M/s. Triveni Enterprises, Bangalore V. ADDLCIT, Bangalore

ITA 1192/BANG/2010

• Counselvise Citation: 119221114 RSA 2010
• Duration Of Justice: 1 year(s) 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 16-05-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 01-11-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: B SARAVANAN
• Keywords: Business expenditure; Corroborative evidences
• Section: 234B; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER I.T.A. NO.1192/BANG/2010 (ASSESSMENT YEAR : 2007-08) M/S. TRIVENI ENTERPRISES, NO.32, SAMPURNA-9, 1 ST CROSS, CSI COMPOUND, LALBAGH ROAD, BEHIND UNITY BUILDING, BANGALORE. . APPELLANT. PAN AABFT2631H VS. ASST. COMMISSIONER OF INCOME TAX, RANGE 5, BANGALORE. .. RESPONDENT. APPELLANT BY : SMT. SHEETAL. RESPONDENT BY : SHRI B. SARAVANAN. DATE OF HEARING : 17.05.2012. DATE OF PRONOUNCEMENT : 25/5/2012. O R D E R PER SHRI JASON P. BOAZ, A.M . : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-I, BANGALORE FOR ASSESSMENT YEAR 2007 -08 DATED 30.07.2010. 2. THE FACTS OF THE CASE, IN BRIEF, ARE AS UNDER : 2.1 THE ASSESSEE, A FIRM, A WHOLESALE TRADER/DEALER IN IRON AND STEEL AND WIND POWER GENERATION, FILED ITS RETURN FOR ASSESSMENT YEAR 20 07-08 ON 30.10.2007 DECLARING INCOME OF RS. 5,86,463. THE RETURN WAS PROCESSED UNDER SECTION 1 43(1) ON 28.8.2008. AFTER EXAMINATION OF DETAILS FILED, THE ASSESSING OFFICER COMPLETED THE ASSESSMENT BY AN ORDER UNDER SECTION 144 OF THE INCOME TAX ACT, 1961 (HEREIN AFTER REFERRED AS 'THE ACT') DT.29.12.2009 DETERMINING THE 2 ITA NO.1192/BANG/2010 INCOME AT RS. 75,79,892. IN DOING SO THE ASSESSING OFFICER MADE THE FOLLOWING ADDITIONS / DISALLOWANCES TO THE RETURNED INCOME : I) INTEREST CAPITALIZED ALONG WITH THE COST OF NEW SLITTING UNITS AND OTHER CAPITAL WORK IN PROGRESS. RS. 6,17,580 II) TRAVEL EXPENSES DISALLOWED BEING EXCESSIVE. RS. 17,23,184 III) DIFFERENCE INCLOSING STOCK RS. 40,28,789 IV) DISALLOWANCE OF SALES PROMOTION EXPENSES BEING PERSONAL IN NATURE RS. 6,23,876 2.2 AGGRIEVED WITH THE ORDER OF ASSESSMENT, THE ASS ESSEE WENT IN APPEAL BEFORE THE LEARNED CIT(A) WHO DISPOSED OFF THE APPEAL BY ORDER DT.30.7 .2010, ALLOWING THE ASSESSEE RELIEF, ON THE FOLLOWING ISSUES, AS UNDER : I) INTEREST CAPITALIZED ALONG WITH THE COST OF NEW SLITTING UNITS AND OTHER CAPITAL WORK IN PROGRESS. RS. 6,17,580 II) DIFFERENCE INCLOSING STOCK RS. 40,28,789 III) OUT OF TRAVEL EXPENSES RS. 2,45,838 3. AGGRIEVED BY THE ORDER OF LEARNED CIT(A), THE AS SESSEE IS NOW BEFORE THE TRIBUNAL. THE GROUNDS RAISED IN THIS APPEAL ARE AS UNDER : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-II, BANGALORE ERRED IN PASSING THE ORDER IN THE MANNER IN WHICH HE DID. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-II, BANGALORE ERRED IN DISALLO WING INTEREST EXPENDITURE HOLDING THAT PART OF THE WORKING CAPITAL (BANK) LOAN WAS AP PLIED TO WORK-IN-PROGRESS ASSETS. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-II, BANGALORE OUGHT TO HAVE AP PRECIATED THE SUBMISSIONS GIVEN BY THE APPELLANT AND OUGHT TO HAVE REFRAINED FROM D ISALLOWING THE CLAIM OF INTEREST EXPENDITURE. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-II, BANGALORE ERRED IN DISALLO WING PART OF THE TRAVEL & CONVEYANCE DEBITED TO P&L A/C. IN RESPECT OF FOREI GN TRAVEL HOLDING THE SAME AS ARBITRARY, EXCESSIVE AND NOT IN BUSINESS INTEREST. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-II, BANGALORE ERRED IN DISALLO WING PART OF THE BUSINESS EXPENDITURE (80% OF CREDIT CARD EXPENDITURE) WITH A VIEW THAT SUBSTANTIAL NATURE OF SAID EXPENSES RELATED TO FOREIGN TRAVEL. 3 ITA NO.1192/BANG/2010 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-II, BANGALORE OUGHT TO HAVE AP PRECIATED THE DETAILS FURNISHED IN SUPPORT OF THE EXPENSES MET VIDE CREDIT CARD WIT H NARRATIONS AND SHOULD HAVE ALLOWED THE CLAIM. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-II, BANGALORE ERRED IN UPHOLDI NG THE LEVY OF INTEREST UNDER SECTION 234 OF THE INCOME TAX ACT AND THE SAME IS A RBITRARY, EXCESSIVE AND THE SAME IS LIABLE TO BE CANCELLED. 8. WITHOUT PREJUDICE, THE ADDITIONS MADE BY THE LE ARNED COMMISSIONER OF INCOME TAX (APEPALS)-II IS ARBITRARY, UNREASONABLE AND EXC ESSIVE AND OUGHT TO BE DELETED. 9. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE UR GED AT THE TIME OF HEARING OF THIS APPEAL, THE APPELLANT PRAYS THAT THE APPEAL MA Y BE ALLOWED. 4. THE GROUNDS OF APPEAL AT S.NOS.1, 8 & 9 ARE GENERAL IN NATURE AND NO ADJUDICATION IS CALLED FOR THEREON. 5. THE GROUNDS OF APPEAL RAISED AT S.NOS.2 AND 3 ARE NOT PRESSED, AS STATED BY THE LEARNED AUTHORISED REPRESENTATIVE, AND ARE ACCORDINGLY DISM ISSED. 6.1 IN THE GROUNDS RAISED AT S.NO.4, THE ASSESSEE HAS CHALLENGED THE LEARNED CIT(A)S O RDER AS ERRONEOUS IN CONFIRMING A PART OF THE DISALLOWAN CE OF THE TRAVEL AND CONVEYANCE EXPENSES DEBITED BY HOLDING THE SAME TO BE ARBITRARY, EXCESS IVE AND NOT INCURRED FOR THE PURPOSES OF BUSINESS. THE LEARNED AUTHORISED REPRESENTATIVE RE ITERATED HER ARGUMENTS AS BEFORE THE AUTHORITIES BELOW THAT THESE EXPENSES HAVE BEEN INC URRED FOR THE PURPOSES OF BUSINESS AS THE DIRECTORS TRAVELLED ABROAD IN AN ATTEMPT TO EXPAND THE BUSINESS OF THE FIRM AND AS ALL DETAILS OF THE EXPENSES HAD BEEN FURNISHED, THEY OUGHT TO BE A CCEPTED AS SUCH AND THE DISALLOWANCE UPHELD BY THE LEARNED CIT(A) BE DELETED. 6.2 THE LEARNED D.R. STRONGLY SUPPORTED THE FINDIN GS OF THE AUTHORITIES BELOW. IT IS SUBMITTED THAT THE ASSESSING OFFICER ON NOTING THE INORDINATE INCREASE IN THE EXPENSES OF TRAVEL AND CONVEYANCE DEBITED TO THE PROFIT AND LOSS ACCOU NT VIZ. RS.25,60,868 AS AGAINST RS.7,25,047 IN THE IMMEDIATELY PRECEDING YEAR, CALLED FOR DETAI LS THEREOF. THE LEARNED D.R. SUBMITS THAT AFTER EXAMINATION OF THE DETAILS OF TRAVEL AND CONV EYANCE EXPENSES AND THE EXPLANATION OF THE ASSESSEE THEREON, THE A.O. SEEING THAT THE ASSESSE E IS ONLY A TRADER IN STEEL, ALL ITS SALES BEING MADE IN INDIA AND THAT 80% OF SALES AND PURCHASES M ADE LOCALLY IN BANGALORE, ACCORDINGLY ALLOWED ALL EXPENDITURE RELATED TO TRAVEL AND CONVE YANCE EXPENDED WITHIN THE COUNTRY. IN RESPECT OF THE FOREIGN TRAVEL EXPENSES AMOUNTING TO RS.17,23,184 OF WHICH MORE THAN RS.13 4 ITA NO.1192/BANG/2010 LAKHS WAS SPENT ON PURCHASE OF FOREIGN CURRENCY, TH ERE BEING NO PROPER EXPLANATION PUT FORTH BY THE ASSESSEE, THE ASSESSING OFFICER DISALLOWED T HE SAME. IT WAS SUBMITTED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT THE LEARNED CIT(A) ALLOWED THE ASSESSEES CLAIM TO THE EXTENT OF RS.2,45,838 FOR ATTENDING AN INTERNATIONAL TRADE FAIR FOR WHICH SUPPORTING EVIDENCES FOR BUSINESS PURPOSES WERE FURNISHED AND CONFIRMED THE BALANCE DISALLOWANCE TO THE EXTENT OF RS.15,91,862. THE LEARNED D.R. PLEADED THAT IN VIE W OF ABOVE, NO FURTHER RELIEF IS DUE TO THE ASSESSEE. 6.3 WE HAVE HEARD BOTH PARTIES AND CAREFULLY PERUSE D AND EXAMINED THE MATERIAL ON RECORD. IT IS NOT IN DISPUTE THAT THE ASSESSEE IS A TRADER IN STEEL AND THAT DURING THE RELEVANT PERIOD ITS ENTIRE SALES AND PURCHASES WERE MADE DOMESTICALLY I N INDIA, 80% OF WHICH WERE CONFINED TO BANGALORE ALONE. IN THE RELEVANT PERIOD, IT IS SEE N THAT THE ASSESSEES EXPENDITURE ON TRAVEL AND CONVEYANCE HAD INCREASED INORDINATELY FROM RS.72504 7 IN THE PRECEDING YEAR TO RS.2560868 IN THE RELEVANT PERIOD. ON EXAMINATION, THE A.O. ALL OWED ALL THE EXPENSES ON TRAVEL AND CONVEYANCE EXPENDED AND CLAIMED BY THE ASSESSEE IN INDIA. THE BALANCE EXPENDITURE ON TRAVEL AND CONVEYANCE AMOUNTING TO RS.17,53,844 WAS FOUND TO BE SPENT ON FOREIGN TRAVEL. OUT OF THIS, OVER RS.13 LAKHS ABOVE WAS EXPENDITURE TOWARD S PURCHASE OF FOREIGN CURRENCY FOR WHICH NO EXPLANATION WAS FORTHCOMING BEFORE THE AUTHORITIES BELOW AS TO WHY IT WAS PURCHASED AND HOW IT WAS USED. WE FIND THAT THE LEARNED CIT(A) AFTER DETAILED EXAMINATION OF THE DETAILS OF FOREIGN TRAVEL EXPENDITURE, ALLOWED THE ASSESSEE RELIEF TO THE EXTENT OF RS.2,45,838 IN RESPECT OF A TOUR UNDERTAKEN BY PARTNER OF THE ASSESSEE FIRM, SHRI AV INASH AGARWAL TO GERMANY DURING THE RELEVANT PERIOD TO ATTEND AN INTERNATIONAL TRADE FA IR FOR USED MACHINERY AND EQUIPMENT AT KARLSVUHE, GERMANY AND DISALLOWED THE BALANCE PORTI ON. IN RESPECT OF THE PURCHASE OF FOREIGN EXCHANGE TO THE EXTENT OF OVER RS.13 LAKHS AND THE OTHER FOREIGN TRAVELS OF THE PARTNERS OF THE ASSESSEE FIRM TO FRANCE AND USA, WE FIND THAT NO SU PPORTING EVIDENCE HAD BEEN FURNISHED NOR ANY EXPLANATION TO JUSTIFY THE NEED AND PURPOSE OF SUCH FOREIGN TRAVEL EXPENDITURE BEING INCURRED IN THE COURSE OF ITS BUSINESS WHEN 100% OF THEIR BUSINESS WAS CONFINED TO TRADING IN STEEL IN INDIA. IN THIS VIEW OF THE MATTER, WE ARE OF THE CONSIDERED OPINION THAT THE ISSUE HAS BEEN EXAMINED THOROUGHLY BY BOTH THE A.O. AND THE L EARNED CIT(A) AND FIND NO REASON TO INTERFERE IN THEIR FINDING THAT FOREIGN TRAVEL EXPE NDITURE TO THE EXTENT OF RS.15,91,862 WAS PERSONAL IN NATURE SINCE NO EXPLANATION WAS FORTHCO MING IN RESPECT OF THE BUSINESS PURPOSE FOR 5 ITA NO.1192/BANG/2010 PURCHASE AND UTILIZATION OF FOREIGN EXCHANGE OF $ 2 5,000 AND VISITS TO FRANCE AND USA ETC. THE ASSESSEES GROUND AT S.NO.4 IS ACCORDINGLY DISMISSE D. 7.1 THE GROUNDS RAISED AT S.NOS.5 & 6 BY THE ASSESSEE CHALLENGES THE ACTION OF THE LEARN ED CIT(A) IN DISALLOWING SALES PROMOTION EXPENSES AM OUNTING TO RS.623876 SINCE THEY WERE SUBSTANTIALLY CONNECTED TO FOREIGN TRAVEL. 7.2 THE LEARNED AR SUBMITTED THAT THE LEARNED CIT(A ) ERRED IN DISALLOWING THESE EXPENSES ON SALES PROMOTION AND OUGHT TO HAVE ALLOWED THE CL AIM OF THE ASSESSEE IN VIEW OF DETAILS AND EXPLANATION FURNISHED IN SUPPORT OF THE SALES PROMO TION EXPENSES WHICH WERE MET THROUGH CREDIT CARDS OF THE PARTNERS. THE LEARNED AR PRAYE D THAT THE DISALLOWANCE OF RS.623876 CONFIRMED BY THE LEARNED CIT(A) BE DELETED AND THE ASSESSEES CLAIM BE ALLOWED. 7.3 THE LEARNED D.R. STRONGLY SUPPORTED THE FINDING OF THE LEARNED CIT(A). IT WAS SUBMITTED THAT BOTH THE AO AND THE LEARNED CIT(A) EXAMINED TH E SALES / BUSINESS PROMOTION EXPENSES AMOUNTING TO RS.779846 CLAIMED BY THE ASSESSEE FIRM AND FINDING THAT THESE AMOUNTS PERTAINED TO CREDIT CARD EXPENSES OF THE PARTNERS OF THE FIRM FOR PURCHASE OF GARMENTS, COSMETICS, DINING, HOTEL SERVICES AND OTHER SUCH EXPENSES OF A PERSONA L NATURE INCURRED BY THESE PARTNERS THROUGH THEIR CREDIT CARDS DURING FOREIGN VISITS, DISALLOWE D 80% OF THE SAME AMOUNTING TO RS.623876. THE LEARNED DR FURTHER SUBMITTED THAT THE LEARNED C IT(A) UPHELD THIS DISALLOWANCES AS HE CONCURRED WITH THE VIEW OF THE A.O. THAT THESE EXPE NSES WERE PURELY PERSONAL IN NATURE AND WERE NOT FOR SALES OR BUSINESS PROMOTION OF THE ASS ESSEE FIRM. THE LEARNED DR FINALLY SUBMITTED THAT THE LEARNED CIT(A)S DISALLOWANCE BE CONFIRMED AS HE WAS MORE THAN REASONABLE IN ALLOWING 20% OF THE SALES PROMOTION EXPENSES CLAIME D AND THAT NO FURTHER RELIEF IS DUE TO THE ASSESSEE. 7.4 WE HAVE HEARD BOTH PARTIES AND CAREFULLY PERUSE D AND CONSIDERED THE MATERIAL ON RECORD. WE FIND THAT BOTH THE AO AND THE LEARNED C IT(A) HAVE AFTER THOROUGHLY EXAMINING THE DETAILS OF THE CLAIM OF SALES / BUSINESS PROMOTION EXPENSES, FOUND THAT THE EXPENSES WERE INCURRED PURELY FOR PERSONAL PURPOSES AND NOT IN TH E NORMAL COURSE OF BUSINESS OF THE ASSESSEE FIRM. THE LEARNED AR AT NO STAGE OF PROCEEDINGS CO ULD JUSTIFY THE EXPENSES INCURRED BY THE PARTNERS ON THEIR FOREIGN VISITS THROUGH THEIR CRED IT CARDS, ON PURCHASE OF GARMENTS, COSMETICS, DINING, HOTEL SERVICES AND OTHER EXPENSES AS BEING FOR SALES / BUSINESS PROMOTION EXPENSES INCURRED WHOLLY AND EXCLUSIVELY IN THE NORMAL COURS E OF BUSINESS OF THE FIRM. EXCEPT FOR 6 ITA NO.1192/BANG/2010 PLEADING THAT THE SAID EXPENSES SHOULD BE ALLOWED A S DETAILS THEREOF ARE FILED, THE LEARNED AR COULD NOT CONTROVERT THE FINDINGS OF THE AO OR LEAR NED CIT(A) THAT THE SALES PROMOTION EXPENSES CLAIMED WERE ACTUALLY PURELY PERSONAL IN NATURE AND NOT FOR THE BUSINESS PURPOSES OF THE FIRM. WE, THEREFORE, AFTER TAKING INTO CONSIDERATION ALL THE FACTS AND CIRCUMSTANCES AS DISCUSSED ABOVE HAVE NO HESITATION IN UPHOLDING THE DISALLOWA NCE MADE BY AO AND CONFIRMED BY THE LEARNED CIT(A). CONSEQUENTLY, THE ASSESSEES GROUN D IS DISMISSED. 8. IN THE GROUNDS OF APPEAL AT S.NO.7, THE ASSESSEE CHALLENGED THE CHARGING OF INTEREST U /S. 234B OF THE ACT. THE CHARGING OF INTEREST IS CONSE QUENTIAL AND MANDATORY AND THE AO HAS NO DISCRETION IN THE MATTER. THUS THE ACTION OF CHARG ING SUCH INTEREST IS IN ORDER, NEVERTHELESS THE ASSESSING OFFICER IS DIRECTED TO RECOMPUTE THE SAME , IN ACCORDANCE WITH LAW, WHILE GIVING EFFECT TO THIS ORDER. 9. IN THE RESULT THE ASSESSEES APPEAL IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH MAY, 2012. SD/- SD/- (P. MADHAVI DEVI) (JASON P BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED: 25/05/2012. *REDDY GP COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, - A BENCH. 6. GUARD FILE. (TRUE COPY ) BY ORDE R .