M/S. MOTWANI INTERNATIONAL, MUBMBAI V. THE CIT (A) XX, MUMBAI

ITA 2345/MUM/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1508 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2003-2004
• Appeal Filed On: 04-04-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIKRAM GAUR
• Assessee Lawyers: VIJAY KOTHARI
• Keywords: Recovery proceedings; Business expenditure; Opportunity of being heard
• Section: 143(3); 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, B, MUMBAI BEFORE SHRI R V EASWAR, PRESIDENT AND SHRI J SUDHAKAR REDDY, ACCOUNTANT MEMBER I T A NO: 2345/MUM/2008 (ASSESSMENT YEAR: 2003-04) M/S MOTWANI INTERNATIONAL, MUMBAI APPELLANT (PAN: AACFM9302R) VS ASSISTANT COMMISSIONER OF INCOME TAX 20(2), MUMBAI RESPONDENT APPELLANT BY: SHRI VIJAY KOTHARI RESPONDENT BY: SHRI VIKRAM GAUR O R D E R R V EASWAR, PRESIDENT: THE ASSESSEE IN THIS APPEAL IS A PARTNERSHIP FIRM ENGAGED IN THE EXPORT OF GENERAL MERCHANDISE. THE APPEAL FOR THE ASSESSMENT YEAR 2003-04 ARISES OUT OF THE ASSESSMENT ORDER PASSED U NDER SECTION 143(3) OF THE INCOME TAX ACT, 1961, ON 08.03.2006. 2. THE FIRST GROUND RELATES TO THE DISALLOWANCE OF THE FOREIGN TRAVEL EXPENSES OF RS.2,30,053/-. WHILE COMPLETING THE AS SESSMENT, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD INC URRED FOREIGN TRAVEL EXPENSES OF RS.74,105/- ON THE WIFE OF MR MOTWANI, PARTNER. SHE WAS NEITHER A PARTNER NOR AN EMPLOYEE OF THE FIRM. THE ASSESSING OFFICER, THEREFORE, CONSIDERED THE EXPENSES AS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE ASSESSEES BUSIN ESS AND DISALLOWED THE SAME. HE ALSO DISALLOWED THE FOREIGN TRAVEL EX PENSES OF RS.1,55,948/- INCURRED BY MR MOTWANI, THE PARTNER, ON THE GROUND THAT HE HAD TRAVELLED ALONG WITH HIS WIFE AND, THEREFORE , THE TRIP WAS ITA NO: 2345/MUM/2008 2 PERSONAL IN NATURE. THUS THE TOTAL DISALLOWANCE CA ME TO RS.2,30,053/-. THE DISALLOWANCE HAVING BEEN CONFIRMED BY THE CIT(A ), THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 3. WE HAVE CONSIDERED THE FACTS AND THE RIVAL CONTE NTIONS. THE EXPENSES OF RS.74,105/- INCURRED ON THE WIFE OF THE PARTNER CANNOT BE ALLOWED AS BUSINESS EXPENDITURE SINCE SHE WAS NEITH ER A PARTNER NOR AN EMPLOYEE OF THE ASSESSEE FIRM AND IT IS NOT ALSO THE ASSESSEES CASE THAT HER FOREIGN TRAVEL WAS IN SOME WAY CONNEC TED TO THE ASSESSEES BUSINESS. ACCORDINGLY, WE CONFIRM THE D ISALLOWANCE OF RS.74,105/-. HOWEVER, THE EXPENSES INCURRED ON THE FOREIGN TOUR OF THE PARTNER, MR MOTWANI CANNOT BE TREATED IN THE SA ME MANNER. THE ASSESSEE IS ENGAGED IN THE EXPORT OF GENERAL MERCHA NDISE AND THE FOREIGN TOUR WAS OBVIOUSLY CONNECTED TO THE BUSINES S OF THE ASSESSEE. THE MERE FACT THAT THE WIFE OF MR MOTWANI TRAVELLED WITH HIM CANNOT BE A GROUND FOR HOLDING THAT HIS TRAVEL WAS NOT FOR TH E PURPOSE OF THE FIRMS BUSINESS. WE ACCORDINGLY DIRECT THAT THE EXPENSES RELATING TO THE FOREIGN TRAVEL OF MR MOTWANI SHOULD BE ALLOWED AS A DEDUCTION. IT WAS POINTED OUT THAT THERE IS SOME DOUBLE DISALLOWANCE OF THE SAME EXPENDITURE, WHICH MAY BE VERIFIED BY THE ASSESSING OFFICER AND CORRECTIVE MEASURES BE TAKEN. WITH THIS REMARK, TH E GROUND IS PARTLY ALLOWED. 4. THE SECOND GROUND RELATING TO THE DISALLOWANCE O F BUSINESS PROMOTION EXPENSES OF RS.30,000/- IS DISMISSED AS N OT PRESSED. 5. THE THIRD GROUND IS DIRECTED AGAINST THE DISALLO WANCE OF THE TELEPHONE EXPENSES OF RS.75,000/- OUT OF THE TOTAL EXPENSES OF ITA NO: 2345/MUM/2008 3 RS.5,79,127/-. OUT OF THIS, MOBILE TELEPHONE EXPEN SES AMOUNTED TO RS.2,53,209/-. CONSIDERING THE NATURE OF THE ASSES SEES BUSINESS, ONE WOULD EXPECT THE TELEPHONE BILLS TO BE HIGH SINCE T HE ASSESSEE HAS TO CONTACT ITS CUSTOMERS IN FOREIGN COUNTRIES FREQUENT LY. HOWEVER, SOME PERSONAL USE CANNOT BE RULED OUT. EVEN SO THE DISA LLOWANCE OF RS.75,000/- APPEARS TO BE SOMEWHAT HIGH AND WE REDU CE THE SAME TO RS.50,000/- AND ALLOW THE GROUND IN PART. 6. AN ADDITIONAL GROUND HAS BEEN TAKEN BEFORE US TO THE EFFECT THAT THE INCOME TAX AUTHORITIES ERRED IN NOT COMPUTING T HE DEDUCTION UNDER SECTION 80HHC IN ACCORDANCE WITH THE PROVISIONS OF THE TAXATION LAWS (AMENDMENT) ACT, 2005 AND IN NOT INCREASING THE PRO FITS OF THE BUSINESS BY THE AMOUNT OF EXPORT INCENTIVES BY WAY OF DEPB / DUTY DRAWBACK. IT HAS BEEN EXPLAINED BEFORE US THAT THI S IS PURELY A LEGAL GROUND WHICH DOES NOT REQUIRE ANY INVESTIGATION INT O FACTS NOT ALREADY ON RECORD. IT IS EXPLAINED THAT A GROUND AGAINST D ENIAL OF DEDUCTION UNDER SECTION 80HHC WAS TAKEN BEFORE THE CIT(A) AND IT WAS WITHDRAWN ON THE BASIS OF AN ERRONEOUS UNDERSTANDIN G OF THE CIRCULAR NO.2/2006 DATED 17.01.2006. THE ASSESSEE LATER ON REALIZED THE MISTAKE AND HENCE THE ADDITIONAL GROUND. 7. WE HAVE CONSIDERED THE ASSESSEES EXPLANATION FO R RAISING THE ADDITIONAL GROUND. WE ARE SATISFIED THAT THE WITHD RAWAL OF THE GROUND BEFORE THE CIT(A) WAS ON AN ERRONEOUS UNDERSTANDING OF THE CIRCULAR WHICH ACTUALLY RELATED TO IMPOSITION OF PENALTY AND RECOVERY OF TAXES. SOMEHOW THE ASSESSEE WOULD APPEAR TO HAVE BEEN UNDE R A CONFUSION AND HAD WITHDRAWN THE GROUND BEFORE THE CIT(A). WE ACCORDINGLY ITA NO: 2345/MUM/2008 4 ADMIT THE ADDITIONAL GROUND. HOWEVER, THE APPLICAB ILITY OF THE AMENDMENT MADE TO SECTION 80HHC HAS TO BE EXAMINED AND FOR THIS PURPOSE WE RESTORE THE GROUND TO THE ASSESSING OFFI CER, WHO WILL EXAMINE THE SAME AND DECIDE THE ALLOWABILITY OF THE CLAIM AFRESH AND IN ACCORDANCE WITH LAW. THE ASSESSEE SHALL BE GIVE N ADEQUATE OPPORTUNITY OF BEING HEARD. THE ADDITIONAL GROUND IS DISPOSED OF ACCORDINGLY. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH JUNE 2010. SD/- SD/- (J SUDHAKAR REDDY) (R V EASWAR) ACCOUNTANT MEMBER PRESIDENT MUMBAI, DATED 18 TH JUNE 2010 SALDANHA COPY TO: 1. M/S MOTWANI INTERNATIONAL 102-D, MOTANAGAR, 1 ST FLOOR, OPP. GERMAN REMIDIES LTD. ANDHERI (EAST), MUMBAI 400 021 2. ACIT 20(2) 3. CIT-20 4. CIT(A)-XX 5. DR B BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI