT OF SALARY PAID TO THE LADY DIRECTO RS OF THE ASSESSEE- COMPANY, AND ACCORDINGLY, THE ORDER OF THE CIT(A) O N THIS ISSUE IS CONFIRMED AND THE GROUND OF THE CO OF THE ASSESSEE IS DISMISSED. 12. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED AND THE CO OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE. SD/- SD/- ( %& %& %& %& / TEJ RAM MEENA) &' ( &' ( &' ( &' ( /ACCOUNTANT MEMBER ( . .. . . .. . /G.C. GUPTA) !' !' !' !' /VICE-PRESIDENT C OPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT