M/s. Klasse Consultancy, Baroda V. The ACIT, Circle-2(1), Baroda

ITA 1256/AHD/2014

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8861 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-03-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 23-03-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 28-04-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Notional interest; Set aside
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD , , BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER AND SHRI MAHAVIR PRASAD, JUDICIAL MEMBER ./ I.T.A. NO.1256/AHD/2014 ( / ASSESSMENT YEAR : 2010-11) M/S.KLASSE CONSULTANCY 501 ARUNDEEP COMPLEX GOTRI ROAD, BARODA / VS. THE ACIT CIRCLE-2(1) BARODA # ./ ./ PAN/GIR NO. : AAEFK 8314 R ( #& / APPELLANT ) .. ( '#& / RESPONDENT ) #&( / APPELLANT BY : SHRI SUNIL TALATI, SR.AR '#& )( / RESPONDENT BY : SHRI JAMES KURIAN, DR *+ ), / DATE OF HEARING 23/03/2017 -./0 ), / DATE OF PRONOUNCEMENT 24/ 03 /2017 / O R D E R PER PRADIP KUMAR KEDIA, AM: THE CAPTIONED APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-II, BARO DA [CIT(A) IN SHORT] DATED 11/02/2014 FOR THE ASSESSMENT YEAR (AY) 2010-11. 2. THE ASSESSEE IN THE PRESENT APPEAL IS BROADLY A GGRIEVED ON TWO COUNTS:- ITA NO.1256/AHD /2014 M/S. KLASSEE CONSULTANCY VS. ACIT ASST.YEAR 2010-11 - 2 - (I) ADDITION OF RS.1,56,000/- ON ACCOUNT OF NOTION AL INTEREST ON LOANS GIVEN TO RELATIVES. (II) DISALLWOANCE FOR FOREIGN TRAVELLING EXPENSES O F RS.2,64,326/-. 3. THE LD.AR FOR THE ASSESSEE AT THE TIME OF HEARIN G BEFORE US, SUBMITTED THAT THE ASSESSING OFFICER (AO) MADE ADDI TION TO RS.1,56,000/- ON ACCOUNT OF NOTIONAL INTEREST CALCU LATED AT 12% P.A. ON THE LOANS GIVEN TO THE RELATIVES. THE LD.AR ASSAIL ED THE AFORESAID ACTION OF THE AO AND THE CIT(A) ON THE GROUND THAT THE ASS ESSEE IS HAVING ITS OWN CAPITAL OF RS.8.65 LAKHS AGAINST THE LOANS OF R S.6.25 LAKHS GIVEN TO RELATIVES AS REFLECTED IN THE BALANCE-SHEET AS APPE ARING AT PAGE NO.15 OF THE PAPER-BOOK SUBMITTED BY THE ASSESSEE. THE LOAN ADVANCED WAS SWELLED OVER A PERIOD OF TIME TO RS.13,00,000/-. T HE LD.AR FURTHER SUBMITTED THAT NO INTEREST EXPENSES HAVE BEEN CLAI MED ON ANY BORROWED FUNDS. THEREFORE, THE ASSESSEE CANNOT BE TAXED ON THE NOTIONAL PROFITS TOWARDS MONEY LENT TO ITS RELATIVES OUT OF ITS OWN CAPITAL. AFTER PERUSAL OF ORDERS OF THE AUTHORITIES BELOW, WE FIND CONSIDE RABLE MERIT IN THE ARGUMENTS OF THE ASSESSEE. IN THE ABSENCE OF ANY I NTEREST PAID ON BORROWED FUNDS, IF ANY, AND IN VIEW OF THE SUFFICIE NT OWN CAPITAL AVAILABLE AT THE DISPOSAL OF THE ASSESSEE THERE IS NO WARRANT TO MAKE ADDITION TOWARDS NOTIONAL INTEREST ON MONEY LENT TO PARTY EVEN OTHERWISE, IT IS TRITE THAT NO TAX CAN BE CHARGED ON NOTIONAL INCOME WHICH THE ITA NO.1256/AHD /2014 M/S. KLASSEE CONSULTANCY VS. ACIT ASST.YEAR 2010-11 - 3 - ASSESSEE COULD HAVE EARNED BUT DID NOT. THEREFOR E WE ACCEPT THE PLEA OF THE ASSESSEE AND SET ASIDE THE ADDITION OF RS.1,56, 000/- MADE BY THE AO TOWARDS NOTIONAL INTEREST. 3.1. THE LD.AR FURTHER ADDRESSED US ON THE SECOND GRIEVANCE; NAMELY, DISALLOWANCE OF FOREIGN TRAVELLING EXPENSES OF RS.2 ,64,326/- INCURRED BY ONE OF THE PARTNERS. THE LD.AR SUBMITTED THAT EXPE NSES WERE INCURRED IN THE ORDINARY COURSE OF BUSINESS AND FOR THE PURPOSE OF BUSINESS AND IS THUS FULLY ALLOWABLE. THE LD.AR SUBMITTED THAT IT WAS POINTED OUT BEFORE THE CIT(A) THAT THE ASSESSEE IS A MEMBER OF CREDAI AND ACCORDINGLY VISITED FOREIGN COUNTRIES NAMELY SOUTH KOREA AND J APAN TO ATTEND THE MEETING OF FEDERATION OF REAL ESTATE DEVELOPERS. T HE DETAILED FACTS AND EVIDENCES CONCERNING THE TRAVELLING WERE PROVIDED T O THE AUTHORITIES BELOW AS ANNEXED AT PAGE NOS.51 TO 56 OF THE PAPER- BOOK. THE LD.AR SUBMITTED THAT IN THE BACKDROP OF THESE DISCERNIBLE FACTS, THERE WAS NO WARRANT FOR THE CIT(A) TO SET ASIDE THE ISSUE TO TH E FILE OF THE AO TO VERIFY THE PURPOSES OF VISITS TO THESE COUNTRIES AN D TO EXAMINE IF THE EXPENDITURE ARE PERSONAL NATURE. THE LD.AR POINTED OUT THAT IMPUGNED TRAVELLING EXPENSES ARE TO BE ALLOWED IRRESPECTIVE OF THE FACT THAT THE ASSESSEE HAS NOT DEMONSTRATED ANY DIRECT RELATIONSH IP OF THIS TRIP ON ITS BUSINESS. ITA NO.1256/AHD /2014 M/S. KLASSEE CONSULTANCY VS. ACIT ASST.YEAR 2010-11 - 4 - 4. WE FIND MERIT IN THE ARGUMENTS ADVANCED ON BE HALF OF THE ASSESSEE. WE ARE OF THE VIEW THAT THE IMPUGNED FOREIGN TRAVEL LING EXPENSES HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOS E OF BUSINESS OWING TO THE FACT THAT THE ASSESSEE HAS TRAVELLED THE AFO RESAID COUNTRIES AS A MEMBER OF THE PROFESSIONAL BODY CONCERNING HIS BUSI NESS. THE EXPENSES INCURRED IS CLEARLY INCIDENTAL TO ITS TRADE FOR THE PURPOSE OF KEEPING ITS BUSINESSGOING ON. THE EXPENDITURE HAS BEEN APPAREN TLY INCURRED BY THE ASSESSEE FOR THE FURTHERANCE OF HIS BUSINESS AND NO T IN ANY OTHER CAPACITY. THERE IS NO LEGAL OBLIGATION ON THE ASSESSEE TO PRO VE THAT THE EXPENDITURE WAS NECESSARY FOR THE PROMOTION OF HIS BUSINESS. T HE NECESSARY DETAILS HAVE BEEN PLACED ON RECORD BEFORE THE AUTHORITIES B ELOW. NO INGREDIENTS OF PERSONAL EXPENDITURE HAVE SURFACED IN THE PROCEE DINGS BEFORE THE LOWER AUTHORITIES. IT IS WELL SETTLED THAT THE ASS ESSEE IS NOT REQUIRED TO EXPLAIN WHETHER THE EXPENDITURE INCURRED IS NECESSA RY FOR CARRY OUT THE BUSINESS SO LONG AS THE EXPENDITURE HAS BEEN INCURR ED WHOLLY AND EXCLUSIVELY TO ACHIEVE OBJECTIVES AND THE PERFORMAN CES OF BUSINESS. THE ACTION OF CIT(A) IN REMITTING THE ISSUE BACK TO THE FILE OF AO TO DETERMINE THE PURPOSE OF EXPENDITURE IS UNNECESSAR Y. AS A RESULT, THE DISALLOWANCE TOWARDS FOREIGN TRAVELLING EXPENSES AS NOTED ABOVE IS DELETED. CONSEQUENTLY, BOTH THE GROUNDS OF THE ASSESSEES APPEAL SUCCEED. ITA NO.1256/AHD /2014 M/S. KLASSEE CONSULTANCY VS. ACIT ASST.YEAR 2010-11 - 5 - 5. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 24 / 0 3 /201 7 SD/- SD/- ( ) ( ) ( MAHAVIR PRASAD ) ( PRADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 24/ 03 /2017 4..*,.*../ T.C. NAIR, SR. PS !'#$#! / COPY OF THE ORDER FORWARDED TO : 1. #& / THE APPELLANT 2. '#& / THE RESPONDENT. 3. 567, 8, / CONCERNED CIT 4. 8, ( ) / THE CIT(A)-II, BARODA 5. 9:;,*67 , 67 0 , 5 / DR, ITAT, AHMEDABAD 6. ;<+ / GUARD FILE. / BY ORDER, '9,, //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 23.3.17 (DICTATION-PAD 10- PAGES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.24.3.17 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 24.3.17 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER