Ideal Sheet Metal Stamping & Pressing Pvt.Ltd., Ahmedabad V. The ACIT.,Circld-4, Ahmedabad

ITA 2215/AHD/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 9555 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-02-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 18-11-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 02-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DINESH SINGH
• Keywords: Business expenditure; Fair market value; Capital expenditure
• Section: 143(3); 37(1)

Judgement Text

I.T.A. NO S.2215 & 2297/AHD/2011 ASSESSMEN T YEAR: 20 06 - 07 PAGE 1 OF 9 IN THE INCOME TAX APPELLATE TRIBUNAL, AHMEDABAD A BENCH, AHMEDABAD [CORAM : PRAMOD KUMAR AM AND KUL BHARAT JM] I.T.A. NO. 2215 /AHD/ 2011 ASSESSMENT YEAR : 20 06 - 07 IDEAL SHEET METAL STAMPING & PRESSING PVT. LTD. .APPELLANT KALIDAS MILL COMPOUND, GO MTIPUR, AHMEDABAD. [ PAN: AA ACI 3670 D ] VS. A SSISTANT COMMISSIONER OF INCOME TAX CIRCLE - 4, AHMEDABAD. . RESPONDENT I.T.A. NO. 2297/AHD/2011 ASSESSMENT YEAR : 2006 - 07 ASSISTANT COMMISSIONER OF INCOME TAX .APPELLANT CIRCLE - 4, AHMEDABAD. VS. IDEAL SHEET METAL STAMPING & PRESSING PVT. LTD. . RESPONDENT KALIDAS MILL COMPOUND, GOMTIPUR, AHMEDABAD. [PAN: AAACI 3670 D] APPEARANCES BY: SANJAY R. SHAH , FOR THE A SSESSEE DINESH SINGH, F OR THE RE VENUE DATE OF CONCLUDI NG THE HEARING : NOVEMBER 18 , 201 5 DATE OF PRONOUNCING THE ORDER : FEBRUARY 17 , 201 6 O R D E R PER PRAMOD KUMAR AM : 1. TH ESE C ROSS A PPEAL S CALL INTO QUESTION CORRECTNESS OF THE L EARNED CIT ( A ) S ORDER DA T ED 05.07.2011 IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 ( THE ACT HEREINAFTER) FOR THE A SSESSMENT YEAR 2006 - 07. I.T.A. NO S.2215 & 2297/AHD/2011 ASSESSMEN T YEAR: 20 06 - 07 PAGE 2 OF 9 2. GRIEVANCES RAISED BY THE PARTIES BEFORE US, WHICH ARE INTERCONNECTED AND WHICH WILL BE TAKEN UP TOGETHER, ARE AS FOLLOWS: - ITA NO. 2 215/AHD/2011 (BY THE ASSESSEE) 1.(I) THE LEARNED COMMISSIONER OF INCOME - T AX (APPEALS) GROSSLY ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE OF RS.8,05,484/ - BEING 50% OF RS.16,56,367/ - BEING THE AMOUNT OF FOREIGN TRAVELLING EXPENSES. IT IS SUBMITT ED THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE HON BLE CIT(A) IS NOT JUSTIFIED IN CONFIRMING THE 50% DISALLOWANCE OF THE S AME. YOUR APPELLANT SUBMITS THAT AS THE EXPENDITURE HAS BEEN INCU RR ED FOR THE PURPOSE OF BUSINESS, THE SAME SHOULD BE ALLOWE D A S DEDUCTION. YOUR APPELLANT SUBMITS THAT IT BE SO ALLOWED NOW. (II) THE LEARNED CIT(A) H A S ERRED IN CONFIRMING AD - HOC DISALLOWANCE OF 50% ON ASSUMPTION A ND PRESUMPTION WITHOUT ANY BASIS. IT B SO HELD NOW. ITA NO. 22 97 /AHD/2011 (BY THE REVENUE ) 1 . T HE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF R S.16,56,367/ - MADE ON ACCOUNT OF FOREIGN TRAVELLING EXPENSES WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE FAILED TO PROVE THAT THE EXPENDITURE WAS INCURRED FOR THE BUSINESS PURPOSE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 3. BRIEFLY STATED , THE RELEVANT MATERIAL FACTS ARE LIKE THIS. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS THE A SSESSING OFFICER NOTED THAT CERTAIN FAMILY MEMBERS OF D IRECTOR AND EX - D IRECTORS HAVE TRAVELLED TO US AND THE EXPENS E S ON THESE TRAVELLING HAVE BEEN CLAIMED AS DEDUCTION ON ACCOUNT OF TRAVELLING EXPENSES . IT WAS EXPLAINED BY THE ASSESSEE THAT THE FOR EIGN VISIT S OF THE D IRECTORS WERE TO NEGOTIATE BUSINESS DEAL AND IN SUPPORT OF THIS CONTENTION THE ASSESSEE, INTER ALIA , PRODUCED INVOICE ISSUED BY MAINE P LASTIC S INC A ND MALIN ASSOCIATES . THE A SSESSING OFFICER WAS OF THE VIEW THAT THESE EXPENSES ARE IN T HE NATURE OF PERSONAL EXPENSES AND AS THE ASSESSEE HIMSELF ACCEPTS ONE OF THE REASONS FOR FALL IN GP WHICH IMPLIES THAT THE ASSESSEE COMPANY IS NOT BENEFITED IN ANY WAY BY THESE EXPENSES. ACCORDINGLY , THE A SSESSING OFFICER P ROCEEDED TO DISALLOW THE T RAV ELLING EXPENSES OF RS . 16 , 10 , 967/ - . AGGRIEVED BY THE STAND SO I.T.A. NO S.2215 & 2297/AHD/2011 ASSESSMEN T YEAR: 20 06 - 07 PAGE 3 OF 9 TAKEN BY THE ASSESSING OFFICER , THE ASSESSEE CARRIED THE MATTER IN APPEAL BE F ORE TH E LD . CIT(A). 4. DURING THE APPELLATE PROCEEDINGS , IT WAS SUBMITTED BY THE ASSESSEE THAT THE A SSESSING OFFICE R FAILED TO APPRECIATE THAT THE PERSONS WHO VISITED US WERE DIRECTORS OF THE C OMPANY AND NOT ONLY FAMILY MEMBERS OF THE D IRECTORS . I T WAS ALSO SUBMITTED THAT THE TRAVELLING WAS FOR THE PURPOSE OF NEGOTIATION S AND DISCUSSIONS WITH THE V ENDORS . THE ASSESSE E FURTHER EXPLAINED T HAT THE D IRECTORS STAY AT US WAS ALSO TO EXPLORE POSSIBILITIES OF ALTERNATE SOURCE O F MATERIAL AND THE BENEFIT OF TRAVELLING TO U.S. BY THEM WAS NOT ONLY IN THE CURRENT YEAR BUT ALSO IN THE SUBSEQUENT YEAR. IT WAS ALSO CONTENDED THAT THE ASSE SS ING OFFICER HAS DISALLOWED ENTIRE EXPENSES UNDER SECTION 40 A( 2 )(A) REA D WITH SE CTION 4 0A(2)(B) , BUT THEN THIS SECTION DID NOT COME INTO PLAY FOR THE REASON THAT NO PAYMENTS WERE MADE TO THE SPECIFIED PERSONS. THUS, THE LD . C IT ( A ) CALLED FOR A R EMAND REPORT ON THE SUBMISSIONS SO MAD E BY THE ASSESSEE INCLUDING SUBMISSIONS SET OUT A BOVE. IT WAS IN THIS BACKDROP THAT THE LD . CIT ( A ) PARTIALLY DELETED THE DISALLOWANCE BY OBSERVING AS FOLLOWS : - 4.4 I HAVE CONSIDERED THE SUBMISSION MADE BY THE APPEL LANT AND BASIS ON WHICH ADDITION MADE BY THE ASSESSING OFFICER. THE ASSESSING OFFICER HAS DISALLOWED THE FOREIGN TRAVEL EXPENSES MAINLY ON THE GROUND THAT APPELLANT FAILED TO ESTABLISH THAT TRIP TO USA BY THE FAMILY MEMBERS OF THE DIRECTOR AND EX - DIRECTOR S IS IN FACT A BUSINESS TOUR. IT IS UNDISPUTED FACT THAT THE APPELLANT HAS BUSINESS CONNECTION WITH THE PA RTIES WHERE THE DIRECTORS HAD VISITED. THE PERSONS VISITED ALL WERE DIRECTORS. NO FAMILY MEMBERS OF THE DIRECTORS HAD VISITED. THE DETAILS OF PARTIES TO WHOM THEY MET WERE SUBMITTED ON PAGE NO. 39 OF PAPER BOOK. THEY WERE ABLE TO NEGOTIATE THE PURCHASE PRICE OF RAW MATERIAL. SAMPLE COPY OF THE BILLS OF DIFFERENT YEAR IS SUBMITTED ON PAGE 23 AND 24 OF PAPER BOOK AND ON PAGE 6 & 7 OF FURTHER SUBMISSION. THE DETAILS OF TOTAL MATERIAL IMPORTED AND ITS COMPARISON WITH PREVIOUS YEAR IS PLACED IN PAPER BOOK AT PAGE 42. THE APPELLANT IS A PRIVATE LIMITED COMPANY. RELATION BETWEEN ALL THE DIRECTORS WERE GIVEN VIDE SUBMISSION DATED 8 TH DECEMBER, 2010. IT IS A LSO CLARIFIED THAT SHRI R. M. SHAH, PROMOTER OF THE COMPANY IS 87 YEARS OLD. HIS DAUGHTER MRS. SUREKHABEN S HAH HAD JOINED THE COMPANY WAY BACK IN 1972, WHILE RAJIBEN AND KHUSIBEN ARE JOINED WITH COMPANY IN 1995 AND 1996 RESPECTIVELY. RAJIBEN AND KHUSIBEN ARE MECHANICAL ENGINEERS AND ARE LOOKING AFTER THE PRODUCTION OF THE COMPANY. THE PURPOSE BEHIND ALL THE FOUR DIRECTORS VISIT TOGETHER IS TO INTRODUCE RAJIBEN AND KHUSIBEN TO BUSINESS ASSOCIATES BEFORE MRS. SUREKHABEN GET RETIRE IN I.T.A. NO S.2215 & 2297/AHD/2011 ASSESSMEN T YEAR: 20 06 - 07 PAGE 4 OF 9 MAY 2006 AS WELL AS TO K NOW THE TECHNICALITIES THAT HOW BASIC RAW MATERIAL WAS PROCESSED AND WHAT CHEMICAL PROPERTIES IT HAD. FROM THE ABOVE FACTS IT IS CLEAR THAT THE PURPOSE BEHIND VISIT TO USA WAS COMMERCIAL AND FOR THE BENEFIT OF THE BUSINESS OF THE APPELLANT. THE DIRECTORS SUCCEEDED IN NEGOTI ATING THE PRICE OF RAW MATERIAL. TO CONTINUE THE BUSINESS RELATIONSHIP IN FUTURE, IT WAS ALSO NECESSARY TO INTRODUCE BOTH THE DIRECTORS TO THE SUPPLIERS. 4.5 AO HAS NOT DOUBTED THE GENUINENESS OF EXPENDITURE. HE COULD NOT BRING ON RE CORD ANY EVIDENCE WHICH PROVE THAT THE DETAILS SUBMITTED BY THE APPELLANT ARE NOT GENUINE DURING THE ASSESSMENT PROCEEDINGS OR IN REMAND REPORT. HENCE JUST ON THE BASIS OF PRESUMPTION EXPENSES CLAIMED BY THE APPELLANT CANNOT BE DISALLOWED. THE AO HAS DIS ALLOWED THE EXPENSES U/S. 40A(2)(B) BEING EXCESSIVE AND UNREASONABLE. IT IS NOT PAYMENT MADE TO PERSON COVERED UNDER SECTION 40A(2)(B). HENCE IT CANNOT BE DISALLOWED U/S. 40A(2)(B). ALSO, TO DISALLOW THE EXPENSES UNDER THIS SECTION THE AO HAD TO BRING ON THE RECORD THE COMPARATIVE CASES. 4.6 IT IS FACT THAT DIRECTORS ARE RELATIVES. AS THEY ALL VISIT TOGETHER PERSONAL EXPENDITURE CANNOT BE RULED OUT . IN THE DETAILS OF EXPENSES SUBMITTED IT CAN BE OBSERVED THAT TICKET EXPENSES WERE ALSO INCURRED FOR INTE RNAL USA TRIP. IT MAY INCLUDE SOME PLEASURE TRIP. IN HOTEL AND OTHER EXPENSES THERE MAY BE SOME PLEASURE EXPENSES WHICH MIGHT HAVE NOT REQUIRED FOR BUSINESS PURPOSE. CONSIDERING ALL THE ABOVE FACTS AND IN ABSENCE OF PARTICULAR INFORMATION, I CONFIRM THE DISALLOWANCE TO THE EXTENT OF 50% OF TOTAL EXPENDITURE WHICH COMES TO RS. 8,05,484/ - AND DELETED THE ADDITION FOR REMAINING AMOUNT. ' 5. NONE OF THE PARTIES SATISFIED BY THE STAND SO T AKEN BY THE LD . CIT(A) . W HILE THE ASSESSEE IS AGGRIEVED OF THE DISALL OWANCE TO THE EXTENT OF 50% BEING UPHELD BY THE LD . CIT ( A ) , THE ASSESSING OFFICER IS AGGRIEVED OF EVEN THIS RELIEF TO THE EX TE NT OF 50% OF EXPENSES GRANTED BY THE LD. CIT(A) . BOTH THE PARTIES ARE THUS IN APPEAL BEFORE US. 6. DURING THE COURSE OF PROCEED INGS BEFORE US , THE LD . DEPARTMENTAL REPRESENTATIVE HAS FILED A DETAILED WRITTEN NOT E IN SUPPORT OF HIS STAND. THE SAME IS REPRODUCED AS BELOW: - KINDLY REFER TO THE ABOVE. 2. THE ASSESSEE IS A CLOSELY HELD PRIVATE LIMITED COMPANY. THE INSTANT CASE WAS SUBJECT TO SCRUTINY U/S 143(3) OF THE I.T. ACT, 1961 WHEREIN THE THEN AO ASSESSED THE INCOME OF THE ASSESSEE COMPANY AT RS.1,88,32,600/ - AS AGAINST IT'S RETURNED INCOME I.T.A. NO S.2215 & 2297/AHD/2011 ASSESSMEN T YEAR: 20 06 - 07 PAGE 5 OF 9 OF RS.1,27,49,673/ - INTER - ALIA DISALLOWING RS.16,56,367/ - ON ACCOUNT OF FOREIGN TRAVELI NG EXPENSES OF ITS FOUR DIRECTORS WHO ARE CLOSE RELATIVES. 3. AGGRIEVED BY THIS ORDER OF THE AO THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. C1T(A) WHO VIDE ORDER DATED 05/07/2011 PARTLY ALLOWED THE APPEAL IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVE NUE. THE SOLE ISSUE WHICH WAS ALLOWED IN FAVOUR OF THE ASSESSEE WAS THE ONE RELATING TO FOREIGN TRAVEL EXPENSES BORNE BY THE ASSESSEE COMPANY FOR ITS DIRECTORS (COMPRISING OF GRANDFATHER, DAUGHTER, AND GRAND CHILDREN) WHO HAD BEEN ON A SO CALLED BUSINESS T RIP TO THE US. 4. SIR, NOW THE REVENUE AND THE ASSESSEE ARE IN APPEAL BEFORE YOUR HONOURS AGAINST THE C1T (A'S) DECISION PARTLY ALLOWING TRAVELLING EXPENDITURE. APROPOS THE FINDINGS OF THE AO AND THE LD. C1T(A). MY SUBMISSION IN BRIEF ARC AS UNDER. (I) YO UR HONOURS MAY KINDLY APPRECIATE THAT, AS PER SECTION 37(1) OF THE INCOME TAX ACT. 1961. ' ANY EXPENDITURE (NOT BEING EXPENDITURE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36 AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASS ESSEE) LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OR PROFESSION SHALL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD ''PROFITS AND GAINS OF THE BUSINESS OR PROFESSION.': (II) HENCE, IT IS THE ONUS ON THE ASS ESSEE COMPANY TO PROVE BY LAYING DOWN EVIDENCES THAT THE AMOUNT EXPENDED TOWARDS THE TRAVELING OF THESE DIRECTORS WAS WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSE AND THERE WAS NO PERSONAL INTEREST INVOLVED. (III) IN THE INSTANT CASE THE DIRECTORS ARE CLO SELY RELATED BEING GRANDFATHER, DAUGHTER AND GRAND CHILDREN AND HAVE BEEN ON A TRIP TO UNITED STATES FOR TWO (2) WEEKS AT THE COST OF THE COMPANY CAMOUFLAGING IT LO BE A BUSINESS TRIP AND ACCORDINGLY THE COMPANY HAS CLAIMED THESE AS BUSINESS EXPENSES IN IT S BOOKS. FROM THE RECORDS AVAILABLE, IT IS LEARNT THAT THE ASSESSEE FAILED TO SUBMIT ANY EVIDENCE WHICH MAY PROVE THAT THERE WAS A BUSINESS REQUIREMENT WHICH REQUIRED ALL THE FOUR CLOSE RELATIVES TO TRAVEL TO THE US IN THE BUSINESS INTEREST OF THE COMPANY. YOUR HONOUR, THE PARTIES TO WHOM THESE DIRECTORS WERE INTRODUCED IN U S AS STATED BY THE COMPANY HAD A LONG PAST BUSINESS RELATIONS AND NOT SOMETHING WHICH HAS CROPPED UP OVERNIGHT AND WARRANTED THEIR PHYSICAL PRESENCE IN THE U S. NEITHER HAS THE COMPAN Y SUBMITTED ANYTHING TO PROVE OR SUBSTANTIATE THAT THE PRESENCE OF THESE DIRECTORS WAS THE NEED OF THE HOUR IN THE INTEREST OF THE ASSESSEE COMPANY AND THE FOREIGN TRAVEL WAS UNDERTAKEN ON A BUSINESS VISA FOR THE COMPANY. (IV) THE ASSESSEE IN ITS SUBMISS ION SEEKING RELIEF HAS RELIED UPON THE DECISION OF SAYAJI IRON & ENGG. CO. VS COMMISSIONER OF INCOME TAX, HIGH COURT OF GUJARAT (172 CTR 0339, 253 ITR 0749). IN MY HUMBLE SUBMISSION, THE ISSUES ARE TOTALLY DIFFERENT, WHICH HAS NO RELEVANCE OR IMPLICATION IN THE PRESENT CASE, NEITHER ON FACTS NOR IN LAW. AS AGAINST THIS, THE REVENUE ON ITS PART WISHES TO RELY ON DECISIONS FAVOURING THE REVENUE ON THE SAID ISSUE OF I.T.A. NO S.2215 & 2297/AHD/2011 ASSESSMEN T YEAR: 20 06 - 07 PAGE 6 OF 9 FOREIGN TRAVELLING EXPENSES WHEREIN THE HIGH COURT OF KERALA IN RAM BAHADUR THAKUR LTD VS. CI T (128 TAXMAN 599 (KERALA)/2003 (FULL BENCH) HELD THAT ..... THE HIGHLIGHTS OF THE DECISION ARE AS UNDER: (A) IN ORDER THAT AN EXPENDITURE SHOULD QUALIFY FOR DEDUCTION AS CONTEMPLATED BY SECTION 37(1) ONE OF THE REQUIREMENTS OF THE PROVISION IS THAT THE EXPENDITURE MUST HAVE BEEN LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. HENCE, IT IS FOR THE ASSESSEE WHO CLAIMS DEDUCTION OF THE EXPENDITURE UNDER THE SUB - SECTION TO SATISFY THE DEPARTMENT OF THE PURPOSE FOR WHICH THE AMOUNT WAS SPENT. IN VIEW OF THE PROVISIONS OF SECTION 40A(2), SO FAR AS A COMPANY IS CONCERNED, IT IS OPEN TO THE TAXING AUTHORITIES TO GO INTO THE REASONABLENESS OF THE EXPENSES ALSO. THE ASSESSING OFFICER IS ALSO ENTITLED TO BE SATISFIED AS TO THE COMMERCIAL NECESSITY OF SP ENDING THAT AMOUNT. IN OTHER WORDS, THERE MUST BE NEXUS BETWEEN THE EXPENDITURE AND THE BUSINESS PURPOSE. THE CAPACITY IN WHICH THE ASSESSEE SPENDS WILL ALSO BE RELEVANT. THE PURPOSE MUST BE FOR THE PURPOSE OF BUSINESS, I.E., THE EXPENDITURE MUST BE INCURR ED FOR CARRYING ON OF THE BUSINESS AND THE ASSESSEE SHOULD HAVE INCURRED IT IN HIS CAPACITY AS A PERSON CARRYING ON THE BUSINESS. THE TERM 'WHOLLY' REFERS TO THE QUANTUM OF THE EXPENDITURE AND 'EXCLUSIVELY' REFERS TO THE MOTIVE, OBJECTIVE AND PURPOSE OF T HE EXPENDITURE. THE TRUE TEST OF AN EXPENDITURE LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF TRADE OR BUSINESS IS THAT IT IS INCURRED BY THE ASSESSEE AS INCIDENTAL TO HIS TRADE FOR THE PURPOSE OF KEEPING THE TRADE GOING AND MAKING IT PAY AND NOT IN ANY OTHER CAPACITY THAN THAT OF A TRADER. (B) THE ASSESSING OFFICER HAD ALLOWED THE FOREIGN TRAVEL EXPENSES OF THE DIRECTOR OF THE ASSESSEE - COMPANY AND ALSO REJECTED THE FOREIGN TRAVEL EXPENSES OF THE WIFE OF THE DIRECTOR BOTH IN A MECHANICAL MANNER. THE ASSESSING OFFICER SIMPLY ASSUMED THAT THE FOREIGN TRAVEL OF THE DIRECTOR OF THE ASSESSEE - COMPANY WAS FOR BUSINESS PURPOSES BUT THE FOREIGN TRAVEL OF THE WIFE ACCOMPANYING THE DIRECTOR WAS OF FOR BUSINESS PURPOSES. IN FACT, THE ASSESSING OFFICER WAS BOUND TO CONDUCT AN ENQUIRY AND TO AFFORD AN OPPORTUNITY TO THE ASSESSEE TO ESTABLISH ITS CLAIM BY ADDUCING EVIDENCE, IF ANY, AS PROVIDED UNDER SECTION 143(2) AND (3). THE FIRST APPELLATE AUTHORITY AND THE TRIBUNAL ALSO DID NOT CONSIDER THE MATTER KEEPING IN MIN D THE LEGAL PRINCIPLES. THEY WENT BY THE DECISIONS RENDERED BY THEM FOR THE EARLIER YEARS. THE RESULTANT POSITION WAS THAT NO FACTUAL FINDING WAS RENDERED BY THE AUTHORITIES AND THE TRIBUNAL AS ORDAINED UNDER LAW. [PARA 21] (C) IN ALL CASES WHERE AN ASS ESSEE MAKES A CLAIM FOR DEDUCTION OF AN EXPENDITURE UNDER SECTION 37(1), THE ASSESSING OFFICER IS BOUND TO I.T.A. NO S.2215 & 2297/AHD/2011 ASSESSMEN T YEAR: 20 06 - 07 PAGE 7 OF 9 CONSIDER THE SAID CLAIM, BE IT IN RESPECT OF EXPENSES FOR THE FOREIGN TOUR OF THE DIRECTOR OF A COMPANY OR IN RESPECT OF THE EXPENSES FOR THE FOREIGN TOUR OF THE WIFE OF THE DIRECTOR ACCOMPANYING HIM, METICULOUSLY KEEPING IN MIND THE LEGAL PRINCIPLES GOVERNING THE QUESTION AND TO ARRIVE AT A DECISION EITHER WAY AFTER AFFORDING A REASONABLE OPPORTUNITY TO THE ASSESSEE. THE APPELLATE AUTHORITIES ARE ALSO BOUND TO CONSIDER THE MATTER IN ACCORDANCE WITH LAW AND IN THE LIGHT OF THE BROAD LEGAL PRINCIPLES. OF COURSE THE BURDEN IS ON THE ASSESSEE TO FURNISH ALL RELEVANT MATERIALS TO ESTABLISH ITS CLAIM THAT THE EXPENDITURE ON WHICH DEDUCTION IS CLAIMED FALLS U NDER SECTION 37(1). [PARA 22] (COPY OF THE DECISION WITH NOTES ATTACHED) 5. HENCE, LOOKING INTO THE FACTS OF THE CASE AND THE LAW, IN MY HUMBLE SUBMISSION, THE AO WAS JUSTIFIED IN DISALLOWING THE FOREIGN EXPENSES BORNE BY THE ASSESSEE COMPANY FOR ITS DIRE CTORS AS IT FAILED TO PROVE THAT THE EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSE. BASED ON THESE, AND IN THE INTEREST OF REVENUE I REQUEST YOUR HONOUR TO UPHOLD THE A O'S ACTION DISMISSING THE ORDER OF THE LD. CIT (A). 7 . WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 8. WE HAVE NOTED THAT THE ASSESSING OFFICER PROCEEDED TO MAKE THE DISALLOWANCE, UNDER SECTION 40A(2), ON THE BASIS THAT THE EXPENDITURE WAS UNREASONABLE AND EXCESSIVE AND THAT THE ASSESSEE DID NOT DERIVE ANY TANGIBLE BENEFIT FROM THIS FOREIGN TRAVEL EXPENSES INASMUCH AS THERE WAS A FALL IN THE GROSS PROFIT AND THE PERSONS TRAVELLING WERE FAMILY MEMBERS. AS FOR THE EMPHASIS ON THE FACT THAT THE PERSONS TRAVELLING TOGETHER WERE FAMILY MEMBERS, WE MAY ONLY ADD THAT ALL THE FOUR PERSONS WERE DIRECTORS OF THE ASSESSEE COMPANY, AND, TAKE NOTE OF THE FOLLOWING CONTROVERTED FINDING OF THE CIT(A): .SHRI R. M. SHAH, PROMOTER OF THE COMPANY IS 87 YEARS OLD. HIS DAUGHTER MRS. SUREKHABEN SHAH HAD JOINED THE COMPANY WAY BACK IN 1972, WHILE RAJIBEN AND KHUSIBEN ARE JOINED WITH COMPANY IN 1995 AND 1996 RESPECTIVELY. RAJIBEN AND KHUSIBEN ARE MECHANICAL ENGINEERS AND ARE LOOKING AFTER THE PRODUCTION OF THE COMPANY. THE PURPOSE BEHIND ALL THE FOUR DIRECTORS VISIT TOGETHER IS TO INTRODUCE RAJIBEN AND KHUSIBEN TO BUSINESS ASSOCIATES BEFORE MRS. SUREKHABEN GET RETIRE IN MAY 2006 I.T.A. NO S.2215 & 2297/AHD/2011 ASSESSMEN T YEAR: 20 06 - 07 PAGE 8 OF 9 9. ON THESE FACTS, NOTHING REALLY TURNS AGA INST THE ASSESSEE SO FAR AS RELATIONSHIP OF THE DIRECTORS IS CONCERNED. IN ANY EVENT, THE REASON OF DISALLOWANCE IS UNDER SECTION 40A(2) BUT THEN THE DISALLOWANCE UNDER THAT SECTION COMES INTO PLAY ONLY WHEN THE PAYMENT IS MADE TO THE SPECIFIED PERSONS. S ECTION 40A(2) SPECIFICALLY PROVIDES THAT, WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT HAS BEEN OR IS TO BE MADE TO ANY PERSON REFERRED TO IN CLAUSE (B) OF THIS SUB - SECTION, AND THE ASSESSING OFFICER IS OF OPINION THAT SUCH EXPEN DITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE OR THE LEGITIMATE NEEDS OF THE BUSINESS OR PROFESSION OF THE ASSESSEE OR THE BENEFIT DERIVED BY OR ACCRUING TO HIM THEREFROM, SO MUCH OF THE EXPENDITURE AS IS SO CONSIDERED BY HIM TO BE EXCESSIVE OR UNREASONABLE SHALL NOT BE ALLOWED AS A DEDUCTION BUT THEN SO FAR AS THE EXPENDITURE ON FOREIGN TRAVEL IS CONCERNED, THE PAYMENT IS NOT MADE TO THE SPECIFIED PERSONS. SECT ION 40A(2) SPECIFICALLY DEALS WITH THE SITUATION IN WHICH THE PAYMENT IS MADE TO THE SPECIFIED PERSONS. THAT IS NOT THE CASE HERE. THE PAYMENT IS MADE IN RESPECT OF FOREIGN TRAVEL OF THE SPECIFIED PERSONS BUT THAT DOES NOT BRING THE EXPENSE WITHIN THE SCOP E OF DISALLOWANCE UNDER SECTION 40A(2). THE VERY FOUNDATION OF IMPUGNED DISALLOWANCE IS THUS WHOLLY UNSUSTAINABLE IN LAW. 10. AS FOR THE ELEMENT OF PERSONAL EXPENSES BEING PRESENT IS CONCERNED, THE ASSESSEE BEFORE US IS A LEGAL ENTITY. EVEN IF AN EXPEN SES INCURRED BY THE ASSESSEE RESULTS IN A PERSONAL ADVANTAGE TO ITS DIRECTORS , SUCH A FACT OF PERSONAL ADVANTAGE TO THE DIRECTORS DOES NOT AFFECT THE DEDUCTIBILITY OF EXPENSES AS LONG AS THE EXPENSES ARE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS OF THE COMPANY. A PERSONAL ADVANTAGE TO THE DIRECTORS, EVEN IF THAT BE SO, CANNOT BE A REASON ENOUGH FOR RESORTING TO THE DISALLOWANCE. HON BLE JURISDICTIONAL HIGH COURT S DECISION IN THE CASE OF SAYAJI (SUPRA) SUPPORTS THIS PROPOSITION. THE DECIS ION THAT THE ASSESSEE S SENIOR DIRECTORS, WHO ARE ON THEIR WAY OUT, PERSONALLY MEET THE VENDORS AND INTRODUCE THE NEWER DIRECTORS IS ESSENTIALLY A BUSINESS DECISION AND IT CANNOT BE OPEN TO THE ASSESSING OFFICER TO I.T.A. NO S.2215 & 2297/AHD/2011 ASSESSMEN T YEAR: 20 06 - 07 PAGE 9 OF 9 QUESTION SAME. THE ELEMENT OF BUSINESS NE EDS IN SUCH CIRCUMSTANCES IS CLEARLY PRESENT. THE ASSESSEE COMPANY MAY OR MAY NOT HAVE DIRECT TANGIBLE BENEFIT AS A RESULT OF THE EXPENSE BUT THEN JUST BECAUSE THE ASSESSEE DOES NOT GET IMMEDIATE TANGIBLE BENEFIT, THE EXPENSE DOES NOT CEASE TO BE DEDUCTIBL E IN NATURE. THE DISALLOWANCE HAS BEEN MADE UNDER SECTION 40A(2) AND, IN ANY EVENT, IT CANNOT BE OPEN TO THE ASSESSING OFFICER TO IMPROVE UPON HIS CASE AT THIS STAGE AND ADD THE REASONS WHICH WERE NOT EVEN TAKEN UP AT THE ASSESSMENT STAGE. KEEPING IN VIE W THESE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE DEEM IT FIT AND PROPER TO DELETE THE ENTIRE DISALLOWANCE. THE ASSESSEE GETS THE FURTHER RELIEF ACCORDINGLY. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED AND THE APPEAL OF TH E ASSESSING OFFICER IS DISMISSED. PRONOUNCED IN THE OPEN COURT TODAY ON 17 TH DAY OF FEBRUARY, 2016. SD/ - SD/ - KUL BHARAT PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) DATED: THE 17 TH DAY OF FEBRUARY , 2016 . PBN/* COPIES TO : (1) THE APPELLANT (2) THE RESPONDENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD