R.R. OOMERBHOY P.LTD, MUMBAI V. ACIT RG 1(3), MUMBAI

ITA 2969/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92388 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-04-2015
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 16-02-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 17-04-2013
• Court: TRIBUNAL
• Department Lawyers: LOVE KUMAR
• Keywords: Gift; Business expenditure
• Section: 143(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D, MUMBAI BEFORE SHRI B.R BASKARAN, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. 2969/MUM/2013 ASSESSMENT YEAR: 2007-08 R.R. OOMERBHOY PVT. LTD. F/5, SOONA MAHAL, 143 MARINE DRIVE MUMBAI 055 PAN:AAACR 2364 M VS. ACIT RANGE - 1(3) MUMBAI 020 (APPELLANT) (RESPON DENT) ASSESSEE BY : SHRI RAJAN R. VORA REVENUE BY : SHRI LOVE KUMAR DATE OF HEARING : 19 .03.2015 DATE OF PRONOUNCEMENT : 17 .04.2015 O R D E R PER AMIT SHUKLA, JM: THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGA INST ORDER DATED 04.12.2012, PASSED BY THE LD.CIT(A)-7, FOR TH E QUANTUM OF ASSESSMENT U/S 143(3) OF THE ACT FOR THE A.Y. 2007 -08. THE ASSESSEE HAS MAINLY CHALLENGED THE DISALLOWANCE ON FOREIGN T RAVEL EXPENSES OF RS.23,03,389/-. 2. BRIEF FACTS OF THE CASE ARE THAT, ASSESSEE COMP ANY IS ENGAGED IN THE BUSINESS OF TRADING AND REPACKING OF IMPORTED O LIVE OIL, TRADING OF PASTAS, SAUCES, PACKING & SELLING OF EDIBLE OIL ETC . ON THE PERUSAL OF THE P&L ACCOUNT, THE AO NOTED THAT ASSESSEE HAD DEBITED EXPENDITURE ON ACCOUNT OF FOREIGN TRAVEL AT RS.72,36,654/-. IN RES PONSE TO THE SHOW CAUSE NOTICE, THE ASSESSEE SUBMITTED THE DETAILS OF FOREIGN TOUR TRAVEL ITA NO. 2969/MUM/2013 ASSESSMENT YEAR: 2007-08 2 EXPENDITURE ALONG WITH CREDIT CARD BILL AND THE STA TEMENT. OUT OF THE TOTAL AMOUNT OF RS.72,36,654/-, SUM OF RS.41,32,944 /- WAS PAID BYWAY OF CREDIT CARD AND BALANCE BY ACCOUNT PAYEE CHEQUES FOR TICKETS ETC. THE DIFFERENT HEAD OF EXPENDITURE INCURRED THROUGH SWAP PING OF THE CREDIT CARD HAS BEEN GIVEN AT PAGE 3 OF THE ASSESSMENT ORD ER WHICH AGGREGATED TO RS.41,32,944/-. THE ASSESSEE SUBMITTE D THAT IT HAS ITSELF TREATED SUM OF RS.29,35,470/- AS PERSONAL EXPENDITU RE, WHICH WAS ALREADY OFFERED FOR DISALLOWANCE BY THE ASSESSEE IN THE RETURN OF INCOME. THE ASSESSING OFFICER HOWEVER, ANALYZED THE VARIOUS HEADS OF EXPENDITURE INCURRED ABROAD AND HELD THAT OUT SUCH AMOUNT AN AMOUNT OF RS.23,03,389/- ARE PERSONAL IN NATURE WHICH WERE UNDER THE FOLLOWING HEADS:- SR. NO PARTICULARS AMOUNT IN RS. 1 DEPARTMENT STORES 10,89,366 2 APPAREL 1,23,642 3 FURNITURE AND HOME FURNISHING 1,25,145 4 HOSPITAL AND PHARMACY 1,56,995 5 RESTAURANTS 6,92,597 6 TICKETS AND TRAVELLING 80,037 7 STATIONERY, MAGAZINES ETC. 35,607 TOTAL 23,03,389 3. BEFORE THE LD. CIT(A) THE ASSESSEE SUBMITTED THA T, TOTAL FOREIGN TRAVEL EXPENSES WERE RS.1,01,72,125/-, OUT OF WHICH SUM OF RS.29,35,471/- WAS ITSELF TREATED AS PERSONAL EXPEN DITURE AND ONLY NET EXPENSES OF RS.72,36,654/- WAS CLAIMED IN THE P&L A /C. OUT OF THIS AMOUNT SUM OF RS.31,03,710/- WAS INCURRED ON PURCHA SE OF TICKETS, CURRENCY ETC, WHICH WAS PAID THROUGH CHEQUES. THE B ALANCE PAYMENT OF ITA NO. 2969/MUM/2013 ASSESSMENT YEAR: 2007-08 3 RS.41,32,944/- WAS THROUGH CREDIT CARD WHICH WAS SO LELY FOR THE PURPOSE OF BUSINESS. THE HEAD WISE DISALLOWANCE MADE BY THE AO WAS EXPLAINED IN THE FOLLOWING MANNER:- EXPENDITURE ON DEPARTMENT STORES-THE APPELLANT UND ERTAKES IMPORT OF VARIOUS PRODUCTS LIKE OLIVE OIL, PASTA, S AUCES, CHEESE ETC. THE APPELLANT HAD INCURRED EXPENDITURE OF RS.1 0,89,366 FOR PURCHASE MADE FROM VARIOUS ITEMS, FORM SUPERMARKET STORES LIKE MARKS AND SPENCER, TESCO ETC. THESE EXPENSES HAVE B EEN INCURRED IN ORDER TO ASCERTAIN WHETHER THE PRODUCTS HAVE POTENTIAL IN THE INDIAN MARKET I.E. PURELY FOR BUSINESS PURPO SES. IT IS SUBMITTED THAT THESE EXPENSES CANNOT BE DISALLOWED AS THE SAME IN THE NATURE OF BUSINESS SAMPLES. IN FACT PURCHASE S TO THE EXTENT OF RS.18,22,361 HAVE BEEN DISALLOWED BY THE APPELLA NT ITSELF, TREATING IT AS PERSONAL IN NATURE. EXPENDITURE ON APPEAL: THE APPELLANT HAD PURCHASED APPAREL WHICH IS GIFTED TO VARIOUS SUPPLIER AND CLIENTS. TH E SAME IS DONE TO MAINTAIN BUSINESS RELATIONS AND IS IN THE NORMAL COURSE OF BUSINESS. HENCE THE EXPENSES SHOULD NOT BE DISALLOW ED. EXPENSES ON HOME FURNISHINGS: THE APPELLANT SUBMIT THAT THE DIRECTORS AND OTHER EMPLOYEES WERE STAYING IN APART MENTS IS A FEW PLACES. AO HAS EVEN ALLOWED DEDUCTION OF EXPEND ITURE OF APARTMENTS. THE HOME FURNISHINGS WERE PURCHASED FOR THE APARTMENT AND NOT FOR ANY PERSONAL USE. THUS DEDUCT ION FOR THE SAME SHOULD BE ALLOWED. EXPENDITURE ON HOSPITAL AND PHARMACY: DURING THE CO URSE OF FOREIGN TRAVEL, IF DIRECTORS/EMPLOYEES OF THE APPEL LANT FELL ILL AND UNDERWENT MEDICAL TREATMENT FOR THE ILLNESS, THE EX PENDITURE ON HOSPITALS AND PHARMACY HAVE TO BE INCURRED BY THE A PPELLANTS AS PER TERMS OF EMPLOYMENT AS IT IS FOR BUSINESS PURPO SE. THUS THE SAME CANNOT BE TREATED AS PERSONAL EXPENDITURE. EXPENDITURE ON RESTAURANTS: THE EXPENDITURE OF FOOD ETC. IS INCIDENTAL TO FOREIGN TRAVEL. WHEN THE FOREIGN TOUR OF THE DIRECTORS IF FOR PURPOSE OF BUSINESS, ALL THE INCIDENTAL EXPE NSES IN CONNECTION WITH STAY AND TRAVEL ARE TO BE BORNE BY THE COMPANY. THUS, THESE EXPENSES ARE TO BE ALLOWED AS DEDUCTION UNDER SECTION 37(1) OF THE ACT. ITA NO. 2969/MUM/2013 ASSESSMENT YEAR: 2007-08 4 EXPENDITURE ON TICKET AND TRAVELLING: THE EXPENDITU RE IS INCURRED ON ACCOUNT OF LOCAL TRAVEL WHILE ON A FOREIGN VISIT . THERE IS NO PERSONAL ELEMENT INVOLVED AS THE SAME WERE INCURRED FOR VISITING OFFICES OF SUPPLIERS AND CLIENTS. THUS THESE EXPENS ES SHOULD BE ALLOWED AS A DEDUCTION. EXPENDITURE ON STATIONERY, MAGAZINES ETC.: THE EXPE NSES ARE INCIDENTAL TO THE BUSINESS VISIT AND HENCE NO DISAL LOWANCE SHOULD BE MADE FOR THE SAME. BESIDE THAT VARIOUS DECISIONS WERE ALSO RELIED UPON . 4. THE LD. CIT(A) REJECTED THE ASSESSEES CONTENTIO N AND HELD THAT THE AO HAS SPECIFICALLY POINTED OUT THE EXPENDITURE S OF PERSONAL IN NATURE WHICH CANNOT BE ALLOWED U/S 37(1). 5. BEFORE US, LEARNED COUNSEL SUBMITTED THAT ASSESS EES MAJOR PART OF BUSINESS IS IMPORT OF VARIOUS PRODUCTS LIKE OLIVE O IL, PASTA, SAUCES, CHEESE ETC, AND EXPORT OF PACKED EDIBLE OIL AND FOR THIS PURPOSE ASSESSEE HAS TO UNDERTAKE FOREIGN TRAVEL AND TOUR. THE ENTIRE BILLS OF FOREIGN TRAVELLING WAS GIVEN AND IT WAS ALSO EXPLAI NED THAT ITEMS WHICH HAS BEEN IDENTIFIED BY AO TOWARDS PERSONAL EXPENSES ARE IN FACT NOT PERSONAL IN NATURE WHICH HAS BEEN EXPLAINED IN DETA IL BEFORE THE LD. CIT(A). HE FURTHER SUBMITTED THAT LOOKING TO THE TO TAL SALES, THE ASSESSEES FOREIGN TRAVELLING EXPENSES IS AROUND 1% . IN THE A.Y. 2004-05 AND 2005-06, NO DISALLOWANCE WAS MADE BY THE DEPART MENT. IN THE A.Y.. 2006-07, THE AO HAD DISALLOWED 14 LAKHS WHICH WAS D ELETED BY THE LD. CIT(A) AND AFFIRMED BY THE TRIBUNAL. HE FURTHER BRO UGHT TO OUR NOTICE THAT THE ASSESSEE HAS ALSO PAID FRINGE BENEFIT TAX ON TICKETS, LODGING AND BOARDING AND THEREFORE, NO DISALLOWANCE SHOULD BE MADE. 6. ON THE OTHER HAND, LD. DR STRONGLY RELIED UPON T HE ORDER OF THE AO AS WELL AS LD. CIT(A). ITA NO. 2969/MUM/2013 ASSESSMENT YEAR: 2007-08 5 7. WE HAVE HEARD THE, RIVAL SUBMISSIONS AND ALSO PE RUSED THE RELEVANT MATERIAL PLACED ON RECORD. THE ASSESSEE CO MPANY HAS INCURRED FOLLOWING FOREIGN TRAVEL EXPENSES:- SR. NO. PARTICULARS AMOUNT IN RS. 1 PAID THROUGH CREDIT CARDS-BUSINESS EXPENDITURE 41 ,32,944 2 PAID THROUGH CREDIT CARDS-TREATED AS PERSONAL EXPENDITURE 29,35,471 3 PAID THROUGH CHEQUE FOR PURCHASE OF TICKETS, CURRENCY ETC. 31,03,710 TOTAL 1,01,72,125 AS STATED ABOVE OF THE AFORESAID AMOUNT, RS.29,35,4 71/- HAS ALREADY BEEN DISALLOWED BY THE ASSESSEE. OUT OF THE AMOUNT PAID THROUGH CREDIT CARDS, THE ASSESSING OFFICER HAS IDENTIFIED EXPENSE S AGGREGATING RS.23,03,389/- TOWARDS PERSONAL IN NATURE. FROM THE PERUSAL OF THESE HEADS OF EXPENSES AS INCORPORATED ABOVE IN PARA, TH E ASSESSING OFFICER HAS TREATED THE AMOUNT SPENT IN THE DEPARTMENTAL ST ORES PURELY AS PERSONAL IN NATURE, WITHOUT APPRECIATING THAT THESE WERE INCURRED FOR PURCHASE OF THE ITEMS IN WHICH ASSESSEE IS DIRECTLY UNDERTAKING IMPORT. UNDER THE HEAD DEPARTMENTAL STORES ALREADY A SUBSTA NTIAL DISALLOWANCE HAS BEEN OFFERED BY THE ASSESSEE. SIMILARLY, THE EX PENSES UNDER HEAD RESTAURANT, TICKETS AND TRAVELLING ETC. CANNOT TREA TED AS COMPLETELY PERSONAL IN NATURE BECAUSE THEY ARE RELATED TO FORE IGN TRAVEL FOR BUSINESS PURPOSE. THUS, THE QUANTIFICATION OF THE EXPENDITUR E UNDER THE HEAD PERSONAL MADE BY THE AO APPEARS TO BE ON A HIGHER S IDE. FURTHER, IT IS NOTED THAT SO FAR AS EXPENDITURE ON TICKETS, LODGIN G AND BOARDING IS CONCERNED, THE ASSESSEE HAS ALREADY PAID FBT, THERE FORE, NO ITA NO. 2969/MUM/2013 ASSESSMENT YEAR: 2007-08 6 DISALLOWANCE CAN BE MADE ON THESE HEADS. THUS, LOOK ING TO THE OVER ALL FACTS AND CIRCUMSTANCES, WE ARE OF THE OPINION THAT THE DISALLOWANCE OF RS.23,03,389/- SHOULD BE CONFINED TO RS. 5 LAKHS, W HICH WILL COVER NON- BUSINESS EXPENDITURE, AS HIGHLIGHTED BY THE AO. ACC ORDINGLY, THE DISALLOWANCE IS RESTRICTED TO RS. 5 LAKHS AND THE B ALANCE AMOUNT IS DELETED. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 17 TH DAY OF APRIL, 2015. SD/- SD/- (B.R. BASKARAN) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 17 .04.2015 *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR D BENCH // TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI. ITA NO. 2969/MUM/2013 ASSESSMENT YEAR: 2007-08 7