M/s Chengmari Tea Co. Ltd, Kolkata V. ACIT, CIR-4(1), KOLKATA, Kolkata

ITA 1912/KOL/2017

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 8801 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 28-08-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ROBIN CHAUDHUR Y
• Keywords: Business expenditure
• Section: 143(3); 115JB; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : KOLKATA [BEFORE HONBLE SHRI J. SUDHAKAR REDDY, AM & SHRI S.S. GODARA, JM] I.T.A NO. 1912/KOL/20 17 ASSESSMENT YEAR : 2012- 13 M/S CHENGMARI TEA CO. LTD. -VS- DY / AC IT, CIRCLE-4(1), KOLKATA [PAN: AABCC 0672 Q] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI SUNIL SUR ANA, CA FOR THE RESPONDENT : SHRI ROBIN CHAUDHUR Y, SR. DR DATE OF HEARING : 17.12.2018 DATE OF PRONOUNCEMENT : 28.12.2018 ORDER PER S.S. GODARA, JM 1. THIS ASSESSEES APPEAL FOR ASSESSMENT YEAR 2014-15 ARISES AGAINST THE CIT(A)-17, KOLKATAS ORDER DATED 27.03.2017 PASSED IN CASE NO . 129/CIT(A)-17/KOL/14-15, INVOLVING PROCEEDING U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). HEARD BOTH THE PARTIES. CASE FILE PERUSED. 2. THE ASSESSEES FORMER SUBSTANTIVE GROUND CHALLEN GES CORRECTNESS OF BOTH THE LOWER AUTHORITIES ACTION DISALLOWING ITS FOREIGN TRAVEL EXPENDITURE CLAIM OF RS. 32,33,865/- RELATING TO ITS DIRECTORS SON SHRI YASHBARDHAN KEJ RIWAL. ITS CASE THROUGHOUT HAS SEEN THAT IT HAD INCURRED THE IMPUGNED EXPENDITURE FOR S HRI KEJRIWAL AS A MANAGEMENT TRADING WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF I TS BUSINESS ALLOWABLE AS DEDUCTION U/S 37 OF THE ACT. WE FIND THIS ISSUE TO BE NO MORE RES INTEGRA AS A CO-ORDINATE BENCHS 2 ITA NO.1912/KOL/2017 M/S CHENGMARI TEA CO. LTD. A.YR.2012-13 2 DECISION IN ASSESSEES CASE ITSELF I.T.A. NO. 1433/ KOL/2016 FOR ASSESSMENT YEAR 2011-12 DECIDED ON 02.02.2018 HAS ACCEPTED THE VERY CLAIM A S FOLLOWS: 12. GROUND NO.4 RAISED BY THE ASSESSEE READS AS FO LLOWS :- 4. FOR THAT THE LD. C.I.T(A) ERRED IN CONFIRMING T HE DISALLOWANCE OF RS. 22,01,093/- BEING FOREIGN TRAVELLING EXPENSES WHICH WAS INCURRED FOR BUSINESS PURPOSES AND WAS ALLOWABLE DEDUCTION. 13. THE ASSESSEE CLAIMED DEDUCTION OF RS.22,01,093/ - AS EXPENSES INCURRED ON ACCOUNT OF FOREIGN TRAVEL. . ON PERUSAL OF THE DETAILS THE AO NOTICED THAT THE ASSESSEE HAD SPONSORED THE UNIVERSITY EXPENSES OF SHRI YASH KAJR IWAL OF RS.16,85,334/- FOR STUDYING MANAGEMENT COURSE ABROAD. THE ASSESSEE SUBMITTED TH AT THERE WAS AN AGREEMENT BETWEEN SHRI YASH KAJRIWAL AND THE ASSESSEE DATED 0 1.08.2008 WHEREBY SHRI YASH KAJRIWAL UNDERTOOK TO SERVE THE ASSESSEE COMPANY AF TER COMPLETION OF HIS STUDIES. THE ASSESEE ALSO POINTED OUT THAT SHRI YASH KAJRIWAL WA S APPOINTED AS PRESIDENT OF THE COMPANY ON 01.05.2012. THE AO HOWEVER WAS OF THE VI EW THAT DURING THE RELEVANT PREVIOUS YEAR SHRI YASH KAJRIWAL WAS NOT ASSOCIATED WITH THE ASSESSEE COMPANY AND HAD NOT RENDERED ANY SERVICE TO THE ASSESSEE COMPAN Y IN ANY CAPACITY. THEREFORE THE EXPENSES RELATING TO HIS STUDIES WERE HELD BY THE A O TO BE NOT WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF THE BUSINESS OF THE ASE SSEE AND ACCORDINGLY THE SAME WAS DISALLOWED. WITH REGARD TO THE REMAINING SUM OF RS. 5,15,759/- THE AO HELD THAT THE ASSESEE FAILED TO ESTABLISH THE BUSINESS CONNECTION OF THESE EXPENSE AND THEREFORE THE ENTIRE FOREIGN TRAVELLING EXPENSES OF RS.22,01,093/ - WAS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 14. ON APPEAL BY THE ASSESSEE THE CIT(A) CONFIRMED THE ORDER OF THE AO OBSERVING AS FOLLOWS :- I HAVE CONSIDERED THE SUBMISSIONS OF THE AUTHORIZE D REPRESENTATIVE OF THE APPELLANT AS WELL AS THE ASSESSMENT ORDER FRAMED IN THE LIGHT OF THE MATERIALS AVAILABLE ON RECORD BEFORE THE ASSESSING OFFICER DU RING THE ASSESSMENT PROCEEDINGS. THE AO HAS MENTIONED THAT DURING THE Y EAR UNDER CONSIDERATION, SRI KAJRIWAL WAS NOT ASSOCIATED WITH THE COMPANY AN D DID NOT SERVE THE COMPANY IN ANY CAPACITY. AS SUCH, THE EXPENSES RELA TED TO HIS STUDIES CANNOT BE SAID TO BE INCIDENTAL IN THE CONDUCT OF BUSINESS AC TIVITIES OF THE COMPANY. AS REGARDS REMAINING EXPENSES OF RS. 5,15,759/- NO BUS INESS CONNECTION COULD BE ESTABLISHED AS THE ASSESSEE NEVER HAD ANY EXPORT AC TIVITY. THE ASSESSEE HAS FAILED TO PROVE THE BUSINESS CONNECTION OF THESE EX PENSES 'AS CLAIMED BY HIM DURING THE YEAR UNDER CONSIDERATION. KEEPING IN VIE W OF ABOVE, THE ORDER OF THE AO IS UPHELD AND THIS GROUND OF THE APPEAL IS DISMI SSED. 3 ITA NO.1912/KOL/2017 M/S CHENGMARI TEA CO. LTD. A.YR.2012-13 3 15. AGGRIEVED BY THE ORDER OF CIT(A) THE ASSESSEE H AS RAISED GROUND NO.4 BEFORE THE TRIBUNAL. 16. THE LD. COUNSEL FOR THE ASSESSEE PLACED RELIANC E ON THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF M/S GOURNITYE TE A & INDUSTRIES VS CIT IN ITA NO.249 OF 2005 JUDGMENT DATED 24.06.2010. IN THE AF ORESAID DECISION ON IDENTICAL FACTS OF DISALLOWANCE OF FOREIGN TRAVEL EXPENSES, THE HON BLE CALCUTTA HIGH COURT TOOK THE FOLLOWING VIEW :- ON CAREFUL READING OF ALL THOSE DECISIONS WE COULD FIND THAT ANY EXPENDITURE INCURRED ON ACCOUNT OF TRAINING AND IMPARTING HIGHE R EDUCATION IN ABROAD OR EVEN INSIDE THE COUNTRY ARE TREATED TO BE BUSINESS EXPENDITURE PROVIDED AFTER COMPLETION OF THEIR STUDY THEY HAVE CONTRIBUTED TO THE BUSINESS ACTIVITIES OF THE ASSESSEE COMPANY IRRESPECTIVE OF THE FACT WHETHER T HE COMPANY HAS CONTINUED BUSINESS ACTIVITIES OR EARNED PROFIT. 17. IT IS THUS CLEAR THAT THE FACT THAT THE PERSON WHO UNDERTOOK THE FOREIGN TRAVEL WAS NOT AN EMPLOYEE OF THE ASESSEE AT THE TIME OF UNDERTAKI NG FOREIGN TRAVEL CANNOT BE THE BASIS FOR ANY DISALLOWANCE OF EXPENSES. IN THE PRESENT CA SE MR. YASH KAJRIWAL SERVED THE ASSESSEE COMPANY AFTER COMPLETING STUDIES ABROAD AS PER AGREEMENT WITH THE ASSESSEE COMPANY. SINCE THE DISALLOWANCE OF A SUM OF RS.16,8 5,334/-BEING EXPENSES FOR SPONSORING HIGHER EDUCATION OF SHRI YASH KAJRIWAL W AS DISALLOWED ONLY ON THE BASIS THAT HE WAS NOT AN EMPLOYEE, THE DISALLOWANCE IS DI RECTED TO BE DELETED. 3. LEARNED DEPARTMENTAL REPRESENTATIVE FAILS TO PIN POINT ANY DISTINCTION ON FACTS OR LAW IN THESE TWO ASSESSMENT YEARS. WE THEREFORE ADOPT JUDICIAL CONSISTENCY TO ACCEPT THE ASSESSEES IMPUGNED FOREIGN TRAVELLING EXPENDITURE / MANAGEMENT TRAINEE CLAIM OF RS. 32,33,865/-. THE ASSESSEE SUCCEEDS IN ITS FORMER SU BSTANTIVE GRIEVANCE. 4. NEXT COMES THE ASSESSEES LATTER SUBSTANTIVE GRO UND THAT BOTH THE LOWER AUTHORITIES HAVE ERRED IN LAW AND ON FACTS IN REDUCING ITS AGRI CULTURAL INCOME COMPUTED UNDER INCOME TAX RULES FOR THE PURPOSE OF BOOK PROFITS U/ S 115JB INSTEAD OF REDUCING THE SAME @60% IN THE PROFIT & LOSS ACCOUNT PREPARED UND ER SCHEDULE VI OF THE COMPANIES ACT. MR. SURANA SUBMITS VERY FAIRLY THAT THE ASSESS EE NO MORE WISHES TO PRESS FOR THE 4 ITA NO.1912/KOL/2017 M/S CHENGMARI TEA CO. LTD. A.YR.2012-13 4 INSTANT SUBSTANTIVE GROUND WE APPRECIATE THIS FAIR STAND TO DECLINE INSTANT LATTER SUBSTANTIVE GROUND AS NOT PRESSED . 5. THIS ASSESSEES APPEAL IS PARTLY ALLOWED IN ABOV E TERMS. ORDER PRONOUNCED IN THE COURT ON 28.12.2018 SD/- SD/- [J. SUDHAKAR REDDY] [ S.S.GODARA ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 28.12.2018 SB, SR. PS COPY OF THE ORDER FORWARDED TO: 1. M/S CHENGMARI TEA CO. LTD., 37, SHAKESPEARE SARA NI, 2 ND FLOOR, KOLKATA-700017 2. DY/ASSTT. CIT, CIRCLE-4(1), KOLKATA, AAYKAR BHAW AN, P-7, CHOWIRNGHEE SQUARE, KOLKATA-700069. 3..C.I.T(A).- 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER ASS ISTANT REGISTRAR ITAT, KOLKATA BENCHES