Adani Energy Ltd, Ahmedabad V. The Add.CIT.,Circle-1, Ahmedabad

ITA 2178/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 89257 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-04-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 27-03-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 01-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MK SINGH
• Assessee Lawyers: UKTI
• Keywords: Initiation of penalty proceedings; Corroborative evidences; Commercial expediency; Capital expenditure
• Section: 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD .., , BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER ./ I.T.A. NO.2178/AHD/2011 ( / ASSESSMENT YEAR : 2008-09) ADANI ENERGY LTD. (FORMERLY KNOWN AS GUJARAT ADANI ENERGY LTD.) ADANI HOUSE NR.MITHAKHALI SIX ROAD NAVRANGPURA, AHMEDABAD / VS. THE ADDL.CIT RANGE-1 AHMEDABAD ./ ./ PAN/GIR NO. : AABCG 5533 E ( # / APPELLANT ) .. ( $% # / RESPONDENT ) #& / APPELLANT BY : MS.UKTI, AR $% #'& / RESPONDENT BY : SHRI M.K.SINGH, SR.DR ()'* / DATE OF HEARING 27/03/2015 +,-.'* / DATE OF PRONOUNCEMENT 10/04/2015 / O R D E R PER SHRI KUL BHARAT, JUDICIAL MEMBER : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE LD.COMMISSIONER OF INCOME TAX(APPEALS)-VI, AHMEDABA D (CIT(A) IN SHORT) DATED 19/07/2011 PERTAINING TO ASSESSMENT Y EAR (AY) 2008-09. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF AP PEAL:- ITA NO.2178/AHD /2011 ADANI ENERGY LTD. VS. ADDL.CIT ASST.YEAR 2008-09 - 2 - 1. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN TREATING GR OUND NO. 1 OF THE APPELLANT'S APPEAL CHALLENGING THE VALIDITY OF THE ASSESSMENT ORDER IMPUGNED BEFORE HIM AS BEING GENERAL IN NATURE AND THEREFORE, NOT REQUIRED TO BE ADJUDICATED UPON. HE OUGHT TO HAVE A PPRECIATED, INTER ALIA, THAT THE ASSESSMENT ORDER IMPUGNED BEFORE HIM HAD B EEN PASSED WITHOUT APPLICATION OF MIND AND THEREFORE, DESERVED TO BE CANCELLED. 2. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN UPHOLDING D ISALLOWANCE OF DEDUCTION FOR TRAVELLING EXPENSES OF RS.9,90,879. H E OUGHT TO HAVE APPRECIATED, INTER ALIA, THAT VIDE ITS WRITTEN SUBMISSIONS BEFORE HIM WHICH HAD EVEN BEEN REPRODUCED IN THE IMPUGNED APPELLATE ORDER, TH E APPELLANT HAD CLEARLY SHOWN THAT THE EXPENDITURE HA D BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE APPE LLANT'S BUSINESS AND BEING NEITHER CAPITAL EXPENDITURE NOR PERSONAL EXPE NDITURE, IT HAD GOT TO BE ALLOWED U/S. 37 OF THE INCOME-TAX ACT, 1961, AND THAT, IN ANY CASE, IT WAS NOT OPEN TO HIM TO UPHOLD THE DISALLOWANCE WITH OUT DEALING WITH THE APPELLANT'S SUBMISSIONS. 3. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN NOT ORDERIN G CANCELLATION OF THE LEVY OF INTEREST U/S. 234C PRAYED FOR BY THE APPELL ANT VIDE GROUND NO. 5 OF ITS APPEAL. HE OUGHT TO HAVE APPRECIATED, INTER ALIA, THAT IN THE PECULIAR FACTS OF THE APPELLANT'S CASE, THE RATIO O F THE DECISION OF THE GUJARAT HIGH COURT IN BHARAT MACHINERY AND HARDWARE MART'S CASE (136 ITR 875) AND OF THE DECISION OF THE ITAT, DELH I BENCH IN HARYANA WAREHOUSING CORPORATION V. DCIT [252 ITR (A.T.) 34] SQUARELY APPLIED AND THE LEVY DESERVED TO BE CANCELLED. 4. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN REJECTING G ROUND NO. 6 OF THE APPELLANT'S APPEAL CHALLENGING INITIATION OF PENALT Y PROCEEDINGS U/S. 271(1)(C) ON THE GROUND THAT IT WAS PREMATURE IN NA TURE. HE OUGHT TO HAVE APPRECIATED, INTER ALIA, THAT IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, INITIATION OF PENALTY PROCEEDINGS FOR CONCEALMENT OF ITA NO.2178/AHD /2011 ADANI ENERGY LTD. VS. ADDL.CIT ASST.YEAR 2008-09 - 3 - INCOME WAS NOT AT ALL WARRANTED AND THAT, THEREFORE , HE OUGHT TO HAVE ORDERED FOR THE CANCELLATION OF THOSE PROCEEDINGS, THEREBY SAVING THE APPELLANT AS WELL AS THE DEPARTMENT FROM HAVING TO UNDERGO AVOIDABLE LITIGATION. 5. THE APPELLANT CRAVES LEAVE TO ADD, AMEND AND/OR ALTER THE GROUND OR GROUNDS OF APPEAL EITHER BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 2. BRIEFLY STATED FACTS ARE THAT THE CASE OF THE A SSESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S.143( 3) OF THE INCOME TAX ACT,1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS FRAMED VIDE ORDER DATED 20/12/2010, THEREBY THE ASSESSING OFFICER (AO IN SHORT) MADE DISALLOWANCE OF TRAVELLING EXPENSES OF RS.9,90,879/ - ON THE BASIS THAT THE ASSESSEE COULD NOT SUBSTANTIATE WITH EVIDENCE THE B USINESS NEXUS FOR CLAIMING THE TRAVELLING EXPENDITURE. AGAINST THIS, THE ASSESSEE FILED AN APPEAL BEFORE THE LD.CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS REJECTED THE GROUND AGAINST THE DISALLOWANCE OF TRA VELLING EXPENSES. AGGRIEVED BY THE ORDER OF THE LD.CIT(A), THE ASSESS EE IS NOW IN APPEAL BEFORE US. 3. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT B OTH THE AUTHORITIES BELOW HAVE FAILED TO TAKE NOTE OF THE FACT THAT THE ASSESSEE HAS DEMONSTRATED THE BUSINESS NEXUS IN RESPECT OF THE EXPENDITURE INCURRED. THE LD.COUNSEL FOR THE ASSESSEE DREW OUT ATTENTION TOWARDS THE STATEMENT OF FACTS SUBMITTED BEFORE THE LD.CIT(A), WHEREIN IT IS SUBMITTED THAT THE ITA NO.2178/AHD /2011 ADANI ENERGY LTD. VS. ADDL.CIT ASST.YEAR 2008-09 - 4 - NATURE OF BUSINESS OF THE COMPANY REQUIRES APPELLAN TS OFFICIAL TO TRAVEL AND MEET VARIOUS PEOPLE AROUND THE COUNTRY AND GLOB E FOR ENTERING INTO PROSPECTIVE TRADING BUSINESS. IT WAS FURTHER SUBMI TTED THAT THE TRADING IN LNG IS VERY NICHE ASPECT; AS SUCH THERE ARE NO DIRE CT CONSUMERS FOR THE LNG. IN ORDER TO CAP SUCH DEMAND THE APPELLANT HAS TO KEEP TRACK OF MARKET DEMAND NATIONALLY AND INTERNATIONALLY. THE EXECUTIVES OF ASSESSEE-COMPANY TRAVELLED FROM ONE PLACE TO ANOTHE R FOR THE PURPOSE OF THE BUSINESS. IT WAS POINTED OUT THAT SUCH EXPENSE S HAD DIRECT NEXUS WITH BUSINESS OF THE ASSESSEE-COMPANY. 3.1. ON THE OTHER HAND, LD.SR.DR SUPPORTED THE ORDE RS OF THE AUTHORITIES BELOW AND SUBMITTED THAT IT WAS INCUMBENT UPON THE ASSESSEE-COMPANY TO DEMONSTRATE THE EXPENDITURE HAD BEEN INCURRED FOR T HE BUSINESS PURPOSES. IN THE ABSENCE OF ANY SUPPORTING EVIDENCE, THE AUTH ORITIES BELOW WERE JUSTIFIED IN MAKING THE DISALLOWANCE. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE LD.CIT(A) HAS DECIDED THE ISSUE IN PARA-3.3 OF HIS ORDER BY OBSERVING AS UNDER:- 3.3. I HAVE CONSIDERED THE FACTS OF THE CASE; ASSE SSMENT ORDER AND APPELLANTS SUBMISSION. APPELLANT CLAIMED TRAV ELLING EXPENSES FOR WHICH IT WAS NOT ABLE TO GIVE DETAILS OF BUSINE SS PURPOSE AND ITA NO.2178/AHD /2011 ADANI ENERGY LTD. VS. ADDL.CIT ASST.YEAR 2008-09 - 5 - ACCORDINGLY ASSESSING OFFICER DISALLOWED THE SAME. APPELLANT ARGUED THAT IT WAS BUSINESS EXPENSE AND SPENT FOR T HE PURPOSE OF BUSINESS HOWEVER NO SPECIFIC DETAILS OF PURPOSE OF THESE TRAVELLING EXPENSES AND THEIR BUSINESS NEXUS WERE SUBMITTED. CONSIDERING THE FACT THAT APPELLANT DID NOT DISCHARGE ITS ONUS OF ESTABLISHING THE CLAIM OF EXPENSE FOR THE PURPOSE OF BUSINESS, T HE SAME IS NOT ALLOWABLE. ACCORDINGLY THE DISALLOWANCE MADE BY TH E ASSESSING OFFICER IS CONFIRMED. 4.1. HOWEVER, WE FIND THAT BEFORE THE LD.CIT(A), TH E ASSESSEE HAD MADE AN ELABORATE SUBMISSION BY WAY OF STATEMENT OF FACT S WHICH IS REPRODUCED HEREUNDER:- 1. DISALLOWANCE OF TRAVELLING EXPENSES OF RS. 9, 90,879/- THE APPELLANT IS IN BUSINESS OF BULK TRADING OF LIQ UIFIED NATURAL GAS ('LNG'). THE COMPANY HAS BEEN IN THIS BUSINESS SINC E ITS INCEPTION. IT HAS ENTERED INTO VARIOUS CONTRACTS UNDER EARLIER YE ARS AND SUBSEQUENT YEARS WITH REGARDS TO THE YEAR UNDER CONSIDERATION. THE NATURE OF BUSINESS OF THE COMPANY REQUIRES APPELLANTS' OFFICI AL TO TRAVEL AND MEET VARIOUS PEOPLE AROUND THE COUNTRY AND GLOBE FOR ENT ERING INTO PROSPECTIVE TRADING BUSINESS. APPELLANT SUBMITS THA T TRADING IN LNG IS VERY NICHE ASPECT; AS SUCH THERE ARE NO DIRECT CONS UMERS FOR THE LNG. FURTHER THERE IS A HUGE DEMAND OF ENERGY AND POWER SOURCES ON ACCOUNT OF SCARCITY OF SOURCES OF ENERGY AND FUELS. TO CAP SUCH DEMAND THE APPELLANT HAS TO KEEP TRACK OF MARKET DEMAND NA TIONALLY AND INTERNATIONALLY. CONSIDERING SUCH AN INTENSIVE MARK ETING SCENARIO THE TRAVELLING EXPENSES OF THE APPELLANT IS JUSTIFIED. THE EXECUTIVES OF APPELLANT VISIT AND MEET SEVERAL PROSPECTIVE BUYERS AND TRADERS FOR THE PURPOSE OF PROCURING ANY SUBSTA NTIAL ORDER. HENCE SUCH EXPENSES HAVE DIRECT NEXUS WITH BUSINESS OF TH E APPELLANT. AS FAR AS THE CONTENTION OF THE LD. AO REGARDING TH E ABSENCE OF ANY COMMERCIAL EXPEDIENCY IS CONCERNED, THE APPELLANT W OULD LIKE TO STATE ITA NO.2178/AHD /2011 ADANI ENERGY LTD. VS. ADDL.CIT ASST.YEAR 2008-09 - 6 - THAT THE REASONS FORMING BASIS OF SUCH REJECTION AR E VAGUE AND WITHOUT ANY EVIDENCES SURFACED DURING THE COURSE OF ASSESSM ENT PROCEEDINGS. THE TRAVELLING EXPENSES ARE ALLOWABLE UNDER SECTION 37 OF THE ACT AS THEY ARE NOT EXPRESSLY ALLOWED UNDER SECTION 30 TO 36 OF THE ACT, NEITHER THEY ARE IN THE NATURE OF CAPITAL TRANSACTIONS NOR THEY ARE PERSONAL IN NATURE FURTHER THEY ARE RELATED TO BUSINESS CARRIED ON BY THE ASSESSEE AND ARE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PUR POSE OF BUSINESS. HENCE ALL THE CRITERIA LAID DOWN IN UNDER SECTION 3 7 OF THE ACT ARE MET AND ACCORDINGLY THEY MAY BE ALLOWED. FURTHER THE DEPARTMENT CANNOT CONSIDER THE EXPEDIEN CY FACTOR, BUT MUST CONFINE ITS EXAMINATION TO THE REALITY EXPECT. THE SAME UNDERSTANDING WAS ELUCIDATED BY MADRAS HIGH COURT IN THE LAND MAR K JUDGMENT OF GOBALD MOTOR SERVICE (P.) LTD. 100 ITR 240. IT WAS HELD THAT THE EXPEDIENCY OF THE EXPENDITURE IS NOT FOR THE REVENU E TO CONSIDER. THAT IS A MATTER ENTIRELY LEFT TO THE JUDGMENT OF THE AS SESSEE CONCERNED. THE JURISDICTION OF THE REVENUE IS UNDER SECTION 37 OF THE ACT IS, HOWEVER CONFINED TO DECIDING THE REALITY OF THE EXPENDITURE , NAMELY WHETHER THE AMOUNT CLAIMED AS DEDUCTION WAS FACTUALLY EXPENDED OR LAID OUT AND WHETHER IT WAS WHOLLY AND EXCLUSIVELY FOR THE PURPO SE OF THE BUSINESS. THE APEX COURT IN VARIOUS MILESTONE DECISIONS OF CI T V. MALAYALAM PLANTATIONS LTD. [1964] 53 ITR 140 (SC), MADHAV PRA SAD JATIA V. CIT [1979] 118 ITR 200 (SC), CIT V. BIRLA COTTON SPG. & _WVG.MILLS LTD. [1971] 82 ITR 166(S.C) HELD THAT THE EXPRESSION FO R THE PURPOSE OF BUSINESS IS WIDER IN SCOPE THAN THE EXPRESSION 'F OR THE PURPOSE OF EARNING PROFIT'. ITS RANGE IS WIDE; IT MAY TAKE IN NOT ONLY DAY-TO-DAY RUNNING OF A BUSINESS BUT ALSO THE RELATIONSHIP OF ITS ADMINISTRATION AND MODERNIZATION OF MACHINERY, IT MAY INCLUDE MEASURE FOR THE PRESERVATION OF THE BUSINESS AND FOR PROTECTION OF ITS ASSETS AND PROPERTY FROM EXPROPRIATION OR A COERCIVE PROCESS AND MANY O THER ACTS INCIDENTAL TO CARRYING ON A BUSINESS. FURTHER THE ASSESSING OFFICER HAS NOT MADE ANY EXPR ESS REFERENCE UNDER WHICH PROVISION OF THE INCOME-TAX ACT, 1961 ('THE A CT') THE TRAVELLING EXPENSES HAVE BEEN DISALLOWED. ITA NO.2178/AHD /2011 ADANI ENERGY LTD. VS. ADDL.CIT ASST.YEAR 2008-09 - 7 - IN LIGHT OF THE ABOVE FACTS, JUDICIAL PRECEDENTS TH E APPELLANT PRAYS YOUR GOOD OFFICE TO DIRECT THE LD.AO TO DELETE THE ADDIT ION MADE BY DISALLOWING TRANSPORTATION EXPENSES OF RS. 9,90,87 9/-. 4.2. WE ALSO FIND THAT THE LD.CIT(A) HAS NOT ADVERT ED TO THE SUBMISSIONS OF THE ASSESSEE. THE ASSESSEE HAD SPEC IFICALLY SUBMITTED THAT THE EXPENDITURE HAVE BEEN INCURRED ON TRAVELLING OF THE EXECUTIVES FOR THE BUSINESS PURPOSE OF THE ASSESSEE-COMPANY. THERE IS NO DISPUTE WITH REGARD TO PROPOSITION THAT DEDUCTION OF EXPENDITURE IS ALLOWABLE IF SAME IS INCURRED FOR THE BUSINESS PURPOSE. THE ASSESSEE IS REQUIRED TO DEMONSTRATE THE BUSINESS PURPOSE. IN THE PRESENT C ASE, AS PER ASSESSEE, THE TRAVELLING EXPENDITURE WAS INCURRED ON TRAVELLI NG OF THE EXECUTIVES OF THE COMPANY TO STUDY MARKET CONDITION AND TO CONTAC T PROSPECTIVE CONSUMERS FOR THE PURPOSE OF TRADING IN LNG. IT IS NOT DISPUTED THAT SUCH EXPENDITURE IS ALLOWABLE, HOWEVER, THE EXPENDITURE DISALLOWED ON THE BASIS THAT THE ASSESSEE FAILED TO ESTABLISH BUSINES S NEXUS. THE ASSESSEE HAD ALSO RELIED ON THE JUDGEMENTS OF HONBLE APEX C OURT RENDERED IN THE CASE OF CIT VS. MALAYALAM PLANATIONS LTD. REPORTED AT (1964) 53 ITR 140(SC) AND OF MADHAV PRASAD JATIA VS. CIT REPORTED AT (1979) 118 ITR 200(SC) IN SUPPORT OF THE CONTENTION THAT FOR THE PURPOSE OF BUSINESS IS WIDER IN SCOPE THAN FOR THE PURPOSE OF EARNING PRO FIT. IN VIEW OF THE RATIO LAID DOWN BY THE HONBLE APEX COURT THE CASES OF CIT VS. MALAYALAM PLANATIONS LTD.(SUPRA) AND MADHAV PRASD J ATIA VS. CIT (SUPRA), WE ARE OF THE CONSIDERED VIEW THAT THE LD. CIT((A) WAS NOT ITA NO.2178/AHD /2011 ADANI ENERGY LTD. VS. ADDL.CIT ASST.YEAR 2008-09 - 8 - JUSTIFIED IN REJECTING THE GROUND ON THE BASIS THAT THERE IS NEXUS BETWEEN THE EXPENDITURE INCURRED AND THE BUSINESS OF THE AS SESSEE-COMPANY. THEREFORE, WE HEREBY SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE AO TO DELETE THE ADDITION. THUS, GROUNDS RAISED IN THE ASSESSEES APPEAL ARE ALLOWED. 5. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE COURT ON FRIDAY, THE 10 TH DAY OF APRIL, 2015 AT AHMEDABAD. SD/- SD/- ( .. ) ( ) ( N.S. SAINI ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 10/ 04 /2015 2*..,(.../ T.C. NAIR, SR. PS !'#$%&' &$ / COPY OF THE ORDER FORWARDED TO : 1. # / THE APPELLANT 2. $% # / THE RESPONDENT. 3. 345 6 / CONCERNED CIT 4. 6 ( ) / THE CIT(A)-VI, AHMEDABAD 5. 7(8 $45 , *45. , 3 / DR, ITAT, AHMEDABAD 6. 8:;<) / GUARD FILE. ! / BY ORDER, %7$ //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD