Pushpsons International, New Delhi V. ACIT, New Delhi

ITA 1776/DEL/2010

• Counselvise Citation: 177620114 RSA 2010
• Duration Of Justice: 2 year(s) 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 13-06-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 19-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATPAL SINGH
• Assessee Lawyers: RAKESH VERMA
• Keywords: Business expenditure; Commercial expediency
• Section: 143(3); 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH F NEW DELHI) BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO.1776/DEL/2010 ASSESSMENT YEAR : 2004-05 M/S PUSHPSONS INTERNATIONAL, ACIT, B-40, OKHLA INDL. AREA-1, CIRCLE-22 (1), NEW DELHI. V. NEW DELHI. (APPELLANT) (RESPONDENT) PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO.AAAFP AAAFP AAAFP AAAFP- -- -8969 8969 8969 8969- -- -R RR R APPELLANT BY : SHRI RAKESH VERMA, C.A. RESPONDENT BY : SHRI SATPAL SINGH, CIT-DR. ORDER PER TS KAPOOR, AM: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD CIT(A) DATED 12.2.2010. THE MAIN GROUNDS OF APPEALS TAKEN B Y THE ASSESSEE ARE AS UNDER:- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD CIT(A) ERRED ON FACTS AND IN LAW IN CONFIRMING THE D ISALLOWANCE OF THE FOLLOWING EXPENSES:- A) STAFF TRAINING AND WELFARE. ` .2,14,009/- B) SALARY ` .1,50,000/- C) EXHIBITION EXPENSES. ` .2,17,541/- ITA NO1776/DEL/2010 2 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD CIT(A) ERRED ON FACTS AND IN LAW IN NOT ALLOWING THE DEDUCTION U/S 80HHC OF THE ACT AS CLAIMED BY THE APPELLANT. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD CIT(A) ERRED ON FACTS AND IN LAW IN NOT ALLOWING ` .3,77,933/- BEING 10% OF EXPORT INCENTIVES TO BE REDUCED FOR COMPUTING INDIRECT COST ATTRIBUTABLE TO THE EXPORTS FOR THE COMPUTATION OF THE DEDUCTION U/S 80HHC OF THE ACT. 4. THAT APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR VARY FROM THE ABOVE GROUNDS OF APPEAL AT OR BEFORE THE TIME OF HEARING. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS W ORKING AS A PARTNERSHIP FIRM AND IS MERCHANT EXPORTER AND A GOVT . RECOGNIZED EXPORT HOUSE AND IS ENGAGED IN THE BUSINESS OF FLOOR COV ERING. THE APPELLANT DEVELOPS SAMPLES AND THESE ARE SHOWN TO THE BU YER DURING EXHIBITION OR PERSONAL VISITS. THE ORDERS ARE ACCEPTED AS PER REQUIREMENT OF THE BUYERS AND DELIVERY SCHEDULE IS FIX ED. FOR THE ASSESSMENT YEAR 2004-05, THE APPELLANT FILED A RETURN O F INCOME ON 30.10.2004 DECLARING INCOME OF ` .64,86,673/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND ASSESSMENT WAS COMPLETE D U/S 143(3) OF THE ACT AFTER MAKING FOLLOWING DISALLOWANC ES:- 1) EXPENSES INCURRED ON BEHALF OF SHRI GAURAV SHYAM G RAND SON OF SR. MOST PARTNER AMOUNTING TO ` .6,18,439/- COMPRISING OF FOLLOWING SUMS:- I) STAFF TRAINING & WELFARE. ` . 2,50,989/- II) TRAVELING EXPENSES DEBITED UNDER THE HEAD EXHIBITION EXPENSES. `. 2,17,54 1/- III) SALARY TO GAURAV SHYAM ` . 1,50,000/- ------------------ ` .6,18,439/- ------------------ ITA NO1776/DEL/2010 3 BESIDES IT THERE WERE OTHER ADDITIONS OUT OF TELEPHON E, CAR, FOREIGN TRAVEL EXPENSES WHICH ARE NOT PART OF GROUNDS OF APPEA L. THE OTHER DISALLOWANCE WAS MADE ON ACCOUNT OF NOT ALLOWING DEDU CTION U/S 80HHC AND FOR NOT ALLOWING ` .3,70,933/- BEING 10% OF EXPORT INCENTIVE TO BE REDUCED FOR COMPUTING INDIRECT COST ATTRIBUTAB LE TO THE EXPORTS FOR COMPUTATION OF DEDUCTION U/S 80HHC OF THE ACT. THE FIRST DISALLOWANCE WAS MADE BY ASSESSING OFFICER ON ACCOUNT OF THE FACT THAT THE EXPENSES INCURRED ON THE GRAND SON OF THE PAR TNER WERE OF PERSONAL NATURE AND WERE NOT INCURRED WHOLLY AND EXC LUSIVELY FOR THE PURPOSE OF BUSINESS. THE ASSESSING OFFICER HAD RELIED ON TH E ASSESSMENT ORDER RELATING TO ASSESSMENT YEAR 2003-04 IN WHI CH SIMILAR ADDITION WAS MADE BY THE ASSESSING OFFICER AND LD CIT(A) VIDE HIS ORDER DATED 13.11.2006 HAD CONFIRMED THE SAME. 3. AS REGARDS DENIAL OF EXEMPTION U/S 80HHC AND FURTH ER NOT ALLOWING 10% OF EXPORT INCENTIVE FOR THE PURPOSE OF CALCULATION U/S 80HHC, THE ASSESSING OFFICER HAS NOT GIVEN ANY REASON WH ILE COMPUTING DEDUCTION U/S 80HHC AND IGNORED THE CLAIM OF APPELLANT IN RESPECT OF DEDUCTION OF 10% ON DUTY DRAW BACK, SHORT AND EXCESS & INTEREST WHILE COMPUTING INDIRECT COST ATTRIBUTABLE T O EXPORTS. 4. AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE LD CIT( A) AND SUBMITTED AS UNDER IN RESPECT OF THESE TWO ADDITIONS/DISA LLOWANCES:- I) THAT SHRI GAURAV SHYAM JOINED MASTERS OF SCIENCE IN S TRATEGIC MARKETING IN DE MONTFORT UNIVERSITY, UNITED KINGDOM AND APPELLANT INCURRED EXPENSES ON THE SAID COURSE. SHRI GA URAV SHYAM COMPLETED THE SAID COURSE IN OCTOBER, 2003 AND RESUMED HIS DUTY WITH THE APPELLANT FIRM. ITA NO1776/DEL/2010 4 II) THAT THE MAIN EXPORTS OF APPELLANT IS OF FLOOR CO VERING TO UK, , EUROPE, JAPAN AND OTHER PARTS OF THE WORLD AND SHRI GAURAV SHYAMS MAIN AREA OF SAID COURSE WAS RESEARCH OF UK CONSUMERS PERCEPTION ABOUT THE INDIAN FLOOR COVERINGS. THE COURSE WAS JOINED KEEPING IN VIEW THAT IT WILL DEFINI TELY HELP THE APPELLANT TO DU BUSINESS OF EXPORT MORE EFFICIENTL Y AND WILL HELP ENSURE THE MARKET. I) THAT THE EXPENSES INCURRED ON HUMAN RESEARCH DEVELOPMENT BUSINESS AND HUMAN RESOURCE IS VERY IMPORTANT IN RUNNING OF ANY ORGANIZATION AND AS WELL AS FUTURE REQUIREMENT OF HUMAN RESOURCES AND SUCH EXPENSE S WERE INCURRED DURING THE COURSE & WHOLLY AND EXCLUSIV ELY FOR THE PURPOSE OF BUSINESS AND THESE EXPENSES WERE NOT PERSONAL EXPENSES OF THE ASSESSEE. THAT THE ASSESSING OFFICER HAS NOT GIVEN ANY REASONS ON THE DISALLOWANCE OF SALARY OF ` .1,50,000/- PAID TO SHRI GAURAV SHYAM AFTER THE COMPLETION OF HIS COURSE IN OCTOBER, 2003. II) THAT THE ASSESSING OFFICER HAS NOT GIVEN ANY REASON OF DISALLOWANCE OF ` .2,17,541/- INCURRED BY THE APPELLANT IN CONNECTION WITH TRAVEL OF SHRI GAURAV SHYAM FOR PARTICIPATING IN THE TRADE EXHIBITION IN HANNOVER. THAT EXHIBITION EXPENSES WERE INCURRED AFTER HIS RETURN TO INDIA AND AFTER COMPLETING THE COURSE AND WERE IN CONNECTI ON WITH PARTICIPATION IN THE EXHIBITION IN JANUARY, 20 04. III) THAT SALARY AMOUNTING TO ` .1,50,000/- IS FOR THE PERIOD AFTER HIS RETURN TO INDIA FOR WORKING WITH THE APPELLANT. RELIANCE WAS PLACED ON THE JUDGMENT IN THE FOLLOWING CASES:- 1. D. RAJAN RAJANARASINGER V. CIT 91 ITR 544 (SC0. 2. AMAR JYOTI PICXTERS V. CIT 69ITR 755 (MAD.). ITA NO1776/DEL/2010 5 3. CIT V. SALE MAGNESITE PVT. LTD. 214 ITR 1 ( BOMBAY). 4. SHAHZADA NAND & SONS. V. CIT 108 ITR 357 (SC) WHEREI N IT HAS BEEN HELD THAT BUSINESS PURPOSE, REASONABLENESS OF EXPENSES AND COMMERCIAL EXPEDIENCY MUST BE JUDGED FROM THE POINT OF VIEW OF BUSINESS. IV) THAT THE ASSESSING OFFICER HAS TAKEN ` .95,98,497/- AS INDIRECT COST OF TRADING GOODS FOR COMPUTING DEDUCTIO N U/S 80HHC OF THE ACT AND HAS IGNORED THE CLAIM OF ASSESSEE F OR REDUCING A SUM OF ` ,4,93,649/- COMPRISING OF INTEREST SHORT AND EXCESS AND 10% DUTY DRAW BACK FOR CALCULATION OF THE AMOUNT OF DEDUCTION. RELIANCE WAS PLACED IN THE CASE OF KESHAVJI RAVIJI & C O. V. CIT (1990) 183 ITR 1, CIT V. WINTEX MILLS LTD. 245 I TR 226, DCIT V. 82 ITD 291. V) THAT IT HAS BEEN PROVIDED IN SECTION 80HHC(4A)(BAA ) THAT TO CALCULATE PROFIT OF BUSINESS 90% OF THE RECEIP TS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT CHARGES OR ANY OTHER RECEIPT OF SIMILAR NATURE ARE TO BE REDUCE D FROM PROFITS FROM BUSINESS AND WHAT IS INCLUDED IN PROFITS IS NET RECEIPT OF INTEREST OR ANY OTHER RECEIPT OF SIMILAR N ATURE AND NOT THE GROSS RECEIPTS. RELIANCE WAS ALSO PLADCED ON THE CIRCULAR ISSUED BY CBDT, CIRCULAR NO.621 DATED 19.12.1991. 5. THE LD CIT(A) DID NOT AGREE WITH THE SUBMISSIONS FIL ED BY THE ASSESSEE AND UPHELD THE ADDITION MADE BY LD ASSESSING OFFI CER. HOWEVER, HE REDUCED THE AMOUNT OF DISALLOWANCE OF STA FF TRAINING & ITA NO1776/DEL/2010 6 WELFARE TO ` .2,14,009/- GIVING RELIEF OF ` .36,898/- WHICH WAS INCURRED FOR PURPOSE OF TEA, FOOD ETC., TO STAFF AND WAS NOT FOR TH E EXPENSES INCURRED ON THE SAID SHRI GAURAV SHYAM. REGARDING AL LOWANCE U/S 80HHC, THE LD CIT(A) HELD THAT REDUCTION OF INTEREST ON FIXED DEPOSIT AMOUNTING TO ` .84,234/- FROM INDIRECT COST WAS NOT JUSTIFIED IN VIE W OF THE PROVISIONS OF SECTION 80HHC(4A)(BAA). IN THIS RESPEC T RELIANCE WAS PLACED ON THE JUDGMENT IN THE CASE OF ADVANCE DETERG ENTS LTD. (2010) REPORTED IN 33 DTR 385 (DEL. HIGH COURT) WHICH HAS C ATEGORICALLY HELD THAT THE ASSESSEE WAS NOT ENTITLED TO REDUCE INTEREST PAI D BY IT AGAINST INTEREST RECEIVED BY IT FOR DEDUCTION U/S 80HHC OF TH E ACT. 6. AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THIS TRIB UNAL. 7. AT THE OUTSET, THE LD AR ARGUED THAT ` .1,50,000/- OUT OF ` .6,18,439/- WAS ON ACCOUNT OF SALARY PAID TO SHRI GA URAV SHYAM AFTER HIS RETURN FROM FOREIGN AFTER COMPLETION OF STUDIES A ND SIMILARLY AN AMOUNT OF ` .2,17,541/- WAS INCURRED BY SHRI GAURAV SHYAM AS TRAV ELING EXPENSES AFTER THE COMPLETION OF HIS COURSE AND THESE TW O EXPENSES WERE SURELY IN THE NATURE OF BUSINESS EXPENDITURE AS TH ESE WERE INCURRED FOR THE PURPOSE OF BUSINESS AND HAD NOTHING T O DO WITH PERSONAL EXPENSES. HE FURTHER ARGUED THAT LD ASSESSING OF FICER AND LD CIT(A) HAS OVER LOOKED THIS FACT AND HAD MADE THE ADD ITION/UPHELD THE ADDITION SUMMARILY. HE FURTHER ARGUED THAT DURING P RECEDING YEAR SHRI GAURAV SHYAM WAS PAID SALARY OF ` .36,000/- FOR THE PERIOD FROM APRIL TO SEPTEMBER, 2002 AND ASSESSING OFFICER HAD ACCEPTED THAT SALARY AND HAD NOT DISALLOWED THE SAME. AS REGARDS NON DEDUCTION OF EXPENSES FOR THE PURPOSE OF CALCULATION OF DEDUCTION U/S 80HHC , THE LD AR ARGUED THAT AS PER SECTION 80HHC (4A)(BAA) IN ORDER T O CALCULATE INDIRECT COST ATTRIBUTABLE TO THE EXPORT 10% HAS TO B E TAKEN AS THE ESTIMATED EXPENDITURE TO EARN SUCH INCOME. ITA NO1776/DEL/2010 7 8. ON THE OTHER HAND, LD DR RELIED UPON THE ORDER O F ASSESSING OFFICER AND LD CIT(A). 9. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PAR TIES AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE HAVE OBSERVED THAT ASSESSING OFFICER HAS MADE THE ADDITION OF ` .6,18,439/- ON THE BASIS OF PREVIOUS YEAR ADDITION MADE ON THIS ACCOUNT WI THOUT GOING INTO THE BREAK UP OF EXPENSES WHICH INCLUDED SALARY OF ` .1,50,000/- AND TRAVELING EXPENSES OF ` .2,17,541/- WHICH WAS INCURRED AFTER HIS RETURN AFTER COMPLETION OF COURSE. THE ASSESSING OFFICER HAS JUS T REJECTED THE CLAIM WITHOUT ASSIGNING ANY REASONS AND HAS JUST RELIED U PON PRECEDING YEARS ASSESSMENT ORDER AND LD CIT(A) ALSO DID NOT DISCUSS T HE SUBMISSIONS OF ASSESSEE REGARDING SALARY TO SHRI GAURAV SHYA M WAS FOR THE PERIOD AFTER HIS COMPLETION OF COURSE AND JOINING OF DUTIES AND SIMILARLY ASSESSEES CONTENTIONS THAT TRAVELING EXPENSES IN CLUDED EXPENSES INCURRED ON TRADE FAIRS AFTER COMPLETIUON OF HIS STUDIES WAS NOT DISCUSSED BY LD CIT(A). SIMILARLY, WHILE DENYING T HE DEDUCTION OF CERTAIN EXPENSES FOR THE PURPOSE OF CALCULATION OF DED UCTION U/S 80HHC THE ASSESSING OFFICER HAS NOT GIVEN ANY REASONS FOR DENIAL OF 10% CLAIM BY THE ASSESSEE IN RESPECT OF INTEREST AND SHORT & EXCESS. T HEREFORE, TO MEET BOTH THE ENDS OF JUSTICE, WE ARE OF THE OPINION THAT THE MATTER SHOULD GO BACK TO THE FILE OF ASSESSING OFFICER FOR FRESH CONSIDERATION OF THESE CLAIMS OF ASSESSEE. THE ASSESSING OFFICER SHOULD LOOK I NTO THE MATTER AFRESH AFTER GIVING SUFFICIENT OPPORTUNITY TO THE ASSESSEE OF BEING HEARD. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ITA NO1776/DEL/2010 8 11. ORDER PRONOUNCED IN THE OPEN COURT ON THE 30TH DAY OF NOVEMBER, 2012. SD/- SD/- (RAJPAL YADAV) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DT. 30.11.2012. HMS COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). DATE OF HEARING 7.11.2012 DATE OF DICTATION 23.11.2012 DATE OF TYPING 26.11.2012 DATE OF ORDER SIGNED BY 30.11.2012 BOTH THE MEMBERS & PRONOUNCEMENT. DATE OF ORDER UPLOADED ON NET 30.11.2012 & SENT TO THE BENCH CONCERNED.