ACIT, Circle-3, Kolkata, Kolkata V. M/s. Jai Raj Ispat Ltd, Kolkata

ITA 1062/KOL/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 99971 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 3 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-11-2015
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 25-08-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 16-07-2012
• Court: TRIBUNAL
• Department Lawyers: ANIL KR PANDE
• Assessee Lawyers: S K TULSIYAN
• Keywords: Commercial expediency
• Section: 143(3); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA [BEFORE SHRI MAHAVIR SINGH, JM & SHRI WASEEM AHMED , AM] I.T.A NO.1062/KOL/2012 ASSESSMENT YEAR: 2009-10 ASSISTANT COMMISSIONER OF INCOME-TAX VS. M/S. JAI RAJ ISPAT LTD. CIRCLE-3, KOLKATA. (PAN:AAACJ6859P) ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 02.11.2015 DATE OF PRONOUNCEMENT: 10.11.2015 FOR THE APPELLANT: SHRI ANIL KR. PANDE, JCIT, SR . DR FOR THE RESPONDENT: SHRI S. K. TULSIYAN, ADVOCATE ORDER PER SHRI MAHAVIR SINGH, JM: THIS APPEAL BY REVENUE IS ARISING OUT OF ORDER OF C IT(A)-1, KOLKATA IN APPEAL NO.845/CIT(A)-I/C-3/11-12 DATED 23.04.2012. ASSESS MENT WAS FRAMED BY ADDL. CIT, RANGE-3, KOLKATA U/S. 143(3)/11 OF THE INCOME-TAX A CT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEAR 2009-10 VIDE HIS ORD ER DATED 20.12.2011. 2. THE TWO INTER-CONNECTED ISSUES IN THIS APPEAL OF REVENUE IS AS REGARDS TO THE ORDER OF CIT(A) DELETING THE ADDITION MADE BY AO ON ACCOU NT OF EXPENSES INCURRED BY ASSESSEE COMPANY ON MEDICAL TREATMENT OF MANAGING D IRECTOR SHRI S. K. GOENKA AND ALSO TRAVELLING EXPENSES OF MANAGING DIRECTOR (MD) AND OTHER DIRECTORS IN CONNECTION WITH TREATMENT OF MANAGING DIRECTOR ABROAD. FOR TH IS, REVENUE HAS RAISED FOLLOWING THREE GROUNDS: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E THE LD. CIT(A)ERRED IN DELETING THE ADDITION OFRS.1,09,43,181/- MADE ON ACCOUNT OF 'ME DICAL TREATMENT OF SRI S.K. GOENKA, M.D OF THE COMPANY' WITHOUT APPRECIATING THE FACT T HAT IT WAS A GRATUITOUS PAYMENT AND CANNOT BE REGARDED AS COMMERCIAL EXPEDIENCY. 2. THAT THE CIT(A) HAS ERRED IN DELETING THE ADDITI ON OF RS.1,09,43,181/-WITHOUT TAKING INTO ACCOUNT THE FACT THAT THE REIMBURSEMENT OF MED ICAL EXPENSES WAS NOT A CONTRACTUAL OBLIGATION OF THE ASSESSEE COMPANY AND THEREFORE, I T WAS PURELY PERSONAL EXPENSES OF MD WHICH IS NOT ALLOWABLE U/S. 37 OF THE ACT, 1961. 3. THAT THE CIT(A) HAS ERRED IN DELETING THE ADDITI ON OF RS.11,42,835/- WITHOUT APPRECIATING THE FACT THAT SAID AMOUNT WAS INCURRED ON ACCOUNT OF TRAVELLING EXPENSES OF THE MD AND OTHER DIRECTORS IN CONNECTION WITH TR EATMENT OF MD IN ABROAD AND THEREFORE, THE SAME WERE PERSONAL IN NATURE HAVING NO NEXUS WITH THE BUSINESS. 2 ITA NO.1062/K/2012 JAI RAJ ISPAT LTD. AY 2009-10 3. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE CLAIM ED DEDUCTION IN RESPECT OF EXPENSES INCURRED ON MEDICAL TREATMENT OF ITS MANAGING DIREC TOR SHRI S. K. GOENKA, WHO WAS SENT ON MEDICAL TREATMENT TO USA AMOUNTING TO RS.1,09,43 ,181/- AND ALSO INTER-CONNECTED EXPENSES OF FOREIGN TRAVEL OF MANAGING DIRECTOR AND OTHER DIRECTORS OF THE COMPANY AMOUNTING TO RS.11,42,835/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY THESE EX PENSES BE NOT TREATED AS PERSONAL IN NATURE AND BE NOT DISALLOWED? THE AO AFTER TAKING EXPLANATION OF THE ASSESSEE REJECTED THE CLAIM OF THE ASSESSEE AND DISALLOWED MEDICAL TR EATMENT EXPENSES AS WELL AS FOREIGN TRAVEL EXPENSES. AGGRIEVED, ASSESSEE PREFERRED APP EAL BEFORE CIT(A) WHO ALLOWED THE CLAIM OF ASSESSEE IN RESPECT TO MEDICAL TREATMENT E XPENSES OF THE MANAGING DIRECTOR AND ALSO FOREIGN TRAVEL EXPENSES OF MANAGING DIRECTOR A ND OTHER DIRECTORS BY OBSERVING AS UNDER: THE LD. A/R ALSO POINTED OUT THAT SINCE IN RELATI ON TO THE EXPENSES SO INCURRED BY THE ASSESSEE FOR THE TREATMENT OF SRI GOENKA, A LIABILI TY WAS FOUND U/S. 115WE FOR FRINGE BENEFIT TAX AND THAT AN ASSESSMENT HAS BEEN MADE ON 20 TH DECEMBER, 2011 BY THE AO. A COPY OF THE ORDER U/S. 115 WE (3) OF THE INCOME T AX ACT HAS BEEN SUBMITTED. IT IS SEEN THAT THE ASSESSEE HAD SUBMITTED ITS RETURN OF FBT O N 24.09.2009 FOR THE AY 2009-10 SHOWING VALUE OF FRINGE BENEFIT AT RS.36,03,476/-. ASSESSMENT WAS MADE AND FRINGE BENEFIT TAX WAS CALCULATED AT RS.12,60,003/-. IT HA S BEEN CONTENDED BY THE LD. A/R THAT BECAUSE THE ASSESSEE'S LIABILITY AROSE FOR FRINGE B ENEFIT TAX, IT WAS ACCORDINGLY SHOWN IN THE RETURN AND THAT ASSESSMENT HAS BEEN MADE ALS O. IT IS SUBMITTED THAT THE A.O. HAS NOT DISPUTED THE PURPOSE RELATING TO THE TRAVELLING MADE BY THE MG. DIRECTOR AND THAT ONCE THE A.O. HAS ASSESSED THESE EXPENSES UNDER FBT , IT CANNOT BE SAID THAT THESE ARE NOT FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. I HAVE TAKEN NOTE OF ALL THE FACTS & CIRCUMSTANCES RELATING TO THE ISSUE INVOLVED. IT IS FULLY ESTABLISHED THAT SRI GOENKA, THE MG. DIRECTOR HAS BEEN INSTRUMENTAL IN BRINGING THE ASSESSEE COMPANY TO THE PRESENT STATUS BY HIS H ARD WORK AND FARSIGHTEDNESS. THE DATA WHICH IS AVAILABLE FROM THE AUDITED ACCOUNTS F OR VARIOUS YEARS & NOTED IN THE WRITE UP DO SHOW THAT THE COMPANY HAS BEEN PROCEEDING IN A VERY SOUND AND PROFITABLE POSITION AND THAT IS ENTIRELY DUE TO THE WHOLE TIME AND ATTENTION PUT BY SRI GOENKA. THOUGH THERE ARE OTHER DIRECTORS IN THE ASSESSEE CO MPANY BUT THEY ARE STATED TO HAVE NO HAND IN THE DAY TO DAY BUSINESS OF THE ASSESSEE. THE EXPENDITURE INCURRED BY THE ASSESSEE IS NOT IN THE NATURE OF CAPITAL EXPENDITUR E. IT ALSO CANNOT BE SAID TO BE PERSONAL EXPENSES OF THE ASSESSEE. IN THE CIRCUMSTANCES OF T HE CASE, IT IS, IN FACT, EXPENDITURE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURP OSE OF THE BUSINESS. I ALSO TAKE NOTE OF THE FACT THAT THE AUDITORS HAVI NG FOUND THAT EXPENSES RELATING TO SRI GOENKA FOR HIS TREATMENT REPORTED THE FACT THAT IT WAS SUBJECT TO FRINGE BENEFIT TAX. ACCORDINGLY, LIABILITY TO FRINGE BENEFIT TAX WAS WO RKED OUT AND RETURN WAS SUBMITTED WHICH HAS BEEN DULY ACCEPTED AND ORDER U/S 115 WE ( 3) HAS BEEN PASSED BY THE A.O. AS NOTED ABOVE. 3 ITA NO.1062/K/2012 JAI RAJ ISPAT LTD. AY 2009-10 IN THE FACTS AND CIRCUMSTANCES, AS ANALYZED ABOVE, I AM OF THE CONSIDERED OPINION THAT THE EXPENDITURE CLAIMED BY THE ASSESSEE FOR THE TRE ATMENT OF SRI GOENKA, ITS MG. DIRECTOR WHO WAS SUFFERING FROM SERIOUS CANCER AILM ENT ARE FULLY ALLOWABLE AS THE SAME HAVE BEEN INCURRED FOR THE PURPOSE OF THE BUSINESS. THERE IS NO REASON TO HOLD THAT THESE ARE HIS PERSONAL EXPENSES BY INCURRING SUCH EXPENSE S, THE ASSESSEE COMPANY HAS SURVIVED AND IT WILL BE TOTALLY UNFAIR TO PROCEED T O HOLD THAT THESE ARE NOT EXPENSES INCURRED BY THE ASSESSEE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ITS BUSINESS. FURTHER, EVEN OTHERWISE IN VIEW OF THE FACT THAT IN THE ASSESSMENT FRAMED U/S. 115WE(3) OF THE FRINGE BENEFIT TAX IN WHICH THE ASSESSEE WOR KED OUT FRINGE BENEFIT TAX LIABILITY TAKING INTO CONSIDERATION THE WORKMAN & STAFF WELFA RE EXPENSES WHICH INCLUDED THE AMOUNT OF MEDICAL TREATMENT OF THE MG. DIRECTOR SRI GOENKA AS WELL AS FOREIGN TRAVEL EXPENSES, THE ADDITION MADE IN THE ORDER PASSED U/S . 143(3) WHILE DETERMINING THE TOTAL INCOME IS NOT TENABLE. UPON CONSIDERATION OF THE FACTS & CIRCUMSTANCES IN ENTIRETY, I ALLOW THE APPEAL OF THE ASSESSEE AND DIRECT THE AO TO DELETE THE ADDITIONS OF RS.1,09,43,181/- AND RS.11,42,835/-. AGGRIEVED, NOW ASSESSEE IS IN APPEAL BEFORE THE TRI BUNAL. 4. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. IT WAS CLAIMED BEFORE US THAT MD OF THE ASSES SEE COMPANY WAS ILL AND WAS DIAGNOSED WITH DISEASE CALLED AS MALIGNANT GROWTH ( CANCER) FOR WHICH HE WAS TAKEN TO USA FOR TREATMENT. ACCORDING TO ASSESSEE, SINCE HE WAS MD OF THE ASSESSEE COMPANY SINCE PAST SEVERAL YEARS AND HAS BEEN INSTRUMENTAL IN GIVING COMPANY UNPRECEDENTED RISE IN ITS TURNOVER AND HAS BROUGHT GOOD PROFITS AND RE PUTATION. KEEPING IN VIEW THESE FACTS, THE BOARD OF DIRECTORS PASSED A RESOLUTION FOR SEND ING HIM TO USA FOR TREATMENT AT THE EXPENSES OF THE ASSESSEE COMPANY. LD. COUNSEL FOR THE ASSESSEE BEFORE US EXPLAINED THE INCREASE IN TURNOVER PROFITS WITH FACTS AND FIGURES THAT THE RECEIPTS FROM SALES AND OTHER SERVICES DURING THE AY 2006-07, WHICH ARE REFLECTED AT RS.12,336.78 LACS, IT HAS GONE UP TO RS.18,918.81 LACS IN THE AY 2009-10. WHEREAS RE SERVE & SURPLUS OF THE APPELLANT WERE RS.1,548.05 LACS IN AY 2006-07, IT IS REFLECTE D AT RS.3,189.16 LACS IN THE AY 2009- 10. SIMILAR IS THE POSITION WITH REGARD TO PROFIT BEFORE TAX WHICH WAS REFLECTED AT RS.161.33 LACS IN AY 2006-07, IT IS RS.290.74 LACS IN THE AY 2009-10. IN VIEW OF THE ABOVE, LD. COUNSEL FOR THE ASSESSEE STATED THAT THE EXPENSES IN RELATION TO MEDICAL TREATMENT OF THE MD OF THE ASSESSEE COMPANY AND REL ATED TRAVEL EXPENSES WERE SUBJECTED TO FRINGE BENEFIT TAX U/S. 115WE OF THE ACT AND ASS ESSMENT HAS BEEN MADE IN RESPECT TO 4 ITA NO.1062/K/2012 JAI RAJ ISPAT LTD. AY 2009-10 FRINGE BENEFIT TAX BY THE AO ON 20.12.2011 TAXING T HESE EXPENSES IN THE HANDS OF THE ASSESSEE COMPANY AS PERQUISITES. LD. COUNSEL FOR T HE ASSESSEE ALSO STATED THAT IN VIEW OF THE PROVISIONS OF SECTION 37 OF THE ACT READ WITH T HE POSITION IN COMPANY LAW THE EXPENSES INCURRED ON MEDICAL TREATMENT OF THE MD OF THE ASSESSEE COMPANY ARE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. HE AR GUED THAT ONE HAS TO TAKE NOTE OF AND LOOK TO THIS MATTER IN THE PRESENT CONTEXT OF BUSIN ESS EXIGENCIES AND THERE IS NO REASON NOT TO CONSIDER THE EXPENSES INCURRED AS PERTAINING TO ITS BUSINESS AND FOR THIS POTENTIALITIES, PRESENT AS WELL AS FUTURE. HE EXPL AINED THAT THE ASSESSEE IS A JURIDICAL ENTITY AND IT IS SURVIVING IN THE FIELDS OF ITS BUS INESS DUE TO GOOD GUIDANCE OF ITS MD SHRI S. K. GOENKA, WHO IS PRIMA FACIE A MATTER RECKONED WITH. ON THE OTHER HAND, THE LD. SR. DR RELIED ON THE ASSESSMENT ORDER. 5. WE FIND FROM THE ABOVE FACTS AND CIRCUMSTANCES O F THE CASE THAT THE MD OF THE ASSESSEE COMPANY WAS SUFFERED FROM CANCER WHO WAS S ENT ON MEDICAL TREATMENT TO USA AND ASSESSEE COMPANY HAS INCURRED THE MEDICAL TREAT MENT EXPENSES AS WELL AS FOREIGN TRAVEL EXPENSES OF THE MANAGING DIRECTOR AND OTHER DIRECTORS ALSO. WE FIND THAT THE BOARD OF DIRECTORS OF THE ASSESSEE COMPANY HAS PASS ED A RESOLUTION TO MEET THE ENTIRE EXPENDITURE OF MEDICAL EXPENSES INCLUDING TRAVEL EX PENSES BY THE ASSESSEE COMPANY. WE FIND FROM THE FACTS OF THE CASE THAT, SINCE HE W AS MD OF THE ASSESSEE COMPANY SINCE PAST SEVERAL YEARS AND HAS BEEN INSTRUMENTAL IN GIV ING COMPANY UNPRECEDENTED RISE IN ITS TURNOVER AND HAS BROUGHT GOOD PROFITS AND REPUTATIO N, IN THE INTEREST OF ASSESSEES BUSINESS NEEDS THE MEDICAL TREATMENT EXPENSES WERE WORN. KEEPING IN VIEW THESE FACTS, THE BOARD OF DIRECTORS PASSED A RESOLUTION FOR SEND ING HIM TO USA FOR TREATMENT AT THE EXPENSES OF THE ASSESSEE COMPANY. WE FIND FROM THE FACTS OF THE CASE THAT THERE IS INCREASE IN TURNOVER PROFITS WITH FACTS AND FIGURES THAT THE RECEIPTS FROM SALES AND OTHER SERVICES DURING THE AY 2006-07, WHICH ARE REFLECTED AT RS.12,336.78 LACS, AND IT HAS GONE UP TO RS.18,918.81 LACS IN THE AY 2009-10. WH EREAS RESERVE & SURPLUS OF THE APPELLANT WERE RS.1,548.05 LACS IN AY 2006-07, IT I S REFLECTED AT RS.3,189.16 LACS IN THE AY 2009-10. SIMILAR IS THE POSITION WITH REGARD TO PROFIT BEFORE TAX WHICH WAS REFLECTED 5 ITA NO.1062/K/2012 JAI RAJ ISPAT LTD. AY 2009-10 AT RS.161.33 LACS IN AY 2006-07, IT IS RS.290.74 LA CS IN THE AY 2009-10. FURTHER, THE EXPENSES IN RELATION TO MEDICAL TREATMENT OF THE MD OF THE ASSESSEE COMPANY AND RELATED TRAVEL EXPENSES WERE SUBJECTED TO FRINGE BENEFIT TA X U/S. 115WE OF THE ACT AND ASSESSMENT HAS BEEN MADE IN RESPECT TO FRINGE BENEF IT TAX BY THE AO ON 20.12.2011 TAXING THESE EXPENSES IN THE HANDS OF THE ASSESSEE COMPANY AS PERQUISITES. ONCE THESE ARE MADE SUBJECT MATTER OF FRINGE BENEFIT TAX U/S. 115WE OF THE ACT AND TAXES WERE PAID BY THE ASSESSEE COMPANY UNDER FRINGE BENEFIT TAX, I T CANNOT BE TAXED DOUBLY BY MAKING DISALLOWANCE OF THESE EXPENSES. ACCORDINGLY, WE CO NFIRM THE ORDER OF CIT(A) ALLOWING THE CLAIM OF ASSESSEE. ACCORDINGLY, THIS INTER-CON NECTED ISSUE OF REVENUES APPEAL IS DISMISSED. 6. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSE D. 7. ORDER IS PRONOUNCED IN THE OPEN COURT ON 10.11.2 015 SD/- SD/- (WASEEM AHMED) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 10TH NOVEMBER, 2015 JD. SR. P.S COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT ACIT, CIRCLE-3, KOLKATA 2 RESPONDENT M/S. JAI RAJ ISPAT LTD., 11B, JATINDRA MOHAN AVENUE, BEADON ST., KOLKATA-700 006. 3 . THE CIT(A), KOLKATA 4. 5. CIT KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .