The ACIT, Central Circle-1, Surat V. M/s. J.B. and Brothers, Surat

ITA 1802/AHD/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6027 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-05-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2007-2008
• Appeal Filed On: 13-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K BHARADWAJ
• Assessee Lawyers: KK SHAH

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CAMP AT SURAT BEFORE: SHR I RAJPAY YADAV , JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER THE ACIT, CENTRAL CIRCLE - 1, SURAT (APPELLANT) VS M/S. J.B. & BROTHERS, 2 ND FLOOR, AMBER PALACE, NANPURA, SURAT PAN: AABFJ8700D (RESPONDENT) REVENUE BY : S H RI A.K. BHARADWAJ , SR. D . R. ASSESSE E BY: S H RI K.K. SHAH , A.R. DATE OF HEARING : 24 - 04 - 2 017 DATE OF PRONOUNCEMENT : 05 - 05 - 2 017 / ORDER P ER : AMARJIT SINGH, ACCOUNTANT MEMBER : - THESE THREE REVENUE S APPEAL S F OR A.Y. 2006 - 07 TO 2008 - 09 , AR ISE FROM ORDER OF THE CIT(A) - II, AHMEDABAD DATED 03 - 03 - 2014 IN APPEAL NOS. CIT(A) - II/CC - 1/68/2013 - 14 , CIT(A) - II/CC - 1/69/2013 - 14 AND CIT(A) - II/CC - 1/05/2013 - 14, I N PROCEEDINGS UNDER SECT ION 271(1 ) (C) OF THE INCOME TAX ACT, 1961 ; IN SHORT THE ACT . I T A NO S . 1801 TO 1803 / A HD/20 14 A SSESSMENT YE AR 200 6 - 07 TO 2008 - 09 I.T.A NO S . 1801 TO 1803 /AHD/20 14 A.Y. 2006 - 07 TO 2008 - 09 PAGE NO ACIT VS. M/S. J.B. & BROTHERS . 2 2. THE REVENUE HAS RAISED FOLLOWING GROUND OF APPEAL: - ITA NO . 1801/AHD/2014 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE PENALTY OF RS. 13,30,367/ - IMPOSED U/S. 271(1)(C) OF THE ACT. 3. AS THE FACTS IN THESE THREE APPEALS ARE SAME, SO, WE TAKE ITA NO. 1801/AHD/2014 AS THE LEAD CASE AND DECIDE ALL OF THEM ACCORDINGLY FOR THE SAKE OF CONVENIENCE. 4. IN THIS CASE, RETURN OF INCOME DECLARING INCOME OF RS. 11,46,73,357/ - WAS FILED ON 03/10/2006. SUBSEQUENTLY, THE CAS E WAS SELECTED UNDER SCRUTINY BY ISSUING OF NOTICE U/S. 143(2) ON 18/06/2007. DURING THE COURSE OF ASSESSMENT PROCEEDINGS , THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD CLAIMED FOREIGN TRAVEL EXPENSES WHICH INCLUDED RS. 14,55,625/ - INCURRE D BY THE P ERSONS WHO WERE NEITHER EMPLOYEES NOR PARTNERS OF THE ASSESSEE FIRM. THE ASSESSING OFFICER HELD THAT SUCH EXPENSES W ERE NOT MADE EXCLUSIVELY FOR THE PURPOSE OF BUSINESS HENCE THE ASSESSING OFFICER HAD DISALLOWED EXPENSE OF RS. 14,55,625/ - . ON THE APPEAL, THE IT AT AND THE CIT(A) HAVE SUSTAINED THE SAID ADDITION MADE BY THE ASSESSING OFFICER. PRORATE DISALLOWANCE OF EXPENSES ATTRIBUTABLE TO EOU 5. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD TWO DIVISI ON IN ITS DIAMOND MANUFACTURING BUSINESS, EOU DIVISION AND NON - EOU DIVISION. ON I.T.A NO S . 1801 TO 1803 /AHD/20 14 A.Y. 2006 - 07 TO 2008 - 09 PAGE NO ACIT VS. M/S. J.B. & BROTHERS . 3 PERUSAL OF THE P & L A/C, THE ASSESSING OFFICER NOTICED THA T T H E ASSESSEE HAD CLAIMED FOLLOWING EXPENSES IN THE P & L IN RESPECT OF NON - EOU DIVISION WHEREAS NO SUCH EXPENSES H AVE BEEN MADE IN RESPECT OF THE EOU DIVISION. (1) ADVERTISEMENT EXP. RS. 33,47,640/ - (2) EXHIBITION EXP. RS. 49,57,913/ - (3) STAMP CHARGES ON I MPORT OF ROUGH DIAMOND RS. 24,33114/ - --------------------- 107 38667 / - --------------------- THE ASSESSING OFFICER OBSERVED THAT IT CANNOT BE DE NIED THAT BENEFITS OF ADVERTISEMENT AND EXHIBITION EXPENSES ACCRUED TO BOT H THE DIVISION S AND NOT MUTUALLY EXCLUSIVE TO EACH OTHER. HE FURTHER OBSERVED THAT STAMP CHARGES ON IMPORT OF ROUGH DIAMONDS HAD BEEN DEBITED WHOLLY TO THE NON - EOU DIVISION WHEREAS THERE ARE IMPORTS BY EOU DIVISION ALSO. THE ASSESSEE EXPLAIN ED THAT EOU DIVISION DEALS IN HIGH QUALITY DIAMONDS SO NO MUCH EXPENDITURES WERE REQUIRED ON ADVERTISEMENT AND E XHIBITIONS. THE ASSESSING OFFICER HAD NOT ACCEPTED THE EXPLANATION OF THE ASSESSEE AND ATTRIBUTED THE PROPORTIONATE EXPENSES ON THE BASIS OF TURNOVER OF BOTH THE UNITS AS UNDER: - NON - EOU DIVISION 611.85 CRORES 76.75% EOU DIVISION 185.45 C RORES 23.25% -------------------- ----------- 797.31 CRORES 100% I.T.A NO S . 1801 TO 1803 /AHD/20 14 A.Y. 2006 - 07 TO 2008 - 09 PAGE NO ACIT VS. M/S. J.B. & BROTHERS . 4 -------------------- ----------- IN VIEW OF THE ABOVE 23. 25% OF THE EXPENSES OF RS. 24,96,740/ - ATTRIBUTABLE TOWARDS EOU WAS DISALLOWED BY T H E ASSESSING OFFICER IN THE COMP UTATION OF INCOME O F THE NON - EOU DIVISION AND ADDED BACK TO THE TOTAL INCOME OF THE FIRM. THE ASSESSING OFFICER ALSO INITIATED PENALTY PROCEEDINGS FOR FURNISHING INACCURATE PARTICULARS AND CONCEALMENT OF INCOME IN RESPECT OF FOREIGN TRAVELLING EXPENSES A ND PRORA TA EXPENSES ATTRIBUTABLE TO EOU DIVISION . DURING THE COURSE OF PENALTY PROCEEDINGS, THE ASSESSE HAD CONTENDED THAT THE ASSESSE FIRM WAS IN DIAMOND BUSINESS WHERE FOREIGN TRAVELS WERE QUITE COMMON AND FREQUENT. IT WAS FURTHER SUBMITTED THAT REPRES ENTATIVES WERE ALSO PAID REMUNERATION AND THE SAME WAS FULLY ALLOWABLE. THE ASSESSING OFFICER HAS N OT ACCEPTED THE SUBMISSION OF THE SSSESSEE AND STATED THAT THE ASSESSEE FIRM HAS INCURRED FOREIGN TRAVEL EXPENSES FOR OBLIGING THE FAMILY MEMBERS OF THE PAR TNERS OF THE FIRM. HE HEL D THAT T H E ASSESSEE HAD CONCEALED THE INCOME TO THE EXTENT OF RS. 14,55,625/ - ON THIS ISSUE. 6. REGARDING PRORATE DISALLOWANCE OF EXPENSES ATTRIBUTABLE TO EOU , THE ASSESSEE EXPLAINED THAT THER E WAS A HUGE TURNOVER OF RS. 611 . 86 CRORES IN THE CASE OF NON - EOU UNIT IN TERMS OF PERCENTAGE TO TURNOVER, THEREFORE, EXPENDITURE ON ADVERTISEMENT AND EXHIBITION WAS QUITE NORMAL. IT WAS FURTHER STATED THAT THERE WERE SEPARATE BOOKS OF ACCOUNTS IN RESPECT OF ACTIVITY FOR EOU AND NON - EOU UN ITS. THE ASSESSING OFFICER HAS NOT ACCEPTED THE SUBMISSION OF THE ASSESSEE AND HELD THAT THE ASSESSEE HAD INCURRED ABNORMAL EXPENDITURE IN I.T.A NO S . 1801 TO 1803 /AHD/20 14 A.Y. 2006 - 07 TO 2008 - 09 PAGE NO ACIT VS. M/S. J.B. & BROTHERS . 5 RESPECT OF NON - EOU DIVISION AND CONCEALED THE INCOME TO THE EXTENT OF RS. 24,96,740/ - . THEREFORE, THE ASSESSING OFF ICER HELD THAT THE ASSESSEE H A D CONCEALED T HE INCOME TO THE EXTENT OF RS. 39,52,365 (1455625+2496740 / - ) AND IMPOSED A PENALTY OF RS. 1330370/ - U/S. 271(1)(C) OF THE ACT. 7. AGGRIEVED AGAINST THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE HAD FILED APPEA L BEFORE THE LD. CIT(A) . THE LD. CIT(A) HAD DELETED THE PENALTY LEVIED BY THE ASSESSING OFFICER BY OBSERVING AS UNDER: - 5. THE FACTS OF THE CASE AND THE SUBMISSIONS HAVE BEEN CAREFULLY CONSIDERED. IT IS OBSERVED THAT THE PENALTY HAS BEEN IMPOSED IN RESPECT OF TWO DISALLOWANCES VIZ. 1) FOREIGN TRAVEL EXPENSES: THE ASSESSING OFFICER HAS MENTIONED THAT THE ASSESSEE CLAIMED FOREIGN TRAVEL EXPENSES WHICH WERE INCURRED BY THE PERSONS WHO WERE NEITHER EMPLOYEES NOR PARTNERS OF THE FIRM AND IT WAS NOT PROVED THAT THE BUSINESS GOT BENEFITED IN ANY WAY BY THE JOURNEYS PERFORMED BY THESE PERSONS. THE ASSESSING OFFICER IS OF THE VIEW THAT SINCE THE EXPENSES INCURRED WERE NOT FULLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSES, THE CLAIM WAS MADE BY THE ASSESSE E WRO NGLY AND THE PENALTY U/S.271(1)( C) WAS IMPOSABLE. ON THE OTHER HAND, THE LEARNED A.R. HAS CONTENDED THAT THE APPELLANT FIRM IS IN DIAMOND BUSINESS WHERE FOREIGN TRAVELS ARE QUITE COMMON & FREQUENT. THE APPELLANT HAS SENT THE PERSONS TO THE COUNTRIES LIKE BELGIUM, HON KONG, ISRAEL ETC., WHERE THE APPELLANT HAS GOT EXPORTS AND AT MANY TIMES, THE TRAVELS WERE PERFORMED FOR THE SURVEY OF THE MARKETS ALSO. IN ANY CASE, ALL THE BILLS AND VOUCHERS FOR ENTIRE FOREIGN TRIPS WERE AVAILABLE, VERIFIABLE FROM THE BOOKS OF ACCOUNTS AND THE PAYMENTS WERE MADE THROUGH ACCOUNT PAYEE CHEQUES, IT HAS ALSO BEEN STATED BY THE A.R. THAT THE EXPENSES WERE NOT INCURRED FOR ANY PERSONAL OR PLEASURE TRIPS AND ENTIRE EXPENDITURE WAS FOR BUSINESS ONLY AND THE SIMILAR EXPENSES WER E ALLOWED BY THE ITAT IN THE EARLIER YEARS TO THE EXTENT OF 50%. I.T.A NO S . 1801 TO 1803 /AHD/20 14 A.Y. 2006 - 07 TO 2008 - 09 PAGE NO ACIT VS. M/S. J.B. & BROTHERS . 6 ON CAREFUL CONSIDERATION OF THE FACTS, IT IS NOTICED THAT THOUGH THE ADDITION/DISALLOWANCE HAS BEEN CONFIRMED BY THE APPELLA TE AUTHORITIES, THE PENALTY U/S. 271(1)(C) IS NOT ATTRACTED BECAUSE ALL THE DETAILS OF JOURNEYS, WERE AVAILABLE ON RECORD. THERE IS NO QUESTION OF CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME. THERE MAY BE A SITUATION WHERE THE CLAIM MADE IS NOT ACCEPTED ON ACCOUNT OF ANY REASON. BUT THAT DOES NO T CALL FOR PENALTY U/S. 271(1)(C) OF THE ACT. THE RELIANCE IS PLACED ON THE HON'BLE APEX COURT'S DECISION IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS PVT. LTD. (2010) 322 ITR 158 (SC). 2) PRO DISALLOWANCE OF EXPENSES THE ASSESSING OFFICER HAS ALSO LEVIED PENALTY IN RESPECT OF PRO RATA EXPENSES IN RESPECT OF EOU. IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ADVERTISEMENT EXPENSES, EXHIBITION EXPENSES AND STAMP CHARGES ON IMP ORTS TOTALING TO RS.1,07,38,667/ - WERE DEBITED TO THE P&L ACCOUN T BY THE APPELLANT ONLY IN RESPECT OF ITS NON EOU UNIT AND NO SUCH EXPENSES HAVE BEEN CLAIMED IN RESPECT OF EOU UNIT. THE ASSESSING OFFICER WAS OF THE VIEW THAT THIS EXERCISE WAS DONE BY THE APPELLANT TO REDUCE THE TAXABLE PROFIT OF NON EOU UNIT AND THE EX PENSES IN THE NATURE OF ADVERTISEMENT, EXHIBITION AND STAMP CHARGES ETC. ARE COMMON AND RELATED TO EOU UNIT ALSO. IT I S OBVIOUS THAT THE BENEFITS WILL GO TO BOTH THE UNITS BUT THE APPELLANT HAS DELIBERATELY NOT CLAIMED ANY SUCH EXPENSES IN EOU UNIT SO THAT ITS PROFIT OF EOU UNIT REMAINS AS SUCH. THE LEARNED A.R. ON THE OTHER HAND HAS SUBMITTED THAT SINCE THE BOOKS OF ACCOUNTS, BUSINESS PLACES ETC. OF BOTH THE UNITS WERE SEPARATE, THESE EXPENSES HAVE BEEN BOOKED - ON ACTUAL BASIS AND THE EXPENSES INCURRED WER E NOT FOR EOU UNIT BECAUSE THE EOU UNIT IS IN A RESTRICTED AREA WHERE THE ITEMS ARE NOT KEPT FOR EXHIBITION OR ADVERTISEMENT. THE A.R. HAS VEHEMENTLY ARGUED THAT THE DISALLOWANCE OF PRO RATA EXPEN SES WAS MADE ONLY ON ASSUMPTION BASIS AND WITHOUT PROVING TH AT THE EXPENSES WERE INCURRED FOR EOU UNIT ALSO. IN ANY CASE, ALL THE RELEVANT EXPENSES WERE BACKED BY BILLS AND VOUCHERS AND FULLY VERIFIABLE AND WHEREVER NECESSARY, THE TDS WAS ALSO MADE. ON CAREFUL PERUSAL OF THE FACTS, IT IS SEEN THAT THE ASSESSING OF FICER HAS MADE THE DISALLOWANCE ON PRO RATA BASIS WITHOUT ESTABLISHING THAT SUCH EXPENDITURE WAS ACTUALLY ATTRIBUTABLE FOR EOU UNIT ALSO. THE EXPENSES ARE SUPPORTED BY BILLS AND VOUCHERS AND I.T.A NO S . 1801 TO 1803 /AHD/20 14 A.Y. 2006 - 07 TO 2008 - 09 PAGE NO ACIT VS. M/S. J.B. & BROTHERS . 7 OTHER RELEVANT DOCUMENTS. IN MY CONSIDERED VIEW, IT IS A CASE WHE RE CONCEALMENT OF INCOME IS NOT PROVED AND FOR FURNISHING OF INACCURATE PARTICULARS IS NOT PROVED EITHER. THE CLAIM HAS NOT BEEN ACCEPTED BUT IT HAS NOT BEEN DISPROVED EITHER. THE JUDGEMENT OF HON'BLE SUPREME COURT IN THE CASE OF RELIANCE PETRO PRODUCTS PV T. LTD. (2010) 322 ITR 158 SUPPORTS THIS VIEW. FOLLOWING COURT JUDGEMENTS ARE ALSO BEING RELIED UPON: - I) CIT V/S. TEDCO GRANITE LTD. (2012) 342 I TR 44 (DELHI) II) CIT V/S. AT & T COMMUNICATION SERVICES INDI A (P) LTD. (2012) 342 ITR 257 (DELHI) T HEREFORE, TAKING INTO ACCOUNT THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND LEGAL POSITION, I AM OF THE CONSIDERED VIEW THAT THE L EVEY OF PENALTY U/S. 271(1 )(C) IS NOT JUSTIFIED THEREFORE, THE SAME IS HEREBY DELETED. 8 . WE HAVE HEARD THE RIVAL CONTENTI ONS AND PERUSED THE MATERIAL ON RECORD . WE NOTICED THAT THE ASSESSEE HAS EXPLAINED THAT IN THE BUSINESS OF EXPORT OF DIA MOND THE REPRESENTATIVE WERE SENT TO THE OTHER COUNTRIES REGARDING VERIFICATION OF QUALITY OF ROUGH DIAMOND OR SURVEY OF THE MARKET. W E HAVE ALSO NOTICED THE CONTENTION OF THE COUNSEL THAT MOST OF THE FOREIGN TRAVELLING EXPENDITURES WERE INCURRED FOR VISITING COUNTRIES LIKE BELGIUM, HONG KO N G , ISRAEL ETC . WHICH WERE INVOLVED IN THE DIAMOND BUSINESS. REGARDING PRO RATA DISALLOWANCE OF EXPENSES ATTRIBUTABLE TO EOU , WE NOTICED THAT THERE WAS HUGE TURNOVER OF NON - EOU UNIT AND SEPARATE BOOKS OF ACCOUNTS WERE MAINT AIN ED IN RESPECT OF EOU AND NON - EOU UNIT. WE HAVE FURTHER NOTICED THAT NON - EOU HAD ITS TURNOVER THROUGH MUMBAI OFFICE . FURTHE R , THE EOU UNITS WAS ENGAGED IN HIGH QUALITY OF DIAMONDS FOR WHICH EXPENDITURE ON ADVERTISEMENT/EXHIBITION WERE N OT REQUIRED. WE HAVE ALSO CONSIDERED THE FINDINGS OF THE LD. CIT(A) STATING THAT I.T.A NO S . 1801 TO 1803 /AHD/20 14 A.Y. 2006 - 07 TO 2008 - 09 PAGE NO ACIT VS. M/S. J.B. & BROTHERS . 8 CONCEALMENT OF INCOME AND FURNISHING OF INACCURATE PARTICULA RS W ERE NOT PROVED. IN VIEW OF THE ABOVE STATED FACTS AND AFTER CONSIDERING THE DETAILED FINDINGS OF THE LD. CIT(A), WE ARE DISINCLINED TO INTERFERE IN THE DECISION OF THE LD. CIT(A). 8.1 IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. 9. IN THE COMBINED RESULT, ALL THE THREE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 05 - 05 - 201 7 SD/ - SD/ - ( RAJPAL YADAV ) ( AMARJIT SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHM EDABAD : DATED 05 /05 /2017 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,