The ITO, Ward-4(2), Ahmedabad V. KADAM EXPORTS PVT. LTD., Ahmedabad

ITA 101/AHD/2012

• Counselvise Citation: 10120514 RSA 2012
• Duration Of Justice: 3 year(s) 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 13-08-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 13-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHIVA SEWAK
• Assessee Lawyers: TUSHAR P HEMANI
• Keywords: Gift; Business expenditure
• Section: 143(3)

Judgement Text

ITA NO . 101 /AHD/ 20 1 2 ASSESSMENT YEAR: 2 0 0 8 - 09 PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR AM AND KUL BHARAT JM] ITA NO. 101 / AHD / 2 0 1 2 ASSESSMENT YEAR: 20 0 8 - 09 INCOME TAX OFFICER, ....... .. . ..... APPELLANT WARD (2), AHMEDABAD . VS. KADAM EXPOR TS (P) LTD., .... .................. .... .. RESPONDENT F/101, ASAVARI TOWER, B/H. FUN REPUBLIC CINEMA, SATELLITE , AHMEDABAD. [PAN AA ACK 7997 F] APPEARANCES BY: SHIVA SEWAK FOR THE APPELLANT TUSHAR P. HEMANI FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : AUGUST 13 TH , 201 5 DATE OF PRONOUNCING THE ORDER : NOVEMBER 6 TH , 2015 O R D E R PER PRAMOD KUMAR AM: 1. BY WAY O F THIS APP E AL, THE ASSESSING OFFICER HAS CALLED INTO QUESTION CORRECTNESS OF ORDER DATE D 20 TH OCTOBER , 2011 PASSED BY THE LD CIT(A) IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME T A X ACT , 1961 ( T HE ACT FOR SHORT), FOR THE ASSESSMENT YEAR 200 8 - 09 . 2. IN THE FIRST GROUND OF APPEAL , THE ASSESSING OFFICER HA S RAISED THE FOLLOWING GRIEVANCE : - ITA NO . 101 /AHD/ 20 1 2 ASSESSMENT YEAR: 2 0 0 8 - 09 PAGE 2 OF 5 1. THE LD. CIT(A) HAS ERRED IN L A W AND ON FACTS IN DELETING T HE DISALLOWANCE OF R.2,82,937/ - MADE ON ACCOUNT OF BUSINESS PROMOTION EXPENDITURE, WITHOUT APPRECIATING THE FACTS T HAT THE ASSESSEE COULD NOT SUBSTANTIATE I T S CLAIM WITH TENABLE EVIDENCES. 3. SO FAR AS THIS GROUND OF APP EAL IS CONCERNED, THE RELEVANT MATERIAL F ACTS ARE LIKE THIS . DURING THE COURSE OF SCRUTINY PROCEEDINGS , THE ASSESSING OFFICER NOT E D TH A T THE ASSESS E E HAS INCURRED BUSINESS PROMOTION E XPENSES MOUNTING TO RS.11,74,510/ - WHICH A RE FAR IN EXCESS OF T HE BUSINE SS PROMOTION EXPENSES OF RS.1,54,899/ - INCURRED IN THE IMMEDIATELY PREVIOUS YEAR. IT WAS IN THIS BACKDROP THAT THE DETAILS OF BUSINESS PROMOTION EXPENSES W ERE CALLED FOR AND EXAMINED. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE WAS NOT ABLE T O GIVE BIL LS AND EVIDENCE S IN SUPPORT OF EXPENSES OTHER THAN EXPENSES OF RS.5,19,350/ - IN RESPECT OF PURCHASE OF FOREIGN EXCHANGE AND EXPENSES OF RS.2,54,743/ - BEING EXPENSES INCURRED ON CREDIT CARDS. IT WAS ALSO NOTED THAT THE ASSESSEE COULD NOT FURNISH ACCEPTABLE EVIDENCE IN RESPECT OF EXPENSE S A ID TO HAVE BEEN INCURRED ON PURCHASE OF SILVER ITEMS VALUED AT RS.16,476/ - WHICH WERE CLAIMED AS GIFTED TO THE CUSTOMER S . ON THESE FACTS , THE ASSESSING OFFICER DISALLOWED ENTIRE AMOUNT OF BUSINESS PROMOTION EXPENSES EXCEP T THE EXPENSES INCURRED ON PURCHASE OF SILVER ITEMS GIFTED TO THE CUSTOMERS. AGGRIEVED , THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). IT WAS CONTENDED THAT MOST OF THE EXPENSE ARE INCUR RED ON AIR TICKE TS , HOTEL VOUCHERS AND OTHER ADMIS SIBLE HE A DS. IT WAS IN THIS BACKDROP THE LD. CIT ( A ) DELETED THE DISALLOWANCE OF RS.7,88,883/ - WHICH WAS IN RESPECT OF THE PAYMENTS MADE FOR FOREIGN TRAVEL , AND AS REGARDS BALANCE ITEM , THE LD. CIT (A) RESTRICTED THE DISALLOWANCE OF RS.2,82,937/ - . WHILE DO ING SO, THE LD . CIT (A) HAS OBSERVED AS FOLLOWS : - 2.4 I HAVE CONSIDERED T HE FACTS OF THE C A SE, ASSESSMENT ORDER, WRITTEN SUBMISSION AND PAPER - BOOK SUBMITTED BY THE AUTHORISED REPRESENTATIVE OF THE APPELLANT . DURING THE COURSE OF HEARING, THE AUTHORISED R EPRESENTATIVE SUBMITTED THAT OUT OF TOTAL BUSINESS ITA NO . 101 /AHD/ 20 1 2 ASSESSMENT YEAR: 2 0 0 8 - 09 PAGE 3 OF 5 PROMOTION EXPENDITURE OF RS.11,74,510/ - , DOMESTIC BUSINESS PROMOTION EXPENDITURE IS RS.3,82,937/ - AND FOREIGN EXPENDITURE IS RS.7,88,883/ - . THE AUTHORISED REPRESENTATIVE WITH REGARD TO DOMESTIC BUSINESS P ROMOTION EXPENDITURE OF RS.3,82,937/ - SUBMITTED T HAT MAJOR EXPENDITURE INCURRED IS IN RESPECT OF PETROL , AIR TICKETS, RESTAURANT CHARGES, HOTEL RENT CHARGES, MEMENTO ETC. INCURRED FOR THE BUSINESS OF T HE APPELLANT ONLY AND ACCORDINGLY PAGE NOS.4 TO 35 OF P APER BOOK WAS REFERRED. SO FAR AS THE OBSERVATION OF THE AO THAT THE CREDIT CARD STATEMENTS ARE IN THE NAME OF MANAGING DIRECTOR M EHULBHAI ZAVERI AND THEREFORE, THE EXPENDITURE INCURRED ARE NOT FOR THE PURPOSE OF BUSINESS OF THE APPELLANT IS CONCERNED, TH E AUTHORISED RE PRESENTATIVE ARGUED THAT MERELY BECAUSE THE SAME HAS BEEN INCURRED THROUGH THE CREDIT CARD OF THE DIRECTOR OF THE APPELLANT, IT CANNOT BE SUSPECTED THAT THE EXPENDITURE MIGHT HAVE BEEN INCUR RED FOR PERSONAL USE OF THE DIRECTOR. IN FACT , AS P ER THE COMPANIES ACT ALSO, THE DIRECTOR IS THE AGENT OF THE COMPANY AND THE DIRECTOR IS EXPECTED T O CARRY OUT THE BUSINESS OF THE APPELLANT COMPANY AND THEREFORE ANY EXPENDITURE INCURRED BY THE DIRECTOR ON BEHALF OF AND FOR BUSINESS OF THE A PPELLANT COMPAN Y, THE SAME IS REQUIRED TO BE ALLOWED. 2.5 I HAVE GONE THROUGH THE PAGE NOS.4 TO 35 OF PAPER BOOK REFERRED TO ME AND THEY ARE T HE CREDIT CARD STATEMENTS IN THE NAME OF THE MANAGING DIRECTOR OF THE A PPELLANT ALONG WITH THE VOUCHERS PREPARED IN RESPECT OF BU SINESS PROMOTION EXPENDITURE. FROM THE PERUSAL OF THE CREDIT CARD STATEMENTS, IT CAN BE SEEN THAT THE EXPENDITURE INCURRED ARE IN RESPECT OF PETROL , AIR TICKETS, RESTAURANT CHARGES, HOTEL RENT CHARGES, ENTERTAINMENT E T C. I AGREE WITH THE ARGUMENT OF THE AUTHORISED REPRESENTATIVE THAT THE MANAGING DIRECTOR IS THE AGENT OF THE COMPANY AND HE IS REQUIRED TO INCUR BUSINESS EXPENDITURE FOR AND ON BEHALF OF THE COMPANY AND THEREFORE, MERELY THE EXPENDITURE IS INCURRED THROUGH THE CREDIT CARD OF THE MANAGING DIR ECTOR OF THE COMPANY IT WOULD BE INCORRECT TO HOLD THAT ENTIRE EXPENDITURE IS NOT INCURRED FOR THE BUSINESS OF THE APPELLANT COMPANY. HOWEVER, SO FAR A S THE RESTAURANT CHARGES, HOTEL RENT CHARGES, ENTERTAINMENT EXPENDITURE IS CONCERNED, I AM OF THE VIEW T HAT POSSIBILITY OF THE PERSONAL USE CANNOT BE RULED OUT AND THEREFORE TO MEET THE JUSTICE, I CONFIRM DISALLOWANCE TO THE EXTENT OF RS.1,00,000/ - OUT OF TOTAL DOMESTIC BUSINESS PROMOTION EXPENDITURE OF RS.3,82,937/ - AND BALANCE DISALLOWANCE AMOUNT OF RS.2,8 2,937/ - IS DELETED HEREBY. 4. WE HAVE HEA R D THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CA S E IN THE LIGHT OF APPLICABLE LEGAL POSITION. W E H A VE NOT E D THAT SO F A R A S THE DISALLOWANCE FOR BUSINESS P ROMOTION IS CO NCERNED, THE MAJOR PORTION OF TH E EXPENSES I.E. RS.7,88,883/ - PERTAINS TO EXP E NS E S INCURRED ABROAD AND FOREIGN TRAVEL . THIS DISALLOWANCE HAS ALREADY BEEN DELETED AND THE ASSESSING OFFICER IS NOT IN APPEAL. AS REGARDS BALANCE AMOUNT OF RS.3,82,937/ - , THE LD . CIT ( A ) HAS ALREADY CONFIRMED THE DISALLOWANCE TO THE EXTENT OF R S .1 ,00,000/ - IN RESPECT OF ELEMENT OF PERSONAL EXPENSES , YET THE ASSESSING ITA NO . 101 /AHD/ 20 1 2 ASSESSMENT YEAR: 2 0 0 8 - 09 PAGE 4 OF 5 OFFICER IS IN APPEAL. THERE IS NO MA T ERIAL, HOWEVER, TO SHOW THAT THE PERSONAL EXPENSE INCURRED IN THE CREDIT C A RD STATEMENT EXCEEDS THE AMOUNT OF DISALLOWANCE WHICH H A S BEEN CONFIRMED BY THE LD . CIT ( A ) . IN OUR CONSIDERED VIEW , ACTION OF THE LD . CIT(A) SEEMS TO BE REASONABLE AND IT DOES NOT CALL FOR ANY INTERFERENCE IN THE MATTER , PARTICULARLY IN THE ABSENCE OF ANY MATERIAL HAVING BEEN BROUGHT ON RECORD TO SHOW THAT THE DISALLOWANCE CONFIRMED BY THE LD . CIT(A) IS INADEQUATE OR UNREASONABLE. WE, THEREFORE, UPHOLD THE ACTION OF THE LD . CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. GROUND NO.1 IS THUS DISMISSED. 5 . IN GROUND NO.2, THE ASSESSING OFFICER HAS RAISED THE FOLLOWING GRIEVANCE : - 2 . THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING T HE DISALLOWANCE OF RS.2,75,450/ - MADE ON ACCOUNT OF INTEREST EXPENSES, WITHOUT APPRECIATING T HE F A CTS THAT THE ASSESSEE ITSELF HAD AGREED THAT THE ADVANCES ARE MADE OUT OF LOAN FROM HDFC BANK (INTEREST BEARING FUND). 6 . SO FAR AS THIS GROUND OF APPEAL IS CONCERNED, IT IS SUFFICIENT TO T A KE NOTE OF THE FACT THAT DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER DI SALLOWED INTEREST ATTRIBUTABLE TO INTEREST FREE ADVANCE OF RS.45,00,000/ - GIVEN TO MEHUL D. ZAVERI , DIRECTOR OF THE C OMPANY. IN APPEAL , THE LD . CIT (A) HAS DELETED THIS DISALLOWANCE ON THE SHORT GROUND THAT T HE ASSESSEE DID HAVE ADEQUATE NON - IN TEREST BE A R ING FUNDS SO AS TO COVER THIS INTEREST FREE ADVANCE. THE ASSESSING OFFICER IS GRIEVED AND IS IN APPEAL BEFORE US. 7 . WE HAVE HEA R D THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CA S E IN THE LIGHT OF APPLICABLE LEGAL POSITION. W E FIND THAT, AS NOTED BY THE LD . CIT ( A ) , THE ASSESSEE HAS SHARE CAPITAL OF RS.2,97,21,600/ - AND ACCUMULATED PROFIT TO THE EXTENT OF RS.2,20,75,710/ - . CLEARLY, THEREFORE, THE ASSESSEE HAS SUFFICIENT NON - INTERE S T B EARING FUNDS WHICH COVERS MORE THAN THE INTEREST FREE ADVANCE OF RS.45,00,000/ - TO ITS ITA NO . 101 /AHD/ 20 1 2 ASSESSMENT YEAR: 2 0 0 8 - 09 PAGE 5 OF 5 DIRECTOR. IN VIEW OF THIS FACTUAL POSITION AND IN THE LIGHT OF HON BLE BOMBAY HIGH COURT S JUDGEMENT IN THE CASE OF CIT VS. RELIANCE UTILITIES 313 ITR 3 40, WHICH HOLDS THAT AS LONG AS SUFFICIENT INT EREST FREE FUNDS AR E AVAILABLE TO AN ASSESSEE, NO DISALLOWANCE CAN BE MADE IN RESPECT OF INTEREST FREE ADVANCES GIVEN BY THE ASSESSEE. TO THAT EX TENT , WE APPROVE THE A CTION OF LD . CIT(A) AND DECLINE TO INTERFERE IN THE MAT T ER. GROUND NO. 2 IS THUS DISMISS ED. 8 . IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMISSED. P RONOUNCED IN THE OPEN COURT ON THIS 6 TH D AY OF NOVEMBER , 2015. SD/ - SD/ - KUL BHARAT PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) AHMEDABAD , THE 6 TH DAY OF NOVEMBER , 201 5 PBN/* COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGI STRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD