Sportking India Ltd., New Delhi V. ACIT, New Delhi

ITA 1170/DEL/2011

• Counselvise Citation: 117020114 RSA 2011
• Duration Of Justice: 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 22-09-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 04-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S MOHANTY; SALIL MISHRA SR DRS
• Assessee Lawyers: Y P RAWLA
• Keywords: Business expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH G DELHI) BEFORE SHRI G.E. VEERABHADRAPPA, HONBLE PRESIDENT AND SHRI A.D. JAIN, JUDICIAL MEMBER ITA NO. 1170(DEL)2011 ASSESSMENT YEAR: 2005-06 SPORTKING INDIA LIMITED, ASST T.COMMISSIONER OF INCOME TAX, 5/69, GURU MANSION, KAROL BAGH, V. CIRCLE 9(1), NEW DELHI. NEW DELHI. (APPELLANT) (RESP ONDENT) APPELLANT BY: SHRI Y.P, RAWLA, CA RESPONDENT BY: SMT. S. MOHANTY & S HRI SALIL MISHRA, SR.DRS ORDER PER A.D. JAIN, J.M . THIS IS ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2 005-06 AGAINST THE ORDER DATED 30.12.08 PASSED BY THE COMMISSIONER OF INCOME TAX(APPEALS)XII, NEW DELHI, CONFIRMING THE LEVY OF CONCEALMENT PENALTY OF ` 99,822/-. 2. THE FACTS ARE THAT THE ASSESSEE, FOR THE YEAR UN DER CONSIDERATION, FILED RETURN OF INCOME DECLARING INCOME OF ` 1,46,96,980/-. THE AO ASSESSED THE ASSESSEES INCOME AT ` 1,50,69,770/-. THE ASSESSEE IS A COMPANY ENGAGED IN ITA 1170(DEL)2011 2 THE MANUFACTURE OF TEXTILE ITEMS INCLUDING YARN AND IN EXPORT THEREOF. THE AO DISALLOWED TRAVELLING EXPENSES OF THE MANAGING D IRECTOR OF THE ASSESSEE COMPANY AND HIS WIFE, AMOUNTING TO ` 2,72,974/-. THIS DISALLOWANCE WAS UPHELD BY THE LD. CIT(A) AS WELL AS BY THE ITAT. VIDE PENALTY ORDER DATED 26.2.2010, THE AO IMPOSED PENALTY OF ` 99,822/-. THE LEARNED CIT(A), BY VIRTUE OF THE IMPUGNED ORDER, CONFIRMED THE PENALTY . THIS BRINGS THE ASSESSEE IN FURTHER APPEAL BEFORE US. 3. CHALLENGING THE IMPUGNED ORDER, THE LEARNED COUN SEL FOR THE ASSESSEE HAS CONTENDED THAT THIS IS THE SECOND YEAR OF EXPOR T BUSINESS CARRIED ON BY THE ASSESSEE; THAT IN THE EARLIER YEAR, 50% ADDITIO N WAS MADE IN THE CASE OF THE WIFE OF THE MANAGING DIRECTOR OF THE ASSESSEE C OMPANY, WHEREAS NO ADDITION HAD BEEN MADE IN THE CASE OF THE MANAGING DIRECTOR; THAT THE TRIBUNAL CONFIRMED THE DISALLOWANCE; THAT IN THE YE AR UNDER CONSIDERATION, TOTAL DISALLOWANCE WAS MADE; THAT ALL PARTICULARS W ITH REGARD TO THE FOREIGN TRAVEL WERE DULY DISCLOSED BEFORE THE TAXING AUTHOR ITIES; AND THAT THEREFORE, NO CONCEALMENT PENALTY IS CALLED FOR. 4. ON THE OTHER HAND, STRONGLY RELYING ON THE IMPUG NED ORDER, THE LD. DR HAS ALSO SOUGHT TO PLACE RELIANCE ON ZOOM COMMUNIC ATIONS, 210 TIOL 361 HC(DEL)IT. ITA 1170(DEL)2011 3 5. IT IS SUBMITTED THAT THE ASSESSEE MADE THE FOLLO WING SUBMISSIONS BEFORE THE TAXING AUTHORITIES:- FOREIGN TRAVEL EXPENSES INCURRED BY THE COMPANY ARE IN THE NATURE OF BUSINESS EXPENDITURE INCURRED BY THE EMPLOYEES OF T HE COMPANY: A) WORKS MANAGER OF THE COMPANY. THE TOTAL EXPENSE S WERE AS RS. 37,079/-. B) EXPORT MARKETING MANAGER OF THE COMPANY. THE TO TAL EXPENSES WERE AS RS. 35,772/-. C) MANAGING DIRECTOR OF THE PUBLIC LIMITED COMPANY. THE TOTAL EXPENSES WERE AS RS. 2,10,310/-. D) WIFE OF MANAGING DIRECTOR OF THE COMPANY. SHE A CCOMPANIED HER HUSBAND DURING HIS BUSINESS TOUR AS PER DESIRE OF F OREIGN CUSTOMER. THE TOTAL EXPENSES WERE AS RS. 2,72,794/ -. E) AND OTHERS. THE TOTAL EXPENSES WERE AS RS. 15,0 35/-. 1) BESIDE EXPORTS. DIRECTOR OF THE COMPANY IN ORD ER TO SHOW BETTER RESULTS, OPTED TO IMPORT RAW MATERIAL (FIBRE) FROM ABROAD AN D COULD ACHIEVE BETTER QUALITY OF FINISHED GOODS AS WELL AS DERIVE MORE PR OFITS. THE IMPORTS ARE AS UNDER: PARTICULARS A.Y. 2002-03 A.Y. 2003-04 A.Y. 20 04-05 A.Y. 2005-06 RAW MATERIAL 12566 2,60,61,284 3,88,10,326 6,72, 80,912 THE EXPORTS ARE AS UNDER: PARTICULARS A.Y. 2002-03 A.Y. 2003-04 A.Y. 2004-0 5 A.Y. 2005-06 RAW MATERIAL . 6,97,52,817 10,33,22,396 (PHOTOCOPY OF BALANCE SHEET IS ENCLOSED) ITA 1170(DEL)2011 4 2) THE VISA AVAILABLE TO THE DIRECTOR OF ASSESSEE COMPANY IS A BUSINESS VISA. THE PHOTOCOPY OF PASSPORT AND FOREIGN EXCHANGE CONVERSI ON AUTHENTICATED THE FACTS OF HIS BUSINESS TOUR. 3) SIMILARLY, IN ORDER TO DEVELOP EXPORT MARKET, M ANAGING DIRECTOR OF THE COMPANY VISITED AUSTRALIA AND BAGLADESH DISTRIBUTED SAMPLE. THOUGH IT IS TRUE THAT NO ORDER COULD BE RECEIVED IN THE YEAR UNDER ASSESSMENT. 4) DIRECTORS OF THE COMPANY ARE DISTINCT PERSON AN D PERFORM THE DUTIES IN THE CAPACITY OF EMPLOYEE OF THE COMPANY. THE ASSESSEE, WHICH IS A LIMITED COMPANY, IS A DISTINCT ASSESSABLE IDENTITY AS DEFINED U/S 2(31) OF THE I.T . ACT. 5) DIRECTORS OF THE COMPANY ARE APPOINTED BY THE C OMPANY AND THEIR REMUNERATION IS FIXED. EVEN SECTION 309 OF THE COMPANIES ACT LAYS DOWN THE MODALITY OF DETERMINING THE DIRECTORS REMUNERATION READ WITH THE PROVISIONS OF SEC. 198 OF COMPANIES ACT. AS PER THE PROVISIONS OF ACT BESIDES MONETARY REMUNERA TION PAID TO DIRECTOR, REMUNERATION FURTHER INCLUDES A) EXPENDITURE IN PROVIDING RENT-FREE FURNISHED OR UNFURNISHED ACCOMMODATION. B) EXPENDITURE INCURRED IN PROVIDING ANY OTHER AMEN ITY FREE OF CHARGE OR AT CONCESSIONAL RATE SUCH AS FREE HOLIDAY TRAVEL FOR F AMILY AND SELF ETC. C) ANY EXPENDITURE INCURRED BY COMPANY, WHICH EVEN, OTHERWISE WOULD HAVE INCURRED BY THE DIRECTOR. D) ANY EXPENDITURE ON LIFE INSURANCE OF THE DIRECTO R. IN VIEW OF THIS, BENEFITS GIVEN TO DIRECTOR OR HIS FAMILY ARE TO BE CONSIDERED AS PART OF REMUNERATION OF DIRECTOR AND COST TO THE COMPANY. 6) WITHOUT PREJUDICE TO ASSESSEES RIGHT OF THE FA CTS PLACED IN THE AFORESAID PARAGRAPH , IT IS FURTHER SUBMITTED BEFORE YOUR HONOUR THAT: ITA 1170(DEL)2011 5 PLEASE VISITED ABROAD IS MANAGING DIRECTOR OF THE COMPANY AND HIS REMUNERATION IS DETERMINED AND APPROVED IN ANNUAL GENERAL MEETIN G OF SHAREHOLDERS U/S 309 AND SEC. 198 OF THE COMPANIES ACT, 1956. 7) CONSIDERING THE RIGHT OF THE MANAGING DIRECTOR ALONG WITH FAMILY FOR A HOLIDAY TRAVEL EXPENSE AS IT WAS EARLIER PERMITTED BY THE SHARE HO LDERS IN ANNUAL GENERAL MEETING. IT IS OPEN TO THE ASSESSEE COMPANY TO CLAIM EXPENDITUR E UNDER THIS ACCOUNT. PHOTOCOPY OF APPROVAL MENTIONED IN PRINTED BALANCE SHEET IS E NCLOSED. THOUGH ALL THE EXPENSES ARE FOR BUSINESS PURPOSES YET FOR THE EXPENSES INCURRED FOR THE VISIT OF WIFE, IT WAS NECESSARY IN ORDER TO DEVELOP RELATION WITH FOREIGN CUSTOMERS FAMILY. CONSIDERING THE REMUNERATION FIXED BY THE SHAREHOL DERS IN THE COMPANYS ANNUAL GENERAL MEETING INCLUDING PERQUISITES EXPENSES EVEN IF TO SAME EXTENT TREATED AS PERSONAL IN NATURE ARE WELL PERMITTED AS PERQUISITE S OF THE MANAGING DIRECTOR AND HENCE ARE ALLOWABLE IN THE HAND OF ASSESSEE COMPANY. 6. IT IS THUS EVIDENT THAT THE ASSESSEE HAD LAID BE FORE THE TAXING AUTHORITIES, ALL THE DETAILS AND PARTICULARS WITH R EGARD TO THE FOREIGN TRAVEL IN QUESTION. IT HAS NOT BEEN SHOWN OTHERWISE. FULL DISCLOSURE OF THE FACTS WAS MADE IN THE RETURN OF INCOME ITSELF. THE MANAGING DIRECTOR OF THE ASSESSEE COMPANY WAS VESTED WITH A RIGHT TO GO WITH FAMILY F OR A HOLIDAY. THE EXPENSES FOR THIS WERE PERMITTED BY THE SHAREHOLDER S IN THE ANNUAL GENERAL MEETING, AS PER COPY OF ITEM (C) (APB 7) OF THE ASS ESSEES ANNUAL REPORT FOR 2001-02, WHICH READS AS FOLLOWS:- ITA 1170(DEL)2011 6 C) LEAVE TRAVEL CONCESSION THE EXPENSES INCURRED ON LEAVE TRAVEL CONCESSION BY THE APPOINTEE ON SELF AND HIS FAMILY SHALL BE REIMBURSED ONCE IN A YEAR. 7. THE ASSESSEE COMPANY COULD, AS SUCH, CLAIM THIS EXPENDITURE UNDER THIS ACCOUNT. IN THE SUBMISSIONS BEFORE THE AUTHO RITIES BELOW, IT HAS BEEN, INTER ALIA, STATED (APB 9, PARA 7) THAT THOUGH ALL THE EXPENSES WERE FOR BUSINESS PURPOSES, THE VISIT ABROAD OF THE WIFE OF THE MANAGING DIRECTOR WAS NECESSARY IN ORDER TO DEVELOP RELATIONS WITH THE FO REIGN CUSTOMERS FAMILIES. 8. MOREOVER, MERE DISALLOWANCE OF EXPENSES DOES NOT AMOUNT TO CONCEALMENT OF ANY PARTICULARS OR FURNISHING OF ANY INACCURATE PARTICULARS OF INCOME. 9. IN THESE FACTS, IT HAS NOT BEEN MADE OUT AS TO H OW ZOOM COMMUNICATIONS (SUPRA) IS APPLICABLE TO THE PRESEN T CASE. 10. THEREFORE, THE GRIEVANCE OF THE ASSESSEE IS FOU ND TO BE JUSTIFIED AND IS ACCEPTED AS SUCH AND THE PENALTY IMPOSED BY THE AO AND CONFIRMED BY THE CIT(A) IS HEREBY DELETED. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21.10.2011. ITA 1170(DEL)2011 7 SD/- SD/- (G.E. VEERABHADRAPPA) (A.D. JAIN) PRESIDENT JUDICIAL MEMBER DATED: 21.10.2011 *RM COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR TRUE COPY BY ORDER DEPUTY REGISTRAR