M/s. Sahajanand Medical Technologies Pvt. Ltd., Surat V. The ACIT, Circle-4, Surat

ITA 2297/AHD/2013

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 9396 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-01-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 17-01-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 16-09-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P S CHAUDHARY
• Keywords: Business expenditure; Bonafide belief; Bad and doubtful debts; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD SMC BENCH AHMEDABAD BEFORE SHRI S.S. GODARA, JM & SHRI MANISH BORAD, AM. ITA NO. 2297/AHD/2013 ASST. YEAR: 2008-09 M/S SAHAJANAND ESTATE, WAKHARIA WADI, NR. DABHOLI CHAR RASTA, VED ROAD, SURAT, GUJARAT-395004 VS. ASST. C.I.T, CIRLE-4, SURAT APPELLANT RESPONDENT PAN AAFCS7694L APPELLANT BY NONE RESPONDENT BY SHRI P.S. CHAUDHARY, SR.DR DATE OF HEARING: 19 /01/2017 DATE OF PRONOUNCEMENT: 24/01/2017 O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER . THIS APPEAL OF ASSESSEE FOR ASST. YEAR 2008-09 IS DIRECTED AGAINST THE ORDER OF LD. CIT(A)-II, SURAT, DATED 05 /07/2013 VIDE APPEAL NO.CAS-II/101/TRFD/11-12 ARISING OUT OF ORDER U/S 271(1)(C) OF THE IT ACT, 1961 (HEREIN AFTER REFERRED AS ACT) FRAMED ON 29/06/2011 BY DCIT CIRCLE-4, SURAT. ITA NO. 2297/AHD/2013 ASST. YEAR 2008-09 2 ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL :- 1. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-II , SURAT HAS ERRED IN CONFIRMATION THE PENALTY OF RS.1,44,521/- U/S.271(1)(C) OF THE ACT. 2. THE APPELLANT RESERVES THE RIGHT TO ADD, ALTER, AME ND OR WITHDRAW ANY GROUNDS OF APPEAL. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT T HE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN MANUFACTURING OF CARDIO VASCULAR STENT. IT FILED RETURN OF INCOME OF A.Y. 2008-2009 ON 19/0 9/2008 DECLARING TOTAL INCOME AT RS.41,92,594/- CASE WAS SELECTED FOR SCRUTINY ASSESSMENT AND NOTICE U/S.143(2) OF THE ACT, ISSUED . NECESSARY DETAILS AS CALLED FOR, WERE DULY FURNISHED. THE ONL Y DIS-SATISFACTION AROSE WITH REGARDS TO EXPENDITURE ON CONFERENCES ORGANIZED OUTSIDE INDIA. LEARNED ASSESSING OFFICER OBSERVED T HAT ASSESSEE HAS INCURRED AND CLAIMED FOREIGN TRAVELLING EXPENDITUR E OF THE WIVES OF THE PARTICIPANT DOCTORS ATTENDING CONFERENCE. LEAR NED ASSESSING OFFICER ASKED FOR FURTHER DETAILS AND ALSO CHALLENG ED THE ALLOWABILITY OF SUCH EXPENSES. ASSESSEE REPLIED THAT THIS EXPENDITURES ARE IN RELATION TO THE DOCTORS ATTENDING CONFERENCE, WHO ARE THE KEY L EADERS IN THEIR FIELDS AND THE EXPENDITURE ON THE TRAVELLING EXPENSE OF THE WIVES OF DOCTORS ARE CUSTOMARY AND ARE BORNE FOR COMMERCIAL EXPEDIENCY . HOWEVER, LEARNED ASSESSING OFFICER WAS NOT CONVINCED WITH THE REPLY AND WENT AHEAD DIS ALLOWING THE EXPENSES OF RS.3,81,737/- AND MADE ADHOC ADDITION OF RS.1,00,000/- AS NO DETAILS RELATING TO HOTEL STAY AND OTHER EXPE NDITURE WERE PROVIDED BY THE ASSESSEE. PENALTY U/S.271(1)(C) OF ACT INITIATED ON IMPUGNED ADDITION. THERE IS NO INFORMATION ON RECOR DS AS TO WHETHER THE ASSESSEE WENT IN APPEAL AGAINST THE QUANTUM AD DITION. PENALTY ITA NO. 2297/AHD/2013 ASST. YEAR 2008-09 3 U/S.271(1)(C) OF THE ACT, WAS IMPOSED AT RS.1,44,52 1/- BY THE ASSESSING OFFICER. ASSESSEE WENT IN APPEAL BEFORE L EARNED CIT(A) BUT COULD NOT TURN OUT BEFORE HIM EVEN BEING PROVID ED VARIOUS OPPORTUNITIES OF HEARING. FINALLY LEARNED CIT(A) CO NFIRMED PENALTY OF RS,1,44,521/- BY FOLLOWING THE DECISION IN THE CASE OF GUJARAT STATE FINANCIAL SERVICES LTD. V/S ASSISTANT COMMISSIONER OF INCOME-TAX, 39 SOT 570 (AHD), 2010 AND HELD THAT APPELLANT FAILED TO ESTABLISH THAT FULL MATERIAL FACTS WERE DISCLOSED AND ITS EXPLANAT ION WAS BONAFIDE. 3. AGGRIEVED ASSESSEE IS NOW IN APPEAL BEFORE THE TRIBUNAL. 4. NONE APPEARED ON BEHALF OF THE ASSESSEE HOWEVER, CASE WAS HEARD WITH THE HELP OF SUBMISSION MADE BY LEARNED D EPARTMENTAL REPRESENTATIVE AND AVAILABLE RECORDS. 5. LEARNED DEPARTMENTAL REPRESENTATIVE VEHEMENTLY ARGUED AND SUBMITTED THAT ASSESSEE WAS UNABLE TO GIVE PROPER E XPLANATION BEFORE BOTH THE LOWER AUTHORITIES EVEN AFTER BEING PROVIDED VARIOUS OPPORTUNITIES OF BEING HEARING. HE ALSO PLACED ON R ECORD A COPY OF AHMEDABAD BENCH TRIBUNAL ORDER IN THE CASE OF GUJAR AT STATE FINANCIAL SERVICES LTD.(SUPRA) WHICH WAS FOLLOWED B Y FIRST APPELLANT AUTHORITY. 6. WE HAVE HEARD DEPARTMENTAL REPRESENTATIVE AND P ERUSED THE CASE RECORDS AND GONE THROUGH THE DECISION RELIED B Y THE DEPARTMENTAL REPRESENTATIVE . SOLITARY GRIEVANCE O F THE ASSESSEE IS ITA NO. 2297/AHD/2013 ASST. YEAR 2008-09 4 AGAINST CIT(A) ORDER CONFIRMING PENALTY U/S.271(1)( C) OF THE ACT AT RS.1,44,521/- 7. FROM PERUSAL OF RECORDS WE OBSERVE THAT ASSESS EE IS PRIVATE LIMITED COMPANY AND HAS DECLARED TOTAL INCOME OF RS .41,92,594/- BOOKS OF ACCOUNTS, BILLS & VOUCHERS WERE DULY PROVI DED FOR VERIFICATION. FINAL STATEMENT OF THE ASSESSEE ARE A UDITED U/S. 40A(2)(B) OF THE ACT, AND NO MAJOR ANOMALY HAS BEEN OBSERVED DURING THE COURSE OF ASSESSMENT. THE ONLY ADDITION MADE, RELATES TO DISALLOWANCE OF CONFERENCE EXPENDITURE INCURRED TOWARDS SPOUSE OF PARTICIPANT DOCTORS. 8. FURTHER THERE IS NO QUALIFICATION/ADVERSE REMARK OF THE AUDITOR IN THE TAX REPORT TOWARDS PERSONAL NATURE/DISALLOWABLE EXPENDITURE, AS THERE IS NO SUCH OBSERVATION IN THE ASSESSMENT ORDE R U/S.143(3) OF THE ACT. WE FURTHER NOTICE THAT GENUINESS OF THE EXPENDITURE INCURRED BY THE ASSESSEE IS NOT IN DOUBT AS THE IMPUGNED EXP ENDITURE OF RS.3,81,731/- WAS DULY SUPPORTED BY BILLS AND VOUCH ERS. THE ONLY ISSUE WAS WHETHER ASSESSEES CLAIM OF TRAVELLING EX PENDITURE INCURRED ON THE WIVES OF DOCTORS ATTENDED CONFERENCE OUTSIDE INDIA WERE ALLOWABLE AS A EXPENDITURE OR NOT. ASSESSEE STATED DURING THE ASSESSMENT PROCEEDINGS THAT SUCH TYPE OF EXPENDITUR E INCURRED ON THE FAMILY MEMBERS OF DOCTORS ARE CUSTOMARY AND INC URRED FOR COMMERCIAL EXPEDIENCY SO AS TO PLEASE THE DOCTORS WHO IN TURN PROMOTE THE PROJECTS OF THE ASSESSEES COMPANY WHI CH GIVE RISE TO THE BETTER AND IMPROVED REVENUE/PROFITS. ITA NO. 2297/AHD/2013 ASST. YEAR 2008-09 5 9. IN THIS APPEAL WE ARE DEALING WITH THE ISSUE OF PENALTY U/S.271(1)(C) OF THE ACT, ON THE EXPENSES DISALLOWE D AS WELL AS ADHOC ADDITION MADE. WE FIND THAT IN THE PRESENT CASE WHE RE GENUINESS OF THE EXPENDITURE IS NOT DISPUTED AND THE FACT IS THA T ASSESSEE MADE A CLAIM WITH A BONAFIDE BELIEF THAT THESE ARE BUSINES S PROMOTIONAL EXPENDITURE ARE NEEDED IN THE KIND OF BUSINESS ASSE SSEE IS INTO. IT IS TRUE THAT MARKETING AND BUSINESS PROMOTION ARE VIT AL IN CERTAIN TYPE OF BUSINESS MODELS IN THIS COMPETITIVE WORLD. VARIO US TYPES OF SCHEMES ARE FORMULATED BY THE BUSINESS CONCERN TO G ROW THEIR REVENUE AS WELL AS EARNINGS. 10. IN THE CASE BEFORE US IT SEEMS THAT SIMILAR MOD US OPERANDI HAVE OPERATED IN THE MIND OF ASSESSEE BY WAY OF WHI CH EXPENDITURE WAS INCURRED ON TRAVELLING OF DOCTORS AND THEIR FAM ILY MEMBERS AND PAYMENT WAS MADE OUT OF GENUINE BUSINESS FUNDS AND EXPENDITURE WAS CLAIMED ON THE BASIS OF COMMERCIAL EXPEDIENCY W HICH EVEN WAS CONSIDERED BY AUDITOR AS ALLOWABLE BUSINESS EXPEND ITURES AND NOT OF A PERSONAL NATURE. 11. WE FIND THAT SIMILAR TYPE OF ISSUE CAME UP BEFO RE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT V/S SUNDARAM CLAYTON LTD. (1999) 240 ITR 271 WHEREIN DEALING WITH THE ISSUE A S TO WHETHER EXPENSES INCURRED ON SPOUSE OF THE CHAIRMAN AND MAN AGING DIRECTOR OF FOREIGN COMPANY THAT IT WAS NOT IN DISPUTE THAT THE VISIT OF THE CHAIRMAN AND MANAGING DIRECTOR OF THE FOREIGN COMPANY WAS IN THE INTEREST OF THE INDIAN COMPANY AND WAS DEDUCTIBLE AS BUSINESS EXPENDITURE. HAVING REG ARD TO THE POSITION THEY OCCUPY IN THE COMPANY AND THE IMPORTANCE OF THE COMPANY IN FURTHE RING BUSINESS INTEREST OF THE ASSESSEE-BEING, THE EXPENDITURE INCURRED BY THE ASS ESSEE ON THE SPOUSE OF THE CHAIRMAN ITA NO. 2297/AHD/2013 ASST. YEAR 2008-09 6 AND MANAGING DIRECTOR WAS A EXPENDITURE WHICH WAS C OMMERCIAL EXPEDIENT FOR THE ASSESSEE TO INCURRED FOR ENHANCING THE GOODWILL BET WEEN THE TWO COMPANY. TRIBUNAL HAS REALLY ALLOWED THE EXPENDITURE 12. WE FIND THAT FACT OF THE ASSESSEE CASE ARE SIMI LAR TO THE FACTS ADJUDICATED BY HONBLE MADRAS HIGH COURT AS DISCUS SED ABOVE. HOWEVER, THE DECISION IN THE CASE OF GUJARAT STATE FINANCIAL SERVICES (SUPRA) RELIED ON BY DEPARTMENTAL REPRESENTATIVE WI LL NOT APPLY IN PRESENT CASE AS THE FACT THEREIN RELATES TO CLAIM IN RESPECT OF PROVISION FOR BAD DEBTS AND PROVISION FOR DIMINUTIO N IN VALUE OF INVESTMENT WHICH ARE MERELY ESTIMATED EXPENSE. WHER E AS IN APPEAL BEFORE THERE IS NO DISPUTE ABOUT THE EXPENDITURE I NCURRED AND ITS SOURCE OF INCURRENCE AND ONLY ISSUE IN THIS APPEA L IS THAT ASSESSEE MADE A CLAIM OF EXPENDITURE TREATING IT TO BE A BON AFIDE BUSINESS EXPENDITURES AND ALLOWABLE FOR COMMERCIAL EXPEDIEN CY BUT THE SAID CLAIM WAS NOT ACCEPTED BY THE REVENUE AUTHORITIES. 13. IN OUR VIEW IT CANNOT BE A CASE OF FURNISHING INACCURATE PARTICULARS OR CONCEALMENT OF PARTICULARS OF INCOME BUT IT IS A SIMPLY CASE OF MAKING BONAFIDE CLAIM NOT ACCEPTED BY THE A SSESSING AUTHORITIES. SUCH CIRCUMSTANCES DO NOT CALL FOR IMP OSING OF PENALTY U/S 271(1)(C) OF THE ACT. ITA NO. 2297/AHD/2013 ASST. YEAR 2008-09 7 14. WE THEREFORE DELETE THE IMPUGNED PENALTY OF RS. 1,44,521/- AND ALLOW THE ASSESSEE APPEAL. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH JANUARY, 2017 SD/- SD/- (S.S. GODARA) JUDICIAL MEMBER (MANISH BORAD) ACCOUNTANT MEMBER TRUE COPY DATED 24 /01/2017 MANISH/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, AHMEDABAD