BRILLIANT GEMS, MUMBAI V. ITO WD 15(2)(3), MUMBAI

ITA 2499/MUM/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8366 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 31-03-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S K SINGH
• Keywords: Capital asset; Business expenditure; Corroborative evidences; Revenue expenditure; Capital expenditure
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'I' BENCH, MUMBAI BEFORE SHRI D.K. AGARWAL, JUDICIAL MEMBER AND SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER ITA NO. 2499/MUM/2010 (ASSESSMENT YEAR: 2006-07) M/S. BRILLIANT GEMS VS. INCOME TAX OFFICER - 15(2)(3) 4/301, 1ST FLOOR, SONAWALA MUMBAI ESTATE, I.B. PATEL ROAD GOREGAON (E), MUMBAI 400063 PAN - AAGFB 2219 L APPELLANT RESPONDENT APPELLANT BY: SHRI KIRAN MEHTA RESPONDENT BY: SHRI S.K. SINGH O R D E R PER D.K. AGARWAL, J.M. THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER DATED 29.01.2010 PASSED BY THE LEARNED CIT(A) FOR A .Y. 2006-07. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSES SEE FIRM IS ENGAGED IN THE BUSINESS OF JOB WORK/LABOUR CHARGES IN DIAMONDS . THE RETURN WAS FILED DECLARING TOTAL INCOME OF ` 3,08,102/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS INTER ALIA OBSERVED BY THE A.O. THAT THE ASSESSEE FIRM HAS DEBITED AN AMOUNT OF ` 2,58,015/- TOWARDS TRAVELLING AND CONVEYANCE EXPENSES IN ITS P & L ACCOUNT. OUT OF THE SAID EXPE NDITURE, ` 2,34,392/- IS RELATED WITH TRAVELLING EXPENSES AND OUT OF THESE T RAVELLING EXPENSES, AN AMOUNT OF ` 2,08,829/- IS CLAIMED TO BE ON FOREIGN TRAVELLING B Y THE PARTNERS. ACCORDING TO THE A.O., SINCE ASSESSEES ENTIRE SALE S/RECEIPTS ARE FROM SINGLE PARTY AND ITS ACTIVITY IS ONLY IN THE NATURE OF LAB OUR AND JOB CHARGES, AS CAN BE SEEN FROM THE P & L ACCOUNT, ASSESSEE WAS ASKED TO STATE THE REASONS FOR DEBITING OF FOREIGN TRAVEL EXPENSES. IN RESPONSE, I T WAS STATED BY THE ASSESSEE THAT TO EXPLORE BUSINESS OPPORTUNITY AND T O IMPORT ROUGH DIAMONDS VISITS TO AFRICAN COUNTRIES WERE TAKEN PLA CE. IT WAS FURTHER STATED THAT THE PARTNERS HAVE TRAVELLED ALONE AND THESE AR E BUSINESS EXPENSES. HOWEVER, THE A.O. DID NOT ACCEPT ASSESSEES SUBMISS ION. HE WAS OF THE VIEW ITA NO. 2499/MUM/2010 M/S. BRILLIANT GEMS 2 THAT SINCE THE ENTIRE RECEIPT IS FROM SINGLE PARTY AND THE ASSESSEE IS ONLY DOING JOB WORK FOR THE SAID PARTY (M/S. JEWELEX IND IA P. LTD.) AND ITS EXPENDITURE INCLUDES ONLY PAYMENT OF LABOUR CHARGES BESIDES SOME ADMINISTRATIVE EXPENSES AND ASSESSEE HAS GOT NO BUS INESS CONNECTION WITH ANY FOREIGN COUNTRY, THEREFORE, HE DISALLOWED THE F OREIGN TRAVEL EXPENSES OF ` 2,08,829/- AND ADDED TO THE INCOME OF THE ASSESSEE. 3. ON APPEAL IT WAS STATED BY THE ASSESSEE THAT SHRI D HIREN SHAH, PARTNER HAS TRAVELLED TO COUNTRIES LIKE SOUTH AFRIC A, JOHANNESBURG AND KINSHUSHU ON THREE OCCASIONS. THE MAIN PURPOSE OF S UCH VISITS WAS TO EXPLORE THE MARKET FOR ROUGH DIAMONDS AND TO EXPLOR E THE PROSPECTS OF ROUGH DIAMONDS FROM THE SAID COUNTRY. IT WAS FURTHE R POINTED OUT THAT DURING THE VISIT THE PARTNERS MET VARIOUS PARTIES A ND INITIAL MEETING WAS PROMISING, HENCE, HE REPEATED HIS VISITS. IT WAS AL SO SUBMITTED THAT SHRI DHIREN SHAH WAS EARLIER PARTNER IN G. NITIN & CO., WHICH IS A MAJOR IMPORTER OF ROUGH DIAMONDS. THUS THE EXPENDITURE INCURRED FO R FOREIGN TRAVELLING IS AN ALLOWABLE EXPENDITURE. IT WAS ALSO SUBMITTED THA T THE ASSESSEE HAS PAID FBT, HENCE, SUCH EXPENDITURE CANNOT BE DISALLOWED. THE ASSESSEE, AFTER RELYING ON CERTAIN DECISIONS, SUBMITTED THAT THE FO REIGN TRAVELLING EXPENDITURES ARE CONNECTED WITH EXPLORATORY MISSION OR TO FINALIZE COLLABORATION AGREEMENT IS ALLOWABLE EXPENDITURE. H OWEVER, THE LEARNED CIT(A), AFTER CONSIDERING ASSESSEES SUBMISSIONS, W HILE CONFIRMING THE DISALLOWANCE MADE BY THE A.O. HAS OBSERVED AND HELD VIDE PARA 5 OF HIS ORDER AS UNDER: - 5. I HAVE CONSIDERED THE RIVAL SUBMISSIONS AND FI NDINGS OF THE ASSESSING OFFICER CAREFULLY. THE NATURE OF BUSINESS OF THE APPELLANT IS ONLY A JOB WORK OF PROCESSING OF DIAMONDS OF ONE PA RTY VIZ. M/S. JEWELEX INDIA PVT. LTD. WHICH ITSELF DOES NOT REQUI RE ANY SUCH FOREIGN TOUR BY THE PARTNERS OF THE APPELLANT FIRM. THE REC EIPT OF THE JOB CHARGES ITSELF PROVES THAT APPELLANT IS ONLY DOING DIAMOND PROCESSING/POLISHING WORK FOR FEW PARTIES AND IN TH IS YEAR ONLY FOR ONE PARTY. ASSESSING OFFICER HAS THEREFORE, RIGHTLY MENTIONED THAT APPELLANT HAS DONE DIAMOND-PROCESSING WORK EXCLUSIV ELY FOR ONE PARTY, THUS, FROM THIS ANGLE THERE IS NO PROPRIETY IN ALLOWING SUCH FOREIGN TOUR OF SUCH PARTNERS. DURING THE COURSE OF HEARING PROCEEDINGS, THOUGH APPELLANT HAS MENTIONED VIDE LE TTER DATED 21.01.2010 THAT SHRI DHIREN SHAH HAD MET VARIOUS PA RTIES, BUT HAS NOT SUBSTANTIATED AS TO WHETHER ANY BUSINESS AGREEM ENT WAS SIGNED. ITA NO. 2499/MUM/2010 M/S. BRILLIANT GEMS 3 APPELLANT HAS ALSO NOT EXPLAINED ON THE BASIS OF AN Y SUPPORTING EVIDENCE AS TO WHAT HAPPENED AFTER FIRST VISIT OF A FRICAN COUNTRIES. APPELLANT HAS ALSO NOT EXPLAINED THE ACTUAL BUSINES S NEED OF SUCH FOREIGN VISIT WHILE ADVANCING THE ARGUMENT THAT WIT H A VIEW TO EXPLORE MARKET FOR ROUGH DIAMONDS, SUCH VISIT WAS P AID BY THE PARTNERS. IN FACT THIS IS VERY GENERAL AND VAGUE AR GUMENT HAVING NO FOUNDATION WITH ANY EVIDENCE THAT THERE WAS SUCH TOUR FOR EXPLORATION OF DIAMOND BUSINESS FROM THE AFRICAN CO UNTRIES. IT IS WIDELY KNOWN FACT THAT AL THE MINES OF AFRICAN COUN TRIES HAVE BEEN TAKEN ON LEASE BY THE PRODUCERS OF EUROPEAN CO UNTRIES, ISRAEL AND USA WHO USED TO TRADE SUCH DIAMONDS THRO UGH BELGIUM AND OTHER INTERNATIONAL MARKET. LD. A.R. HA S NOT PRODUCED ANY EVIDENCE AS TO HOW THERE WAS A DIRECT BUSINESS NEED AND THERE WAS ANY ACTUAL BUSINESS PURPOSE FOR SUCH VISITS. ONLY XEROX COP[Y OF BILL OF TRAVEL SHOPPE, MUMBAI H AS BEEN PRODUCED WHICH CANNOT JUSTIFY THE CLAIM OF THE APPE LLANT ABOUT THE BUSINESS TOUR. WHEN AO HAS SPECIFICALLY MENTIONED T HAT APPELLANT HAS NOT EXPLAINED BUSINESS NEED OR ELEMENT OF BUSIN ESS REQUIREMENT OF SUCH TOUR, IT IS THE DUTY OF THE APP ELLANT TO PROVE THE CLAIM BEYOND DOUBT WITH CORROBORATIVE EVIDENCE OR RELIABLE DOCUMENTARY-CUM-RELATABLE EVIDENCE ABOUT OUTCOME OF BUSINESS TOUR. NO SUCH EVIDENCE HAS BEEN ADDUCED IN SUPPORT OF SUCH ARGUMENTS, ADVANCED BY LD. A.R. HENCE SAME CANNOT B E PRESUMED TO BE TENABLE. THEREFORE, CONSIDERING THE FACTS OF THE CASE AND FAILURE ON THE PART OF THE APPELLANT TO SU BSTANTIATE THE GROUNDS OF APPEAL, THE ADDITION MADE BY THE ASSESSI NG OFFICER BY DISALLOWING FOREIGN TRAVELLING EXPENSES OF RS.2,88, 829/- IS CONFIRMED. 4. BEING AGGRIEVED BY THE ORDER OF THE CIT(A) THE ASSE SSEE IS IN APPEAL BEFORE US TAKING THE FOLLOWING SOLE GROUND OF APPEA L: - 1) THE LEARNED CIT(A) 26 ERRED IN RESTRICTING TR AVELLING EXPENSES TO THE TUNE OF RS.25,563/- AND THEREBY CONFIRMING A N ADDITION OF RS.2,08,829/- BY DISALLOWING FOREIGN TRAVELLING EXP ENSES. 5. AT THE TIME OF HEARING THE LEARNED COUNSEL FOR THE ASSESSEE, WHILE REITERATING THE SAME SUBMISSIONS AS SUBMITTED BEFOR E THE A.O. AND THE LEARNED CIT(A), FURTHER SUBMITS THAT SINCE THE FORE IGN VISIT WAS MADE TO EXPLORE THE MARKET FOR ROUGH DIAMONDS AND TO EXPLOR E THE PROSPECT OF ROUGH DIAMONDS FROM SOUTH AFRICAN COUNTRIES, THEREFORE, I T WAS BUSINESS EXPENDITURE AND THE A.O. AND THE CIT(A) HAVE ERRED IN NOT ALLOWING THE SAME. RELIANCE WAS ALSO PLACED IN CIT VS. J.K. INDU STRIES (P) LTD. (1969) 71 ITR 594 (CAL) AND CIT VS. NATIONAL RAYON CORPORATIO N LTD. (1984) 19 TAXMAN 485 (BOM). ITA NO. 2499/MUM/2010 M/S. BRILLIANT GEMS 4 6. ON THE OTHER HAND, THE LEARNED D.R. SUPPORTS THE OR DERS OF THE A.O. AND THE LEARNED CIT(A). 7. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF RIV AL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND T HAT THERE IS NO DISPUTE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF JOB WORK/LABOUR CHARGES IN DIAMONDS AND ITS ENTIRE RECEIPTS ARE FROM SINGLE PA RTY FOR DOING JOB WORK FOR THE SAID PARTLY, NAMELY, M/S. JEWELEX INDIA P. LTD. IT WAS CLAIMED BY THE ASSESSEE THAT DURING THE FINANCIAL YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESSEE HAS INCURRED FOREIGN TRA VEL EXPENSES OF ` 2,08,829/- TO VISIT FOREIGN COUNTRY LIKE SOUTH AFRI CA, JOHANNESBURG AND KINSHUSHU ON THREE OCCASIONS. IT WAS CONTENDED BY T HE ASSESSEE THAT THE MAIN PURPOSE OF SUCH VISITS WAS TO EXPLORE THE MARK ET FOR ROUGH DIAMONDS AND TO EXPLORE THE PROSPECTS OF ROUGH DIAMONDS FROM THE SAID COUNTRY, THEREFORE THE EXPENDITURE CLAIMED BY THE ASSESSEE O N FOREIGN TRAVELLING IS ALLOWABLE. PER CONTRA THE CLAIM OF THE REVENUE IS T HAT SINCE THE ASSESSEE IS DOING LABOUR AND PROCESSING WORK EXCLUSIVELY FOR ON E PARTY AND IN THE ABSENCE OF ANY MATERIAL TO SHOW THE COPY OF AGREEME NT AND WHAT HAPPENED AFTER THE FIRST VISIT TO AFRICAN COUNTRIES AND THE ACTUAL NEED OF SUCH FOREIGN VISITS WHEN THE ASSESSEE IS NOT IN THE BUSINESS OF DIAMONDS, THE FOREIGN TRAVEL EXPENSES CLAIMED BY THE ASSESSEE ARE NOT ALL OWABLE. 8. AFTER CONSIDERING THE TOTALITY OF THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND KEEPING IN VIEW THAT THE ASSESSEE IS ENGAG ED IN THE BUSINESS OF JOB WORK/LABOUR CHARGES IN DIAMONDS WE OBSERVE THAT FOR EIGN TOUR STATED TO HAVE BEEN UNDERTAKEN BY THE ASSESSEE TO EXPLORE THE MARKET AND PROSPECTS OF ROUGH DIAMONDS IS NOT FOR EXPANSION OF THE BUSIN ESS CARRIED ON BY THE ASSESSEE BUT FOR INITIATION OF NEW BUSINESS, AS THE PROPOSED NEW LINE OF BUSINESS WAS IN NO WAY CONNECTED WITH ASSESSEES BU SINESS. IT IS ALTOGETHER A NEW VENTURE PROPOSED TO BE UNDERTAKEN BY THE ASSE SSEE. UNDER THE PROVISIONS OF SECTION 37 ONLY THAT EXPENDITURE CAN BE ALLOWED TO BE DEDUCTED AS IS LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR PROFESSION, SO LONG AS IT IS NOT IN TH E NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE. T HIS DEDUCTION IS ALLOWED IN COMPUTING INCOME CHARGEABLE UNDER THE HEAD PRO FIT AND GAINS OF ITA NO. 2499/MUM/2010 M/S. BRILLIANT GEMS 5 BUSINESS OR PROFESSION. ONCE IT IS FOUND THAT NEW V ENTURE IS TOTALLY UNCONNECTED WITH THE BUSINESS NOW CARRIED ON BY THE ASSESSEE, THERE APPEARS TO BE NO GROUND FOR HOLDING THAT SUCH EXPEN DITURE IS LAID OUT WHOLLY OR EXCLUSIVELY FOR THE PURPOSE OF BUSINESS CARRIED ON BY THE ASSESSEE. IN THIS VIEW OF THE MATTER AND IN THE ABSENCE OF ANY MATERI AL TO SHOW ANY AGREEMENT WITH THE FOREIGN PARTIES OR MATERIAL TO S HOW THAT THE ASSESSEE HAS MET WITH THE FOREIGN PARTIES FOR THE PURPOSE OF HIS BUSINESS WE ARE OF THE VIEW THAT THE LEARNED CIT(A) WAS FULLY JUSTIFIED IN UPHOLDING THE DISALLOWANCE OF FOREIGN TRAVEL EXPENSES OF ` 2,08,829/- MADE BY THE A.O. 9. IN J.K. INDUSTRIES (P) LTD. (SUPRA) RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE IT HAS BEEN HELD AS UNDER (PG. 594 HEAD NOTES): - HELD: IN THE INSTANT CASE THE ASSESSEE WAS NOT AN Y OF THE MANAGED COMPANIES, BUT THE MANAGING AGENCY COMPANY WHICH HAD INCURRED EXPENSES EITHER FOR IMPROVEMENT OR EXPANSI ON OF BUSINESS OR FOR THE STARTING OF NEW BUSINESS OF THE COMPANIES M ANAGED BY IT. IT MAY BE THAT BY REASON OF EXPENSES INCURRED BY THE M ANAGING AGENT CERTAIN ASSETS OF ENDURING BENEFIT HAD ACCRUED TO O NE OR THE OTHER MANAGED COMPANY. BUT THE PURPOSE FOR WHICH THE MANA GING AGENT INCURRED THESE EXPENSES MUST BE CLEARLY BORNE IN MI ND IN ANSWERING THE QUESTION. THE MANAGING AGENT WAS INTERESTED IN INCREASING ITS OWN EARNINGS OR AUGMENTING THE COMMISSION IT DERIVE D FROM THE MANAGED COMPANIES AND IT WAS WITH THE OBJECT OF CRE ATING POSSIBILITIES FOR ENLARGEMENT OF ITS INCOME THAT IT SPENT THE AMOUNT. THE OBJECT OR PURPOSE WAS OBVIOUSLY TO PRODUCE THE CONDITIONS OR CIRCUMSTANCES FOR INCREASED INCOME OF THE MANAGING AGENT. IN VIEW OF THE ABOVE IT COULD BE SAID THAT THE FOREIGN TOUR EX PENSES INCURRED BY THE ASSESSEE WERE NOT EXPENSES OF A CAPITAL NATURE. WHEREAS IN THE CASE BEFORE US THE ASSESSEE FIRM IS DOING JOB WORK/LABOUR CHARGES IN DIAMONDS AND NOT A MANAGING AGENT AND TH E EXPENSES INCURRED BY THE ASSESSEE IS FOR INITIATION OF A NEW BUSINESS AND NOT FOR EXPANSION OF THE BUSINESS CARRIED ON BY THE ASSESSEE, THEREFORE, THE DECISION RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE IS DISTINGU ISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. 10. IN THE CASE OF NATIONAL RAYON CORPORATION LTD. (SUP RA) THE HON'BLE JURISDICTIONAL HIGH COURT HAS HELD AS UNDER: - HELD: UNLESS THE EXPENDITURE IS DIRECTLY RELATED T O A CAPITAL ASSET ACQUIRED OR TO BE ACQUIRED IN THE NEAR FUTURE, IT C ANNOT BE SAID TO HAVE BROUGHT ABOUT AN ENDURING BENEFIT AND TO BE OF A CA PITAL NATURE. THE ITA NO. 2499/MUM/2010 M/S. BRILLIANT GEMS 6 PRINCIPAL PURPOSE OF THE VISIT IN THIS CASE WAS CLE ARLY TO REDUCE THE FOREIGN EXCHANGE COMPONENT IN THE EXPENDITURE TO BE INCURRED IN SETTING UP THE PLANT. ACCORDINGLY, THE EXPENDITURE INCURRED WAS ALLOWABLE AS REVENUE EXPENDITURE. WHEREAS IN THE CASE BEFORE US THE ASSESSEE HAS PLAC ED NO MATERIAL ON RECORD TO SHOW THAT THE FOREIGN VISIT WAS MADE TO SIGN SOM E AGREEMENT OR TO MEET CERTAIN FOREIGN PARTIES FOR THE PURPOSE OF ITS BUSI NESS, THEREFORE THE DECISION RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE IS DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. 11. IN THIS VIEW OF THE MATTER WE ARE OF THE VIEW THAT THE FOREIGN TRAVELS EXPENSES CLAIMED BY THE ASSESSEE ARE NOT FOR THE PU RPOSE OF THE BUSINESS OF THE ASSESSEE, THEREFORE THE SAME ARE NOT ALLOWABLE AS BUSINESS EXPENDITURE UNDER SECTION 37 OF THE ACT AND THEREFORE WE ARE IN CLINED TO UPHOLD THE FINDINGS OF THE LEARNED CIT(A) IN CONFIRMING THE DI SALLOWANCE MADE BY THE A.O. GROUND TAKEN BY THE ASSESSEE IS, THEREFORE, RE JECTED. 12. IN THE RESULT, ASSESSEES APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH FEBRUARY 2011. SD/- SD/- (RAJENDRA SINGH) (D.K. AGARWAL) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 18 TH FEBRUARY 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XXVI, MUMBAI 4. THE CIT XV, MUMBAI CITY 5. THE DR, I BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P. ITA NO. 2499/MUM/2010 M/S. BRILLIANT GEMS 7 S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 08.02.11 SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR 09.02.11 SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS SR. PS/PS 6 KEPT FOR PRONOUNCEMENT SR. PS/PS 7 FILE SENT TO BENCH CLERK SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER