Vinayak Oil & Fats Pvt. Ltd., Kolkata V. ITO, Ward-9(2), Kolkata, Kolkata

ITA 2168/KOL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1292 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 10 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 07-06-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 04-12-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ARINDAM BHATTACHARJEE CITSR
• Assessee Lawyers: A K TIBREWAL
• Keywords: Business income; Search and seizure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : KOLKATA [BEFORE HONBLE SHRI N.V.VASUDEVAN, JM & SHRI M.B ALAGANESH, AM ] I.T.A NO. 2168/KOL/20 14 ASSESSMENT YEAR : 2011-1 2 VINAYAK OIL & FATS PVT. LTD. -VS- ITO, WARD-9(2), KOLKATA [PAN: AAACV 9790 K] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI A.K.TIBREWAL, AR FOR THE RESPONDENT :SHRI ARINDAM BHATTACHARJEE, ADDL.CIT,SR. DR DATE OF HEARING : 21.09.2017 DATE OF PRONOUNCEMENT : 17.10.2017 ORDER PER M.BALAGANESH, AM 1. THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE O RDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), CENTRAL-II, KOLKATA [ IN SHOR T THE LD CITA] IN APPEAL NO. 76/CC-XXVII/CIT(A)C-II/13-14 DATED 29.09.2014 AGAIN ST THE ORDER PASSED BY THE DCIT, CENTRAL CIRCLE-XXVII, KOLKATA [ IN SHORT THE LD AO] UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 30 .07.2013 FOR THE ASSESSMENT YEAR 2011-12. 2. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS A S TO WHETHER THE LD. CIT(A) WAS JUSTIFIED IN UPHOLDING THE DISALLOWANCE MADE TOWARD S FOREIGN TRAVEL EXPENSES IN THE SUM OF RS. 20,43,899/- IN THE FACTS AND CIRCUMSTANC ES OF THE CASE. 3. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESS EE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF EDIBLE OIL AND ALSO DERIVED INCOME FROM INTEREST, 2 ITA NO.2168/KOL/2014 VINAYAK OIL & FATS PRIVATE LIMITED A.YR.2011-12 2 PACKING AND PROCESSING CHARGES. DURING THE COURSE O F ASSESSMENT PROCEEDINGS THE LD. AO OBSERVED THAT THE ASSESSEE HAD INCURRED A SUM OF RS. 20,43,899/- TOWARDS FOREIGN TRAVEL EXPENSES. THE ASSESSEE WAS ASKED TO EXPLAIN THE SAME BY PROVING THE BUSINESS NEXUS WITH SUPPORTING DOCUMENTS. IN RESPONSE TO THE ASSESSEE VIDE ITS LETTER DATED 22.07.2013 REPLIED AS UNDER: . WE REFER TO YOUR QUERY REGARDING TRAVELLING EXPENSE S INCURRED BY THE COMPANY ON TOUR OF MR. RAVINRA KUMAR DARUKA WITH F AMILY, MR. MANISH KUMAR BANKA WITH FAMILY, MR. MUKESH KUMAR AGARWAL AND FAM ILY AND MR. RAJESH AGARWAL WITH FAMILY TO SINGAPORE. THE FOUR PERSONS ARE RENO WNED PERSONS HAVING RICH KNOWLEDGE IN OIL BUSINESS, WHICH THE ASSESSEE COMPA NY IS ALSO CARRYING ON. MOST OF THESE PERSONS ARE RENOWNED OIL BROKERS. WE HAD AGRE ED TO SEND THESE PERSONS WITH THEIR FAMILY MEMBERS TO SINGAPORE FOR THEIR ACTIVE INVOLVEMENT IN IMPROVEMENT OF SALES AND ALSO FOR EXPLORING KNOWLEDGE OF CRUDE OIL PURCH ASES AT REASONABLE PRICES. WE DID NOT PAY ANY BROKERAGE IN RUPEE TERMS TO THEM BUT IN CURRED ALL TRAVELLING EXPENSES OF THE BROKERS WITH THEIR FAMILY MEMBERS FOR TOUR TO S INGAPORE. WE SUBMIT HEREIN BELOW THE FOLLOWING FIGURES IN RES PECT OF SALES AND BROKERAGE PAYMENTS ON SALES IN THE THREE FINANCIAL YEARS. FINANCIAL Y EAR TOTAL SALES (RS.) BROKERAGE PAID (RS.) % OF SALES 2008 - 09 1,34,35,45,789 11,08,323 0.08 2009 - 10 1,67,36,87,457 1,69,721 0.01 2010 - 11 2,41,91,22,354 22,06,004 0.09 ON COMPARATIVE STUDY OF THE AFORESAID FIGURES IT W OULD BE FOUND THAT THE SALES OF THE PREVIOUS YEAR ENDING 31 ST MARCH, 2010 AND 31 ST MARCH, 2011 INCREASED SUBSTANTIALLY DUE TO PERSONAL ENDEAVOUR OF THESE FOUR PERSONS. WHEREAS B ROKERAGE EXPENDITURE REDUCED SUBSTANTIALLY IN AS MUCH AS WE HAD ASKED THESE FOUR PERSONS TO IMPROVE THE SALE AND THE COMPANY WOULD ALLOW THESE FOUR PERSONS WITH THEIR F AMILY MEMBERS FOR A FOREIGN TOUR TO SINGAPORE ETC. AT COMPANYS COST. IN THESE CIRCUMST ANCES WE SUBMIT THAT THE WHOLE OF THE TRAVELLING EXPENSES WAS INCURRED IN RELATION TO BUS INESS OF THE COMPANY. WE MAY MENTION HERE THAT THE COMPANY WAS ABLE TO IMPORT SOYABEAN OIL FR OM SINGAPORE, A BETTER QUALITY OF OIL AS COMPARED CPO AT LOWER COST FROM M/S LOUIS GREYFUS C OMMODITIES PVT. LTD. OF SINGAPORE ON THE BASIS OF THEIR MARKET SURVEY DURING THEIR TRIP TO SINGAPORE BY THESE PARTIES. THIS RESULTED IN BETTER REALIZATIONS ON THE SOYABEAN OIL IMPORTED BY THE COMPANY IN THE FINANCIAL YEAR 2010- 11. WE SUBMIT THAT ALL THESE FACTS AND FIGURES ARE DIS CERNIBLE FROM THE FINANCIAL ACCOUNTS OF THE COMPANY FOR THE AFORESAID THREE YEARS. IN CASE ANY OTHER DETAILS AND/OR EXPLANATION IS REQUIRED WE SHALL SUBMIT THE SAME ON HEARING FROM Y OU. 3 ITA NO.2168/KOL/2014 VINAYAK OIL & FATS PRIVATE LIMITED A.YR.2011-12 3 IN THE CIRCUMSTANCES MENTIONED ABOVE WE SUBMIT THA T THE EXPENDITURE INCURRED ON FOREIGN TOUR OF THE FOUR MEMBERS AND THEIR FAMILY W AS IN THE BUSINESS INTEREST AND THEREFORE WHOLE OF SUCH EXPENSES ARE ALLOWABLE AS BUSINESS EX PENDITURE. THE LD. AO OBSERVED THAT THE ASSESSEE HAD NOT SUBMI TTED ANY DOCUMENTS TO PROVE AS TO HOW THE AFORESAID ALLEGED BROKERS WERE LINKED TO TH E BUSINESS OF THE ASSESSEE. THE LD. AO ALSO OBSERVED THAT THE SERVICES RENDERED BY THES E ALLEGED BROKERS TO THE ASSESSEE COULD NOT BE PROVED WITH SUPPORTING DOCUMENTS BY T HE ASSESSEE. ACCORDINGLY, HE PROCEEDED TO DISALLOW THE SUM OF RS. 20,43,899/- TO WARDS FOREIGN TRAVEL EXPENSES AS EXPENDITURE NOT LINKED WITH THE BUSINESS OF THE ASS ESSEE. IN APPEAL, THE ASSESSEE STATED THAT THE FINANCIALS OF THE ASSESSEE ITSELF STAND AS AN EVIDENCE TO PROVE THAT PURSUANT TO THE SERVICES RENDERED BY THESE BROKERS TO THE ASSESSEE, THE TURN OVER OF THE ASSESSEE HAD IMPROVED FROM RS. 167 CRORES TO RS. 242 CRORES. IT WAS ALSO POINTED OUT THAT BECAUSE OF THESE BROKERS THE COMPANY WAS ABLE TO IMPORT SOYABE AN OIL FROM SINGAPUR WHICH IS A BETTER QUALITY OF OIL AT LOWER COST FROM M/S LOUIS GREYFUS COMMODITIES PVT. LTD. OF SINGAPORE ON THE BASIS OF MARKET SURVEY CONDUCTED B Y THESE BROKERS FOR AND ON BEHALF OF THE ASSESSEE. IT WAS ALSO POINTED OUT THAT THE ASSE SSEE HAD NOT PAID ANY BROKERAGE TO THESE PARTIES DURING THE YEAR UNDER APPEAL EVEN THO UGH THE BROKERAGE HAD INCREASED FORM RS. 1.70 LAKHS TO 22 LAKHS. IT WAS FURTHER POI NTED OUT THAT THESE BROKERS ARE NOT RELATIVES OF EITHER THE SHAREHOLDERS OR DIRECTORS O F THE ASSESSEE COMPANY AND HENCE, THERE IS NO SCOPE FOR THE LD. AO TO TREAT THE SAME AS EXC ESSIVE AND UNREASONABLE IN TERMS OF SECTION 40A(2) OF THE ACT. THE LD. CIT(A) DID NOT H EED TO THESE CONTENTIONS OF THE ASSESSEE AND UPHELD THE FINDINGS OF THE LD. AO THAT THE SERVICES RENDERED BY THESE ALLEGED BROKERS TO THE ASSESSEE WERE NOT PROVED BY THE ASSESSEE WITH SUPPORTING DOCUMENTS SO AS TO ESTABLISH THE BUSINESS NEXUS OF INCURRENCE OF FOREIGN TOUR EXPENSES OF THESE BROKERS. AGGRIEVED THE ASSESSEE IS IN APPE AL BEFORE US ON THE FOLLOWING GROUNDS: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE DISALL OWANCE OF FOREIGN TRAVEL EXPENSES OF RS. 20,43,899/- INCURRED BY THE ASSESSE E COMPANY ON THE ALLEGED 4 ITA NO.2168/KOL/2014 VINAYAK OIL & FATS PRIVATE LIMITED A.YR.2011-12 4 GROUND THAT THE SAID EXPENDITURE WAS NOT INCURRED F OR THE PURPOSE OF THE BUSINESS. 2. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER VAR Y AND/OR WITHDRAW THE ABOVE GROUNDS OF APPEAL. 4. THE LD. AR REITERATED THE SUBMISSIONS MADE BEFOR E THE LOWER AUTHORITIES AND FURTHER STATED THAT THE TURNOVER OF THE COMPANY HAD SUBSTAN TIALLY INCREASED DURING THE YEAR. THE ASSESSEE HAD NOT PAID ANY BROKERAGE TO THESE BROKER S DURING THE YEAR UNDER APPEAL AND THIS INCURRENCE OF FOREIGN TOUR EXPENSES OF THESE B ROKERS IS NOTHING BUT THE BROKERAGE PAID BY THE ASSESSEE IN KIND, WHICH IS ALSO INCRE ASED WITH THE TERMS AND CONDITIONS AGREED UPON WITH THOSE BROKERS FOR IMPROVEMENTS IN SALES. HE ARGUED THAT THE REVENUE CANNOT SIT IN THE ARMCHAIR OF THE BUSINESSMAN TO FI ND OUT THE BUSINESS EXPEDIENCY OF INCURRENCE OF AN EXPENDITURE BY THE ASSESSEE. IN RE SPONSE TO THIS, THE LD. DR VEHEMENTLY RELIED ON THE ORDERS OF THE LOWER AUTHOR ITIES. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND AT THE OUTSET, THAT THE ASSESSEE HAD ORGANIZED FOREIGN TOUR FOR FOUR OIL BROKERS TOGETHE R WITH THEIR FAMILY FOR THEIR VISIT TO SINGAPORE AND HAD BORNE THE ENTIRE EXPENDITURE THER EON TO THE TUNE OF RS. 20,43,899/-. THE SHORT POINT THAT ARISES FOR OUR CONSIDERATION I S TO ESTABLISH THE BUSINESS NEXUS OF INCURRENCE OF THIS EXPENDITURE WITH THE ASSESSEE. T HE LD. AR BEFORE US WAS ONLY BROADLY ABLE TO ADDRESS THE ISSUE BY STATING THAT THE TURNO VER HAD INCREASED DURING THE YEAR AND IT WAS ALSO ABLE TO BETTER QUALITY OF OIL AT LOWER COS T FROM A NEW PARTY IN SINGAPORE WHICH HAD ALSO RESULTED IN THE INCREASED PROFITABILITY OF THEIR PRODUCT. BUT WE FIND THAT THE CLINCHING EVIDENCE IN THIS REGARD WOULD BE A CONFIR MATION FROM THESE BROKERS AND ALSO AN AFFIDAVIT FROM THESE BROKERS THAT THEY HAD INDEE D RENDERED RELEVANT SERVICES TO THE ASSESSEE FOR WHICH THEY WERE REMUNERATED IN THE FOR M OF FREE FOREIGN TRIP TO SINGAPORE AT THE COST OF ASSESSEE. THIS EVIDENCE IS SUMMARILY ABSENT IN THE INSTANT CASE WITHOUT PROVING THE RENDERING OF SERVICES BY THESE ALLEGED OIL BROKERS TO THE ASSESSEE, WE ARE AFRAID THAT WE COULD GRANT DEDUCTION TOWARDS FOREIG N TRAVEL EXPENSES AS AN EXPENDITURE 5 ITA NO.2168/KOL/2014 VINAYAK OIL & FATS PRIVATE LIMITED A.YR.2011-12 5 WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. WE HOLD THAT THE ASSESSEE HAD NOT ESTABLISHED THE BUSINESS NEXUS OF INCURRENCE OF THIS FOREIGN TRAVEL EXPENDITURE. ACCORDINGLY, WE DO NOT DEEM IT FIT TO INTERFERE IN THE ORDER OF THE LD. CIT(A) IN THIS REGARD. ACCORDINGLY, GROUNDS RAISED BY THE ASSESSEE IN THIS REGARD ARE DISMISSED. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DIS MISSED. ORDER PRONOUNCED IN THE COURT ON 17.10.2017 SD/- SD/- [N.V. VASUDEVAN] [ M.BALAGANESH ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 17.10.2017 SB, SR. PS COPY OF THE ORDER FORWARDED TO: 1. VINAYAK OIL & FATS PRIVATE LIMITED, 39, KALI KRI SHNA TAGORE STREET, KOLKATA-700007 2. ITO, WARD-9(2), KOLKATA, P-7, CHOWRINGHEE SQUARE , KOLKATA-700069 3..C.I.T.(A), CC-II, 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