ITO 12(3)(2), MUMBAI V. SUNRISE EXPORTS, MUMBAI

ITA 185/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7852 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-02-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 14-01-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 09-01-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NAVEEN GUPTA
• Assessee Lawyers: SATISH CHANDRA
• Keywords: Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E : MUMBAI BEFORE SHRI D.K. AGARWAL, (JM) AND SHRI RAJENDRA SINGH ,(AM) ITA NO.185/MUM/2009 ASSESSMENT YEAR : 2005-06 INCOME TAX OFFICER WARD 12(3)(2) ROOM NO.102, AAYAKAR BHAVAN M.K. MARG MUMBAI-400 020. ..( APPELLANT ) VS. M/S. SUNRISE EXPORTS 706, TULSIANI CHAMBERS NARIMAN POINT MUMBAI-21. ..( RESPONDENT ) P.A. NO. (AACFS 7160 B) APPELLANT BY : SHRI NAVEEN GUPTA RESPONDENT BY : SHRI SATISH CHANDRA O R D E R PER D.K. AGARWAL (JM). THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER DATED 20.10.2008 PASSED BY THE LD. CIT(A) FOR T HE ASSESSMENT YEAR 2005-06. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE F IRM IS ENGAGED IN THE BUSINESS OF EXPORT OF PLANT AND MACHINER Y AND EQUIPMENTS. THE MAIN ACTIVITIES OF THE ASSESSEE FIRM ARE TO APPROACH ITA NO.185/M/09 A.Y: 05-06 2 THE FOREIGN BUYER WHO ARE INTERESTED TO INSTALL THE P LANT WITH THE HELP OF INDIAN MACHINERY. IT WAS NOTED BY THE AO THAT DU RING THE YEAR UNDER CONSIDERATION THE ASSESSEE SUPPLIED COMPLETE PLANT TO PARAS INDUSTRIES PVT. LTD., COLUMBO, SRI LANKA WITH THE COND ITION TO ERECT AND COMMISSION THEREOF. IT WAS FURTHER NOTED BY THE A O THAT FOR THIS PURPOSE THE ASSESSEE HAS MADE AN AGREEMENT WITH THE SAID BUYER WHEREIN IT WAS INTERALIA AGREED VIDE CLAUSE -6 OF THE MOU THAT ALL INCIDENTAL EXPENSES TOWARDS ERECTION, EQUIPMENT RENT, TE CHNICIANS FOREIGN TRAVELLING ETC. WILL BE CHARGED IN THE BILL R AISED BY THE PARTY OF THE FIRST PART TO PARTY OF THE SECOND PART. HOWEVER, THE AO FOUND THAT THE ASSESSEE DEBITED RENT, TRAVELLING EXPENSES, FRE IGHT CHARGES AND EXPORT EXPENSES IN THE P&L ACCOUNT WHEREAS THESE EXPE NSES, AS PER AGREEMENT, ARE TO BE CHARGED TO PARAS INDUSTRIES P VT. LTD. ACCORDINGLY THE ASSESSEE WAS ASKED TO EXPLAIN THE SAME. IN REPLY, IT WAS INTERALIA EXPLAINED BY THE ASSESSEE THAT ALL THE EX PENSES INCURRED BY THE FIRM ON BEHALF OF PARAS INDUSTRIES PVT. LTD. AR E CHARGED IN EXPORT INVOICES, THE EXPENSES ARE DULY SUPPORTED BY EVID ENCE AND PAYMENT IS MADE THROUGH THE BANKING CHANNELS. THE ASSESSE E WAS AGAIN ASKED TO RECONCILE THE COST EXPENSES ETC. IN THE AB SENCE OF ANY COMPLIANCE, THE AO WHILE OBSERVING THAT THE ASSESSEE HAS NO T RAISED PROPER BILL FOR INCIDENTAL EXPENSES INCURRED ON THE EX PORTS MADE TO PARAS INDUSTRIES PVT. LTD. AND THE AMOUNT DUE IS NOT CO LLECTED FOR THE ITA NO.185/M/09 A.Y: 05-06 3 REASONS BEST KNOWN TO THE ASSESSEE, DISALLOWED THE EXPENSES CL AIMED BY THE ASSESSEE ON RENT RS.1,44,000/-, TRAVELLING EXPEN SES