DCIT CC-11 (1), V. Exxon Mobil Lubricants (P) Ltd,

ITA 1216/DEL/2008

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 6997 (ITAT-DELHI)
• Duration Of Justice: 11 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-04-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2003-2004
• Appeal Filed On: 04-04-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Set aside
• Section: 143(3); 263

Judgement Text

IN THE INCOME TA X AP PELLA TE TRIBUNAL (DELHI BENCH B : NEW DELHI) BEFORE H ON'BLE SENIOR VICE P RESIDENT, SHRI R.P. GARG AN D HON'BLE JUDICIAL MEMBER, SHRI A.D. JAIN ITA NO.2403 & 1561/DEL./2008 (ASSESSMENT YEAR : 2003-04 ) M/S. EXXON MOBIL LUB RICANTS PVT. L TD., VS. CIT I V, 14, 2 ND FLOOR, L OCAL SHOPPING CENTRE, NEW DELHI. MADANGIR, NEW DELHI-110 062. (P AN : AAACV0130D) ITA NO.1216/DEL./2008 (ASSESSMENT YEAR : 2003-04 ) DCIT, 11 (1) VS. M/S. EXXON MOBIL LUB RICANTS PVT. L TD., NEW DELHI. ER RIST & YOUNG TOWER, B-26, QUTAB INSTITUTIONAL AREA, NEW DELHI. (P AN : AAACV0130D) (APP EL LANT ) (RES PONDENT ) ASSE SSE E BY : S /SHRI S.D. KAPILA & R.R. MAUR YA, ADVOCATES REV ENUE B Y : SH RI ASHU JAIN, CIT DR O R D E R GARG, SENIOR VP : T HESE APPE ALS F ILED BY T HE ASSESSEE AND R EVENU E AR E AGA INST SEPAR AT E ORDERS OF CIT A ND CIT (APPE ALS) RESPE CTIV EL Y FOR T HE ASSESSMENT Y EA R 2003-04 AND DISPOSED OF BY T HIS C OMMON ORDER FOR THE SAKE OF C ONVENI ENC E. ITA NO.2403/DEL/2008 2. THIS IS AN APPEAL AGAINST THE ORDE R OF THE CI T UNDER SECTION 263 OF THE ACT. THE O RIGINAL ASSESS ME NT IN THIS CASE WAS M ADE ON 23.3.2006 UNDER 2 I TA NO.2403 & 1561/DEL./2008 I TA NO.1216/DEL./2008 SECTION 143(3) ON THE TOTAL INCOME AT NIL DECLARING LOSS OF RS.3,81,04,132/- . IN THE PROFIT AND LOSS ACCOUNT, THE ASSESS EE HAD CLAI MED THE DEDUCTION OF EXPENDITURE ON ACCOUNT OF ADVERTISEM ENT AND PUBLICIT Y, THE DETAILS OF WHICH WERE FURNISHED VIDE LETTER DATED MARCH 10, 2006. THE SAID EXPENDITU RE ON ADVERTISE MENT AND PUBLICIT Y INCLUDED THE TWO AM OUNTS OF PROVISION FOR EXPENSES ONE OF RS.69,34,853/- AND OTHER FOR RS.12,64,839/- AGGREGATING TO RS.81,99,000/- . T HE CLAIM OF T HE ADVERTISEM ENT WAS ACCEPTED B Y THE ASSE SSING OFFICER I N THE O RIGINAL ASSES SM EN T ORDER THOUGH WITHOU T ANY DISCUSSION IN THE ASSE SS ME NT ORDE R. THE COM MI SS IONER OF INCOME- TAX, ON AN EXA MINATION OF THE RECORDS, THOUGHT THAT THE PROVISION TOWARDS ADVERTISEM ENT AND PUBLICITY EXPENSES WAS FOR UNASCERTAINED LIABILITY BEING IN THE NATURE OF CONTINGENT LIABILITY WHICH IS NOT DEDUCTIBLE WHILE COMPUTING THE INCOM E OF THE ASSE SSEE. HE, THEREFORE, ISSUED A SHOW CASUS NO TICE IN R ESPONSE T O WHICH THE ASSE SSEE SUBM ITTED THAT IT HAD INTRODUCED A SCHE ME , COPY OF WHICH WAS ENCLOSED, DU RING THE FINANCIAL Y EAR 2002-03, I.E. THE YEA R UNDE R CONSIDERATION, AND ACCORDING TO WHICH, T HE DISTRIBUTO RS WERE AWARDED POIN TS ON THE BASIS OF THE PURCHASES M ADE AND THE Y COULD ENCASH THE POINTS AND R ECEIVE THE P RIZES ACCORDING TO THE POINTS EARNED. ON THE BASIS OF T HE PURCHASES MADE, THE ASSE SSEE MA DE PROVISION OF RS.69,37,306/-, THE DETAILS OF WHICH A RE AS UNDER : VENDOR S NAME ITEMS PURCHASED PURCHASE VALUE (R S.) WHIRLPOOL OF INDIA LTD. REFRIGERATOR, WASHING MACHIN E, MI CROWAVE 1,763,244 SONY INDIA LTD. SONY CAMER A, TV AND C D PLA Y ERS 638,370 YAMAHA M OTOR INDIA LTD. M OTOR CY CL ES 125CC 2,553,503 TITAN INDUSTRIES LTD. G OLD COINS TANISHQ BRAND 1,982,189 TOTAL A 6,937,306 3 I TA NO.2403 & 1561/DEL./2008 I TA NO.1216/DEL./2008 ANOTHER P ROVISION FOR RS.12,91,500/- WAS ALSO MAD E AND THE DETAILS OF WHICH ARE AS UNDER : CU STO MERS NAME AMOUNT (RS.) SPEED AWAY P VT. LTD. (P) 150,000 RA J LAX MI LUBRICANTS (P) 8,000 RA J LAX MI LUBRICANTS (P) 8,000 LAKSHMI DI STRIBUTORS BAN. 63,000 A NNA MALA I AGENCIES, TN 243,000 A NJUL AUTOMOBI LES, GHAZIABAD 75,250 CARAVAN CALCUTTA IAC 63,000 BENARASILAL, KISHANLAL & CO. 45,000 D S OIL TRADING & CO. 45,000 GANGANAGAR MOTORS LI MIT ED 63,000 NE W DELHI TY RE H OUSE DEL 93,250 SINGH AUTOMOBIL ES, U P (P) 45,000 RA JDEEP A SSOCIATES, A P (P) 97,750 SRI SAI AGENCIES A P IAC 63,000 G UPTA IMPAX, J HARKHAND (P) 66,250 RA J LUBRICANTS BELGAUM 45,000 ROHIT ENTERPRISES, UP ( P) 63,000 SMITH ENTERPRISES, AUTO (P) 45,000 P AE LIMI TED MH (C) RAIGAD 10,000 TOTAL B 1,291,500 THE CIT WAS NOT CONVINCED WITH THE SUB MIS SION OF THE ASSE SSE E THAT THE LIABILITIES WERE ASCERTAINED. HE, THEREFORE, HELD THE ASSES SM EN T O RDER T O BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. HOWEVER, IN O RDER TO TAKE A FINAL VIEW ON THE ISSUE FURTHER EXA MINATION OF THE ASSES SM EN T R ECORDS ARE NECESSARY WHICH CAN BE CONDUCTED ON LY BY THE ASSESSING OFFICER AND, THEREFORE, HE OBSERVED THAT IT IS NOT POSSIBLE FOR HI M TO RECORD CONCLUSIVE FINDINGS ON THIS ISSUE AT THIS STAGE. 3. THE ASSES SEE IS IN APPEAL AGAINST THIS ORDER. WE HAVE HEARD THE PARTIES AND CONSIDERED THE R IVAL CONTENTIONS. ON THE ONE THE ONE HAND, THE CI T SA YS THAT IT WAS A CONTINGENT L IABILITY NOT ALLOWABLE AS DEDUCTION AND ON THE OTHE R 4 I TA NO.2403 & 1561/DEL./2008 I TA NO.1216/DEL./2008 HAND, HE R ECORDS A FINDING THAT IT WAS NOT POSSIBLE FOR HIM TO R ECORD CONCLUSIVE FINDINGS ON THIS ISSUE AT T HIS STAGE. T HE TWO THINGS A RE CONTRADICTOR Y. BE THAT AS IT MAY, THE PROV ISIONS ARE M ADE ON T HE BASIS OF PURCHASES M ADE B Y THE PA RTIES AS ENUMERATED ABOVE DURING T HE Y EAR UNDE R CONSIDERATION AND CONSEQUENTLY I T CANNOT BE SAID THAT THESE ARE UNASCERTAINED LIABILITIES. T HE PROVISION WAS MAD E ON THE BASIS OF PU RCHASES MA DE BY THE PARTIES WHO HAVE EARNED THE POINTS ON THAT PURCHASES AND AS PER THE SCHE ME , IT WAS AN ALLOWABLE EXPENDITURE. IN THIS VIEW OF THE M ATTER, WE SET ASIDE THE ORDER OF THE CIT AND RESTORE THAT OF THE ASSESSING OFFICER. 4. IN THE RESULT, THE APPEAL OF THE ASSE SSEE IS ALLOWED. ITA NO.1561/DEL/2008 5. THE ONLY ISSUE INVOLVED IN THIS APPEAL IS AGAINST THE DISALLOWANCE OF RS.16,05,837/- BEING THE EXPENDITURE INCU RRED ON FOREIGN T RAVELLING OUT OF T HE TOTAL EXPENDITU RE OF RS.19,95,603/- . T HE ASSES SING OFFICER ASKED TO GIVE THE PROOF OF BUSINESS PU RPOSE FOR THE SAID FOREIGN T RAVEL, THE PERSON WHO VISITED, THE COUNTR IES VISITED AND THE PU RPOSE OF T RAVEL. ASSE SSEE FILED T HE DETAILS IN SIX CASES A MOUNTING TO RS.3,89,766/- WHICH WAS ALLOWED B Y THE ASSESSING OFFICER AND T HE BALANCE WAS DISALLOWED. T HE ASSE SSEE SUBM ITTED THAT FOREIGN EXPENSES WERE RE I MBURSED ON ACTUAL BASIS AND THERE IS NO PRACTICE T O RETAIN THE SANCTION GIVEN BY THE SUPERIOR AUTHOR ITY WHICH WAS NOT ACCEPTED TO BE JUSTIFIABLE REASON TO ALLOW THE CLAIM OF THE ASSESS EE EVEN B Y T HE CI T (APPEALS). 6. THE LEARNED COUNSEL OF THE ASSES SEE BROUGHT TO OUR NO TICE THE POLIC Y OF THE COMP ANY R EGARDING BUSINESS T RAVEL RELATING EXPENSES WHICH P ROVIDES THAT 5 I TA NO.2403 & 1561/DEL./2008 I TA NO.1216/DEL./2008 REIMBURS ABLE EXPENSES ON CO MPANY BUSINESS TR IPS INCLUDE NECESSARY AND REASONABLE ADDITIONAL LIVING COSTS AND EXPENSES ARE NO R MALLY REIMBURSED ON THE BASIS OF ACTUAL COTS INCURRED, RATHER THAN B Y PER DIEM OR OTHER CASH ALLOWANCES, EXCEPTIONS REQUI RE SENIOR MAN AGEM EN T APP ROVAL. I T ALSO P ROVIDES THAT EXPENSES OF PERSONAL NATU RE INCUR RED B Y THE E MPLOYEE DU RING A BUSINESS TRIP ARE NOT REIMBURSABLE AND THAT THOSE A RE CONSIDERED TO BE E MPLOYEES PERSONAL R ESPONSIBILITY. T HE DETAILS OF EXPENSES ARE GIVEN AT PAGES 7 TO 20 OF THE PAPER BOOK GIVING THE DETAILS OF FOREIGN T RAVEL, LOCAL CONVE YANCE, LODGINGS AND ME ALS. HE SUB MITTED THAT ELECTRONIC DATA LIKE OLD E.M AILS FOR PAST Y EARS WERE NOT NORMALLY WAREHOUSED AFTER THE EXPENDITURE WAS I NCURRED AND THE ASSE SSEE COULD NOT FURNISH T HE SA ME AS R EQUIRED BY THE ASSESSING OFFICER. HE, THEREFORE, SUB MITTED THAT MERELY BECAUSE SUCH E. MAILS WERE NOT SUBM ITTED, THE ASSE SSING OFFICER WAS NOT JUSTIFIED IN DISALLOWING THE CLAIM WHICH IS WITHIN THE POLIC Y AND PA RA METERS OF THE ASSES SEE CO MPANY. THE ASSE SSING OFFICER BY REFER RING TO THE DECISION OF MADRAS HIGH COURT IN THE CASE OF SESHASAYEE BROTHERS L I MITED VS. CI T 42 ITR 568 (MAD.) HELD THAT WHERE THE DETAILS ARE NOT FURNISHED B Y THE ASSES SEE, THE CLAIM CAN BE DISALLOWED ON THE GROUND THAT THE ASSE SSE E HAD NOT ESTABLISHED THAT THE A MOUNT IN QUESTION WAS AN EXPENDITURE LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF T HE BUSINESS. HE ACCORDINGL Y DELETED A SUM OF RS.3,99,120/- BEING 20% OF THE FOREIGN TRAVELLING EXPENSES OF RS.19,95,603/-. 7. THE DISALLOWANCE WAS UPHELD B Y THE CI T (APPEALS) TO RS.16,05,837/- AS AGAINST RS.3,99,120/- DISALLOWED B Y THE ASSES SING OFFICER WITHOUT APPARENTLY GIVING ANY NOTICE FOR ENHANCE MENT. L EARNED DR SUPPORTED THE ORDER OF THE ASSE SSING OFFICER AND SUBM ITTED THAT IN VIEW OF THE MADRAS HIGH 6 I TA NO.2403 & 1561/DEL./2008 I TA NO.1216/DEL./2008 COURT DECISION (SUPRA ) REFERRED TO BY THE ASSES SING OFFICER, THE EXPENDITURE IS RIGHTL Y DISALLOWED. HE ALSO SUPPORTED THE O RDER OF THE CIT (APPEALS) FOR ENHANCING THE ADDITION. 