M/s Ratnagiri Impex Pvt. Ltd., Bangalore V. DCIT, Bangalore

ITA 14/BANG/2013

• Counselvise Citation: 1421114 RSA 2013
• Duration Of Justice: 1 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 14-07-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 04-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR K SHANKAR PRA SAD
• Assessee Lawyers: H R SURESH
• Keywords: Corroborative evidences
• Section: 194C

Judgement Text

ITA NO. 14 OF 2013 RATNAGIRI IMPEX PVT LTD BANGALOR E PAGE 1 OF 8 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE B BENCH, BANGALORE BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NO.14/BANG/2013 (ASSESSMENT YEAR:2008-09) M/S RATNAGIRI IMPEX PVT LTD ANNAPURNA HOUSE, NO.1/1G 7 TH CROSS NEW GUDDADAHALLI MYSORE ROAD, BANGALORE 560026 PAN: AABCR 5888 B VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 12(4) BANGALORE (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI H.R. SURESH, CA DEPARTMENT BY: DR. K. SHANKAR PRA SAD, (DR) DATE OF HEARING: 3/9/2014 DATE OF PRONOUNCEMENT: 5/9/2014 O R D E R PER RAJPAL YADAV, J.M. THE ASSESSEE IS IN APPEAL BEFORE US AGAINST THE ORD ER OF THE LEARNED CIT (A) DATED 20.9.2012 PASSED FOR ASSESSME NT YEAR 2008-09. THE GROUNDS OF APPEAL TAKEN BY THE ASSESSE E ARE NOT IN CONSONANCE WITH RULE 8 OF THE ITAT RULES AND THEY A RE DESCRIPTIVE AND ARGUMENTATIVE IN NATURE. THE ASSESS EE HAS TAKEN EIGHT GROUNDS OF APPEAL, BUT ITS GRIEVANCE REVOLVES AROUND TWO ISSUES NAMELY: A) DISALLOWANCE OF RS.8,71,524 OUT OF TRAVELLING EXPENDITURE. B) DISALLOWANCE OF RS.4,84,147 OUT OF SALE PROMOTION EXPENSES. ITA NO. 14 OF 2013 RATNAGIRI IMPEX PVT LTD BANGALOR E PAGE 2 OF 8 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A COMPANY ENGAGED IN THE BUSINESS OF DEALING FARM EQU IPMENTS, MACHINERY, SPARES, WIND POWER GENERATION ETC., IT H AS FILED ITS RETURN OF INCOME ON 18.10.2007 DECLARING TOTAL INCO ME OF RS.42,82,050/-. THE CASE OF THE ASSESSEE WAS SELECT ED FOR SCRUTINY ASSESSMENT AND NOTICE U/S 143(2) WAS ISSUE D AND SERVED UPON THE ASSESSEE. ACCORDING TO THE ASSESSIN G OFFICER, TWELVE OPPORTUNITIES OF HEARING WERE GRANTED TO THE ASSESSEE. ON AN ANALYSIS OF THE ACCOUNTS, IT REVEALED TO THE ASS ESSING OFFICER THAT THE ASSESSEE HAD DEBITED AN AMOUNT OF RS.22,19 ,188/- TOWARDS DIRECTORS TRAVELLINGE EXPENSES. OUT OF THI S AMOUNT, A SUM OF RS.17,43,047/- WAS INCURRED ON THE FOREIGN T RAVEL OF FOUR DIRECTORS. THE LEARNED ASSESSING OFFICER ANALYSED T HE DETAILS AS UNDER: MR. VASUDEVAMURTHY, S.A.(U.K, FRANKFURT, ITALY) RS. 4,59,622 MR. SUNDRESH S.A. (SOUTH AFRICA) RS. 4,37,096 MR. CHANDRA MOHAN S.A (JAPAN) RS. 1,29,624 MR. GOPALA KRISHNA, SA (CHINA, TAIWAN, SINGAPORE, HONG KOND, MALAYSIA, U.K. BANGKOK, JAPAN) RS. 7,16,704 T O T A L RS.17,43,047 HE CONFRONTED THE ASSESSEE TO SUBMIT THE SUPPORTING VOUCHERS AND OTHER EVIDENCE OF THESE EXPENDITURES. ACCORDING TO THE ASSESSING OFFICER THE ASSESSEE FAILED TO SUBMIT NEC ESSARY DETAILS, THEREFORE, HE DISALLOWED THE TOTAL CLAIM. THE BRIEF FINDINGS OF THE ASSESSING OFFICER READ AS UNDER: 6.3 IN RESPONSE TO THE ABOVE, THE ASSESSEE COMPANY HAS NOT BEEN ABLE TO SUBSTANTIATE THE ABOVE AMOUNT OF RS.17,43,046/- WITH DOCUMENTS AND EVIDENCE INCLUDIN G ITA NO. 14 OF 2013 RATNAGIRI IMPEX PVT LTD BANGALOR E PAGE 3 OF 8 BILLS, VOUCHERS, NAMES AND ADDRESS OF ENTITIES WHO WERE MET AND NATURE OF BUSINESS TRANSACTION FROM THE SAM E. 6.4 THEREFORE, AN AMOUNT OF RS.17,43,046/- IS DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF TH E ASSESSEE COMPANY. 3. ON APPEAL, THE LEARNED CIT (A) CONCURRED WITH TH E CONCLUSIONS OF THE ASSESSING OFFICER THAT THE AMOUN T UNDER TRAVELING EXPENDITURE WAS NOT WHOLLY INCURRED FOR T HE PURPOSE OF THE VISIT. THE LEARNED FIRST APPELLATE AUTHORITY HA S CONFIRMED THE DISALLOWANCE OF 50% OF THE EXPENDITURE ON AN ESTIMA TED BASIS BY RECORDING THE FOLLOWING FINDINGS: 6.2 ON AN EXAMINATION OF THE LEDGER ACCOUNT, I FIND HAT IN RESPECT OF THE FOREIGN TOURS, WHILE THE HOTE L BILLS AND TICKET EXPENSES ARE REFLECTED IN THE VOUCHERS, THE PURPOSE OF THE TOURS AND THE EXPEDIENCY THEREOF ARE NOT ESTABLISHED ON A TOUR-WISE BASIS. FOR EXAMPLE, SRI VASUDEVA MURTHY TRAVELED EXTENSIVELY IN EUROPE AND UK FOR 15 DAYS FROM 6.9.07 21.9.07 AND LIKEWISE T HE LEDGER ACCOUNT REVEAL EXTENSIVE PAYMENTS MADE TO TH E DIRECTORS IN CASH AND IN THE FORM OF AIR TICKETS. H OWEVER, I HAVE TO NOTE THAT THE EXPEDIENCY OF THESE TRIPS I S NOT ESTABLISHED BEFORE ME, APART FROM SUBMISSION OF SOM E COPIES OF BILLS FROM FOREIGN HOTELS. THE APPELLANT S ONLY GENERAL DEFENSE IS THAT IT IMPORTS GOODS FROM ITALY , CHINA AND OTHER EUROPEAN COUNTRIES. ON A CONSPECT US OF THE ISSUE, I AM OF THE VIEW THAT THE EXPENSES HA VE NOT BEEN FULLY JUSTIFIED, THOUGH THE CLAIM OF HAVING MA DE CERTAIN TRIPS ON ACCOUNT OF BUSINESS EXPEDIENCY IS GENERALLY ACCEPTABLE, IF EVIDENCE IS ADDUCED. IN VI EW OF THE FACTS OF THE CASE, I FEEL THAT ONLY 50% OF THE EXPENDITURE OF RS.17,43,047/- CAN BE FAIRLY ALLOWED IN THE ABSENCE OF JUSTIFICATION FOR INCURRENCE OF THE SAME FOR BUSINESS PURPOSES. ACCORDINGLY, AN AMOUNT OF RS.8,71,024 IS DELETED AND THE BALANCE IS SUSTAINED . ITA NO. 14 OF 2013 RATNAGIRI IMPEX PVT LTD BANGALOR E PAGE 4 OF 8 4. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE ASSESSEE USED TO IMPORT FARM EQUIPMENTS FROM THESE NATIONS AND THEREFORE, ITS DIRECTORS HAD TO UNDERTAKE JOURN EYS. THE EXPENSES WERE INCURRED FOR THE PURPOSE OF THE BUSIN ESS VISIT AND NO DISALLOWANCE OUGHT TO HAVE BEEN MADE. ON THE OTH ER HAND, THE LEARNED DR RELIED UPON THE ORDER OF THE ASSESSI NG OFFICER. 5. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AN D GONE THROUGH THE RECORD CAREFULLY. IN ORDER TO CLAIM ANY EXPENDITURE INCURRED FOR THE PURPOSE OF THE BUSINESS, AN ASSESS EE HAS TO DEMONSTRATE THAT THE EXPENSES WERE LAID DOWN WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS ONLY. T HE EXPRESSION WHOLLY DENOTES THE QUANTUM OF EXPENDITURE, WHEREA S EXCLUSIVELY DENOTES THE PURPOSE. BOTH THESE CONDI TIONS SHOULD BE FULFILLED BEFORE CLAIMING THE EXPENDITURE. THE D ETAILS OF EXPENSES ARE AVAILABLE IN THE ACCOUNT, BUT WHETHER THESE WERE INCURRED WHOLLY FOR THE PURPOSE OF THE BUSINESS OR NOT?, THE SUPPORTING EVIDENCE WAS NOT PRODUCED. THE LEARNED C IT (A) HAS OBSERVED THAT IT CANNOT BE CONSTRUED THAT TOTAL EXP ENSES WERE NOT INCURRED FOR THE PURPOSE OF BUSINESS. THEREFORE , ON AN ESTIMATE BASIS, SHE HAS UPHELD DISALLOWANCE UP TO 5 0% OF THE CLAIM. 6. ON DUE CONSIDERATION OF THESE FACTS, WE ARE OF T HE VIEW THAT IMPORT OF MACHINERY WAS NOT DISPUTED BY THE ASSESSI NG OFFICER. THE VISITS OF THE DIRECTORS WERE ALSO NOT DISPUTED. THE DISPUTE IS WHETHER THESE VISITS WERE EXCLUSIVELY FOR THE PURPO SE OF BUSINESS OR THEY WERE PLEASURE TRIPS. THEREFORE, POSSIBILITY OF INVOLVEMENT OF PERSONAL EXPENDITURE IN THE TRAVELING EXPENSES C ANNOT BE ITA NO. 14 OF 2013 RATNAGIRI IMPEX PVT LTD BANGALOR E PAGE 5 OF 8 RULED OUT. HOWEVER, THE INVOLVEMENT OF PERSONAL EXP ENDITURE COULD NOT BE TO THE MAGNITUDE OF 50%. THE DISALLOWA NCE, EVEN IF MADE ON ESTIMATE BASIS, IT SHOULD BE A FAIR AND JUS TIFIABLE ESTIMATE CONSIDERING THE SURROUNDING CIRCUMSTANCES. IN OUR OPINION, ENDS OF JUSTICE WOULD MET, IF SUCH DISALLO WANCE IS RESTRICTED TO THE EXTENT OF 25% OF THE TOTAL EXPEND ITURE OF RS.17,43,047/-. 7. IN THE SECOND FOLD OF GRIEVANCE, ASSESSEE HAS PL EADED THAT IT HAD INCURRED EXPENDITURE FOR CONVENING A MEETING OF DEALERS. ASSESSING OFFICER WAS OF THE OPINION THAT THE ASSES SEE HAD TAKEN SERVICES OF AN EVENT ORGANIZER AND THEREFORE, IT SH OULD HAVE DEDUCTED THE TDS. HE DISALLOWED THE EXPENSES. BRIEF FINDING RECARDED BY THE ASSESSING OFFICER IN THIS CONNECTIO N READ AS UNDER: 12. NON DEDUCTION OF TAX AT SOURCE: 12.1 THE ASSESSEE COMPANY HAS DEBITED AN AMOUNT OF RS.4,84,147/- TOWARDS THE FOLLOWING: M/S EAGLETON GOLF RESORTS SALES PROMOTION RS.3,29 ,519 M/S F S EVENTS & SERVICES SALES PROMOTION RS. 69 ,776 M/S. FASHION POINT ADVERTISEMENT RS. 84,85 2 TOTAL TURNOVER RS.4,84,147 12.2 ON FURTHER VERIFICATION, IT WAS ASCERTAINED THAT TH E ASSESSEE COMPANY HAS NOT DEDUCTED TAX AT SOURCE FOR THE ABOVE AMOUNT OF RS.4,84,147/-. 12.3 IN ACCORDANCE TO THE PROVISIONS OF INCOME TAX ACT, 1961 THE ASSESSEE COMPANY MAKING ANY PAYMENT SHALL AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OR AT THE TIME OF PAYMENT THEREOF IN CASH O R BY ISSUE OF CHEQUE OR DRAFT OR BY ANY OTHER MODE, ITA NO. 14 OF 2013 RATNAGIRI IMPEX PVT LTD BANGALOR E PAGE 6 OF 8 WHICHEVER IS EARLIER, DEDUCT INCOME TAX THEREON AT THE RATE APPLICABLE. 12.4 WHEN THE ABOVE ISSUE WAS BROUGHT TO THE NOTICE OF A.R THE A.R. COULD NOT SUBSTANTIATE THE REASON FRO THE SAME. 12.5 THEREFORE, AN AMOUNT OF RS.4,84,147/- IS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE COMPANY. THUS, THE ADDITION UNDER THIS HEAD IS RS.4,84,147/- . 8. ON APPEAL, THE LEARNED CIT (A) DID NOT GIVE ANY RELIEF TO THE ASSESSEE. THE LEARNED COUNSEL FOR THE ASSESSEE SUBM ITTED THAT THE ASSESSEE HAS NOT AVAILED SERVICES OF ANY EVENT ORGANIZER. IT SIMPLY BOOKED THE HOTEL AND ALSO ARRANGED OTHER ITE MS FOOD ETC., FROM OUTSIDE. ON THE OTHER HAND, THE LEARNED DR SUB MITTED THAT TDS OUGHT TO HAVE BEEN DEDUCTED BY THE ASSESSEE. 9. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AN D GONE THROUGH THE RECORD CAREFULLY. SECTION 194C OF THE I.T. ACT PROVIDE THAT ANY PERSON RESPONSIBLE FOR PAYING ANY SUM TO A NY RESIDENT FOR CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABO UR) FOR CARRYING OUT ANY WORK, IN PURSUANCE OF A CONTRACT B ETWEEN THE CONTRACTOR AND A SPECIFIED PERSON, SHALL, AT THE TI ME OF CREDIT OF SUCH SUM TO THE ACCOUNT OF THE CONTRACTOR OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY ANY OTHER MODE, DEDUC T AMOUNT EQUAL TO 1%, WHERE THE PAYMENT IS BEING MADE OR CRE DIT IS BEING GIVEN TO AN INDIVIDUAL OR HUF, 2% WHERE THE PAYMENT IS BEING MADE OR CREDIT IS BEING GIVEN TO A PERSON OTHER THA N AN INDIVIDUAL OR HUF, OF SUCH SUM AS INCOME TAX ON INC OME COMPRISE THEREIN. EXPLANATION ATTACHED TO THIS SECT ION PROVIDES ITA NO. 14 OF 2013 RATNAGIRI IMPEX PVT LTD BANGALOR E PAGE 7 OF 8 THE DEFINITION OF WORK. IN THIS DEFINITION PAYMENT TO A HOTEL FOR BOARDING DOES NOT FALL WITHIN THE AMBIT OF WORK. TH E ASSESSEE HAS NOT HIRED SERVICES OF ANY EVENT ORGANIZER. IT SIMPL Y BOOKED THE HOTEL FOR BOARDING. THE HOTEL DID NOT WORK ON BEHAL F OF THE ASSESSEE AS A CONTRACTOR. OTHERWISE EVERY GUEST WHO SOEVER STAY IN A HOTEL OUGHT TO HAVE DEDUCTED TDS WHILE MAKING BOOKING OR STAYING IN IT. THE HON'BLE BOMBAY HIGH COURT HAS CO NSIDERED THIS ISSUE IN THE CASE OF EAST INDIA HOTELS VS. CBD T IN CWP NO.2104 OF 1994 (COPY OF THE ORDER PLACED BY THE LE ARNED COUNSEL). THE CBDT HAD ISSUED A CIRCULAR BEARING NO . OF 681 DATED 8.3.1994 WHICH WAS CHALLENGED IN THE HIGH COU RT. THE HON'BLE HIGH COURT HAS CONSIDERED THE FOLLOWING QUE STION BASED ON THE CIRCULAR AND HAS QUASHED THE CIRCULAR. THE H ON'BLE COURT HELD THAT SECTION 194 C IS NOT APPLICABLE FOR PAYME NTS MADE BY THE CUSTOMER TO THE HOTEL. THE FIRST AND LAST THREE PARAGRAPHS OF THE JUDGMENT READ AS UNDER: 1. THE SAID CIRCULAR PROVIDES THAT ALL SERVICE CONTRACTS ARE COVERED UNDER SECTION 194C OF THE INCOME TAX ACT, 1961 ('ACT' FOR SHORT). AS A RESULT WHEREOF, EVERY CUSTOMER OF THE PETITIONER NO.1 HOTE L, WHILE MAKING PAYMENT TO THE HOTEL FOR OCCUPYING ITS ROOM AND AVAILING OTHER FACILITIES /AMENITIES PROVIDED BY THE HOTEL IS REQUIRED TO DEDUCT INCOME TAX AT THE RATE SPECIFIED IN SECTION 194C OF THE AC T. 22. IN THE PRESENT CASE, WE ARE CONCERNED WITH THE QUESTION AS TO WHETHER THE SERVICES RENDERED BY THE PETITIONER HOTEL TO ITS CUSTOMERS IS COVERED UNDER SECTION 194C OF THE ACT ? 23. AS NOTICED ABOVE, THE FACILITIES/AMENITIES MADE AVAILABLE BY THE PETITIONER NO.1 HOTEL TO ITS CUSTO MERS DO NOT CONSTITUTE 'WORK' WITHIN THE MEANING OF SECT ION 194C OF THE ACT. CONSEQUENTLY, THE CIRCULAR NO.681 DATED 8/3/1994 TO THE EXTENT IT HOLDS THAT THE SERVICES MADE AVAILABLE BY A HOTEL TO ITS CUSTOMERS ITA NO. 14 OF 2013 RATNAGIRI IMPEX PVT LTD BANGALOR E PAGE 8 OF 8 ARE COVERED UNDER SECTION 194C OF THE ACT MUST BE HELD TO BE BAD IN LAW. 24. FOR ALL THE AFORESAID REASONS, THE PETITION IS ALLOWED BY QUASHING THE CIRCULAR NO.681 DATED 8/3/1994 TO THE EXTENT IT HOLDS THAT SECTION 194C O F THE INCOME TAX ACT APPLIES TO PAYMENTS BY THE CUSTOMERS TO THE PETITIONER NO.1 HOTEL FOR AVAILING THE FACILITIES/AMENITIES MADE AVAILABLE BY THE PETITIONERS. 10. RESPECTFULLY FOLLOWING THE DECISION OF THE HON' BLE BOMBAY HIGH COURT, WE DELETE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH SEPTEMBER, 2014. SD/- SD/- (JASON P. BOAZ) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED 5 TH SEPTEMBER, 2014. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCHES, BANGALORE