M/s Talbro Forgings, Jalandhar V. The Dy Commissioner Of Income Tax, Jalandhar

ITA 284/ASR/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0556 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 05-06-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A N MISRA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR (CAMP AT JA LANDHAR ) BEFORE SH. A.D.JAIN, JUDICIAL MEMBER AND SH. T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A NO.284(ASR)/2015 ASSESSMENT YEAR: 2010-11 M/S. TALBRO FORGINGS, INDUSTRIAL ESTATE, JALANDHAR. PAN: AAAFT4939K VS. DY. CIT RANGE-II, JALANDHAR CITY. (APPELLANT) (RESPONDENT) APPELLANT BY: SH. SANDEEP VIJH (CA) RESPONDENT BY: SH. A.N.MISRA (DR) DATE OF HEARING: 21.06. 2016 DATE OF PRONOUNCEMENT: 24.06.2016 ORDER PER T. S. KAPOOR (AM): THIS IS AN APPEAL FILED BY ASSESSEE AGAINST THE ORD ER OF LEARNED CIT(A), JALANDHAR, DATED 24.04.2015 FOR ASST. YEAR: 2010-11. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL. (I) THAT THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS), HAS ERRED IN ONLY ALLOWING PART RELIEF OUT OF THE DISALLOWANCE OF RS.1 0,14,291/- TO THE EXTENT OF THE EXPENSE OF BOOKING OF GERMAN HALL FOR EXHIBITION. T HE ENTIRE EXPENDITURE OF RS.10,14,291/- INCURRED ON THE BOOKING OF INDIAN HAL L AND THEN SHIFTING TO THE GERMAN HALL FOR EXHIBITION WAS ALLOWABLE BUSINESS E XPENDITURE. (II) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), HAS ERRED IN SUSTAINING THE DISALLOWANCE OF RS.39,310/- FROM OUT OF FOREIGN TRAVELLING EXPENS ES. THE SUBMISSIONS MADE ON THIS ISSUE HAVE NOT BEEN PROPERLY APPRECIATED. 3. THE BRIEF FACTS OF THE CASE AS NOTED IN THE ASSE SSMENT ORDER ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MAN UFACTURING, TRADING ITA NO.28 4(ASR)/2015 ASST. YEAR: 2010-11 2 AND EXPORT OF HAND TOOLS. DURING THE YEAR UNDER CON SIDERATION THE AO OBSERVED THAT ASSESSEE HAD CLAIMED EXPENSES OF RS.8 ,73,630/- UNDER THE HEAD FOREIGN TRAVEL EXPENSES AND HAD PURCHASED FORE IGN CURRENCY OF RS.3,93,050/-. THE AO HELD THAT ELEMENT OF PERSONAL EXPENSES CANNOT BE RULED OUT, THEREFORE, HE MADE AN ADDITION OF RS.39, 310/- @ 10% OUT OF FOREIGN CURRENCY. THE AO, FURTHER OBSERVED THAT ASS ESSEE HAD CLAIMED AN AMOUNT OF RS.4,15,444/- FOR BOOKING OF SPACE IN TRA DE FAIR TO BE HELD AT INDIAN HALL IN GERMANY. HE FURTHER OBSERVED THAT AS SESSEE CLAIMED FURTHER EXPENSES OF RS.5,98,847/- FOR CANCELLATION OF THIS SPACE FOR TRADE FAIR AND HAD FURTHER PAID FOR BOOKING OF GERMAN HAL L AT GERMANY. THEREFORE, ASSESSEE WAS SHOW CAUSED TO JUSTIFY THE CANCELLATION EXPENDITURE AND FURTHER INCURRING OF EXPENSES FOR SHIFTING OF HALL. THE ASSESSEE SUBMITTED THAT CANCELLATION EXPENSES WERE INCURRED SO THAT THEY COULD GET SPACE IN THE GERMAN HALL WHICH DRAWS MORE VISITORS AND WAS BENEFICIAL FORM THE BUSINESS POINT OF VIEW. THE AO DID NOT ACCEPT THE REPLY OF ASSESSEE AND HELD THAT ASSESSEE FIRST INCU RRED EXPENDITURE FOR BOOKING OF THE SPACE AND THEN AN EXPENDITURE WAS IN CURRED FOR CANCELLATION OF THE SAME. HE FURTHER HELD THAT ASSE SSEE COULD NOT JUSTIFY THE NEED TO MAKE PAYMENT FOR CANCELLATION OF SPACE AND THEREFORE, HE HELD THAT THE EXPENSE DOES NOT INVOLVE ANY BUSINESS SENSE AND THEREFORE, HE DISALLOWED THE AMOUNT OF RS.10,14,291/- 4. AGGRIEVED WITH THE ORDER THE ASSESSEE FILED AP PEAL BEFORE LD. CIT(A) AND LD. CIT(A) ALSO UPHELD THE ADDITIONS. ITA NO.28 4(ASR)/2015 ASST. YEAR: 2010-11 3 5. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 6. AT THE OUTSET, THE LD. AR SUBMITTED THAT IT WAS A BUSINESS DECISION OF THE ASSESSEE TO CHANGE THE VENUE OF PARTICIPATIO N IN TRADE FAIR. HE SUBMITTED THAT SPACE BOOKED INITIALLY WAS FOR THE I NDIAN HALL BUT LATER IT WAS DECIDED THAT ASSESSEE SHOULD EXHIBIT ITS GOODS IN THE GERMEN HALL AND FOR DOING SO SOME AMOUNT WAS PAID FOR CANCELLAT ION/ SHIFTING FROM THE INDIAN HALL TO THE GERMAN HALL. HE SUBMITTED TH AT THE DECISION TO SHIFT FROM INDIAN HALL TO GERMAN HALL WAS BUSINESS DECISION AS THE GERMAN HALL DRAWS MORE VISITORS AND THIS WOULD HAVE BEEN MORE BENEFICIAL FROM BUSINESS POINT OF VIEW. HE SUBMITTE D THAT IT IS FOR THE BUSINESS MAN TO DECIDE AS TO WHETHER HE WOULD LIKE TO PARTICIPATE IN AN EXHIBITION AND FURTHER WHERE HIS PRODUCTS ARE TO BE EXHIBITED. IF AFTER BOOKING SPACE IN ONE HALL, ADDITIONAL AMOUNT IS PAI D FOR SHIFTING TO ANOTHER HALL, HIS DECISION CANNOT BE QUESTIONED. HE SUBMITTED THAT IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE DID N OT PARTICIPATE IN THE EXHIBITION AND IN FACT EXPENSES INCURRED ON TRAVELL ING FOR THIS EXHIBITION HAS BEEN ALSO ALLOWED. THE LEARNED AR SUBMITTED THA T THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. DHANRAJGIRJI RAJA NARSINGH JI REPORTED AT 91 ITR 544, 550 HELD THAT IT WAS NOT OPEN TO THE DEPARTMENT TO PRESCRIBE WHAT EXPENDITURE AN ASSESSEE SHOULD IN CUR AND IN WHAT CIRCUMSTANCES HE SHOULD INCUR THAT EXPENDITURE. RE GARDING THE CASE LAWS RELIED UPON BY THE ASSESSING OFFICER THE LEARN ED AR SUBMITTED THAT THESE WERE NOT APPLICABLE TO THE FACTS AND CIRCUMST ANCES OF THE CASE. THE ITA NO.28 4(ASR)/2015 ASST. YEAR: 2010-11 4 LD. AR RELIED UPON THE CASE LAW OF JAMNA AUTO INDUSTRIES VS. CIT 299 ITR 0092 , FOR THE PROPOSITION THAT WHERE AN ASSESSEE INCURS AND CLAIMS ANY EXPENDITURE U/S 37(1), THE ASSESSING OFFICER SHOULD ALLOW THE SAME IF IT IS FOUND TO BE COMPENSATORY IN NATURE AND IS FOUND TO HAVE BEEN PAID FOR BREACH OF CONTRACT. THE LEARNED AR SUBMITTED THAT THE CANCELLATION OF INDIAN HALL WAS MADE AND GERMAN HALL WAS BOOKED AND THEREFORE, THE ASSESSEE HAD TO PAY FOR CANCELLATION OF INDIAN HALL WHICH WAS IN THE FORM OF COMPENSATION FOR CANCELLATION OF HALL. 7. AS REGARDS OTHER DISALLOWANCE OUT OF FOREIGN TRA VELLING EXPENSES THE LEARNED AR SUBMITTED THAT LEARNED CIT(A) HAS WRONGL Y UPHELD THE DISALLOWANCE WHICH THE AO HAD MADE AN AD HOC BASIS. HE SUBMITTED THAT ALL VOUCHERS FOR EXPENSES INCURRED BY ASSESSEE WERE AVAILABLE. 8. THE LEARNED DR, ON THE OTHER HAND, RELIED UPON T HE ORDER OF AUTHORITIES BELOW. 9. WE HAVE HEARD THE RIVAL PARTIES AND HAS GONE THR OUGH THE MATERIAL ON RECORD. WE FIND THAT THE EXPENSES INCURRED BY AS SESSEE FOR FIRST BOOKING THE INDIAN HALL AND THEN CANCELLING IT AND SHIFTING TO GERMAN HALL IS PURELY A BUSINESS DECISION WHICH THE ASSESS EE HAD TAKEN KEEPING IN VIEW THE OVERALL BUSINESS INTERESTS. IT IS NOT T HE CASE OF REVENUE THAT ASSESSEE HAD CLAIMED SOME BOGUS EXPENDITURE. THE RE VENUE HAS NOT DOUBTED THE INCURRENCE OF EXPENDITURE. IN FACT IF T HE ASSESSEE HAD BOOKED SPACE AND IF FOR SOME REASON IT COULD NOT ATTEND EV EN THEN THE ITA NO.28 4(ASR)/2015 ASST. YEAR: 2010-11 5 EXPENDITURE WOULD HAVE BEEN ALLOWABLE. THE DECISION OF THE ASSESSEE TO EXHIBIT GOODS IN GERMAN HALL WAS A BUSINESS DECISIO N WHICH CAN NOT BE QUESTIONED BY ASSESSING OFFICER. IT HAS BEEN HELD B Y THE SUPREME COURT IN THE CASE OF CIT V/S. DHANRAJGIRI RAJA NARSINGH J I REPORTED AT 91 ITR 544, THAT IT IS NOT OPEN TO THE DEPARTMENT TO PRESCRIBE WHAT EXPENDITURE AS ASSESSEE SHOULD INCUR AND IN WHAT CIRCUMSTANCES HE SHOULD INCUR THAT EXPENDITURE. 10. THE CASE LAWS RELIED UPON BY THE ASSESSING OFF ICE ARE ENTIRELY DISTINGUISHABLE AND ARE NOT APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 11. THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF JAMUNA AUTO INDUSTRIES VS. CIT 299 ITR 0092 HAS HELD AS UN DER: WHENEVER AN ASSESSEE HAS INDICATED ANY AMOUNT, WHI CH HAD BEEN PAID EITHER BY WAY OF DAMAGES OR PENALTY, TO BE AN ALLOWABLE EXPEN DITURE UNDER S.37(1), THE ASSESSING AUTHORITY IS OBLIGED TO DISCOVER THE NATU RE OF SUCH AMOUNT VIS-A VIS TWO PROMINENT ASPECTS, WHETHER IT IS COMPENSATORY OR PE NAL. THE ASSESSING AUTHORITY WOULD THEREUPON PERMIT THE AMOUNT AS AN ALLOWABLE D EDUCTION THAT MAY BE DISCOVERED TO BE PURELY OF COMPENSATORY NATURE AS P AYMENT FOR DAMAGES. HOWEVER ANY STATUTORY AMOUNT PAID BY THE ASSESSEE W HICH IS SOUGHT TO BE CLAIMED AS AN ALLOWABLE EXPENDITURE ON ACCOUNT OF P ENALTY, IN THAT EVENTUALITY, THE SAME SHALL BE DISALLOWED BEING PAYMENT FOR INFRACTI ON OF LAW. A SITUATION MAY ARISE WHERE AN ASSESSEE MIGHT HAVE TO MAKE A COMPOS ITE PAYMENT BEING COMPENSATORY AND PENAL CHARACTER BOTH. IN THAT SITUATION, THE ASSESSING AUTHORITY WOULD, OF COURSE, BE REQUIRED TO SEGREGAT E THE AMOUNT CONTAINING TWO CHARACTERS. AFTER UNDERTAKING THIS EXERCISE, THE AM OUNT THAT IS HELD TO BE COMPENSATORY NATURE SHALL BE COUNTENANCED AS ALLOWA BLE EXPENDITURE WHEREAS THE OTHER PORTION OF THE AMOUNT, WHICH IS PENAL IN NATURE, SHALL BE REFUSED TO BE AN ALLOWABLE EXPENDITURE. THE FACTS AS DISCLOSED ARE T HAT THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH A GERMAN FIRM, ON A VISIT OF ITS PARTNER, FOR SUPPLY OF CERTAIN GOODS. THE SAID CONTRACT DID NOT FRUCTIFY A S THE ASSESSEE DID NOT HAVE THE REQUISITE IMPORT LICENCE FOR THE MATERIAL INTENDED TO BE IMPORTED. ON A DISPUTE BEING REFERRED TO THE ARBITRATOR, THE ASSESSEE HAD TO PAY RS.50,000 TO THE SAID GERMAN FIRM IN TERMS OF AWARD DT. 29 TH JULY, 1974. IT WAS THIS AMOUNT WHICH WAS ITA NO.28 4(ASR)/2015 ASST. YEAR: 2010-11 6 CLAIMED AS DEDUCTION BY THE ASSESSEE FROM ITS INCOM E. AS PER THE FINDINGS RECORDED BY THE AUTHORITIES BELOW, THE AMOUNT OF RS .50,000 PAID BY THE ASSESSEE WAS ON ACCOUNT OF DAMAGES FOR BREACH OF CONTRACT ON ITS PART AND NOT A LIABLE INCURRED FOR CONTRAVENTION OF ANY LAW. THE SAID AMO UNT CLAIMED AS DEDUCTION WOULD THUS BE AN EXPENSE INCURRED FOR THE PURPOSES OF THE BUSINESS AND COULD NOT HAVE BEEN DISALLOWED. 12. THE EXPENSES INCURRED BY ASSESSEE IN SHIFTING T HE HALL CANNOT BE TERMED AS PENALTY AND RATHER THEY ARE COMPENSATORY IN NATURE. 13. IN VIEW OF THE ABOVE GROUND NO.1 OF THE APPEAL IS ALLOWED. 14. NOW, COMING TO GROUND NO. 2, WE FIND THAT THAT ASSESSEE HAD INCURRED A TOTAL EXPENDITURE OF RS.8,73,630/- ON AC COUNT OF FOREIGN TRAVELLING EXPENSES OUT OF WHICH AMOUNT INCURRED FO R PURCHASE OF CURRENCY IS TO THE TUNE OF RS.3,93,050/-. THE ASSES SING OFFICER HAS NOT DISALLOWED ANY EXPENSES OUT OF THE TRAVELLING EXPEN SES, HE HAS JUST DISALLOWED 10% OUT OF CURRENCY EXPENSES. THE EXPEND ITURE OF PERSONAL NATURE OUT OF CURRENCY PURCHASED BY ASSESSEE TO BE SPENT IN FOREIGN COUNTRY CANNOT BE RULED OUT. THE ASSESSING OFFICER HAS MADE A MODEST DISALLOWANCE OF 10% OUT OF FOREIGN CURRENCY EXPENSE S AND WHICH WORKS OUT TO BE LESS THAN 5% OF TOTAL FOREIGN TRAVELLING EXPENSES WHICH IS QUITE MODEST AND WE DO NOT WANT TO INTERFERE IN THE ORDER OF LEARNED CIT(A) TO THAT EXTENT . 14. IN VIEW OF THE ABOVE, GROUND NO.2 IS DISMISSED. 15. IN NUTSHELL, THE APPEAL FILED BY ASSESSEE IS PA RTLY ALLOWED ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH JUNE, 2016. SD/- SD/- (A.D. JAIN) (T. S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 24.06.2016. /PK/ PS. ITA NO.28 4(ASR)/2015 ASST. YEAR: 2010-11 7 COPY OF THE ORDER FORWARDED TO: (1) THE ASSESSEE: (2) THE (3) THE CIT(A), (4) THE CIT, (5) THE SR DR, I.T.A.T., TRUE COPY BY ORDER