8. WE HAVE HEARD THE PARTIES AND CONSIDERED THE R IVAL CONTENTIONS. I T IS TRUE THAT SOM E OF THE E. MAILS WERE NOT FURNISHED BY THE ASSESS EE BUT IN VIEW OF THE DETAILS FURNISHED BY THE ASSE SSEE, IT CANNOT BE SAID THAT THE EXPENDITURE IS NOT INCU RRED O R NOT ALLOWABLE AT ALL. ON THE FACTS AND CIRCUM STANCE S OF THE CASE, IN OUR OPINION, THE ASSESSING OFFICER WAS JUSTIFIED IN D ISALLOWING ONL Y A SU M OF RS.3,99,120/- IN ABSENCE OF FULL DETAILS AND THE CI T ( APPEALS) IS NOT JUSTIFIED IN ENHANCING T HE ASSESS ME NT B Y SUBSTITUTING T HE DISALLOWANCE TO RS.16,05,837/- AS AGAINST RS.3,99,120/- DISALLOWED B Y THE ASSESSING OFFICER. THE ORDER OF THE CI T (APPEALS) IS ACCORDINGLY REVE RSED AND THAT OF THE ASSE SSING OFFICER IS RESTORED. 9. IN THE RESULT, THE APPEAL OF THE ASSE SSEE IS PARTL Y ALLOWED. ITA NO.1216/DEL/2008 10. IN THE REVENUES APPEAL, T HE ONL Y ISSUE IS WITH REGA RD TO DELETION OF ADDITION ON ACCOUNT OF PRIO R PERIOD EXPENSES OF RS.1,34,34,500/-. THE ASSE SSEE S CLAI M WAS THAT THOUGH THE EXPENDITURE WAS P RIOR OF THE LIABILIT Y WOULD SA ME HAS A RISEN DURING T HE Y EAR UNDE R CONSIDERATION. T HE ASSE SSEE S PRA YER WAS T HAT T HE AMOUNT WAS PAYABLE TO M/S. E XXON MOBIL ASIA PACIFIC PTE. L TD. HAS BEEN INCU RRED PU RSUANT TO AN AGREE MENT ENTERED WITH ASSES SEE IN AUGUST 2002 WITH R ETROSPECTIVE EFFECT FRO M JANUARY 2002 THOUGH THE EXPENSES WERE INCURRED UNDE R THIS AGREEMENT WITH EFFECT FRO M 1.1.2002 BUT THE EXPENSES ACCRUED IN THE RELEVANT PREVIOUS YE AR. HE SUBM ITTED THAT IT SHOULD BE CONSIDERED THAT THE LIABILIT Y ACCRUED IN THE Y EAR UNDER CONSIDERATION I.E. 7 I TA NO.2403 & 1561/DEL./2008 I TA NO.1216/DEL./2008 AUGUST 2002. THE A MOUNT WAS RAISED VIDE INVO ICE DATED SEPTE MBER 19, 2002 AND, THEREFORE, THE SA ME WAS ALLOWABLE AS DEDUCTION IN THE ASSE SS ME NT Y EAR UNDE R CONSIDERATION WITH A VIEW TO THE DECISION OF GUJARAT HIGH COURT IN THE CASE OF SAU RASHTRA CEM ENT AND CHE MIC AL INDUSTR IES LTD. VS. CIT 213 I TR 523 (GUJ. ), SUP RE ME COURT JUDG MENT IN THE CASE OF NONSUCH T EA ESTATES LIMITED VS. CI T, MADRAS 98 I TR 189 (SC) AND RAJASTHAN HIGH COUR T IN THE CASE OF ADDL.CIT VS. FARASL LIMITED 163 I TR 364 (RAJ.). THE CI T ( APPEALS), IN OU R OPIN ION, WAS, THEREFORE, JUSTIFIED IN ALLOWING THE CLAI M OF THE ASSESS EE AND ACCORDINGLY THE ORDER OF THE CI T (APPEALS) IS UPHELD. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMI SS ED. 12. TO SU M UP : IT A NO.2403/DEL/2008 FILED BY THE ASSESS EE IS ALLOWED, IT A NO.1561/DEL/2008 OF THE ASSE SSEE IS PARTL Y ALLOWED AND I TA NO.1216/DEL/2008 FILED B Y THE REVENUE IS D IS MI SSED. O RDER PRONOUNCED IN OPEN COURT ON THIS 2 ND DAY OF APRIL 2009. ( A.D. JAIN) ( R.P. GARG) JU DICIAL ME MB ER SENIOR VICE P RESIDENT DATED THE 2 N D DA Y OF AP RIL 2009/ TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT (A)-V II I, NEW DELHI. 5.CIT (I TAT), NEW DELHI. AR, I TA T NEW DE LHI.