J. Thomas & Co. Pvt. Ltd., Kolkata V. DCIT, Circle-4, Kolkata, Kolkata

ITA 2071/KOL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1136 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 11 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-11-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 11-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business expenditure; Rule of consistency; Additional evidence; Bad and doubtful debts; Commercial expediency
• Section: 143(3); 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : KOLKATA [BEFORE HONBLE SHRI ABY.T.VARKEY, JM & SHRI M.BA LAGANESH, AM ] I.T.A NOS. 2066 /KOL/ 2014 ASSESSMENT YEAR : 2010-1 1 DCIT, CIRCLE-4, KOLKATA -VS- M /S J.THOMAS & CO. PVT. LTD.. [PAN: AABCJ 2851 Q] (APPELLANT) (RESPONDENT) I.T.A NOS. 2071/KOL/2014 ASSESSMENT YEAR : 2 010-11 M/S J.THOMAS & CO. PVT. LTD. -VS- DCIT, CIRCLE-4, KOLKATA [PAN: AABCJ 2851 Q] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI DAVID Z. CHOW NGTHU, ADDL. CIT(DR) FOR THE RESPONDENT : SHRI ANUP SINHA, ACA DATE OF HEARING : 25.09.2017 DATE OF PRONOUNCEMENT : 01.11.2017 ORDER PER M.BALAGANESH, AM 1. THESE CROSS APPEALS BY THE REVENUE AND ASSESSE E ARISE OUT OF THE ORDERS OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) -IV, K OLKATA [IN SHORT THE LD CITA] IN APPEAL NO. 48/CIT(A)-IV/2013-14 DATED 08.08.2014 A GAINST THE ORDER PASSED BY THE DCIT, CIRCLE-4, KOLKATA [ IN SHORT THE LD AO] UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 21.03.2013 FO R THE ASSESSMENT YEAR 2010-11. 2 ITA NOS.2066 & 2071/KOL/2014 M/S J.THOMAS & CO. PVT. LTD. A.YR.2010-11 2 BOTH THESE APPEALS ARE TAKEN TOGETHER AND DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. FIRST LET US TAKE UP REVENUE APPEAL IN I.T.A. NO. 2 066/KOL/2014 FOR ASSESSMENT YEAR 2010-11 2. THE ONLY ISSUE TO BE DECIDED THEREON IS AS TO WH ETHER THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE MADE TOWARDS ADVANCES WRI TTEN OFF IN THE SUM OF RS. 82,34,907/- IN THE FACTS AND CIRCUMSTANCES OF THE C ASE. 3. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESS EE IS A COMPANY ENGAGED IN THE BUSINESS OF TEA/COFFEE AUCTIONEERING, FINANCING AND RUBBER H ANDLING. THE LD. AO OBSERVED IN THE COURSE OF ASSESSMENT PROCEEDINGS THAT THE ASSESSEE HAD CLAIMED DEDUCTION OF RS. 82,34,907/- AS A TRADING LOSS. THE LD. AO FURTHER O BSERVED THAT THE ASSESSEE HAD NOT FILED ANY DOCUMENT REGARDING THE SETTLEMENT OR COURT ORDER. HE FURTHER OBSERVED THAT THE MINUTES OF THE BOARD OF DIRECTORS FILED BY THE ASSESSEE DID NOT MAKE ANY MENTION ABOUT THE SETTLEMENT OR COURT CASE OR ANY O THER REASON FOR WRITING OFF THE DEBTS. ACCORDINGLY, HE CONCLUDED THAT THE ASSESSEE HAD NOT ESTABLISHED THAT THE CLAIM HAS BECOME IRRECOVERABLE DURING THE YEAR UNDER CONSIDER ATION AND ACCORDINGLY, DISALLOWED THE SAME. 4. THE LD. CIT(A) DELETED THE DISALLOWANCE BY OBSER VING AS UNDER: 6.2. I HAVE CAREFULLY PERUSED THE CONTENTION OF TH E AO AND THE SUBMISSIONS MADE BY THE APPELLANT. IT IS BROUGHT TO MAY NOTICE THAT IN THE NORMAL COURSE OF ITS BUSINESS THE APPELLANT HAS MADE THE ADVANCES TO VARIOUS TEA COMP ANIES. IT IS FURTHER BROUGHT TO MY NOTICE THAT SINCE THE ADVANCES FORM A PART OF THE B USINESS ACTIVITY, THE WRITE OFF OF THE SAME AS IRRECOVERABLE SHOULD BE ALLOWABLE AS A NORM AL TRADING LOSS WHILE COMPUTING THE INCOME. 6.3. MY ATTENTION IS ALSO DRAWN TO THE FACT THAT TH E APPELLANT VIDE ITS LETTER DATED 15 TH MARCH, 2013 HAS MADE AVAILABLE TO THE AO ADEQUATE D OCUMENTS TO DEMONSTRATE THAT THE ADVANCES GIVEN HAVE BECOME BAD DURING THE RELEVANT ASSESSMENT YEAR APART FROM 3 ITA NOS.2066 & 2071/KOL/2014 M/S J.THOMAS & CO. PVT. LTD. A.YR.2010-11 3 BOARDS RESOLUTION AS ALLEGED BY THE AO WHICH HAS N OT AT ALL CONSIDERED BY THE AO WHILE FINALIZING THE ORDER. I HAVE GONE THROUGH THE DOCUMENTS AND HAVE FOUND THAT THE SAME RIGHTLY DEMONSTRATE THAT REASONS FOR WRITING O FF THE ADVANCES DURING THE YEARS UNDER CONSIDERATION. 6.4 MY ATTENTION IS FURTHER DRAWN TO THE DECISION O F THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. MYSORE SUGAR COMPANY LIMITED (SUPRA ) AND HONBLE MADRAS HIGH COURT IS THE CASE OF DEVI FILMS PRIVATE LIMITED VS. CIT (SUPRA) WHEREIN IT WAS STATED THAT EVEN THOUGH THE CLAIM FOR DEDUCTION OF AN AMOU NT OF ADVANCE WRITTEN OFF DID NOT SQUARELY FALL UNDER SECTION 36(1)(VII), THE AMOUNT WOULD NONETHELESS BE ALLOWED AS DEDUCTION WHILE COMPUTING THE BUSINESS PROFITS WHER E SUCH ADVANCE HAD GIVEN BY AN ASSESSEE IN THE NORMAL COURSE AND FOR THE PURPOSE O F ITS BUSINESS, OTHER THAN ON CAPITAL ACCOUNT. 6.5 MY ATTENTION IS ALSO DRAWN TO THE DECISIONS RE NDERED BY THE APEX COURT AND VARIOUS OTHER JUDICIAL BODIES OF THE COUNTRY WHEREIN THE PR INCIPLE THAT ADVANCE GIVEN IN THE COURSE OF THE BUSINESS IS INCIDENTAL TO THE BUSINES S AND ITS WRITE OFF MAY BE ALLOWED AS A TRADING LOSS HAS BEEN CLEARLY BROUGHT OUT. 6.6 FURTHER, MY ATTENTION IS ALSO DRAWN TO THE APPE LLATE ORDER PASSED IN APPELLANTS OWN CASE BY ME IN THE ASSESSMENT YEAR 2009-10 WHERE IN THE APPELLANTS CLAIM HAS BEEN ALLOWED. 6.7 IN THE LIGHT OF THE ABOVE FACTS AND JUDICIAL PR ONOUNCEMENTS, I AGREE WITH THE CONTENTION OF THE APPELLANT THAT THE ADVANCES GIVEN BY THE APPELLANT TO THE VARIOUS TEA COMPANIES FOR THE PURPOSE OF ENHANCING BUSINESS OPP ORTUNITIES ARE DEFINITELY INCIDENTAL TO THE BUSINESS OF THE ASSESSEE AND AS SUCH THE LOS S ARISING FROM NON-REALIZATION OF THE SAID ADVANCES WOULD BE ALLOWABLE AS NORMAL BUSINESS LOSS OF THE APPELLANT. FURTHER, AS REGARDS THE ALLEGATION OF THE AO THAT THE APPELLANT HAS NEVER FILED DOCUMENTARY EVIDENCE TO SUPPORT ITS CLAIM, I FIND THAT THE APPE LLANT HAS FILED DETAILED DOCUMENTARY EVIDENCES TO PROVE THAT THE ADVANCES HAVE BEEN VALI DLY WRITTEN OFF DURING THE RELEVANT ASSESSMENT YEAR. HOWEVER, THE AO HAS NOT CONSIDERED THE SAID SUBMISSION CONTAINING THE EVIDENCE WHILE FINALIZING THE ASSESSMENT ORDER. ACCORDINGLY, THE DISALLOWANCE MADE BY THE AO TO THE TUNE OF RS. 82,34,907/- IN TH IS REGARD IS DELETED. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THA T THE ASSESSEE HAD DEBITED A SUM OF RS. 1,35,32,503/- IN ITS PROFIT AND LOSS ACCOUNT TO WARDS BAD DEBTS AND ADVANCES WRITTEN OFF UNDER THE HEAD OTHER EXPENSES IN SCHEDULE 12 OF THE AUDITED ACCOUNTS. OUT OF ABOVE, BAD DEBTS WRITTEN OFF WAS AMOUNTING TO RS. 32,01,096/- AND RS. 1,03,31,407/- WAS FOR ADVANCES WRITTEN OFF. THE DETAILS OF ADVANC E WRITTEN OFF ARE AS UNDER: 4 ITA NOS.2066 & 2071/KOL/2014 M/S J.THOMAS & CO. PVT. LTD. A.YR.2010-11 4 NAME OF PARTNER AMOUNT DALOO TEA COMPANY PVT. LTD. 71,27,069/- NAVNEED TEA INDUSTRIES 11,96,236/- MANJAMALAI TEA FACTORY 20,08,102/- TOTAL 1,03,31,407/- THE ABOVE WRITE OFF HAD BEEN MADE IN THE BOOKS OF A CCOUNTS BASED ON APPROVAL OF THE BOARD OF DIRECTORS IN THE BOARD MEETING HELD ON 29. 09.2010. WE FIND THAT THE ASSESSEE HAD DURING THE COURSE OF ASSESSMENT PROCEEDINGS GIV EN ITS REPLY THROUGH ITS AUTHORIZED REPRESENTATIVES LETTER DATED 15.03.2013 WITH REGA RD TO ADVANCES WRITTEN OFF PARTYWISE AS UNDER: ADVANCES WRITTEN OFF DALOO TEA CO. (I) LTD .: THE ASSESSEE COMPANY AS A PART OF NORMAL COURSE OF ITS BUSINESS MADE AN INTEREST BEARING ADVANCE TO DOLOO TEA CO ON A CONDITION THAT THE ENTIRE SALE PROCEEDS OF TEA WOULD BE EXCLUSIVELY TH ROUGH THE ASSESSEE COMPANY. THUS, YOUR KINDSELF MAY KINDLY APPRECIATE THAT IN ORDER T O SECURE THE BUSINESS OF THE ASSESSEE ,THE ADVANCE WAS MADE. HOWEVER, IN THE YEAR 2008, I T WAS NOTICED BY THE ASSESSEE COMPANY THAT DOLOO WAS NOT SELLING THE TEA THROUGH THE ASSESSEE AND HENCE AS DEMAND NOTICE WAS RAISED ON DOLOO. HOWEVER, DOLOO DID NOT GIVE ANY REPLY TO THE AFORESAID DEMAND NOTICE. AS NO REPLY WAS RECEIVED, A SUIT WAS FILED BEFORE THE HONBLE CALCUTTTA HIGH COURT ON 1 ST SEPTEMBER, 2008 FOR RECOVERY OF THE AMOUNT GIVEN T O DOLOO. DURING PENDENCY OF THE SUIT, DOLOO AGREED FOR AN OU T OF COURT SETTLEMENT ON 6 TH FEBRUARY, 2009 STATING THAT INR 5,00,000/- WOULD BE PAID UPFRONT AND BALANCE WOULD BE PAID IN INSTALLMENTS INR 1 PER KG OF GREEN LEAF PRODUCED ON A WEEKLY BASIS SOLD FROM JANUARY, 2009. A COPY OF THE OUT OF COURT SETTLEMEN T AGREEMENT ENTERED INTO BY DOLOO WITH THE ASSESSEE COMPANY IS ENCLOSED FOR THE REFER ENCE OF YOUR KINDSELF AND MARKED AS ANNEXURE F. HOWEVER, EXCEPT INR 5,00,000/-, NO AM OUNT COULD BE RECOVERED FROM DOLOO EVEN AFTER REPEATED FOLLOW UPS. FURTHER, AFTER ENTERING INTO THE SETTLEMENT WITH DO LOO, THE ASSESSEE COMPANY HAD RECEIVED A LETTER FROM EASTERN TEA ESTATES LTD. STA TING THAT SINCE BOTH THE GARDEN AS WELL AS THE PLANT WERE TAKEN ON LEASE BY EASTERN TE A ESTATES LTD., AND AS SUCH DOLOO HAD NO JURISDICTION TO ENTER INTO SETTLEMENT WITH T HE ASSESSEE COMPANY. AS NO FURTHER AMOUNT COULD BE RECOVERED FROM 00100 EVEN AFTER REP EATED FOLLOW UPS AND FURTHER, ON RECEIVING THE LETTER FROM EASTERN TEA ESTATES LTD Q UESTIONING THE JURISDICTION OF OUT OF COURT SETTLEMENT MADE BETWEEN DOLOO AND THE ASSESS EE, THE MANAGEMENT OF THE 5 ITA NOS.2066 & 2071/KOL/2014 M/S J.THOMAS & CO. PVT. LTD. A.YR.2010-11 5 ASSESSEE COMPANY HAD TAKEN A DECISION TO WRITE OFF THE AMOUNT OF INR 71,27,069/- BEING THE ADVANCE STANDING IN THE BOOKS OF THE ASSESSEE C OMPANY VIDE BOARD RESOLUTION DATED 20 TH SEPTEMBER, 2010. A COPY OF THE SAID RESOLUTION IS ENCLOSED AND MARKED AS ANNEXURE 'G'. NAVANEETH TEA INDUSTRIES : THE ASSESSEE COMPANY, AS A PART OF NORMAL COURSE OF ITS BUSINESS, MADE A REFUNDABLE ADVANCE WITH INTEREST T O NAVANEETH TEA INDUSTRIES ON A CONDITION THAT THE ENTIRE CROP OF THE AFORESAID COM PANY WOULD BE EXCLUSIVELY SOLD THROUGH THE ASSESSEE. THUS, YOUR KINDSELF MAY KINDL Y NOTE THAT IN ORDER TO SECURE THE BUSINESS OF THE ASSESSEE COMPANY, THE ADVANCE WAS M ADE TO NAVNEETH TEA INDUSTRIES. DUE TO DISHONOUR OF THE CHEQUE GIVEN BY NAVNEETH TE A INDUSTRIES, A CRIMINAL PROCEEDING WAS STARTED AGAINST THE ABOVE FIRM AND I TS PARTNERS UNDER THE PROVISIONS OF SECTION 138 OF THE NEGOTIABLE INSTRUMENT ACT. A COP Y OF THE NOTICE AND A COPY OF THE PETITION FILED BEFORE THE HON'BLE JUDICIAL MAGISTRA TE OF COONOOR ARE ENCLOSED AND COLLECTIVELY MARKED AS ANNEXURE 'H'. SUBSEQUENTLY, A SETTLEMENT WAS ENTERED INTO BETWEEN THE ASSESSEE AND NAVNEETH TEA INDUSTRIES TO WITHDRAW THE CASE FILED BEFORE THE HON'BLE JUDICIAL MAGISTRATE OF COONOOR BY PAYING IN R 5,00,0001- UPFRONT. AS THE SETTLEMENT WAS ENTERED INTO BY THE ASSESSEE THE BAL ANCE OUTSTANDING WAS WRITTEN OFF BY THE ASSESSEE IN THE BOOKS OF ACCOUNTS FOR THE PREVI OUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION PASSING THE BOARD RESOLUTI ON DATED 20 TH SEPTEMBER, 2010. A COPY OF THE BOARD RESOLUTION IS ENCLOSED FOR THE RE FERENCE OF YOUR KINDSELF. MANJAMALAI TEA FACTORY : THE ASSESSEE COMPANY AS A PART OF ITS NORMAL COUR SE OF ITS BUSINESS MADE AN ADVANCE WITH INTEREST TO MANJAMALA I TEA FACTORY ON A CONDITION THAT THE ENTIRE CROP WOULD BE EXCLUSIVELY SOLD THROUGH T HE ASSESSEE. THUS, YOUR KINDSELF MAY KINDLY NOTE THAT IN ORDER TO SECURE THE BUSINESS OF THE ASSESSEE COMPANY, THE ADVANCE WAS MADE TO MANJAMALAI TEA FACTORY. HOWEVER, SINCE THE FACTORY REMAINED CLOSED AND THE FIRM COULD NOT RESUME THEIR BUSINESS, THE AFORE SAID ADVANCE COULD NOT BE COLLECTED I RECOVERED. FURTHER, DURING THE YEAR UNDER CONSIDERA TION, THE ASSESSEE COMPANY WAS INFORMED BY THE BANKER, NAMELY, M/S UNION BANK, THA T SUBSTANTIAL AMOUNTS WERE DUE TO THEM FROM MANJAMALAI AND DUES OF OTHER CREDITORS WE RE ALSO SUBSTANTIAL. AS THERE WAS NO PROBABILITY FOR RECOVERY OF ADVANCE FROM MANJAMA LAI, THE BALANCE STANDING IN THE ACCOUNT OF MANJAMALAI TEA FACTORY WAS WRITTEN OFF B Y THE ASSESSEE COMPANY DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION PASSING THE BOARD RESOLUTION DATED 20 TH SEPTEMBER, 2010. A COPY OF THE BOARDS RESOLUTION IS ENCLOSED FOR THE REFERENCE OF YOUR KINDSELF. 5.1. FROM THE ABOVE, IT COULD BE SEEN THAT THE ASSE SSEE HAD WRITTEN OFF THE ADVANCES GIVEN IN THE NORMAL COURSE OF BUSINESS TO AFORESAID THREE PARTIES AFTER TAKING NECESSARY STEPS FOR RECOVERY OF THE SAME AND ALSO PREFERRING CIVIL SUITS AND CRIMINAL SUITS, WHEREVER POSSIBLE, AS THE CASE MAY BE. THE ASSESSEE HAD ALSO ENCLOSED THE NECESSARY EVIDENCES IN THIS REGARD BEFORE THE LD. AO. HENCE, IT WOULD BE FACTUALLY INCORRECT TO 6 ITA NOS.2066 & 2071/KOL/2014 M/S J.THOMAS & CO. PVT. LTD. A.YR.2010-11 6 STATE THAT NO LEGAL STEPS WERE TAKEN BY THE ASSESSE E FOR RECOVERY OF THE DUES. THE RELEVANT EVIDENCES WITH REGARD TO STEPS TAKEN BY TH E ASSESSEE FOR RECOVERY OF THESE ADVANCES AND CONSEQUENTIAL WRITE OFF THEREON ARE EN CLOSED IN PAGES 18 TO 46 OF PAPER BOOK. WE FIND THAT THE ISSUE UNDER DISPUTE IS SQUAR ELY COVERED BY THE CO-ORDINATE BENCH DECISION OF THIS TRIBUNAL IN FAVOUR OF THE ASSESSEE IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009-10 IN I.T.A. NO. 275/KOL/2014 DATED 28.02.2017 WHEREIN IT WAS HELD THAT : 5. GROUND NO. 2 IS AGAINST THE DELETION OF A DISAL LOWANCE MADE ON ACCOUNT OF CLAIM FOR BAD DEBT OF RS. 82,34,907/-. THE ASSESSING OFFI CER DISALLOWED THIS CLAIM OF BAD DEBTS ON THE GROUND THAT THE ASSESSEE COULD NOT ESTABLISH AS TO THE LEGAL EFFORTS TAKEN TO RECOVER THE DEBTS AND ALSO ON THE GROUND THAT THE A SSESSEE COULD NOT DEMONSTRATE THAT THESE AMOUNTS WERE TAKEN AS THE INCOME OF THE ASSES SEE IN THE EARLIER YEAR. BEFORE THE LD. CIT(APPEALS), THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THESE WERE TRADE ADVANCES MADE TO VARIOUS TEA COMPANIES, WHICH WERE WRITTEN OFF IN THE YEAR UNDER CONSIDERATION IT WAS SUBMITTED THAT THE ADVANCES WE RE MADE TO M/S. ALL INDIA TEA & TRADING CO., TONGANAGAON TEA CO. LIMITED, AMRITAPUR TEA CO. LIMITED DURING THE NORMAL COURSE OF BUSINESS OF THE ASSESSEE AT THE IN TEREST RATE OF 21% PER ANNUM. ON THE CONDITION MENTIONED IN SECTION 36(1)(VII) READ WITH SECTION 36(2) OF THE ACT, HE SUBMITTED THAT, WHEN A LOSS ARISES OUT OF NON-RECOV ERY OF SUCH ADVANCES, THE SAME SHOULD BE ALLOWED AS A BUSINESS LOSS WHILE COMPUTIN G THE PROFIT AND GAINS OF BUSINESS AND AS THE MONIES WERE ADVANCED FOR THE PURPOSE OF ITS BUSINESS. THESE THREE COMPANIES HAD FINANCIAL AND CERTAIN OTHER DIFFICULTIES AND CO NSEQUENTLY THE AGREEMENTS COULD NOT BE EXECUTED. THEREAFTER SETTLEMENTS WERE ARRIVED BE TWEEN THE ASSESSEE AND THESE COMPANIES, WHEREIN, CERTAIN DUES WERE PAID TO THE A SSESSEE-COMPANY AND THE BALANCE WAS WRITTEN OFF. THE BOARD OF DIRECTORS OF THE ASSE SSEE- COMPANY HAD RECORDED THESE BUSINESS DEVELOPMENTS AND PASSED RESOLUTION ACCEPTI NG THE SETTLEMENTS. FURTHER THERE WERE SMALL SUNDRY BALANCES RECEIVABLE FROM VARIOUS TEA COMPANIES AND THESE WERE WRITTEN OFF AS IRRECOVERABLE BY PASSING NECESSARY R ESOLUTIONS THE ASSESSEE RELIED ON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE O F CIT -VS.- MYSORE SUGAR COMPANY LIMITED [46 ITR 649(SC)] AND BY THE HON'BLE MADRAS HIGH COURT IN THE CASE OF DEVI FILMS PRIVATE LIMITED -VS.- CIT [75 ITR 301 (MAD.). RELIANCE WAS PLACED ON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE O F CIT -VS.- ABDULLABHAI ABDULKADAR REPORTED IN 41 ITR 545. RELIANCE WAS ALS O PLACED ON THE DECISION OF THE KOLKATA BENCH OF THIS TRIBUNAL IN CASE OF DCIT -VS. - ITC LIMITED IN ITA NO. 157/KOL/1996, ORDER DATED 30.04.2001. THE ID. CIT(A PPEALS) AGREED WITH THE CONTENTIONS OF THE ID. COUNSEL FOR THE ASSESSEE AND GRANTED RELIEF. WE FIND NO INFIRMITY IN THIS ORDER OF THE ID. CIT(APPEALS). THE ADVANCES WE RE GIVEN BY THE ASSESSEE IN THE NORMAL COURSE OF ITS BUSINESS AND WHEN A LOSS ARISE S DUE TO NON-RECOVERY OF SUCH ADVANCES AND WHEN THE SAME IS IRRECOVERABLE AND WRI TTEN OFF AS SUCH, THE SAME SHOULD BE ALLOWED AS A LOSS WHILE COMPUTING THE PROFIT AND GAINS OF BUSINESS. 7 ITA NOS.2066 & 2071/KOL/2014 M/S J.THOMAS & CO. PVT. LTD. A.YR.2010-11 7 6. THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SUMANGAL OVERSEAS LIMITED [I.T.A. NO. 174 OF 2011(DEL)] HELD AS FOLLWS: A TRADING LOSS HAS A WIDER CONNOTATION THAN A BAD DEBT. A BAD DEBT MAY ALSO BE A TRADING LOSS. BUT A TRADING LOSS NEED NOT NEC ESSARILY BE A BAD DEBT. THERE MAY BE A BAD DEBT WHICH MAY NOT FALL WITHIN THE PUR VIEW OF SECTION 36(1)(VII) OF THE ACT, BY MAY WELL BE REGARDED AS ONE ELIGIBLE FO R DEDUCTION INCURRED IN THE COURSE OF CARRYING ON BUSINESS WILL COME UNDER THAT CATEGORY AND WILL NATURALLY ENTER INTO COMPUTING THE NET TOTAL INCOME AS THE RE AL PROFIT CHARGEABLE TO TAX CANNOT BE ARRIVED AT WITHOUT SETTING OFF LEGITIMATE TRADING LOSS. 7. APPLYING THE PROPOSITION LAID DOWN IN THIS CASE LAW TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE UPHOLD THE FINDING OF THE FIRST APPELL ATE AUTHORITY AND DISMISS THIS GROUND OF THE REVENUE. 6. RESPECTFULLY FOLLOWING THE SAME WE FIND NO INFIR MITY IN THE ORDER OF THE LD. CIT(A) AND ACCORDINGLY DELETE THE GROUNDS BY THE REVENUE I N THIS REGARD. NOW LET US COME TO ASSESSEES APPEAL IN I.T.A. NO. 2071/KOL/2014 FOR ASSESSMENT YEAR 2010-11 7. THE ONLY ISSUE TO BE DECIDED IN THE APPEAL OF TH E ASSESSEE IS AS TO WHETHER THE LD. CIT(A) WAS JUSTIFIED IN UPHOLDING THE DISALLOWANCE OF FOREIGN TRAVEL EXPENDITURE INCURRED BY THE ASSESSEE TO THE TUNE OF RS. 27,73,2 44/-, THE FACTS AND CIRCUMSTANCES OF THE CASE. 8. THE BRIEF FACTS OF THIS ISSUE IS THAT DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION, THE CHAIRMAN, VICE CHAIR MAN, MANAGING DIRECTOR, DEPUTY MANAGING DIRECTOR AND DIRECTORS OF THE ASSESSEE HAD VISITED AUSTRALLIA, NEW YORK, UK, DUBAI AND BANGKOK FOR THE PURPOSE OF THE BUSINESS O F THE ASSESSEE AND HAD INCURRED A TOTAL EXPENSES OF RS. 27,73,244/-. THE ASSESSEE HAD CLAIMED THE SAID EXPENSES AS ALLOWABLE BUSINESS EXPENSES IN THE RETURN OF INCOME FOR THE RELEVANT YEAR. IN THE ASSESSMENT PROCEEDING UNDER SECTION 143(3) OF THE I NCOME TAX ACT, 1961 HAD ASKED THE ASSESSEE TO PROVIDE THE DETAILS OF TRAVELLING EXPEN SES. IT WAS FURTHER ASKED TO PROVIDE THE 8 ITA NOS.2066 & 2071/KOL/2014 M/S J.THOMAS & CO. PVT. LTD. A.YR.2010-11 8 DETAILS OF FOREIGN TRAVEL EXPENSES SHOWING THE NAME S OF VISITING PERSONS AND THE PURPOSE OF THEIR VISIT ABROAD. THE ASSESSEE VIDE ITS REPLY DATED 04.03.2013 HAD FILED THE AFORESAID DETAILS. KINDLY REFER TO PAGE NO. 15 OF PAPER BOOK FOR A STATEMENT SHOWING DETAILS OF FOREIGN TRAVEL EXPENSES INCURRED DURING THE RELEVAN T YEAR ALONG WITH THE PURPOSE OF VISIT. THE LD. AO HAD FURTHER ASKED THE ASSESSEE TO PROVID E A BRIEF NOTE ON JUSTIFICATION OF FOREIGN TRAVEL. IN REPLY TO THE SAME, THE ASSESSEE, VIDE ITS LETTER DATED 15.03.2013 HAD FILED ITS DETAILED REPLY JUSTIFYING THE CLAIM. 9. THE LD. AO OBSERVED THAT THE ASSESSEE IS NOT ENG AGED IN THE MANUFACTURE AND SALE OF TEA. INSTEAD IT IS ONLY ACTING AS TEA AUCTIONEER, W HICH IS A PLATFORM THROUGH WHICH, TEA COULD BE PURCHASED AND SOLD BY THE INDIAN MANUFACTU RERS. IN THE INSTANT CASE, THERE WAS NO NECESSITY OF INCURRENCE OF FOREIGN TRAVEL EXPENS ES BY THE ASSESSEE AND THEREBY ASSESSEE HAS FAILED TO PROVE THE BUSINESS NEXUS VIS --VIS THE FOREIGN TRAVEL EXPENSES. HE FURTHER OBSERVED THAT THE FOREIGN TOUR EXPENSES INC URRED BY THE ASSESSEE HAD ONLY BENEFITTED THE INDIAN MANUFACTURERS WHO IN TURN HAD EXPORTED TEA TO VARIOUS COUNTRIES ABROAD AND THE SAME HAD NOT IN ANY WAY BENEFITTED T HE ASSESSEE HEREIN. WITH THIS OBSERVATION, HE DISALLOWED THE SAME IN THE ASSESSME NT. THE LD. CIT(A) ALSO UPHELD THE ACTION OF THE LD. AO. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS: 1.(A) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER R EFERRED TO AS LD. CIT(A)] HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER [HEREINAFTER REFERRED TO AS THE AO] IN ADDING BACK AN AMOUNT OF INR 27, 73,244/- ON THE ALLEGED GROUND THAT THERE IS NO DIRECT NEXUS BETWEEN THE TR AVEL EXPENDITURE INCURRED BY THE APPELLANT WITH THE AUCTIONEERING BUSINESS OF TH E APPELLANT COMPANY. 1.(B) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE AO IN ADD ING BACK AN AMOUNT OF INR 27,73,244/- ON THE ALLEGED GROUND THAT THERE IS NO DIRECT NEXUS BETWEEN THE TRAVEL EXPENDITURE INCURRED BY THE APPELLANT WITH THE AUCT IONEERING BUSINESS OF THE APPELLANT IGNORING THE PRINCIPLES LAID DOWN BY THE HON'BLE SUPREME COURT OF 9 ITA NOS.2066 & 2071/KOL/2014 M/S J.THOMAS & CO. PVT. LTD. A.YR.2010-11 9 INDIA WHEREIN IT HAS BEEN STATED THAT AN EXPENDITUR E SHOULD BE ALLOWED EVEN IF RESULTS IN DIRECTLY FACILITATING THE CARRYING ON TH E BUSINESS OF THE APPELLANT. 2. THAT THE APPELLANT CRAVES LEAVE TO ADD AND/OR AM END, ALTER, MODIFY OR RESCIND THE GROUNDS HEREINABOVE BEFORE OR AT THE TIME OF HE ARING OF THE APPEAL. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND TH AT THE LD. AR ARGUED THAT THE SENIOR OFFICIALS OF THE ASSESSEE VIZ. CHAIRMAN, VIC E CHAIRMAN, MANAGING DIRECTOR AND DIRECTORS HAD VISITED FOREIGN COUNTRIES DURING THE RELEVANT YEAR FOR THE PURPOSE OF COLLECTING INFORMATION REGARDING EXACT REQUIREMENT OF IMPORTS OF TEA BY FOREIGN PARTIES. THE SAID INFORMATION IS SUBSEQUENTLY PASSED ON TO T HE CLIENTS OF THE ASSESSEE WHO HAVE EXPORT LICENSE. THE CLIENTS OF THE ASSESSEE ARE GAI NFULLY UTILIZING THE SAID INFORMATION. BASED ON THE SAID INFORMATION AND ON THE BASIS OF O VERSEAS REQUIREMENT OF TEA, THEY ARE PURCHASING TEA THROUGH TEA AUCTIONS CONDUCTED BY TH E ASSESSEE. ON SUCH SALE OF TEA THROUGH AUCTION, REVENUE IS GENERATED TO THE ASSESS EE IN THE FORM OF BROKERAGE AND IT IS A MAJOR SOURCE OF REVENUE OF THE ASSESSEE. 10.1. THE LD. AR ARGUED THAT THE ASSESSEE EARNS BRO KERAGE INCOME WHEN VARIOUS PARTIES PURCHASE/SELL TEA THROUGH TEA AUCTIONS , THE SAID B ROKERAGE IS COMPUTED ON THE BASIS OF VALUE OF TEA AUCTIONED BY THE ASSESSEE. THE PARTIE S WHO PARTICIPATE IN AUCTION ARE MAINLY TWO FOLDS: 1) WHO PURCHASE TEA FROM TEA AUCT ION AND 2) THE PARTIES WHO ARE SELLING TEA THROUGH TEA AUCTIONS. HENCE, THE ASSESS EE IS EARNING BOTH BUYING BROKERAGE AND SELLING BROKERAGE. THE TEA PURCHASED BY THE PAR TIES IN AUCTION IS SOLD BY THEM TO VARIOUS CONSUMERS WITHIN INDIA AND ABROAD. THE LD. AR FURTHER STATED THAT THE VARIOUS CUSTOMERS WHO PARTICIPATED IN TEA AUCTION HAD PURCH ASED TEA THROUGH AUCTION CONDUCTED BY THE ASSESSEE AMOUNTING TO RS. 376,65,99,580/- FO R THE PURPOSE OF THEIR EXPORT. THE BROKERAGE EARNED BY THE ASSESSEE OUT OF SUCH AUCTIO NS WAS RS. 4,37,49,885/-. IN THIS REGARD, THE LD. AR FILED A STATEMENT SHOWING PARTYW ISE DETAILS OF PURCHASES MADE BY VARIOUS CUSTOMERS THROUGH AUCTIONS CONDUCTED BY THE ASSESSEE AND BROKERAGE EARNED THEREON BY THE ASSESSEE, AS AN ADDITIONAL EVIDENCE FOR WHICH A SEPARATE APPLICATION UNDER 10 ITA NOS.2066 & 2071/KOL/2014 M/S J.THOMAS & CO. PVT. LTD. A.YR.2010-11 10 RULE 18(4) READ WITH RULE 29 OF THE ITAT RULES, FOR FILING THE ADDITIONAL EVIDENCE WAS PREFERRED. THIS APPLICATION CONTAINED THE REASONS F OR ADMISSION OF THE SAME BY MENTIONING THAT THE ASSESSEE COULD NOT QUANTIFY THE SAID DETAILS EARLIER AND AS SUCH THE SAME WAS NOT FILED BEFORE THE LOWER AUTHORITIES. IT WAS FURTHER PLEADED IN THE SAID APPLICATION THAT THIS BEING THE FIRST YEAR IN WHICH THE LD. AO HAS RESORTED TO DISALLOWANCE TO FOREIGN TRAVEL EXPENSES IN THE ASSE SSMENT ORDER U/S 143(3) OF THE ACT, THESE DETAILS WERE NEVER WORKED OUT BY THE ASSESSEE . HENCE, THE SAME COULD NOT BE FILED BEFORE THE LOWER AUTHORITIES. IT WAS PLEADED THAT T HE SAID DETAILS WERE HOWEVER FILED BEFORE THE LD. AO FOR THE SUBSEQUENT YEARS IN THE S CRUTINY PROCEEDINGS. WE FIND THAT THE SAID STATEMENT CONTAINS THE NAME OF THE EXPORTERS W HO BOUGHT TEA IN AUCTION, QUANTITY OF TEA BOUGHT BY PARTIES, VALUE OF TEA BOUGHT BY PARTI ES, BUYING BROKERAGE EARNED BY THE ASSESSEE, SELLING BROKERAGE EARNED BY ASSESSEE, AND TOTAL BROKERAGE EARNED BY ASSESSEE. THIS STATEMENT MERELY CONTAINS DETAILS OF TEA PURCH ASED BY EXPORTERS THROUGH AUCTIONS AND BROKERAGE EARNED BY THE ASSESSEE THEREON TO THE TUNE OF RS. 4,37,49,885/-. THE LD. AR FURTHER ARGUED THAT THE INFORMATION SO COLLECTED BY THE SENIOR OFFICIALS OF THE ASSESSEE PURSUANT TO THEIR FOREIGN TRAVEL, GENERAT ED REVENUE TO THE ASSESSEE IN THE FORM OF BROKERAGE. HENCE, THE FOREIGN TRAVEL EXPENSES OF RS. 27,73,244/- HAS TO BE REGARDED AS EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE AND ACCORDINGLY THE SAME IS ALLOWABLE U/S 37(1) OF THE ACT. IT WAS ALSO PLEADED BY THE LD. AR THAT THE VICE CHAIRMAN, MANAGING DIRE CTOR, DEPUTY MANAGING DIRECTOR AND DIRECTORS OF THE ASSESSEE HAVE SPECIALIZED KNOW LEDGE AND EXPERIENCE IN THE AREA OF TEA MANUFACTURING AND EXPORT, AND SO THEY CAN CONV INCE THE POTENTIAL IMPORTER OF VARIOUS COUNTRIES TO IMPORT GOOD QUALITY TEA IN SUB STANTIAL QUANTITY FROM INDIA. AFTER COMING BACK FROM THE FOREIGN COUNTRIES, THEY PASS O N THE INFORMATION REGARDING REQUIREMENTS OF IMPORTERS TO THE CLIENTS OF THE ASS ESSEE WHO HAVE THE LICENSE FOR EXPORTS. THUS, FUNCTIONS PERFORMED BY THE CHAIRMAN, VICE CHA IRMAN, MANAGING DIRECTOR, DEPUTY MANAGING DIRECTOR AND DIRECTOR OF THE ASSESS EE ARE SUMMARIZED AS UNDER: TO EXPLORE IMPORT POTENTIALITY; 11 ITA NOS.2066 & 2071/KOL/2014 M/S J.THOMAS & CO. PVT. LTD. A.YR.2010-11 11 TO GET ACQUAINTED WITH THE BUYERS (IMPORTERS); TO STUDY GRADATION (QUALITY) DEMAND FOR IMPROVEMENT IN QUALITY PRODUCE; TO SHOW CAUSE INDIAN PRODUCE TO OTHER COUNTRIES; AN D TO EXPLORE NEW MARKETS FOR INDIAN TEA. THUS, IT IS SUBMITTED THAT WITH THE KNOWLEDGE AND E XPERIENCE OF THE ABOVE SENIOR EMPLOYEE OF THE ASSESSEE IN THE AREAS OF TEA MANUFA CTURING AND MARKETING, THE DETAILS OF PROSPECTIVE FOREIGN BUYERS WITH THEIR REQUIREMENT O F GRADE/QUANTITY OF TEA ARE BEING NOTED AND THIS INFORMATION IS BEING GIVEN TO THE CL IENTS OF THE ASSESSEE WHO HAVE EXPORT LICENSES WHICH IN TURN HELP THE AUCTION BUYERS TO B UY THE QUANTITY REQUIRED TO MEET THE DEMANDS OF THE FOREIGN BUYERS. IT HELPS THE ASSESSE E TO GENERATE REVENUE IN THE FORM OF BROKERAGE FROM TEA AUCTIONS. THE LD. AR FURTHER SUB MITTED THAT BY VISITING THE FOREIGN COUNTRIES FOR THE PURPOSE OF ATTENDING VARIOUS TEA FESTIVALS AT THE REQUEST OF THE INDIAN TEA ASSOCIATION/INDIAN TEA BOARD, THE SENIOR OFFIC IALS OF THE ASSESSEE FIND OUT NEW MARKETS FOR INDIAN TEA ABROAD OTHER THAN CONVENTION AL MARKETS, WHICH ALSO HELPS THE CLIENTS OF THE ASSESSEE TO EXPORT SUBSTANTIAL QUANT ITY OF TEA IN THOSE COUNTRIES AFTER BUYING TEA THROUGH AUCTION CONDUCTED BY THE ASSESSE E WHICH DIRECTLY GENERATES REVENUE TO THE ASSESSEE. THUS, BY FINDING OUT NEW FOREIGN B UYERS AS WELL AS FINDING OUT NEW MARKETS ABROAD, THE ASSESSEE IS HELPING THE CLIENTS TO EXPORT HUGE QUANTITY OF TEA BY PURCHASING THE SAME THROUGH AUCTIONS WHICH ALSO DIR ECTLY HELPS THE ASSESSEE TO GENERATE MORE REVENUE IN THE FORM OF BROKERAGE. IN VIEW OF T HE SAME, THE FOREIGN TRAVEL EXPENSE SHOULD BE REGARDED AS EXPENSES INCURRED DIRECTLY FO R THE BENEFIT OF THE BUSINESS OF THE ASSESSEE. THUS, THE REVENUE OF THE ASSESSEE IS DIR ECTLY DEPENDENT ON THE VOLUME OF TEA SOLD THROUGH AUCTION CONDUCTED BY THE ASSESSEE. HE NCE, FOREIGN TRAVEL EXPENSES SHOULD BE ALLOWABLE AS DEDUCTION UNDER SECTION 37(1) OF TH E ACT. 10.2. IT WAS FURTHER PLEADED THAT THE SAID FOREIGN TRAVEL EXPENDITURE IS NOT CAPITAL IN NATURE AND NOT PERSONAL IN NATURE. THE SAME HAS BEE N INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. 12 ITA NOS.2066 & 2071/KOL/2014 M/S J.THOMAS & CO. PVT. LTD. A.YR.2010-11 12 10.3. THE LD. AR WITHOUT PREJUDICE TO THE ABOVE ARG UMENT FURTHER ARGUED THAT EVEN IF THERE IS NO DIRECT BENEFIT GENERATED OUT OF FOREIGN TRAVEL, EVEN THEN, THE SAME IS ALLOWABLE AS DEDUCTION. IN THIS REGARD HE PLACED RE LIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. INDIAN BANK LT D. REPORTED IN 1965 AIR 1473 (SC) WHEREIN IT WAS HELD THAT: IN ALLOWING A DEDUCTION WHICH IS PERMISSIBLE THE Q UESTION ARISES: DO WE LOOK BEHIND THE EXPENDITURE AND SEE WHETHER IT HAS THE QUALITY OF DIRECTLY OR INDIRECTLY PRODUCING TAXABLE INCOME? THE ANSWER MUST BE IN THE NEGATIVE FOR TWO REASONS: FIRST, PARLIAMENT HAS NOT DIRECTED US TO UNDERTAKE THIS ENQUIRY. THER E ARE NO WORDS IN SEC. 10(2) TO THAT EFFECT. ON THE OTHER HAND, INDICATIONS ARE TO THE C ONTRARY IN SECTION 10(2)(XV) OF THE INCOME TAX ACT, 1961, WHAT PARLIAMENT REQUIRES TO B E ASCERTAINED IS WHETHER THE EXPENDITURE HAS BEEN LAID OUT OR EXPENDED WHOLLY AN D EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. THE LEGISLATURE STOPS SHORT AT DIRECTING THAT IT BE ASCERTAINED WHAT WAS THE PURPOSE OF THE EXPENDITURE. IF THE ANSWER IS THAT I T IS FOR THE PURPOSE OR WILL PRODUCE TAXABLE INCOME. SECONDLY, THE REASON MAY WELL BE TH AT PARLIAMENT ASSUMES THAT MOST TYPES OF EXPENDITURE WHICH ARE LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS WOULD DIRECTLY OR INDIRECTLY PRODUCE TA XABLE INCOME, AND IT IS NOT WORTH THE ADMINISTRATIVE EFFORT INVOLVED TO GO FURTHER AND TR ACE THE EXPENDITURE TO SOME TAXABLE INCOME. 10.4. IN RESPONSE TO ALL THESE ARGUMENTS, THE LD. DR VEHEMENTLY RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. WE FIND THAT THE HONBLE GAU HATI HIGH COURT IN THE CASE OF CIT VS. WILLIAMSON TEA ASSAM LTD. REPORTED IN 38 TAXMAN N.COM 154(GAU) IN THE CONTEXT OF FOREIGN TRAVEL EXPENSES VIS--VIS SECTION 37 OF THE ACT HAD HELD THAT : BEFORE DECIDING THE ISSUES, IN QUESTION, WE DEEM I T APPOSITE TO HAVE A LOOK AT THE SCOPE OF SECTION 37 OF THE ACT. SECTION 37 OF THE ACT PRO VIDES THAT AN EXPENDITURE TO BE COVERED BY THE AMBIT OF SECTION 37 OF THE ACT, THE EXPENDI TURE SHOULD BE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE TRUE TEST FOR AN E XPENDITURE, LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, IS THAT IT IS INCURRED BY THE ASSESSEE AS INCIDENTAL TO ITS TRADE FOR THE PURPOSE OF KEEPING ITS TRADE GOING ON AND THAT THE EXPENDITURE MUST BE INCURRED BY THE ASSESSEE AS A TRADER AND NOT IN ANY OTHER CAPACITY. THE WORD WHOLLY REFERS TO THE QUANTUM OF EXPENDIT URE AND THE WORD EXCLUSIVELY REFERS TO THE MOTIVE, OBJECTIVE AND PURPOSE OF THE EXPENDITURE. THE EXPRESSION WHOLLY AND EXCLUSIVELY, APPEARING IN SECTION 37, DOES NOT MEAN NECESSARILY. IT IS IMPORTANT TO NOTE, IN THIS REGARD, THAT THE WORD NECESSARILY F OUND PLACE IN THE INCOME TAX BILL, 1961, BUT IT WAS DROPPED AT THE LEGISLATIVE ANVIL. 13 ITA NOS.2066 & 2071/KOL/2014 M/S J.THOMAS & CO. PVT. LTD. A.YR.2010-11 13 THE HONBLE HIGH COURT HAS FURTHER HELD THAT FOR TH E ALLOWABILITY OF AN EXPENDITURE UNDER SECTION 37 OF THE ACT IS NOT RELEVANT AS TO W HETHER THE BENEFIT, EXPECTED TO BE ACCRUED OUT OF AN EXPENDITURE INCURRED IS TO ACCRUE IMMEDIATELY OR AFTER A LAPSE OF TIME, WHETHER DIRECTLY OR INDIRECTLY. WHILE DECIDING THE ISSUE THE HONBLE HIGH COURT PLACED RELIANCE ON THE DECISION OF THE APEX COURT IN THE C ASE OF CIT VS. DHANRAJGIRJI RAJA NARASINGIRJI (1973) 91 ITR 544 (SC) WHEREIN IT WAS HELD THAT IT IS NOT OPEN TO THE DEPARTMENT TO PRESCRIBE WHAT EXPENDITURE AN ASSESSE E SHOULD INCUR AND IN WHAT CIRCUMSTANCES HE SHOULD INCUR THE EXPENDITURE. EVER Y BUSINESSMAN KNOWS HIS BUSINESS BEST. 10.5. WE FIND THAT THE LD. CIT(A) HAD UPHELD THE D ISALLOWANCE OF FOREIGN TRAVEL EXPENSES ON THE CONTENTIONS THAT IT IS THE ENTIRE R ESPONSIBILITY OF THE PARTIES PURCHASING TEA AND COFFEE FROM THE ASSESSEE THROUGH AUCTION TO ASCERTAIN AND FIND CLIENTS/PURCHASERS FROM ABROAD. AND THE ASSESSEE HAS NO ROLE IN FINDIN G THE CLIENTS FROM ABROAD. THE LD. CIT(A) OBSERVED THAT SINCE THE ASSESSEE IS NOT AN E XPORTER OF TEA AND COFFEE NOR INTENDING TO DO SO IN FUTURE, THE FOREIGN TRAVEL EX PENSES IS NOT LIABLE AS DEDUCTION. WE HOLD IN THIS REGARD THE ALLOWABILITY OF CLAIM OF TH E ASSESSEE HAS TO BE JUDGED FROM THE VIEW POINT OF THE PRUDENT BUSINESSMAN AND NOT FROM THE VIEW POINT OF THE REVENUE. IT IS ALREADY WELL SETTLED THAT IT IS IRRELEVANT IF A THI RD PARTY IS BENEFITTED BY INCURRENCE OF A PARTICULAR EXPENDITURE BY AN ASSESSEE. WHAT IS TO B E SEEN IS ONLY WHETHER THE EXPENDITURE WAS INCURRED OUT OF COMMERCIAL EXPEDIEN CY AND ONCE THE SAME IS PROVED, THEN IT WOULD BE ALLOWED AS DEDUCTION. IT IS ALSO W ELL SETTLED THAT THE BUSINESSMAN KNOWS HIS INTEREST BEST. THE CONDITIONS FOR ALLOWABILITY OF AN EXPENDITURE U/S 37(1) OF THE ACT IS : (I) IT SHOULD NOT BE CAPITAL IN NATURE. (II) I T SHOULD NOT BE PERSONAL IN NATURE. (III) IT SHOULD BE INCURRED WHOLLY AND EXCLUSIVELY FOR THE P URPOSE OF BUSINESS OF THE ASSESSEE. ADMITTEDLY, THE FOREIGN TRAVEL EXPENDITURE IS NEIT HER CAPITAL NOR PERSONAL IN NATURE. SO THE ONLY POINT IS TO BE DECIDED IS WHETHER THE SAME IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. IN THI S REGARD, WE WOULD LIKE TO PLACE RELIANCE ON THE DECISION OF THE HONBLE SUPREME COU RT IN THE CASE OF SASSOON J. DAVID & CO. PVT. LTD VS CIT REPORTED IN 118 ITR 261 (SC) WHEREIN IT WAS HELD : IT HAS TO BE OBSERVED HERE THAT THE EXPRESSION WH OLLY AND EXCLUSIVELY USED IN SECTION 10(2)(XV) OF THE ACT DOES NOT MEAN NECESSA RILY. ORDINARILY IT IS FOR THE ASSESSEE 14 ITA NOS.2066 & 2071/KOL/2014 M/S J.THOMAS & CO. PVT. LTD. A.YR.2010-11 14 TO DECIDE WHETHER ANY EXPENDITURE SHOULD BE INCURRE D IN THE COURSE OF HIS OR ITS BUSINESS. SUCH EXPENDITURE MAY BE INCURRED VOLUNTAR ILY AND WITHOUT ANY NECESSITY AND IF IT IS INCURRED FOR PROMOTING THE BUSINESS AND TO EA RN PROFITS, THE ASSESSEE CAN CLAIM DEDUCTION UNDER SECTION 10(2)(XV) OF THE ACT EVEN T HOUGH THERE WAS NO COMPELLING NECESSITY TO INCUR SUCH EXPENDITURE. IT IS RELEVANT TO REFER AT THIS STAGE TO THE LEGISLATIVE HISTORY OF SECTION 37 OF THE INCOME TAX ACT, 1961 W HICH CORRESPONDS TO SECTION 10(2)(XV) OF THE ACT. AN ATTEMPT WAS MADE IN THE I NCOME-TAX BILL OF 1961 TO LAY DOWN THE NECESSITY OF THE EXPENDITURE AS A CONDITION F OR CLAIMING DEDUCTION UNDER SECTION 37. SECTION 37(1) IN THE BILL READ ANY EXPENDITURE LAID OUT OR EXPENDED WHOLLY, NECESSARILY AND EXCLUSIVELY FOR THE PURPOSES OF TH E BUSINESS OR PROFESSION SHALL BE ALLOWED. THE INTRODUCTION OF THE WORD NECESSARILY IN THE ABOVE SECTION RESULTED IN PUBLIC INTEREST. CONSEQUENTLY, WHEN SECTION 37 WAS FINALLY ENACTED INTO LAW, THE WORD NECESSARILY CAME TO BE DROPPED. THE FACT THAT SOM EBODY OTHER THAN THE ASSESSEE IS ALSO BENEFITED BY THE EXPENDITURE SHOULD NOT COME IN THE WAY OF AN EXPENDITURE BEING ALLOWED BY WAY OF DEDUCTION U/S 10(2)(XV) OF THE AC T IF IT SATISFIES OTHERWISE THE TESTS LAID DOWN BY LAW. WE FURTHER FIND THAT THE HONBLE SUPREME COURT IN T HE CASE OF S.A. BUILDERS LTD. VS. CIT REPORTED IN 288 ITR 1 (SC) WHILE APPROVING THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. DALMIA CEMENT (BHARAT) LTD. REPORTED IN 254 ITR 377 (DEL) HELD THAT: ONCE IT IS ESTABLISHED THAT THERE WAS NEXUS BETWEE N THE EXPENDITURE AND THE PURPOSE OF THE BUSINESS (WHICH NEED NOT NECESSARILY BE THE BUS INESS OF THE ASSESSEE ITSELF), THE REVENUE CANNOT JUSTIFIABLY CLAIM TO PUT ITSELF IN T HE ARM-CHAIR OF THE BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRECTORS AND ASSUME T HE ROLE TO DECIDE HOW MUCH IS REASONABLE EXPENDITURE HAVING REGARD TO THE CIRCUMS TANCES OF THE CASE. NO BUSINESSMAN CAN BE COMPELLED TO MAXIMIZE ITS PROFIT. THE INCOME TAX AUTHORITIES MUST PUT THEMSELVES IN THE SHOES OF THE ASSESSEE AND SEE HOW A PRUDENT BUSINESSMAN WOULD ACT. THE AUTHORITIES MUST NOT LOOK AT THE MATTER FROM THEIR OWN VIEW POINT BUT THAT OF A PRUDENT BUSINESSMAN. AS ALREADY STATED ABOVE, WE HAVE TO SE E THE TRANSFER OF THE BORROWED FUNDS TO A SISTER CONCERN FROM THE POINT OF VIEW O F COMMERCIAL EXPEDIENCY AND NOT FROM THE POINT OF VIEW WHETHER THE AMOUNT WAS ADVANCED F OR EARNING PROFITS. WE ALSO FIND THAT THE HONBLE APEX COURT IN THE CAS E OF EASTERN INVESTMENT LTD. VS. CIT REPORTED IN 20 ITR 1 (SC) HAD LAID DOWN THE FOLLOWI NG PRINCIPLES FOR ALLOWING BUSINESS EXPENSES: (A) THOUGH THE QUESTION MUST BE DECIDED ON THE FAC TS OF EACH CASE, THE FINAL CONCLUSION IS ONE OF LAW. 15 ITA NOS.2066 & 2071/KOL/2014 M/S J.THOMAS & CO. PVT. LTD. A.YR.2010-11 15 (B) IT IS NOT NECESSARY TO SHOW THAT THE EXPENDITUR E WAS A PROFITABLE ONE OR THAT IN FACT ANY PROFIT WAS EARNED. (C) IT IS ENOUGH TO SHOW THAT THE MONEY WAS EXPENDE D NOT A NECESSITY AND WITH A VIEW TO A DIRECT AND IMMEDIATE BENEFIT TO THE TRADE, BUT VOLUNTARILY AND ON THE GROUND OF COMMERCIAL EXPEDIENCY, AND IN ORDER INDIRECTLY TO F ACILITATE THE CARRYING ON OF THE BUSINESS; (D) BEYOND THAT, NO HARD AND FAST RULE CAN BE LAID DOWN TO EXPLAIN WHAT IS MEANT BY THE WORD SOLELY. FURTHER, IN THE CASE OF WILLIAMSON TEA (ASSAM) LTD. (2013) 38 TAXMANN.COM 154 (GAU), THE HONBLE HIGH COURT ALLOWED FOREIGN TRAVE L EXPENSE RELYING ON THE DECISION OF THE APEX COURT IN THE CASE OF SHRI VENKATA SATYANAR AYANA RICE MILL CONTRACTORS CO. VS. CIT REPORTED IN 89 TAXMAN 92 (SC) WHEREIN IT HA S BEEN HELD THAT WHAT IS TO BE SEEN IS NOT WHETHER IT WAS OR WAS NOT COMPULSORY FOR THE ASSESSEE TO MAKE THE PAYMENT, BUT THE CORRECT TEST IS THAT OF COMMERCIAL EXPEDIENCY. THE COMMERCIAL EXPEDIENCY OF A BUSINESSMANS DECISION TO INCUR SUCH AN EXPENDITURE . SUCH DECISIONS HAVE TO BE TAKEN FROM A BUSINESSMANS POINT OF VIEW AND HAVE TO BE R ESPECTED BY THE AUTHORITIES EVEN IF IT APPEARS TO THE LATTER THAT THE EXPENDITURE INCURRED WAS UNNECESSARY AND AVOIDABLE. 10.6. WE FIND THAT IN THE INSTANT CASE, THE SENIOR EMPLOYEES OF THE ASSESSEE VISITED FOREIGN COUNTRIES AND IT HAS GENERATED REVENUE TO T HE ASSESSEE IN THE FORM OF BROKERAGE INCOME ON TEA/COFFEE. FURTHER, THE SAID EXPENSES HA VE BEEN INCURRED OUT OF COMMERCIAL EXPEDIENCY AND HENCE IT SHOULD BE VIEWED FROM A BUS INESSMANS POINT OF VIEW. 10.7. THE LD. AR STATED THAT THE ASSESSEE HAD INCUR RED SIMILAR FOREIGN TRAVEL EXPENSES IN EARLIER YEARS ALSO. THE REVENUE HAD ACCEPTED THE SA ME TILL ASSESSMENT YEAR 2009-10 BY ALLOWING THE SAME AS BUSINESS EXPENDITURE. THE SCRU TINY ASSESSMENT ORDERS FOR THE ASSESSMENT YEARS 2007-08 AND 2009-10 FRAMED U/S 143 (3) OF THE ACT DATED 31.12.2009 AND 30.12.2011 RESPECTIVELY ARE FILED BY THE LD. AR IN THIS REGARD. WHEN THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE D URING THE YEAR UNDER APPEAL, THEN 16 ITA NOS.2066 & 2071/KOL/2014 M/S J.THOMAS & CO. PVT. LTD. A.YR.2010-11 16 THERE IS NO NEED FOR THE REVENUE TO TAKE A DIFFEREN T STAND IGNORING THE PRINCIPLE OF CONSISTENCY. RELIANCE IN THIS REGARD IS PLACED ON T HE DECISION OF HONBLE SUPREME COURT IN THE CASE OF RADHASAOMI SATSANG VS. CIT REPORTED IN 193 ITR 321 (SC). 10.8. IN VIEW OF THE AFORESAID FINDINGS AND RESPECT FULLY FOLLOWING THE RATIO OF THE AFORESAID DECISIONS WE DIRECT THE LD. AO TO DELETE THE DISALLOWANCE MADE TOWARDS FOREIGN TRAVEL EXPENSES TO THE SUM OF RS. 27,73,244 /- . ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN I. T.A. NO. 2071/KOL/2014 IS ALLOWED AND THE APPEAL OF THE REVENUE IN I.T.A. NO. 2066/KOL/20 14 IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 01.11.2017 SD/- SD/- [A.T.VARKEY] [ M.BALAGANESH ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 01.11.2017 SB, SR. PS COPY OF THE ORDER FORWARDED TO: 1. DCIT, CIRCLE-4, KOLKATA, P-7, CHOWRINGHEE SQUARE , KOLKATA-700069 2. M/S J. THOMAS & CO. PVT. LTD., 11, R.N. MUKHERJE E ROAD, KOLKATA-700001. 3..C.I.T.(A)-IV, KOLKATA 4. C.I.T.- KOLKATA 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVAT E SECRETARY HEAD OF OFFICE/D.D.O., ITAT, KOLKATA BENCHE S