M/s. Spica Finstock Ltd., Ahmedabad V. The ACIT., Circle-3, Ahmedabad

ITA 2718/AHD/2006

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1865 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2009
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 07-12-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 08-12-2006
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: NITA SHAH
• Assessee Lawyers: MEHUL K PATEL
• Keywords: Business expenditure; Difference of opinion
• Section: 271(1)(c); 43B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD A BENCH (BEFORE DR.O.K. NARAYANAN, VICE-PRESIDENT AND SHRI BHAVNESH SAINI, JUDICIAL MEMBER) ITA NO.2718AHD/2006 [ASSTT.YEAR : 2001-2002] M/S.SPICA FINSTOCK LTD., 203, GANESH PLAZA OPP: NAVRANGPURA BUS STAND AHMEDABAD. VS. ACIT, CIR.3 AHMEDABAD. ASSESSEE BY : SHRI MEHUL K.PATEL REVENUE BY : SMT. NITA SHAH, DATE OF ORDER RESERVED : 07-12-2009 O R D E R PER DR. O.K. NARAYANAN, VICE-PRESIDENT : THIS APPEAL IS FILED BY THE ASSESSEE. THE RELEVANT ASSESSMENT YEAR IS 2 001-2002. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF I NCOME-TAX (APPEALS)-VII AT AHMEDABAD DATED 31.10.2006 AND ARISES OUT OF THE PE NALTY ORDER PASSED UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961. 2. THE ASSESSEE COMPANY IS A SHARE BROKER WHICH HAS RETURNED A LOSS OF RS.33,880/- FOR THE ASSESSMENT YEAR UNDER APPEAL. AFTER MAKING ADDITIONS ON ACCOUNT OF DISALLOWANCES, THE ASSESSING OFFICER HAS DETERMINED THE INCOME AT RS.6,77,086/-. THE ASSESSMENT WAS TAKEN IN FIRST A PPEAL BEFORE THE CIT(A). IN THE SAID QUANTUM APPEAL, THE CIT(A) HAS CONFIRMED T HE FOLLOWING ADDITIONS MADE BY THE ASSESSING AUTHORITY: I) UNPAID SEBI REGISTRATION FEE : RS.3,45,006/- II) TRAVELLING EXPENSES : RS.2,67,478/- III) LIC PREMIA : RS. 15,268/- PAGE - 2 ITA NO.2718AHD/2006 -2- THE ABOVE ADDITIONS WERE AGAIN AGITATED BEFORE THE APPELLATE TRIBUNAL, BUT THE TRIBUNAL HAS ALSO UPHELD THE ADDITIONS AND THE SECO ND QUANTUM APPEAL FILED BY THE ASSESSEE WAS DISMISSED. 3. MEANWHILE, AFTER GIVING THE EFFECT TO THE ORDER OF THE CIT(A), THE AO INITIATED PROCEEDINGS UNDER SECTION 271(1)(C) PROPO SING LEVY OF PENALTY IN RESPECT OF THREE ITEMS OF ADDITIONS CONFIRMED AS ME NTIONED ABOVE. THE CIT(A) CONSIDERED THE DETAILED ARGUMENTS PUT FORWARD BY TH E ASSESSEE. IN THE MATTER OF PENALTY ATTRIBUTABLE TO THE UNPAID SEBI REGISTRATIO N FEE OF RS.3,45,006/-, THE CIT(A) HELD THAT THE ADDITION WAS JUSTIFIED ONLY ON THE TECHNICAL GROUND OF SECTION OF SECTION 43B AND AS SUCH THAT ADDITION DO ES NOT MAKE OUT A CASE OF CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE P ARTICULARS OF INCOME. ACCORDINGLY, HE DELETED THE PENALTY ATTRIBUTABLE TO THE SAID ADDITION OF RS.3,45,006/-. IN RESPECT OF THE OTHER TWO ADDITIO NS, VIZ. DISALLOWANCE ON ACCOUNT OF FOREIGN TRAVEL EXPENSES AND LIC PREMIA O F THE DIRECTORS, THE CIT(A) AGREED WITH THE ASSESSING AUTHORITY AND CONFIRMED T HE PENALTY ATTRIBUTABLE TO THOSE TWO ADDITIONS. THUS, THE APPEAL WAS PARTLY S UCCESSFUL. THE ASSESSEE IS AGGRIEVED AND THEREFORE SECOND APPEAL BEFORE US. 4. WE HEARD SHRI MEHUL K. PATEL, THE LEARNED COUNSE L APPEARING FOR THE ASSESSEE AND SMT. NEETA SHAH, THE LEARNED ADDL. COM MISSIONER OF INCOME-TAX APPEARING FOR THE REVENUE. 5. THE LEARNED COUNSEL FOR THE ASSESSEE ARGUED EXTE NSIVELY TO JUSTIFY THE CLAIM OF DEDUCTIONS MADE BY THE ASSESSEE-COMPANY. HE EXPLAINED THAT EVEN THOUGH THE ADDITIONS HAVE NOT BEEN DELETED IN APPEA LS, THOSE ADDITIONS PER SE DO NOT JUSTIFY IMPOSITION OF PENALTY AS THOSE EXPENSES HAVE BEEN INCURRED BY THE ASSESSEE COMPANY IN THE COURSE OF BUSINESS CARRIED ON BY IT AND EXCLUSIVELY FOR THE PURPOSE OF THE SAID BUSINESS. IT IS THE CONTEN TION THAT THE FOREIGN TRAVEL EXPENSES WERE INCURRED BY THE DIRECTORS OF THE ASSE SSEE-COMPANY, WHO HAD PAGE - 3 ITA NO.2718AHD/2006 -3- GONE ABROAD TO PROSPECT BUSINESS FROM NRI CLIENTS. THEREFORE, THE TRAVELING EXPENDITURE SHOULD BE TREATED AS PART OF THE PROSPE CTING EXPENSES OF THE ASSESSEE. HE FURTHER EXPLAINED THAT THE FOREIGN TR IP HAS EARNED SUBSTANTIAL NRI BUSINESS FOR THE ASSESSEE COMPANY WHICH JUSTIFIES T HE INCURRING OF THE EXPENDITURE. HE THEREFORE SUBMITTED THAT THE DISAL LOWANCES OF THE SAID EXPENDITURE DOES NOT AMOUNT EITHER TO CONCEALMENT O F INCOME OR TO FURNISHING OF INACCURATE PARTICULARS SO AS TO ATTRACT THE PENA L PROVISIONS OF SECTION 271(1)(C) OF THE ACT. IN RESPECT OF THE LIC PREMIA PAID IN THE NAME OF DIRECTORS, THE LEARNED COUNSEL SUBMITTED THAT AS TH E DETAILS ARE REFLECTED IN THE ACCOUNTS, THE DISALLOWANCE OF THE SAID AMOUNTS AS S UCH SHOULD NOT BE TREATED AS A GROUND FOR IMPOSITION OF PENALTY. THE LEARNED CO UNSEL EXPLAINED THAT THE CRUCIAL TEST TO BE APPLIED IN THESE MATTERS IS THE INTENTION OF THE ASSESSEE TO INCUR THE EXPENDITURE AND THE CONDUCT OF THE ASSESS EE IN INCURRING SUCH EXPENDITURE. THE EXPENDITURE WAS INCURRED FOR THE PURPOSE OF BUSINESS AND THE EXPENDITURE WAS INCURRED FOR THE INVOLVEMENT OF THE DIRECTORS OF THE ASSESSEE- COMPANY. NOBODY HAS ENJOYED ANY UNDUE ADVANTAGE FR OM THE SAID EXPENDITURE. ONCE THE EXPENSES ARE HELD TO BE INCU RRED FOR THE PURPOSE OF THE BUSINESS CARRIED ON BY THE ASSESSEE, THE TECHNICAL DISALLOWANCE OF THE EXPENSES IN THE QUANTUM ASSESSMENT SHOULD NOT BE TREATED AS AN INEVITABLE GROUND TO IMPOSE PENALTY. 6. SMT. NEETA SHAH, THE LEARNED ADDL. COMMISSIONER OF INCOME-TAX, ON THE OTHER HAND, EXPLAINED THAT THE AO HAS DISCUSSED IN DETAIL THE CIRCUMSTANCES SURROUNDING THE FOREIGN TRAVEL UNDERTAKEN BY THE DI RECTORS OF THE ASSESSEE- COMPANY. THE ASSESSEE HAS AVAILED THE TOUR PROGRAM ME OFFERED BY SOTC WORLD FAMOUS TOURS TO VISIT FOREIGN COUNTRIES. THE SAID TOUR ORGANIZERS CHARTER LUXURY SHIPS FOR CATERING TO THE REQUIREMEN TS OF TOURISTS. THE PASSENGERS FOR BUSINESS PURPOSE DO NOT USUALLY TRAV EL IN SUCH LEISURE TRIPS. THERE IS NOTHING ON RECORD TO SHOW THAT THE TRIPS U NDERTAKEN BY THE DIRECTORS OF ASSESSEE- COMPANY IN THE LUXURY LINER HAVE GENERATE D ANY FRESH NRI BUSINESS PAGE - 4 ITA NO.2718AHD/2006 -4- FOR THE ASSESSEE COMPANY. THE AO HAS ALSO MENTIONE D THAT CERTAIN FOREIGN EXCHANGE PURCHASE BILLS REVEALED THAT THERE WERE PU RCHASES BY THE WIFE OF ONE OF THE DIRECTORS. THE LEARNED ADDL. COMMISSIONER E XPLAINED THAT THE CONDUCT OF THE DIRECTORS OF THE ASSESSEE-COMPANY IN UNDERTA KING THE FOREIGN TRIPS IN A TOURIST PACKAGE IS A SPEAKING TESTIMONY TO SUPPORT THE STAND TAKEN BY THE ASSESSING AUTHORITY THAT THESE FOREIGN TRIPS WERE O NLY PLEASURE TRIPS AND NOT BUSINESS TRIPS AS CANVASSED BY THE ASSESSEE-COMPANY . REGARDING THE LIC PREMIA PAYMENTS, THE LEARNED ADDL. COMMISSIONER EXP LAINED THAT THE ASSESSEE- COMPANY HAS NOT PRODUCED ANY MATERIAL BEFORE THE AO TO PROVE THAT THOSE PAYMENTS WERE MADE FOR AND ON BEHALF OF THE DIRECTO RS OF THE ASSESSEE- COMPANY IN THE LIGHT OF ANY CONTRACT/AGREEMENT OR I N THE LIGHT OF ANY STATUTORY COMPULSION. AS THE PREMIA WERE PAID ON THE PERSONA L LIFE INSURANCE OF THE DIRECTORS, IT IS NOT KNOWN HOW THOSE PAYMENTS WOULD PARTAKE THE CHARACTER OF BUSINESS EXPENDITURE. SHE THEREFORE SUBMITTED THAT THE LOWER AUTHORITIES ARE FULLY JUSTIFIED IN LEVYING PENALTY IN RESPECT OF TH E TWO DISALLOWANCES, CONFIRMED BY THE CIT(A) IN FIRST QUANTUM APPEAL. 7. WE HEARD BOTH THE SIDES IN DETAIL. WE DO NOT HA VE ANY SORT OF DIFFERENCE WITH THE ARGUMENTS OF THE LEARNED COUNSEL APPEARING FOR THE ASSESSEE RELATING TO THE GENERAL PROPOSITIONS OF LAW ADVANCED BY HIM AT THE TIME OF HEARING. EVERY LEGITIMATE EXPENDITURE IF INCURRED FOR THE BUSINESS PURPOSE OF THE ASSESSEE AND PERMITTED BY THE STATUTE TO BE SO INCURRED, SUCH EX PENDITURE HAVE NECESSARILY TO BE TREATED AS BUSINESS EXPENDITURE, ELIGIBLE FOR DE DUCTION IN COMPUTING THE TAXABLE INCOME OF THE ASSESSEE. THE FOREIGN TRAVEL ING EXPENDITURE IS OF COURSE NOT AN EXCEPTION TO THE ABOVE GENERAL RULE. 8. BUT WE DIFFER WITH THE ARGUMENTS OF THE LEARNED COUNSEL IN RESPECT OF THE FACTUAL MATRIX OF THE ISSUE. THERE IS NO DISPUTE T HAT THE DIRECTORS OF THE ASSESSEE-COMPANY HAVE UNDERTAKEN THE FOREIGN TRAVEL IN A TOURIST LINER BY SUBSCRIBING TO A TOURIST PACKAGE. IT IS NOT NECES SARY TO EXPLAIN IN VERY MANY PAGE - 5 ITA NO.2718AHD/2006 -5- WORDS THAT BUSINESS TRIPS ARE NOT USUALLY UNDERTAKE N IN SUCH TOURIST PROGRAMME. EVEN IF AN EXTREME CASE IS CONCEIVED THAT THE DIREC TORS WERE MORE CONFIDENT THAT THEY COULD GENERATE NRI BUSINESS EVEN IN A VOY AGE IN LUXURY LINER MEANT FOR TOURISM DESTINATIONS, THE ASSESSEE SHOULD HAVE BROUGHT ON RECORD SOME PARTICULARS OF THEIR ACTIVITIES WHICH JUSTIFIES THA T THEY HAD ACTUALLY MADE ENDEAVOUR TO GENERATE NRI BUSINESS FOR THE ASSESSEE -COMPANY. EVEN THOUGH THE ASSESSEE COMPANY HAS BROUGHT CERTAIN DETAILS OF NRI CLIENTS, THOSE DETAILS DO NOT HAVE ANY SORT OF PROXIMITY OR NEXUS TO THE L UXURY VOYAGE UNDERTAKEN BY THE DIRECTORS OF THE ASSESSEE-COMPANY. AS ALREADY STATED ELSEWHERE IN THE ORDER, THE CONDUCT OF AN ASSESSEE IS VERY IMPORTANT IN APPRECIATING THE TRUE NATURE OF THE TRAVEL UNDERTAKEN BY THE ASSESSEE. I N THE PRESENT CASE, IN THE ABSENCE OF ANY CONTEMPORANEOUS DETAILS SUPPORTING G ENERATION OF NRI BUSINESS IN THE CONTEXT OF THE FOREIGN TRAVEL UNDERTAKEN BY THE DIRECTORS OF THE ASSESSEE- COMPANY, IT IS VERY HARD TO BELIEVE THAT THOSE FORE IGN TRIPS WERE IN FACT BUSINESS TRIPS UNDERTAKEN BY THE DIRECTORS OF THE ASSESSEE-C OMPANY. IT IS FOR THE SAID REASON THAT THE ARGUMENTS OF THE ASSESSEE WERE NOT SUCCESSFUL IN QUANTUM APPEALS. THEREFORE, WE FIND THAT THE INESCAPABLE C ONCLUSION COMING OUT OF THE FACTS AND CIRCUMSTANCES IS THAT THE FOREIGN TRAVEL EXPENSES INCURRED BY THE ASSESSEE-COMPANY ON BEHALF OF ITS DIRECTORS CANNOT BE TREATED AS EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS CARRIED ON BY THE ASSESSEE. THEREFORE, WE AGREE WITH THE FINDINGS OF THE CIT(A) ON THIS ISSUE . 9. REGARDING THE ISSUE OF LIC PREMIA PAID ON BEHALF OF THE DIRECTORS OF THE ASSESSEE-COMPANY, WE FIND THAT THOSE PAYMENTS WERE EXCLUSIVELY FOR THE PERSONAL INTERESTS OF THE DIRECTORS AND NOTHING TO DO WITH THE BUSINESS CARRIED ON BEHALF BY THE ASSESSEE-COMPANY. THEREFORE, THOS E PAYMENTS ARE IN FACT IN THE NATURE OF WITHDRAWALS MADE BY THE DIRECTORS OF THE ASSESSEE-COMPANY FROM THE FUNDS OF THE ASSESSEE-COMPANY. THEREFORE, THO SE EXPENSES SHOULD GO TO THE PERSONAL ACCOUNTS OF THOSE DIRECTORS. AS THE PAYME NTS WERE NOT MADE AS PART OF PAGE - 6 ITA NO.2718AHD/2006 -6- ANY SERVICE CONTRACT OR ANY OTHER EXIGENCY OF THE B USINESS, IT IS NOT POSSIBLE TO HOLD THAT SUCH PERSONAL PAYMENTS ARE IN THE NATURE OF BUSINESS EXPENSES. 10. EVEN IF, NOT VERY MUCH CALLED FOR, WE HAVE EXAM INED THE FACTUAL BACKGROUND OF ADDITIONS SUSTAINED BY THE CIT(A) WHI CH PAVED WAY FOR THE IMPOSITION OF PENALTY. WE HAVE AGREED WITH THE CIT (A) THAT THE DISALLOWANCES HAVE BEEN RIGHTLY MADE BY THE ASSESSING AUTHORITY A S THOSE EXPENSES COULD NOT BE TREATED AS EXPENSES INCURRED FOR THE BUSINESS CA RRIED ON BY THE ASSESSEE. NOW QUESTION IS WHETHER THOSE DISALLOWANCES JUSTIFY IMPOSITION OF PENALTY UNDER SECTION 271(1)(C). THE ANSWER TO THE QUESTIO N IS WHETHER THE ASSESSEE HAS CONCEALED ANY INCOME LIABLE FOR TAXATION OR HAS FURNISHED INACCURATE PARTICULARS OF INCOME. WHEN WE EXAMINED THE NATURE OF DEDUCTIONS CLAIMED BY THE ASSESSEE, IT IS VERY CLEAR THAT THE ASSESSEE CO MPANY HAS FURNISHED INACCURATE PARTICULARS OF INCOME. THE EXPENSES CLAIMED BY THE ASSESSEE HAVING INCURRED EXCLUSIVELY FOR THE PERSONAL BENEFITS OF THE DIRECT ORS OF THE ASSESSEE-COMPANY, THE ASSESSEE SHOULD NOT HAVE DEDUCTED THOSE EXPENSE S IN COMPUTING ITS TAXABLE INCOME. THE DEDUCTIONS CLAIMED BY THE ASSESSEE-CO MPANY WERE NOT LEGITIMATE. IT AMOUNTS TO FURNISHING OF INACCURATE PARTICULARS AS THE ASSESSEE HAS CLAIMED DEDUCTIONS OF INADMISSIBLE ITEMS. THIS IS NOT A CASE OF DIFFERENCE OF OPINION OR ADDITIONS ON LEGAL OR TECHNICAL GROUN DS. ADDITIONS HAVE BEEN MADE AS THE ASSESSEE-COMPANY HAS RETURNED ITS INCOM E AFTER DEDUCTING APPARENTLY INADMISSIBLE ITEMS. THEREFORE, IN OUR C ONSIDERED OPINION, THIS CASE COMES UNDER THE CLAUSE OF FURNISHING OF INACCURATE PARTICULARS WHICH IN TURN TACITLY CONCEALS THE TRUE INCOME ASSESSABLE IN THE HANDS OF THE ASSESSEE. IN THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE ASSESSEE IS LIABLE TO VISIT WITH PENALTY AS PROVIDED UNDER SECTION 271(1)(C) OF THE ACT WITH REFERENCE TO THE AMOUNTS AGITATED IN THE PRESENT APPEAL. PAGE - 7 ITA NO.2718AHD/2006 -7- 11. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE ORDER OF THE CIT(A) IS JUSTIFIED IN LAW AS WELL AS ON FACTS. AC CORDINGLY, APPEAL OF THE ASSESSEE IS DISMISSED. 12. IN RESULT THE APPEAL IS DISMISSED. ORDER PRONOUNCED ON WEDNESDAY THIS 09 TH DAY OF DECEMBER, 2009. SD/- SD/- (BHAVNESH SAINI) JUDICIAL MEMBER (DR.O.K. NARAYANAN) VICE-PRESIDENT PLACE : AHMEDABAD DATE : 09-12-2009 COPY OF THE ORDER FORWARDED TO: 1) : ASSESSEE 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR, ITAT, AHMEDABAD