Irbaz Shoe Company, CHENNAI V. ACIT, CHENNAI

ITA 1033/CHNY/2012

• Counselvise Citation: 103321714 RSA 2012
• Duration Of Justice: 1 year(s) 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 19-09-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 10-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N MADHAVAN
• Assessee Lawyers: T VASUDEVAN
• Keywords: Reopening of assessment; Difference of opinion; Change of opinion
• Section: 143(3); 37(1); 147; 148; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI (BEFORE SHRI N.S.SAINI, ACCOUNTANT MEMBER AND SHRI S.S.GODARA, JUDICIAL MEMBER ) .. I.T.A. NOS. 1032 & 1033/MDS/2012 ASSESSMENT YEARS : 2005-06 & 2007-08 M/S.IRBAZ SHOE COMPANY, 2(487),KILPAUK GARDEN, ROAD, KILPAUK, CHENNAI 600 010. PAN : AAAFI 5586 M (APPELLANT) V. ACIT, BUSINESS CIRCLE XII, CHENNAI (RESPONDENT) APPELLANT BY : SHRI T.VASUDEVAN, ADVOCATE RESPONDENT BY : SHRI N.MADH AVAN, JCIT, D.R. DATE OF HEARING : 19.09.13 DATE OF PRONOUNCEMENT : 20.09.13 O R D E R PER BENCH : THESE TWO APPEALS FILED BY THE ASSESSEE ARISE FR OM A COMMON ORDER OF CIT(A)-XII, CHENNAI DATED 21.02.2012, PASS ED IN ITA NO.348 & 349/2009-10 IN PROCEEDINGS UNDER SECTION 1 43(3) READ ITA NOS. 1032 & 1033MDS/13 2 WITH SECTION 147 OF THE INCOME TAX ACT, 1961 (IN SH ORT THE ACT), FOR ASSESSMENT YEARS 2005-06 & 2007-08, RESPECTIVELY. 2. IN THE COURSE OF HEARING, THE VEHEMENTLY CONTEN TION OF THE ASSESSEE IS THAT IN BOTH THE ASSESSMENT YEARS, THE CIT(A) HAS WRONGLY CONFIRMED THE VALIDITY OF REASSESSMENT IN Q UESTION AND DISALLOWANCE PERTAINING TO FOREIGN TRAVEL EXPENSES OF ` 8,54,284/- & ` 2,89,027/- RESPECTIVELY. THEREAFTER, IT REITERATES THE PLEADING AND PRAYS FOR ACCEPTANCE OF THE APPEALS ON LEGALITY OF REOPENING AS WELL AS ON MERITS BY PLACING ON RECORD A COPY OF PARTNER SHIP DEED DATED 01.04.08 AS WELL AS ITS CERTIFICATE OF EXPORTER/IMP ORTER CODE (IEC) BEARING NO.0493014233 ISSUED ON 13.09.1993. 3. IN REPLY, THE REVENUE DRAWS SUPPORT FROM THE OR DER OF THE CIT(A) IN BOTH ASSESSMENT YEARS AND PRAYS FOR UPHO LDING THE SAME. QUA THE DOCUMENTS PLACED ON RECORD, ITS SUBMISSION IS THAT THEY ARE NOT PART OF THE RECORD OF THE LOWER AUTHORITIES. ITA NOS. 1032 & 1033MDS/13 3 4. THE ASSESSEE IS A SHOE COMPANY. IT HAS BEEN ISSUED CERTIFICATE OF EXPORTER/IMPORTER CODE AS WELL(SUPRA ). FOR A.Y.2005-06, THE ASSESSEE HAD FILED ITS RETURN ON 31.10.2005 DEC LARING A TOTAL INCOME OF ` 1,08,20,770/-. SIMILARLY, FOR A.Y. 2007-08, ITS RE TURN WAS FILED ON 07.11.2007 DISCLOSING AN INCOME OF ` 24,99,170/-. BOTH RETURNS WERE SUMMARILY PROCESSED. THEREAFTER, AS SESSING OFFICER TOOK RECOURSE TO REOPENING OF ASSESSMENT BY ISSUING NOTICES IN BOTH ASSESSMENT YEARS UNDER SECTION 148 OF THE ACT. 4.1. COMING TO ASSESSMENT YEAR 2005-06, THE ASSESSE E HAD SPENT A SUM OF ` 8,54,284/- FOR FOREIGN TRAVEL OF SMT.RAVIA AEJAZ, W IFE OF MR.AEJAZ AHMED(PARTNER). IN THE REASSESSMENT FINALI ZED ON 23.11.09, THE ASSESSING OFFICER OBSERVED THAT THE SAME WAS NO T ALLOWABLE ON PART OF THE FAILURE OF THE ASSESSEE TO PROVE ITS RE LEVANCE FOR THE PURPOSE OF BUSINESS. IN VIEW THEREOF, THE IMPUGNED ADDITION ` 8,54,284/- WAS MADE IN ASSESSEES INCOME. SIMILAR ADDITION WAS ALSO MADE IN THE RE-ASSESSME NT ORDER DATED 31.12.09 FOR ASSESSMENT YEAR 2007-08. THE ONL Y DIFFERENCE ITA NOS. 1032 & 1033MDS/13 4 BEING THAT IN THE SAID ASSESSMENT YEAR, THE EXPENSE S WERE OF ` 2,89,027/- OUT OF WHICH A SUM OF ` 2,03,607/- WAS INCURRED FOR ONE ADIRANO NATALINI TO ATTRACT FOREIGN BUYERS FOR MAR KETING OF ASSESSEES SHOE PRODUCE. 5. AGGRIEVED, THE ASSESSEE PREFERRED APPEALS. WE FIND THAT IN THE COURSE THEREOF, THE CIT(A) HAS NOT ONLY CONFIRMED T HE ADDITIONS ON MERITS, BUT ALSO HAS REJECTED THE ASSESSEES GROUND CHALLENGING THE VALIDITY OF THE REOPENING IN QUESTION BY OBSERVING AS UNDER:- DECISION: THE ASSESSEE IS A PARTNERSHIP FIRM. IN THE TAX AUDI T REPORT OF A.Y.2005-06, IT WAS MENTIONED THAT THE FOREIGN T RAVEL EXPENSES ARE PERSONAL IN NATURE. SINCE THE PERSONAL EXPENSES AR E NOT ALLOWABLE EXPENSES, THE SAME NEEDS TO BE EXCLUDED AND ADDED BACK TO THE TAXABLE INCOME IN COMPUTING THE TAXABLE INCOME WHIL E FILING THE RETURN OF INCOME.FAILURE ON PART OF THE ASSESSEE TO DO SO AND SINCE THE RETURN OF INCOME OF A.Y. 2005-06 WAS NOT SELECTED FOR SCRU TINY, THE CASE WAS RE-OPENED UNDER SECTION 147 OF THE ACT. FURTHER T HE RE-OPENING WAS DONE WITHIN 4 YEARS FROM THE ENDS OF THE ASSESSMENT YEAR IN WHICH IT WAS ASSESSABLE. HENCE THE ISSUE OF DISCLOSING THE MATERIAL FACTS IN THE RETURN OF INCOME IS IR-RELEVANT. FURTHER SINCE THE RETURN WAS NOT SUBJECTED TO SCRUTINY UNDER SECTION 143(3) OF THE A CT EARLIER, THE QUESTION OF CHANGE OF OPINION DOES NOT ARISE AT ALL . HENCE, THE ASSESSING OFFICER RIGHTLY RE-OPENED THE ASSESSMENT OF A.Y.2005-06, ITA NOS. 1032 & 1033MDS/13 5 UNDER SECTION 147 OF THE ACT. THE ACTION OF THE AS SESSING OFFICER IS THEREFORE CONFIRMED. THE ASSESSEE FAILS IN ITS APP EALS IN THIS REGARD. DURING THE F.Y. 2004-05, THE ASSESSEE INCURRED FOR EIGN TRAVEL EXPENSES, WHICH INCLUDES FOREIGN TRAVEL EXPENSES (R S. ` 8,54,284/-) OF THE WIFE OF ONE OF THE PARTNERS. THE TAX AUDIT REPO RT CATEGORICALLY REVEALED THAT THE EXPENSES ARE PERSONAL IN NATURE. HENCE THE SAME IS NOT ALLOWABLE EXPENDITURE UNDER SECTION 37(1) OF TH E IT ACT. FURTHER, AS CONFIRMED BY THE ASSESSEE, THE WIFE OF THE PARTNER, WHO TRAVELED ABROAD (ENGLAND), IS NEITHER A PARTNER NOR AN EMPLOYEE OF THE ASSESSEE FIRM. THE ASSESSEE ALSO FAILED TO ESTABLISH THE BUSINESS CONNECTION WITH THE TRAVELING EXPENSES OF THE WIFE OF THE PARTNER. HENC E, THE ASSESSEES CLAIM OF EXPENSES OF THE WIFE OF THE PARTNER IS NOT ALLOWABLE. FOR THIS PRUPOSE, RELIANCE IS PLACED ON THE JUDGEMENT OF JUR ISDICTIONAL HIGH COURT, IN THE CASE OF CIT VS. S & S POWER SWITCHGEA R LTD. [2012] (18 TAXMANN.COM 28(MAD.), WHEREIN IT WAS HELD THAT UNLE SS IT WAS ESTABLISHED BY ASSESSEE THAT TRAVELLING OF CHAIRMAN S WIFE WAS ONLY FOR BUSINESS PURPOSE BY PRODUCING TANGIBLE EVIDENCE, IT S CLAIM COULD NOT BE ALLOWED PARTICULARLY IN CIRCUMSTANCES WHEN WIFE OF CHAIRMAN WAS NOT OCCUPYING ANY OFFICIAL POSITION IN COMPANY. IN VIEW OF THE ABOVE DISCUSSIONS, THE ASSESSING O FFICER IS JUSTIFIED IN DISALLOWING THE ASSESSEES CLAIM OF FOREIGN TRAVEL EXPENSES OF ` 8,54,284/- SPENT ON THE WIFE OF ONE OF THE PARTNERS DURING THE F.Y. 2004-05 I.E. RELEVANT TO A.Y. 2005-06. THE ACTION OF THEAO IS THEREFORE CONFIRMED,. ITA NOS. 1032 & 1033MDS/13 6 AS REGARDS TO THE FOREIGN TRAVEL EXPENSES (RS.2,89 ,027/-) DISALLOWED BY THE ASSESSING OFFICER IN THE A.Y.2007-08, THE EX PENSES ARE INCURRED IN RELATION TO THE FOLLOWING PERSONS: ` I) ADIRANO NATALINI 2,03,607/- II) C.V.CISARUA 1,647 III) RAVIA 29,414/- IV) FAZWAZ.WALSA 7,5222/- TOTAL 2,89,027 THE ASSESSING OFFICER IN HIS ORDER OBSERVED THAT TH ERE WAS NO BUSINESS CONNECTION WITH THESE EXPENSES AND HENCE DISALLOWED THE SAME. BEFORE THE UNDERSIGNED THE ASSESSEE CLAIMED THAT TH ESE FOREIGN TRAVELS WERE UNDERTAKEN TO ATTRACT THE FOREIGN CUSTOMERS TO COME TO INDIA AND BUY THE PRODUCTS (SHOES ETC.). THIS EXPLANATION IS VERY VAGUE. THE ASSESSEE WAS NOT IN TO EXPORTS. ALL THE SALES ARE LOCAL SALES ONLY. FURTHER, THE ASSESSEE HAS NOT FURNISHED ANY EVIDENC ES AS TO HOW THESE PERSONS CONTACTED THE PROSPECTIVE CUSTOMERS OR THE NATURE OF EFFORTS UNDERTAKEN BY THEM IN ORDER TO CANVASS/ADD NEW CUST OMERS. IN THE ABSENCE OF ANY DETAILS, IT IS VERY DIFFICULT TO BEL IEVE THE ASSESSEES EXPLANATION. HENCE, THE ASSESSING OFFICER IS JUSTI FIED IN DISALLOWING THE SAID FOREIGN EXPENSES OF ` 2,89,027/-, IN THE A.Y.2007-08. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS THERE FORE CONFIRMED. THEREFORE, THE ASSESSEE IS AGGRIEVED. ITA NOS. 1032 & 1033MDS/13 7 6. WE HAVE HEARD BOTH PARTIES AND PERUSED THE CASE FILE AT LENGTH. THE ASSESSEES ARGUMENTS ARE TWO FOLDED I.E. CHALLE NGE TO THE REOPENING AS WELL AS QUA CORRECTNESS OF THE ADDITIO NS ON MERITS. FIRST, WE TAKE UP THE ISSUE ON MERITS. QUA A.Y. 200 5-06, IT IS TO BE SEEN THAT THE ONLY GROUND TAKEN BY THE CIT(A) FOR R EJECTING FOREIGN TRAVEL EXPENSES CLAIM IS THAT THE PARTNERS WIFE HAD TRAVELLED AND NO BUSINESS PURPOSE HAD BEEN SUBSTANTIATED. A PERUSAL OF THE PARTNERSHIP DEED (SUPRA) REVEALS THAT THE ASSESSEE- FIRM CAME INTO BEING ON 01.07.1993 AND THE TRAVELLER IN QUESTION I .E. SMT.RAVIA AEJAZ WAS ONE OF THE FOUNDER PARTNERS. THOUGH T HE REVENUE HAS ARGUED THAT THE PARTNERSHIP DEED AND THE OTHER EVID ENCE (SUPRA) IS NOT A PART OF RECORD, IN OUR VIEW, SINCE THE IMPUGN ED A.Y. 2005-06 IS NOT THE FIRST YEAR OF BUSINESS OF THE ASSESSEE, IT CAN BE TAKEN ON RECORD FOR DOING SUBSTANTIVE JUSTICE. THEREFORE, W E HOLD THAT SINCE MRS.RAVIA AEJAZ HAD TRAVELLED IN THE CAPACITY OF A PARTNER HERSELF OF THE ASSESSEE FIRM AND IN VIEW OF THE FACT THAT ASSE SSEE IS ALSO AN IMPORTER/EXPORTER OF THE SHOES PRODUCED, THE EXPENS ES IN QUESTION HAD BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PU RPOSE OF BUSINESS. ITA NOS. 1032 & 1033MDS/13 8 ACCORDINGLY, THE RELEVANT GROUND FOR A.Y. 2005-06 I S DECIDED IN FAVOUR OF THE ASSESSEE. 7. THIS LEAVE US WITH THE A.Y.2007-08 CONTAINING T HE ISSUE OF DISALLOWANCE OF ` 2,89,027/-. IN THIS REGARD, THE CIT(A) HELD THAT T HE ASSESSEE IS NOT IN EXPORTS. AS DISCUSSED HEREINABO VE, THE ASSESSEE HAS BEEN GIVEN IEC NO.(SUPRA) BY WAY OF CERTIFICATE OF IMPORTER/EXPORTER BY MINISTRY OF COMMERCE, GOVERNM ENT OF INDIA. SO, THIS FINDINGS OF THE CIT(A) DOES NOT HOLD GROUN D. THERE IS NO OTHER COGENT REASON CITED TO DISALLOW THE ASSESSEE S CLAIM. IN VIEW THEREOF, WE HOLD THAT THE ASSESSEE BEING AN IMPORTE R/EXPORTER IN ITS LINE OF BUSINESS, HAS INCURRED THE FOREIGN TRAVEL E XPENSES OF ADIRANO NATALINI ALONG WITH OTHER PERSONS WHOLLY AND EXCLUS IVELY FOR THE PURPOSE OF BUSINESS, AND THE EXPENSES IN QUESTION A RE ALLOWABLE. ACCORDINGLY, THIS GROUND IS ALSO ACCEPTED IN FAVOUR OF THE ASSESSEE. 8. AS SEQUEL TO OUR DISCUSSION, WE ARE OF THE VIEW THAT ONCE WE UPHELD THE ASSESSEES CLAIM ON MERITS, THE GROUND O F VALIDITY OF ITA NOS. 1032 & 1033MDS/13 9 REOPENING IS MERELY OF ACADEMIC SIGNIFICANCE. THE SAME IS THEREFORE NOT BEING ADJUDICATED UPON. 9. IN THE RESULT, THE APPEALS OF ASSESSEE ARE ALLOW ED. ORDER PRONOUNCED ON FRIDAY , THE 20 TH SEPTEMBER, 2013 AT CHENNAI. SD/- SD/- (N.S.SAINI) (S.S.GODARA) ACCOUNTLANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 20 TH SEPTEMBER, 2013. K S SUNDARAM. COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE