SATYAM PHARMA CHEM P.LTD, MUMBAI V. ITO 4(3)(4), MUMBAI

ITA 1644/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83524 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 5 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 21-08-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 25-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PITAMBAR DAS
• Keywords: Depreciation
• Section: 80HHC; 37(1)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H MUMBAI . . , , BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER /AND SHRI SANJAY ARORA, ACCOUNTANT MEMBER ITA NO.1644/MUM/2011 (A.Y.2004-05) SATTYAM PHARMA CHEM PVT. LTD., 16/17, GOLD MOHUR, 174, SHAMALDAS, GANDHI MARG, MUMBAI 400002 PAN: AAACS6523M (APPELLANT ) VS. THE ITO 4(3)(4), AAYKAR BHAVAN, MK ROAD, MUMBAI 400020 (RESPONDENT) APPELLANT BY : NONE RESPONDENT BY : SHRI PITAMBAR DAS DATE OF HEARING : 21/08/2014 DATE OF PRONOUNCEMENT : 21 /08/2014 ORDER PER I.P.BANSAL, J.M, THIS IS AN APPEAL FILED BY THE ASSESSEE. IT IS D IRECTED AGAINST ORDER PASSED BY LD. CIT(A)-8, MUMBAI DATED 03.01.2011 FOR ASSESSME NT YEAR 2004-05. THE GROUNDS OF APPEAL READ AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE EARNED CIT (A) MUMBAI - 1. A) ERRED IN DISALLOWING RS. 5,59,292/- OUT OF FO REIGN TRAVELING EXPENSES WHICH WERE INCURRED EXCLUSIVELY FOR THE PURPOSE OF THE BUSINES S. B) NOT JUSTIFIED IN IGNORING THE EVIDENCE SUBMITTED BY THE APPELLANT FOR PROVING THE GENUINENESS OF THE EXPENSES. C) THE RATIO OF THE CASE DURGA PRASAD MORE APPLIED BY A. 0., WHERE THE FACTS OF THE CASE ARE DIFFERENT. 2. ERRED IN DISALLOWING OUT OF DEPRECIATION ON MOTO R CAR RS.73,762/- U/S 38(2) WITHOUT ASSIGNING ANY REASON. ITA NO.1644/MUM/2011 (A.Y.2004-05) 2 3. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER TO A MEND THE ABOVE GROUND OF APPEAL BEFORE/AT THE TIME OF HEARING. 2. THIS APPEAL WAS EARLIER FIXED FOR HEARING ON 2 /7/2014, WHEN AN ADJOURNMENT APPLICATION WAS RECEIVED FROM THE AUTHORIZED REPRE SENTATIVE OF THE ASSESSEE SEEKING ADJOURNMENT AFTER 21/07/2014. ACCORDINGLY, THE APP EAL WAS ADJOURNED TO 21/08/2014 AND A DIRECTION WAS GIVEN TO SEND INTIMA TION TO THE ASSESSEE AS NONE WAS PRESENT ON BEHALF OF THE ASSESSEE. ACCORDINGL Y, NOTICE WAS SENT THROUGH RPAD ON THE ADDRESS GIVEN IN FORM NO.36. THE SAID NOTIC E HAS BEEN RECEIVED BACK FROM THE POSTAL AUTHORITIES WITH THE REMARK LEFT. THE ASS ESSEE HAS NOT INFORMED THE FRESH ADDRESS ON WHICH NOTICE COULD BE SENT TO THE ASSESS EE. THEREFORE, WE PROCEED TO DECIDE THE PRESENT APPEAL EX-PARTE QUA THE ASSESSEE ON MERITS. 3. IN GROUND NO.1 THE ASSESSEE IS AGITATING THE DIS ALLOWANCE MADE ON ACCOUNT OF FOREIGN TRAVEL EXPENSES. THE ASSESSEE COMPANY IS E NGAGED IN MANUFACTURE OF SPECIALTY CHEMICALS LIKE, MANGANESE ACELATE, COBALT ACELATE ETC. HAVING ITS MANUFACTURING UNIT AT 22, TTC MIDC, THANE BELAPUR ROAD, RABALE, NAVI MUMBAI. THE PRODUCTS OF THE ASSESSEE ARE SOLD LOCALLY AND ALSO EXPORTED TO EUROPE, LATIN AMERICA AND NORTH AMERICA. THE DEDUCTION UNDER SE CTION 80HHC HAS BEEN CLAIMED ON MANUFACTURING EXPORT AT RS.56,346/-, WHICH IS IN THE SHAPE OF INCENTIVE ONLY. FROM THE PERUSAL OF THE PROFIT AND LOSS ACCOUNT IT WAS NOTICED BY THE AO THAT FOREIGN TRAVELING EXPENSES OF RS.5,59,292/- WERE CLAIMED I N RESPECT OF FOREIGN VISITS SHRI SAMIT KHOKHANI, THE DETAILS OF WHICH AS DESCRIBED I N THE ASSESSEE ARE AS UNDER: I. SHRI SUMIT KHOKHANI TO THAILAND RS. 66,137 II. -DO-. RS. 93,395 III -DO- IMMIGRATION CHARGES RS. 2,600 IV -DO- VISA FEES FOR AUSTRALIA RS. 13,160 V -DO- TICKET FOR AUSTRALIA RS. 3,84,000 TOTAL RS. 5,59,292 ITA NO.1644/MUM/2011 (A.Y.2004-05) 3 THE AO REQUIRED THE ASSESSEE TO EXPLAIN THE SAME. IT WAS SUBMITTED THAT THESE EXPENDITURES WERE INCURRED FOR EXPLORING OVERSEAS MARKETING. HOWEVER, AO MENTIONED THAT ASSESSEE DID NOT GIVE DETAILS LIKE T HE PARTIES TO WHOM THE VISITS WERE MADE AND THE PRESENTATION MADE ETC. IN THE ABSENC E OF THESE DETAILS AO HELD THAT IT COULD NOT BE CATEGORICALLY PROVED THAT THE EXPENDI TURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. REFERRING TO THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS DURGA PRASAD MORE , 72 ITR 807 (SC), AO DISALLOWED THE WHOLE AMOUNT. 4. BEFORE LD. CIT(A) ELABORATE WRITTEN SUBMISSIONS WERE FILED AND IT WAS CLAIMED THAT VARIOUS DETAILS WERE ALSO FILED BEFORE AO BUT AO DID NOT MAKE FURTHER ENQUIRY. DURING THE COURSE OF HEARING OF THE APPEAL BEFORE L D. CIT(A) THE ASSESSEE PRODUCED SEVERAL DOCUMENTS LIKE E-MAIL CORRESPONDENCE TO THA ILAND, BANGKOK, AND JAKARTA IN SUPPORT OF ITS CONTENTION THAT TRAVEL WAS FOR SALE PROMOTION. IT WAS SUBMITTED THAT FOR ASSESSMENT YEAR 2005-06 NO ADDITION WAS MADE ON ACC OUNT OF FOREIGN TRAVEL EXPENSES AFTER CONSIDERING ASSESSEES EXPLANATION. IT WAS SUBMITTED THAT ASSESSEE HAD IMPORTED MATERIAL FROM AUSTRALIA SUBSEQUENTLY. THE ASSESSEE ALSO PLACED RELIANCE UPON DOCUMENTS PERTAINING IMPORTS FROM AU STRALIA, WHICH WAS DONE SUBSEQUENTLY. UPON CONSIDERATION OF ALL THESE SUBM ISSIONS OF THE ASSESSEE LD. CIT(A) HAS OBSERVED THAT THE ASSESSEE HAS FAILED TO ESTABL ISH THAT THE IMPUGNED EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOS E OF BUSINESS OF THE ASSESSEE AS THE ASSESSEE HAS FAILED TO PROVE THAT THE FOREIGN T RAVEL WAS UNDERTAKEN FOR THE PURPOSE OF EXPLORING OVERSEAS MARKET AS CLAIMED. LD. CIT(A) OBSERVED THAT THOUGH THERE WERE CERTAIN E-MAILS REGARDING FIXATION OF ME ETING WITH CERTAIN PERSONS IN THAILAND BUT THERE WAS NO EVIDENCE TO ESTABLISH THA T SUCH MEETING HAD INDEED TAKEN PLACE AND THERE IS NO DETAIL OF TRANSACTIONS THAT T AKE PLACE AS A RESULT OF SUCH MEETING. THUS, LD. CIT(A) ARRIVED AT A CONCLUSION THAT THE CLAIM OF EXPENDITURE BY THE ASSESSEE IN RESPECT OF THAILAND VISIT WAS UNSU BSTANTIATED. SO FAR AS IT RELATES TO VISIT TO AUSTRALIA REFERRING TO THE DOCUMENTS PERTA INING TO IMPORTS FROM AUSTRALIA IN DEC.2005, LD. CIT(A) OBSERVED THAT EVEN IF CERTAIN IMPORTS ARE EFFECTED IN DECEMBER ITA NO.1644/MUM/2011 (A.Y.2004-05) 4 2005, IT CANNOT BE PRESUMED THAT THESE IMPORTS HAD TAKEN PLACE AS A RESULT OF VISIT IN 2003. IN ABSENCE OF ANY MATERIAL EVIDENCE THE C ASE OF THE ASSESSEE IS NOT SUBSTANTIATED. THUS, LD. CIT(A) HAS ARRIVED AT A C ONCLUSION THAT AO WAS JUSTIFIED IN UPHOLDING THE ADDITION. 5. AFTER NARRATING THE ABOVE FACTS, LD. DR RELIED U PON THE ORDER PASSED BY AO AND LD. CIT(A) AND PLEADED THAT THE DISALLOWANCE HAS RI GHTLY BEEN UPHELD BY LD. CIT(A) AND HIS ORDER SHOULD BE UPHELD. 6. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF LD. DR AND ALSO GONE THROUGH THE ASSESSMENT ORDER AS WELL AS ORDER PASSED BY LD. CIT(A). WE HAVE ALSO GONE THROUGH THE PAPER BOOK FILED BY THE ASSESSEE IN WHI CH COPY OF THE WRITTEN SUBMISSIONS FILED BEFORE LD. CIT(A) VIDE LETTER D ATED 18/5/2010 ARE PLACED AT PAGES 1 TO 3 OF THE PAPER BOOK. ACCORDING TO THOSE SUBMI SSIONS IT WAS CLAIMED THAT DUE TO THE EFFORTS OF FOREIGN TRAVELS OF THE DIRECTOR THE SALES OF THE ASSESSEE HAD INCREASED FROM RS.36.00 LACS IN A.Y 2003-04 TO RS.198.99 LACS IN THE YEAR UNDER CONSIDERATION AND THESE SALES HAVE FURTHER INCREASED IN THE FOLLO WING YEARS TO A SUM OF RS.359.08 LACS. THE ASSESSEE HAD ALSO SUBMITTED COMPARATIVE DATA OF EXPORT SALES FOR THREE ASSESSMENT YEARS. REFERENCE WAS MADE TO THE CBDT C IRCULAR AND IT WAS PLEADED THAT ENTIRE AMOUNT SHOULD BE CONSIDERED TO BE ALLOWABLE UNDER SECTION 37(1) OF THE ACT. IT WAS FURTHER SUBMITTED THAT FOREIGN EXPENSES ARE ONL Y TO THE EXTENT OF RS.5,43,992/- AND THE IMPUGNED DISALLOWANCES WAS THUS IN EXCESS OF RS.15,600/-.. IT WAS FURTHER SUBMITTED THAT IN THE FOREIGN TRAVEL EXPENSES THE S UM OF RS.77,250/- HAS BEEN INCURRED ON TICKETING AND VISA EXPENSES FOR MRS. VA ISHALI SHAH, THE RELATIVE OF THE DIRECTOR AND IT WAS REQUESTED THAT DISALLOWANCE, IF ANY, SHOULD BE RESTRICTED TO RS.77,250/-. FURTHER, FOLLOWING DOCUMENTARY EVIDE NCE WAS SUBMITTED TO LD. CIT(A): 1. COPIES OF THE EMAIL CORRESPONDENCE TO THAILAND, BANGKOK AND JAKARTA WHERE MR. SAMIT N. KHOKANI HAS TRAVELED ALONE. 2. COPY OF DOCUMENT FOR IMPORTED MATERIAL FROM AUS TRALIA. ITA NO.1644/MUM/2011 (A.Y.2004-05) 5 3. THE DETAILED STATEMENT SHOWING FOREIGN TRAVEL E XPENSES OF MR. SAMIT KHOKHANI AND MRS. VAISHALI SHAH ON TRAVELING TO AUSTRALIA & NEW ZEALAND. 4. COPIES OF PASSPORT HAVING IMMIGRATION STAMP OF MR. SAMIT KHOKHANI AND MRS. VAISHALI SHAH IN A CHART ALL THE EXPENSES SHOWING INVOICES, PARTI ES NAME DATE OF VISIT, PLACE OF VISIT, NATURE OF EXPENSES ETC. HAVE BEEN MENTIONED AND THI S DETAILS IS SUBMITTED AT PAGE 11 OF THE PAPER BOOK. THE VISIT INCLUDES BANGKOK, THA ILAND, INDONESIA, AUSTRALIA AND NEW ZEALAND . THE VISIT TO THAILAND AND INDONESIA ARE DESCRIBED FOR SALES PROMOTION AND THE NAME OF COMPANY TO WHICH THE VISIT WAS MADE ARE ALSO DESCRIBED. THE VISIT TO AUSTRALIA WAS FOR SOURCING MARKET RESEARCH AND T HE PARTIES NAME ALSO DESCRIBED. THE VISIT TO NEW ZEALAND IS ALSO FOR THE PURPOSE OF MARKET RESEARCH AND NAME OF THE PARTIES ARE ALSO DESCRIBED. THESE DETAILS ARE ALSO FURNISHED AT PAGE 12 OF THE PAPER BOOK. COPIES OF E-MAILS ARE ALSO FILED IN WHICH AS SESSEES CORRESPONDENCE BETWEEN THE COMPANIES FOR VISITING THAILAND, BANGKOK AN D INDONESIA ARE AVAILABLE. IT HAS ALSO BEEN THE SUBMISSION OF THE ASSESSEE THAT IN EA RLIER YEAR NO DISALLOWANCE WAS MADE ON ACCOUNT OF FOREIGN VISIT EXPENSES. 6.1 KEEPING IN VIEW ALL THESE SUBMISSIONS MADE BY THE ASSESSEE AND EVIDENCE PRODUCED BY THE ASSESSEE, WE ARE OF THE OPINION THA T DISALLOWANCE OF ENTIRE EXPENDITURE IS NOT JUSTIFIED. ACCORDING TO DETAILS SUBMITTED AT PAGE 11 OF THE PAPER BOOK, THE TOTAL EXPENDITURE IS SHOWN AT RS.5,43,692 /- AND THE BALANCE AMOUNT OF RS.40,763/- DOES NOT RELATE TO FOREIGN VISIT BUT T HEY ARE LOCAL TRAVEL EXPENSES. OUT OF TOTAL AMOUNT OF RS.5,43,692/- A SUM OF RS.77,250/- IS EXPENDED ON AIR TICKETS PURCHASED FOR MRS. VAISHALI SHAH AND ASSESSEE IN IT S WRITTEN SUBMISSION HAVE PRAYED TO RESTRICT THE DISALLOWANCE TO THIS EXTENT. HOWEV ER, THERE ARE OTHER EXPENSES ALSO WHICH MAY HAVE BEEN INCURRED ON THE VISIT OF MRS. V AISHALI SHAH. FOREIGN CURRENCY PURCHASE VALUE IN THE SAID CHART HAS BEEN SHOWN AT RS.3,22,895/- OUT OF WHICH WE ESTIMATE 25% THEREOF TO BE INCURRED ON THE VISIT O F MR. VAISHALI SHAH. AIR TICKET EXPENSES OF MRS. VAISHALI SHAH HAVE BEEN SHOWN AT R S.77,250/- AND TOTAL DISALLOWANCE AFTER INCLUDING 25% DISALLOWANCE ON ACCOUNT OF OTHER EXPENSES COMES ITA NO.1644/MUM/2011 (A.Y.2004-05) 6 TO RS.1,57,973/-. THEREFORE, WE RESTRICT THE DISA LLOWANCE TO A SUM OF RS.1,57,973/- AND BALANCE ADDITION OF RS.4,01,319/- IS DELETED AN D GROUND NO.1 IS PARTLY ALLOWED. 7. APROPOS GROUND NO.2, DURING THE COURSE OF ASSES SMENT PROCEEDINGS THE AO NOTICED THAT THE TOTAL MOTOR CAR EXPENSES WERE SHO WN BY THE ASSESSEE AT RS.2,53,812/- ON THE GROUND THAT THE ASSESSEE DID N OT MAINTAIN LOG BOOK, THE EXPENSES WERE DISALLOWED TO THE EXTENT OF RS.50,762 /- AND 20% CAR DEPRECIATION WAS ALSO DISALLOWED AMOUNTING TO RS.73,760/-. THE SUBJ ECT MATTER OF GROUND OF APPEAL BEFORE US IS DISALLOWANCE OF DEPRECIATION ON CARS. THIS DISALLOWANCE WAS AGITATED BEFORE LD. CIT(A) ALONGWITH DISALLOWANCE ON MOTOR C AR EXPENSES IN GROUND NO.3, WHICH READ AS UNDER: 3. A) THE LEARNED A.O ERRED IN DISALLOWING 20% OF T HE MOTOR CAR EXPENSES RS.50762/- AND OUT F DEPRECIATION ON MOTOR CAR RS.7 3,762/- U/S. 38(2) WITHOUT ASSIGNING ANY REASON. 8. WE HAVE GONE THROUGH THE ORDER PASSED BY LD. CIT (A). HE HAS COMBINED THREE GROUNDS AND HAS MENTIONED THE DELETION OF ADDITION OF RS.67,780/- WHICH WAS IN RESPECT OF 10% OUT OF EXPENSES DEBITED UNDER THE VA RIOUS HEADS NAMELY PRINTING AND STATIONARY, POSTAGE, TELEGRAM, TELEX, ADVERTISING A ND TELEPHONE. LD. CIT(A) HAS ALSO DELETED OTHER TWO ADDITIONS NAMELY RS.50,762/- AND RS.25,000/- IN RESPECT OF MOTOR CAR EXPENSES AND MISCELLANEOUS EXPENSES AND OFFICE EXPENSES ETC. HOWEVER, LD. CIT(A) DID NOT ADJUDICATE ON DISALLOWANCE OUT OF DE PRECIATION ON MOTOR CAR. THUS, THE ORDER OF LD. CIT(A) IS SILENT ABOUT THE SAID DI SALLOWANCE. FROM THE GROUNDS OF APPEAL ALSO IT APPEARS THAT THE ASSESSEE IS AGITATI NG THIS SUSTENANCE OF DISALLOWANCE THAT THE SAME IS SUSTAINED WITHOUT ASSIGNING ANY RE ASON. WE HAVE GONE THROUGH THE ASSESSMENT ORDER. THE DISALLOWANCE HAS BEEN MADE O NLY ON ACCOUNT OF FACT THAT THE ASSESSEE DID NOT PRODUCE LOG BOOK AND THEREFORE, PO RTION OF THE EXPENSES WERE DISALLOWED. ADOPTING THE SAME LOGIC DISALLOWANCE ON ACCOUNT OF CAR DEPRECIATION WAS MADE WHICH IS AMOUNTING TO RS.73,760/-. LD. CIT(A) HAS DELETED THE DISALLOWANCE RELATING TO MOTOR CAR EXPENSES. IF THE SAME LOGIC IS APPLIED THEN DISALLOWANCE ON ACCOUNT OF CAR DEPRECIATION DOES NOT STAND AS THERE IS NO MATERIAL ON RECORD TO ITA NO.1644/MUM/2011 (A.Y.2004-05) 7 SUGGEST THAT THE CARS WERE NOT EXCLUSIVELY USED FOR THE PURPOSE OF BUSINESS. THEREFORE, IN ABSENCE OF ANY MATERIAL TO SHOW THAT CAR WAS NOT EXCLUSIVELY USED FOR THE PURPOSE OF BUSINESS THERE WOULD BE NO APPLICATI ON OF PROVISIONS OF SECTION 38(2) TO ENTITLE THE DEPARTMENT TO MAKE SUCH DISALLOWANCE . ACCORDINGLY, GROUND NO.2 FILED BY THE ASSESSEE IS ALLOWED. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21/08/2 014 ! ' #$ % &'( 21/08/2014 ' ) SD/- SD/- ( /SANJAY ARORA ) ( . . / I.P. BANSAL ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; &' DATED 21/08/2014 ! ! ! ! ' '' ' *+, *+, *+, *+, -,$+ -,$+ -,$+ -,$+ / COPY OF THE ORDER FORWARDED TO : 1. ./ / THE APPELLANT 2. *0./ / THE RESPONDENT. 3. 1 ( ) / THE CIT(A)- 4. 1 / CIT 5. ,2) *+' , , / DR, ITAT, MUMBAI 6. )3 4 / GUARD FILE. !' !' !' !' / BY ORDER, 0,+ *+ //TRUE COPY// 5 55 5 / 6 6 6 6 (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI . ' . ./ VM , SR. PS