RS.5,83,178/-, FREIGHT CHARGES RS.8,16,018/- AND EXPOR T EXPENSES (FREIGHT) RS.27,11,107/- AGGREGATING TO RS.42,54,303/ - AND ACCORDINGLY COMPLETED THE ASSESSMENT AT AN INCOME OF RS.42,9 4,600/- AS AGAINST RETURNED INCOME RS.40,294/-, VIDE ORDER DATE D 20.12.2007 PASSED U/S.143(3) OF THE INCOME TAX ACT, 1961(THE ACT). ON APPEAL, THE LD. CIT(A) WHILE OBSERVING THAT THE BILL RAISED I S INCLUSIVE OF COST OF MACHINERY AND EXPENSES INCURRED IN SUPPLY OF THE SAME, D IRECTED THE AO TO ALLOW ALL THE EXPENSES PERTAINING TO RENT, TRAV ELLING, INWARD AND OUTWARD FREIGHTS ETC. AND ACCORDINGLY ALLOWED THE APP EAL. 3. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) T HE REVENUE IS IN APPEAL BEFORE US TAKING FOLLOWING EFFECTIVE GROUND OF APPEAL :- 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOU NT OF (A) RENT PAID OF RS.1,44,000/-, (B) TRAVELLING EXPE NSES OF RS.5,83,178/-, (C) FREIGHT CHARGES (INWARD & OUTWAR D) OF RS.8,16,018/-, (D) EXPORT EXPENSES(FREIGHT) OF RS.27,11,107/- WITHOUT CONSIDERING THE FACT THAT TH ESE EXPENSES ARE TO BE BORNE BY M/S. PARAS INDUSTRIES P VT. LTD., AS PER THE CLAUSE 6 OF THE MOU SIGNED BETWEEN THE ASSESSEE AND M/S. PARAS INDUSTRIES PVT. LTD. 4. AT THE TIME OF HEARING THE LD. DR SUBMITS THAT FOR THE REASONS MENTIONED IN THE ASSESSMENT ORDER, THE LD. CIT(A) HAS ER RED IN ITA NO.185/M/09 A.Y: 05-06 4 DELETING THE DISALLOWANCE MADE BY THE AO. HE THEREFOR E, SUBMITS THAT THE DISALLOWANCE MADE BY THE AO BE RESTORED. 5. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSESSEE WHILE REITERATING THE SAME SUBMISSIONS AS SUBMITTED BEFORE THE LD. CIT(A) FURTHER SUBMITS THAT IN VIEW OF THE FINDING RECORDED BY THE LD. CIT(A), THE ORDER PASSED BY THE LD. CIT(A) DOES NOT CALL FOR AN Y INTERFERENCE. 6. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RI VAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE FACTS ARE NOT IN DISPUTE INASMUCH AS THE BILLS RAISED BY THE ASSE SSEE TO M/S. PARAS INDUSTRIES PVT. LTD. FOR SUPPLY OF PLANT ETC. WHER EIN THE ASSESSEE HAS INCLUDED THE EXPENSES IN THE SALE RATES AND DELIVERED THE GOODS ON COST OF INSURANCE & FREIGHT (CIF ) BASIS AT COLUMBO ARE NOT DOUBTED BY THE REVENUE EVEN AT THIS STAGE. THE LD. CIT(A) A FTER CONSIDERING THE FACTS OF THE CASE HAS DELETED THE DISALLOWANCE VIDE FINDI NG RECORDED IN PARA 2.4 OF HIS ORDER WHICH IS REPRODUCED AS UNDER :- 2.4 I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE APPELLANT AS WELL AS THE ASSESSMENT ORDER. THE ASSESSING OFFICER HAD DISALLOWED EXPENSES LIKE REN T, TRAVELING, FREIGHT WITH THE OBSERVATION THAT THEY H AVE NOT BEEN MENTIONED IN THE BILLS RAISED BY THE APPELLANT AGAINST THE IMPORTER I.E., PARAS INDUSTRIES PVT. LT D. THE FACT THAT THE APPELLANT HAD EXPORTED CERTAIN MATERI AL IS NOT DISPUTED. THE APPELLANT HAD SUBMITTED THE COPI ES OF BILLS PERTAINING TO THE EXPORT. IN THE SAID BILL I T IS CLEARLY MENTIONED THAT THE DELIVERY IS ON CIF BASIS WHICH I NCLUDES ITA NO.185/M/09 A.Y: 05-06 5 FREIGHT AND OTHER EXPENSES. IT IS QUITE CLEAR THAT SUCH EXPENSES ARE VERY MUCH INCLUDED IN THE BILLS RAISED IN US DOLLARS. IT IS ALSO QUITE NATURAL THAT THE APPELLA NT COULD NOT HAVE CARRIED OUT ITS BUSINESS WITHOUT THE EXPEN SES ON ACCOUNT OF RENT, TRAVELING, ETC. IT IS NOT A CASE THAT THE SAID EXPENSES ARE FOUND TO BE FALSE OR THAT THEY AR E NOT CONNECTED WITH THE APPELLANTS BUSINESS OR THAT THE Y ARE EXCESSIVE. IT IS QUITE NATURAL THAT WHEN A BILL IS RAISED AGAINST THE SALES MADE, THE COMPONENT OF COST, INCI DENTAL EXPENSES, PROFIT MARGIN, ETC. ARE INCLUDED. IT IS NOT NECESSARY THAT A SEPARATE BILL HAS TO BE RAISED FOR EACH AND EVERY ITEM OF EXPENSES. THE CLAUSE (III) OF TH E AGREEMENT SPECIFICALLY MENTIONS THAT THE EXPENSES TOWARDS SUPPLY OF SUCH MACHINERIES AND SERVICES WIL L BE CHARGED IN THE BILL IN ADDITION TO MACHINERY SUPPLI ED BY THE LOCAL MANUFACTURER. THIS CLEARLY SHOWS THAT TH E BILL RAISED IS INCLUSIVE OF THE COST OF MACHINERY AND EX PENSES INCURRED IN SUPPLY OF THE SAME. NO MATERIALS HAVE BEEN BROUGHT IN RECORD TO SHOW THAT THE APPELLANT HAD RE CEIVED ANY AMOUNT FOR THE INCIDENTAL EXPENSES. CONSIDERIN G THE FACTS AND CIRCUMSTANCES OF THE CASE, I DO NOT AGREE WITH THE OBSERVATION OF THE ASSESSING OFFICER THAT THE A PPELLANT HAD NOT RECOVERED THE INCIDENTAL EXPENSES. IN VIEW OF THE ABOVE, THE ASSESSING OFFICER IS DIRECTED TO ALLOW A LL THE EXPENSES PERTAINING TO RENT, TRAVELING, INWARD & OU TWARD FREIGHTS, ETC. DISALLOWED BY HIM. IN THE ABSENCE OF ANY CONTRARY MATERIAL PLACED ON RECORD BY THE REVENUE AGAINST THE FINDING OF THE LD. CIT(A) AND KE EPING IN VIEW THAT THE ASSESSEES CLAIM THAT THE SAID EXPENSES AS PER AGREEMENT (MOU) ARE INCLUDED IN THE SALES AS PER INVOICES RAISED BY THE A SSESSEE TO THE PARTY HAS NOT BEEN FOUND TO BE FALSE OR UNTRUE AND IT IS ALSO NOT THE CASE OF THE REVENUE THAT THE EXPENSES CLAIMED BY THE ASSESSE E ARE PERSONAL OR CAPITAL IN NATURE NOT ALLOWABLE AS REVENUE EXPENDITURE UNDER THE ACT, WE ARE OF THE VIEW THAT THE DISALLOWAN CE OF ABOVE EXPENSES MADE BY THE AO IS NOT SUSTAINABLE AND ACCORDINGLY WE ARE ITA NO.185/M/09 A.Y: 05-06 6 INCLINED TO UPHOLD THE FINDING OF THE LD. CIT(A) IN DELETING THE SAME. THE GROUNDS TAKEN BY THE REVENUE ARE THEREFORE, REJE CTED. 7. IN THE RESULT, THE REVENUES APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 01.02.2010. SD/- SD/- (RAJENDRA SINGH) ( D.K. AGARWAL ) ACCOUNTANT MEMBER J UDICIAL MEMBER MUMBAI, DATED: 01.02.2010. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR E BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI. ITA NO.185/M/09 A.Y: 05-06 7 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 14.1.10 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 14.1.10 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON 01.02.10 SR.PS/PS 7. FILE SENT TO THE BENCH CLERK 03.02.10 SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER