Kunal Organics Pvt.Ltd., Ahmedabad V. The Income tax Officer,Ward-4(2), Ahmedabad

ITA 1347/AHD/2011

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9952 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 16-11-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 06-05-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SITA RAM MEENA
• Assessee Lawyers: A P NANAVATI
• Keywords: Principle of natural justice; Corroborative evidences; Tax effect

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH AHMEDABAD BEFORE SHRI N. K. BILLAIYA, ACCOUNTANT MEMBER, AND SHRI S. S. GODARA, JUDICIAL MEMBER. ITA NO. 1347/AHD/2011 (ASSESSMENT YEAR: 2007-08) M/S. KUNAL ORGANICS PVT. LTD. NANAVATY & ASSOCIATES A/18, 3 RD FLOOR, NARAYAN CHAMBERS, ASHRAM ROAD, AHMEDABAD - 380014 APPELLANT VS. ITO, WARD 4(2), AHMEDABAD RESPONDENT PAN: AAACK6202F / BY ASSESSEE : SHRI A. P. NANAVATI, A.R. / BY REVENUE : SHRI SITA RAM MEENA, SR. D.R. /DATE OF HEARING : 16.11.2016 /DATE OF PRONOUNCEMENT : 28.11.2016 ORDER PER S. S. GODARA, JUDICIAL MEMBER THIS ASSESSEES APPEAL FOR ASSESSMENT YEAR 2007-08 ARISES AGAINST THE CIT(A)-VIII, AHMEDABADS ORDER DATED 04.04.2011, IN APPEAL NO. CIT(A) VIII/4(2)/746/09-10, IN PROCEEDINGS UNDER SECTION 1 43(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT. 2. THE ASSESSEES SOLE SUBSTANTIVE GROUND CHALLENGE S THE CIT(A)S ORDER RESTRICTING DISALLOWANCE OF FOREIGN TRAVEL EXPENSES INCURRED IN FOREIGN ITA NO.1347/AHD/2011 (M/S. KUNAL ORGANICS P. LTD. V S. ITO) A.Y. 2007-08 - 2 - CURRENCY FROM RS.14,34,727/- AS MADE BY THE ASSESSI NG OFFICER TO RS.3,58,682/- IN THE LOWER APPELLATE PROCEEDINGS. 3. WE COME TO RELEVANT FACTS OF THE CASE. THIS ASS ESSEE MANUFACTURES, MARKETS AND TRADES IN TEXTILE AUXILIARIES. IT CLAI MED TOTAL TRAVELLING EXPENSES OF RS.49,44,636/- IN THE IMPUGNED ASSESSMENT YEAR. THIS FIGURE WOULD INCLUDE FOREIGN CURRENCY EXPENSES PERMISSIBLE UNDER FEMA ACT, 2000 AMOUNTING TO RS.14,34,727/- IN QUESTION. THE ASSES SEE PLEADED THAT THE SAME WAS INCURRED EXCLUSIVELY FOR ITS ABOVE BUSINESS PUR POSES WHEREIN THE COMPANYS DIRECTOR(S) HAS VISITED VARIOUS FOREIGN D ESTINATIONS LIKE ENGLAND, FRANCE, SINGAPORE FOR OVERSEAS SUPPLIES AND KENYA, TANZANIA, EGYPT, THAILAND ETC. FOR EXPLORING BUSINESS OPPORTUNITIES. THE ASSESSING OFFICER DISALLOWED THE ENTIRE LATTER SUM OF FOREIGN CURRENC Y EXPENSES IN ASSESSMENT ORDER DATED 29.12.2009 ON THE GROUND THAT THE ASSES SEE COULD NOT SUBSTANTIATE ITS CLAIM EXCEPT SUBMITTING EVIDENCE IN THE FORM OF E-MAILS AND SELF ATTESTED VOUCHERS / PAMPHLETS. 4. THE ASSESSEE PREFERRED APPEAL. THE CIT(A) DELET ES 75% OF THE ABOVE DISALLOWANCE AS FOLLOWS: 5.0. I HAVE CAREFULLY CONSIDERED THE FINDINGS OF T HE A.O AS WELL AS SUBMISSION O; THE APPELLANT, AND THE INFORMATION AVAILABLE ON REC ORD. DURING ASSESSMENT PROCEEDINGS, THE A.O OBSERVED THAT THE ASSESSEE HAS INCURRED TRAVELLING EXPENSES OF RS. 49,44,636/- WHICH INCLUDES FOREIGN TRAVELLIN G EXPENSES OF RS. 3696250/-. FROM THE DETAILS FILED BY THE: ASSESSEE, THE A.O FU RTHER OBSERVED THAT THE FOREIGN TRAVELLING EXPENSES INCLUDES AN EXPENDITURE OF RS.1 434727/- IN FOREIGN CURRENCY, AND DETAILS FOR THE SAME HAS NOT BEEN FILED. THE A .O. ALSO OBSERVED THAT THE ASSESSEE HAS ALREADY CHARGED RS. 958557/- TO FOREIG N TRAVELLING EXPENSES IN THE FORM OF HOTEL EXPENSES, BOARDING AND LODGING, VISA CHARGES ETC AND THEREFORE, THERE APPEARS TO BE OVER LAPPING OF FURTHER EXPENSES OF R S. 1434727/- CLAIMED TO BE INCURRED IN FOREIGN CURRENCY . THE DETAILS SUBMITTE D BY THE ASSESSEE WERE NOT FOUND SATISFACTORY BY THE A.O AND THEREFORE, HE; DISALLOW ED FOREIGN TRAVELLING EXPENSES TO THE EXTENT OF ENTIRE RS. 1434727/- CLAIMED TO BE IN CURRED IS FOREIGN CURRENCY BY THE APPELLANT. 5.1. ON THE OTHER HAND, THE LD. A.R ON BEHALF OF TH E APPELLANT STRONGLY OBJECTED THE ADDITION. THE ASSESSEE IS TRADING IN T EXTILE AUXILIARIES. TEXTILE AUXILIARIES AIDS IN PROCESSING OF CLOTH LIKE, DYEING, PRINTING AS WELL AS FINISHING. NOW A DAYS ITA NO.1347/AHD/2011 (M/S. KUNAL ORGANICS P. LTD. V S. ITO) A.Y. 2007-08 - 3 - SUCH CHEMICALS ARE ALSO MANUFACTURED TO AID YARN DY EING SIZING ETC. THESE CHEMICALS ARE ALSO USEFUL IN ACHIEVING PARTICULAR F INISHES OVER SPECIALTY CLOTHES LIKE DENIM ETC. ASSESSEE IS ENGAGED IN MARKETING OF INDUSTRIAL PRODUCTS EXCLUSIVELY TO TEXTILE INDUSTRY. THE ASSESSEE HAS FILED ITS RET URN OF INCOME ON 18/10/2008 AND DISCLOSED TAXABLE INCOME OF RS. 13588060/-. THE LD. A.R SUBMITTED THAT THE ASSESSEE HAD FURNISH ED TO LD. A.O. REPLY TO SHOW- CAUSE NOTICES AND COPIES THEREOF ARE AT PAGE NO . 78 TO 106 WHICH INTERALIA INCLUDES DETAILS OF FOREIGN TRAVELLING EXPENSES INC URRED IN FOREIGN CURRENCY OF RS. 1434727/-. THE A.O. HAS ALSO RECORDED FINDING THAT ALL FOREIGN TRAVEL IS BONAFIDE. THE LD. A,R. SUBMITTED THAT TOTAL NO. OF MAN DAYS O F TRAVEL IN FOREIGN COUNTRY IS 199 DAYS AND IF TOTAL EXPENDITURE OF RS. 1997231/- IS CONVERTED INTO DOLLER @ RS. 45/-PER US $; THE AGGREGATE EXPENDITURE IN DOLLER W ORKS OUT TO US $ 44383, AND EXPENDITURE OF TRAVEL PER MAN PER DAY WORKS OUT TO US$ 223 WHICH SHALL INTERALIA INCLUDE HOTEL ACCOMMODATION, FOOD I.E. MORNING BREA KFAST LUNCH & DINNER AS WELL AS SNACKS, DRINKS INCLUDING WATER EVERY DAY AND ENT IRE CONVEYANCE EXPENSES. THEREFORE SUCH EXPENSES ARE NOT OVER LAPPING OR E XCESSIVE. THE EXPENSES ARE NECESSARY, INEVITABLE ESSENTIAL AND RELEVANT TO BUS INESS PURPOSE. THE EXPENDITURE OF US $ 223 PER MAN DAY IN RUPEES TERMS (AFTER CONV ERTING @ RS. 45/-) WORKS OUT TO RS. 10035/-. IF AFORESAID EXPENDITURE IS VIEWED IN TERMS OF EXPENSIVE CITIES VISITED OVERSEAS, THEN SUCH EXPENDITURE IS NEITHER EXCESSIVE NOR IMPROBABLE AND ABSOLUTELY JUSTIFIED. 5.2 IT IS OBSERVED FROM RECORD THAT THE APPELLAN T HAS FURNISHED DETAILS OF EXPENSES INCURRED IN FOREIGN COUNTRIES WITH BREAK-U P OF EACH HEAD OF EXPENDITURE. IT IS AN ADMITTED FACT THAT AFORESAID EXPENSES REPR ESENT ACQUISITION OF FOREIGN EXCHANGE FROM AUTHORISED DEALER AS PERMISSIBLE UNDE R FEMA, 2000 FOR THE PURPOSE OF FOREIGN TRAVEL. IT IS ALSO A FACT THAT A .O HAS TREATED ALL FOREIGN JOURNEYS AS BONAFIED AND UNDERTAKEN FOR THE PURPOSE OF BUSIN ESS. HE HAS DISPUTED ONLY THE EXPENDITURE OF RS. 1434727/- INCURRED IN FOREIGN EX CHANGE. IT IS AN ADMITTED FACT THAT THE INDIAN RUPEES IS NOT A LEGAL TENDER OR CUR RENCY IN FOREIGN COUNTRIES AND THEREFORE ALL EXPENSES SUCH AS CONVEYANCE, TAXI FAR E, SNAKES, COLD DRINK, WATER, BREAKFAST, LUNCH, DINNER, TIPS, TICKETS FOR TRADE F ARES, BOOKS, MAGAZINES, ENTERTAINMENTS ETC, ARE TO BE INCURRED IN FOREIGN C URRENCY AND MANY A TIMES SUPPORTING BILLS/VOUCHERS FOR EACH AND EVERY SUCH E XPENDITURE IS EITHER NOT AVAILABLE OR IN PRACTICAL REALITY NOT CORRECTED. BU T IT IS AN UNDISPUTED FACT THAT SUCH EXPENDITURE IS NECESSARY, ESSENTIAL AND INEVITABLE PART OF FOREIGN TRAVELLING AND FOUND LARGELY GENUINE AND BONAFIDE. 5.3. THE A.O HAS POINTED OUT THAT EXPENDITURE INC URRED OUT OF FOREIGN CURRENCY IS OVERLAPPING OR DUPLICATE. FOR THIS THE LD. A.R. SUB MITTED AS UNDER :- ' WE HAVE PRODUCED ALL DETAILS OF EXPENDITURE AND L D. A.O. HAS MERELY POINTED OUT HEADS BUT LD. A.O. HAS NOT NEITH ER POINTED OUT PRECISE DETAILS AS TO PARTICULAR DESTINATION NOR DATES AND HEADS OF EXPENDITURE TO BE OVERLAPPING AND DUPLICATE HENCE FINDING OF LD. A .O. ARE NOT PRECISE AND SPECIFIC . THEY ARE GENERAL AND LACKING IN MATERIAL PARTICULARS AS TO OVERLAPPING OR DUPLICATION WHICH NO REASONABLE PERS ON OF JUDICIAL BACKGROUND SHALL BE ABLE TO APPRECIATE NOR CAN REPL Y OR MEET WITH BECAUSE NOT A SINGLE HEAD OF EXPENDITURE FOR PARTICULAR DES TINATION FOR PARTICULAR ITA NO.1347/AHD/2011 (M/S. KUNAL ORGANICS P. LTD. V S. ITO) A.Y. 2007-08 - 4 - DATE HAS BEEN POINTED OUT. TRAIN AND AIR TRAVEL OF RS, 25,893/- PERTAINS TO DOMESTIC TRAVEL FOR GOING TO BOMBAY FOR FURTHER FOR EIGN TOUR TO FRANCE HENCE THERE IS NO QUESTION OF SUCH EXPENSE BEING DU PLICATE. IDENTICALLY MISCELLANEOUS EXPENSES REPRESENT INTERNET CONNECTIO N USES AND COST FOR EXTRA LUGGAGE; COPIES OF SUCH VOUCHERS PAID BY CRED IT CARD ARE FILED . LIKEWISE AFORESAID STATEMENT DO NOT DISCLOSE ANY HO TEL EXPENSES AS DUPLICATE. LIKEWISE RESTAURANT EXPENSES ARE EXPENDI TURE DURING THE COURSE OF DAY TIME WHILE CONTACTING THE PARTIES TO OFFER C URTSEY OF HOSPITALITY. SUCH COST DO NOT INCLUDE MORNING BREAKFAST, LUNCH AND DI NNER AS WELL AS ATTENDANCE OF CULTURAL PROGRAMMES WHICH ARE INCURRE D OUT OF FOREIGN EXCHANGE ACQUIRED. SUCH COST OF BREAKFAST, LUNCH AN D DINNER ARE EXCLUSIVELY FOR PERSONNEL OF ASSESSEE. UNDER THE CI RCUMSTANCES, THERE IS NO EXPENSE WHICH IS DUPLICATE. ALTERNATIVELY, WE ALSO SUBMIT THAT FOREIGN CURRENCY IS NOT AVAILABLE TO ASSESSEE FOR ANY OTHER PURPOSE UNDER FEMA, 2000. IT S ACQUISITION IS ATTACHED WITH OBLIGATION OF UTILISING FOR BUSINESS PURPOSES AND RETURNING OF SUCH FOREIGN EXCHANGE IF NOT UTILISED FOR PURPOSE F OR WHICH IT HAS BEEN ACQUIRED. HENCE BY DISALLOWING FOREIGN EXCHANGE EXP ENSES ACQUIRED FOR FOREIGN TRAVEL INVOLVES ALLEGATIONS OF VIOLATIONS O F REGULATIONS OF FEMA. SUCH BAD FAITH OR VIOLATIONS OF LAW CAN NOT BE PRES UMED AGAINST AN ASSESSEE AS HELD IN HIRALAL D. DESAI & SONS V/S. C. I.T. 4ITR95 (BOM.). UNDER THE CIRCUMSTANCES; ALL FOREIGN TRAVEL IS BONA FIDE AND FOR BUSINESS PURPOSE. NO SPECIFIC DETAILS AS TO IDENTIFYING THE EXPENDITURE, PARTICULAR DESTINATION OR PARTICULAR DATES ARE AT ALL RECORDED IN FINDING BY THE A.O. DETAILS OF ALL EXPENDITURE FOR FOREIGN CURRENCY HAS BEEN FURNISHED UNDER DIFFERENT HEADS WHICH ARE NECESSARY, ESSENTIAL AND INEVITABLE INCIDENT TO SUCH FOREIGN TRAVEL. THESE FACTS ARE NOT CONTROVERT ED AT ALL BY LD. A.O. ' 5.4. THE LD. A.R ALSO DREW MY ATTENTION TOWARDS THE CREDIT CARD STATEMENTS OF DIRECTORS AND EMPLOYEES (COPY FILED) WHICH SHOWS DE TAILS OF VARIOUS EXPENSES INCURRED BY THEM AT FOREIGN DESTINATIONS AND ALL SU CH EXPENSES WERE NOT CLAIMED AS TRAVELLING EXPENDITURE OF THE COMPANY. WHICH PROVES THAT DIRECTORS/EMPLOYEES ARE TAKING CARE THAT NO PERSONAL EXPENDITURE IS CHARGED AS COMPANY EXPENDITURE. 5.5. IN VIEW OF THE TOTALITY OF THE FACTS AND CIRCU MSTANCES, I AM OF THE OPINION THAT MOST OF SUCH EXPENSES ARE MUST AND INEVITABLE AND T HEREFORE ARE INCURRED IN FOREIGN CURRENCY AT FOREIGN DESTINATIONS, THE DISAL LOWANCE OF ENTIRE SUCH EXPENSES INCURRED IN FOREIGN CURRENCY IS EXCESSIVE AND NOT J USTIFIED . LOOKING TO THE FACT THAT THE ASSESSES HAS NOT FURNISHED COMPLETE DETAILS OF SUCH EXPENSES WITH SUPPORTING EVIDENCE FOR VERIFICATION TO THE AO, WHETHER SUCH E XPENSES ARE INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSES, A DISALL OWANCE OF 25 % OF SUCH EXPENDITURE INCURRED IN FOREIGN CURRENCY WOULD BE F AIR AND REASONABLE AND WOULD MEET THE DEMAND OF NATURAL JUSTICE. I, THEREFORE, CONFIRM THE ADDITION OF RS. 358682/- @ 25 % OF EXPENDITURE INCURRED IN FOREIGN CURRENCY AND DELETE THE REMAINI NG ADDITION. THIS GROUND IS PARTLY ALLOWED. ITA NO.1347/AHD/2011 (M/S. KUNAL ORGANICS P. LTD. V S. ITO) A.Y. 2007-08 - 5 - 5. LEARNED COUNSEL REPRESENTING ASSESSEE STRONGLY S UBMITS THAT ITS FOREIGN CURRENCY EXPENSES IN QUESTION HAVE BEEN INCURRED ON COMPANYS DIRECTORS OVERSEAS VISITS TO EUROPEAN, SOUTH EAST ASIAN, TURK ISH AND AFRICAN DESTINATIONS SUCH AS EGYPT AND TANZANIA FOR SUPPLY CONTRACTS AND IN ORDER TO EXPLORE NEW MARKETS. HE SEEKS TO PLACE RELIANCE ON PAGES 1 TO 39 OF THE PAPER BOOK STATED TO BE COMPRISING OF THE RELEVANT CONTEMPORANEOUS EVIDENCE. LEARNED COUNSEL REFERS TO SOME E-MAILS A ND SELF MADE PAMPHLETS ONCE AGAIN. WE DO NOT FIND ANY MATERIAL THEREIN TO CONCLUDE THAT THE ASSESSEE EVER PARTICIPATED IN ANY MARKET OR BUSINESS ORIENTE D ACTIVITY SO AS TO AUGMENT ITS BUSINESS IN QUESTION SO AS TO PROVE THAT THE IM PUGNED EXPENDITURE IS INCREASED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. BE THAT AS IT MAY, THERE IS NO DISPUTE THAT THE LD. CIT(A) HAS ALREADY GRANTED A SUFFICIENT RELIEF. THIS CASE FILE INDICATES THAT THE REVENUE HAD ALSO FILED ITS APPEAL SEEKING TO RESTORE THE ENTIRE DISALLOWANCE SUM ITA NO.1827/AHD/2011 WHICH STANDS DISMISSED TO BE INVOLVING LOW TAX EFFECT TH EN THAT PRESCRIBED THRESHOLD LIMIT OF RS.10LACS. WE THUS FIND NO REASON TO INTE RFERE IN THE WELL REASONED CIT(A)S ORDER IN THESE FACTS AND CIRCUMSTANCES. 6. THIS ASSESSEES APPEAL IS DISMISSED. [PRONOUNCED IN THE OPEN COURT ON THIS THE 28 TH DAY OF NOVEMBER, 2016.] SD/- SD/- (N. K. BILLAIYA) (S. S. GODARA) ACCOUNTANT MEMBER JUDICIAL ME MBER AHMEDABAD: DATED 28/11/2016 TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO:- / REVENUE 2 / ASSESSEE ! / CONCERNED CIT 4 !- / CIT (A) ( )*+ ,--. . /0 / ITA NO.1347/AHD/2011 (M/S. KUNAL ORGANICS P. LTD. V S. ITO) A.Y. 2007-08 - 6 - DR, ITAT, AHMEDABAD 1 +23 45 / GUARD FILE. BY ORDER / . // . /0