Sh. Rohtas Rathee Prop., New Delhi V. ACIT, New Delhi

ITA 3044/DEL/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61719 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 04-06-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 01-07-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR B R R KUMAR
• Assessee Lawyers: B D SHARMA
• Keywords: Business expenditure

Judgement Text

ITA NO. 3044/DEL/2009 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F, NEW DELHI BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 3044/DEL/2009 A.Y. : 2006-07 SH. ROHTAS RATHEE PROP. JEEVAN ENTERPRISES, A-3, JEEWAN CORNER MAHIPALPUR EXTENSION, NEW DELHI 110 037 (PAN : AAEPR 8961 P) VS. ACIT, CIRLE 38(1), NEW DELHI (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSESSEE BY : SH. B.D. SHARMA, ADV. DEPARTMENT BY : DR. B.R.R. KUMAR, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-XXVIII, NEW DELHI DATED 04.5.2009 PERTAINING TO ASSESSMENT YEAR 2006-07. 2. THE GROUNDS RAISED READ AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE ACTION OF THE LD. CIT(A) IN UPHOLDING THE ADDIT ION OF ` 391477/- REPRESENTING THE EXPENSES INCURRED BY TH E APPELLANT ON ITS FOREIGN VISIT ON BUSINESS VISA TO ITA NO. 3044/DEL/2009 2 MELBOURNE IS ARBITRARY AND UNJUST AND PERVERSE. THE IMPUGNED ADDITION SUSTAINED DESERVES TO BE DELETED. 3. IN THIS CASE AO NOTED THAT ASSESSEE HAS CLAIMED BUSINESS PROMOTION EXPENSES AT ` 4,14,107/- WHICH INCLUDES F OREIGN TRAVELLING EXPENSES OF ` 3,91,477/- IN RESPECT OF TOUR TO AUST RALIA BY THE ASSESSEE. ON QUERY FROM THE AO IN THIS REGARD ASSESSEE SUBMITT ED AS UNDER:- THAT ASSESSEE IS DEALING IN DEPLOYMENT OF SKILLED A ND SEMI SKILLED PERSON AND HE HAS LEARNED WITH AUTHENTICATE RESOURCES SKILLED CATEGORY OF PEOPLE SUCH AS WELDER , ELECTRICIAN, PAINTER, DENTER, WASTE PEOPLE ARE IN GREAT DEMAND IN AUSTRALIA. SO KEEPING IN VIEW THE PROPRI ETOR MR. ROHTAS RATHEE VISITED PERSONALLY ON BUSINESS VISA T O EXPAND OUR PRESENT BUSINESS OFFSORE AT MELBOURNE HE HAS E XPAND A PROPRIETORSHIP COMPANY NAME M/S JEEVAN ENTERPRISES, AUSTRALIA AS A OVERSEAS BRANCH OF MAIN BUSINESS. SO I REQUEST YOU TO KINDLY SEE THE SAME AND ALLOW THESE EXPENSES AS BUSINESS EXPENSES. 3.1 HOWEVER, THE SUBMISSIONS WERE NOT ACCEPTED BY T HE AO ON THE FOLLOWING TWO REASONS:- I) THE ASSESSEES SO CALLED BUSINESS AT AUSTRALIA I S NOT RELATED TO THE BUSINESS CARRIED OUT IN INDIA. ITA NO. 3044/DEL/2009 3 II) M/S JEEVAN ENTERPRISES AT AUSTRALIA IS A DIFFERE NT ENTITY AND NOT RELATED TO THE ASSESSEES CONCERN IN INDIA. IN VIEW OF THE ABOVE THE FOREIGN TRAVEL EXPENSES OF ` 3,91,477/- CLAIMED UNDER THE HEAD BUSINESS PROMOTIO N EXPENSE WERE DISALLOWED. 4. UPON ASSESSEES APPEAL CIT(A) OBSERVED THAT A SSESSEE HAS VISITED AUSTRALIA TO START A NEW BUSINESS AND A COMP ANY WAS ALSO INCORPORATED THERE IN THE NAME AND STYLE OF JEEVAN E NTERPRISES (AUSTRALIA) PTY. LTD. THIS CLEARLY INDICATES THAT THE ASSESSEE HAD GONE TO AUSTRALIA TO ESTABLISH A NEW BUSINESS ENTITY. LD. CIT(A) REFERRED TO DECISION OF HONBLE M.P. HIGH COURT (170 ITR 469) AN D ALLAHABAD HIGH COURT (110 ITR 855), FOR THE PROPOSITION THAT EXPE NDITURE INCURRED IN CONNECTION WITH FOREIGN TOUR UNDERTAKEN FOR INITIAT ION OF NEW BUSINESS IS NOT ALLOWABLE. HENCE, LD. CIT(A) HELD THAT SI NCE THE EXPENDITURE HAS BEEN INCURRED IN CONNECTION WITH STARTING A NE W BUSINESS ENTITY IN AUSTRALIA, IT CANNOT BE ALLOWED U/S. 37(1). ACCORD INGLY, HE CONFIRMED THE DISALLOWANCE MADE BY THE AO. 5. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APPEA L BEFORE US. 6. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENTS RELIED UPON. LD. COUNSE L OF THE ASSESSEE HAS GIVEN WRITTEN SUBMISSIONS AS UNDER:- ITA NO. 3044/DEL/2009 4 THE APPELLANT PROCEEDED ON A BUSINESS VISA TO MEL BOURNE IN ORDER TO EXPAND ITS EXISTING BUSINESS OF PLACEMEN T AGENCY BY SETTING UP ITS BRANCH OVERSEAS. THE APP ELLANT NOT BEING A CITIZEN OF AUSTRALIA WAS OBLIGED TO FOR M AUSTRALIAN COMPANY FOR GETTING CAN WHICH IS THE STAT UTORY IMMIGRATION REQUIREMENT FOR DOING BUSINESS IN AUSTRALI A. THE COMPANY NAMED JEEVAN ENTERPRISES AUSTRALIA PTY. LT D. WAS ALLOTTED CAN 115964139. FURTHER THE SAID COMPANY IS SOLE PROPRIETARY COMPANY OF THE APPELLANT, IS LIMITED BY SHARES. THE APPELLANT IS THE SOLE DIRECTOR, AND SOLE HOLDER OF THE SHARES. THE LD. CIT(A) UPHELD THE DISALLOWANCE MADE BY THE A O ON THE GROUND:- - THE APPELLANTS BUSINESS IN AUSTRALIA WAS NOT RELATED TO ITS BUSINESS IN INDIA. - JEEVAN ENTERPRISES IN AUSTRALIA WAS DIFFERENT ENTITY AND NOT RELATED TO THE ASSESSEE CONCERN IN INDIA. THIS FINDING OF FACT IS HOWEVER CONTRARY TO THE MATE RIAL FACTS ON RECORDS. THE MANAGEMENT OF ITS AFORESAID OVERSE AS UNIT ITA NO. 3044/DEL/2009 5 AT MELBOURNE AND ITS OLD PROPRIETARY BUSINESS JEEVA N ENTERPRISES HERE IN INDIA IS THE SAME. THERE IS A LSO COMPLETE UNITY OF CONTROL AND THERE WAS COMMON FUND WHICH WAS MOST RELEVANT FOR TESTING WHETHER BUSINESS WAS THE SAME. THE NEW UNIT AT MELBOURNE WAS PART OF ITS EXISTING OLD BUSINESS. THE BUSINESS ACTIVITIES OF ITS AUSTRALIAN COMPANY WAS ON THE SAME AS HERE IN INDIA. THE EXPENDITURE INCURRED HAD DIRECT NEXUS WITH THE EXIS TING BUSINESS CARRIED BY THE APPELLANT IN INDIA. THE O PENING OF ITS NEW UNIT WAS SUPPLEMENT TO THE EXISTING BUSINES S IN INDIA. THERE WAS NO MATERIAL TO HOLD THAT IT A MOUNTED TO NEW BUSINESS. ALEMBIC CHEMICAL WORKS VS. CIT 177 IT R 377 SC RELIED UPON. THE TEST LAID DOWN BY THE APEX COURT AND THE PRINCI PLES LAID IN THE JUDGEMENTS OF VARIOUS HIGH COURTS IS THAT WHERE THE EXISTING BUSINESS IS TO EXPAND OR SET UP A NEW UNIT IN THE SAME FOLD, THE EXPENDITURE INCURRED IN SETTING UP S UCH A UNIT OF EXISTING BUSINESS IS ADMISSIBLE BUSINESS EXP ENDITURE. I) CIT VS. MODI INDUSTRIES LTD. 200 ITR 341 DELHI HIGH COURT. II) EMPIRE JUTE CO. LTDE. 124 ITR 1 SC. ITA NO. 3044/DEL/2009 6 III) CIT VS. RELAXO FOOT WEAR LTD. 293 ITR 241 DELHI HIGH COURT. IV) KARAM CHAND PREM CHAND (PVT.) LTD. VS. CIT 137 ITR 209 GUJARAT. V) HINDUSTAN MACHINE TOOL VS. CIT 176 ITR 216. VI) JAY ENGG. WORKS VS. CIT 311 ITR 406 DELHI HIGH COUR T. CASE LAWS RELIED UPON BY THE LD. CIT(A). I) THE CASE LAWS ARE DISTINGUISHABLE ON FACTS IN THE CASE OF CIT VS. FLOOR AND FOOD LTD. REPORTED IN 170 ITR 469, TRAVELLING EXPENSES OF THE MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICE WHO WAS SENT TO FOREIGN COUNTRY WAS DISALLOWED BEING OF CAPITAL NATURE. FOREIGN TRIP TO MAURITIUS WAS UNDERTAKEN FOR THE PURPOSE OF HELPING MAURITIUS GOVERNMENT TO SET UP A FLOUR MILL IN THAT COUNTRY. FURTHER CONSULTANCY SERVICES NOT AUTHROISED BY MOU. EXPENDITURE WAS FOR INITIATION OF NEW BUSINESS AND NOT EXPANSION. II) IN THE CASE OF MODI INDUSTRIES LTD. VS. CIT REPORTED IN 110 ITR 853. ITA NO. 3044/DEL/2009 7 THE CHAIRMAN MADE A TOUR OF FOREIGN COUNTRY IN CONNECTION WITH SETTING UP NEW FACTORIES VIZ. MANUFACTURING OF ELECTRODES AND OTHER A STEEL COMPANY EXPENDITURE BEING OF CAPITAL NATURE. IN VIEW OF THE ABOVE SUBMISSION EXPENDITURE INCURRED ON FOREIGN TOUR IN CONNECTION WITH SETTING UP A NEW UN IT IN THE EXISTING BUSINESS BEING OF REVENUE CHARACTER MAY K INDLY BE ALLOWED UNDER SECTION 37(1). 6.1 LD. D.R. ON THE OTHER HAND RELIED UPON THE ORDE RS OF THE AUTHORITIES BELOW. 6.2 WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS. I N THIS CASE WE FIND THAT ASSESSEE HAS PROCEEDED ON VISITING VISA TO MELBOURNE TO EXPAND ITS BUSINESS OF PLACEMENT AGENCY BY SETTING UP ITS BRANCH OVERSEAS. THE ASSESSEE NOT BEING A CITIZEN OF AUST RALIA WAS OBLIGED TO FORM AUSTRALIAN COMPANY FOR GETTING CAN WHICH IS THE STATUTORY IMMIGRATION REQUIREMENT FOR DOING BUSINESS IN AUSTRALI A. THE ASSESSEE IS A SOLE DIRECTOR AND SOLE SHAREHOLDER OF THE SHARES OF THIS COMPANY. IN THIS RESPECT, IT IS ASSESSEES SUBMISSI ON THAT MANAGEMENT OF ITS AFORESAID OVERSEAS UNIT AT MELBOURN E AND ITS OLD PROPRIETARY BUSINESS JEEVAN ENTERPRISES HERE IN IND IA IS THE SAME. ITA NO. 3044/DEL/2009 8 FURTHER, THERE IS ALSO COMPLETE UNITY OF CONTROL AND THERE WAS COMMON FUND WHICH WAS MOST RELEVANT FOR TESTING WHETHER BUS INESS WAS THE SAME. THE NEW UNIT AT MELBOURNE WAS PART OF ITS EX ISTING BUSINESS IN INDIA. THE BUSINESS ACTIVITIES OF ITS AUSTRALIAN COMPANY WAS ON THE SAME LINES AS HERE IN INDIA. IN THIS REGARD, WE FIND THAT NEITHER THE AO NOR CIT(A) HAVE MENTIONED THAT THERE WAS ANY VARIAN CE IN THE NATURE OF BUSINESS OF THE ASSESSEE IN INDIA AND AUSTRALIA. THE EXPENDITURE INCURRED HAD DIRECT NEXUS WITH THE EXISTING BUSINES S CARRIED BY THE ASSESSEE IN INDIA. THE OPENING OF ITS NEW UNIT WA S SUPPLEMENT TO THE EXISTING BUSINESS IN INDIA. THE ASSESSEE HAS SUBMITTED THAT THE TEST LAID DOWN BY THE APEX COURT AND THE PRINCIPLES LAI D IN THE JUDGEMENTS OF VARIOUS HIGH COURTS IS THAT WHERE THE EXISTING BUSINESS IS TO EXPAND OR SET UP A NEW UNIT IN THE SAME FOLD, THE E XPENDITURE INCURRED IN SETTING UP SUCH A UNIT OF EXISTING BUSINESS IS A DMISSIBLE BUSINESS EXPENDITURE. WE FIND THAT THE ABOVE IS SQUARELY A PPLICABLE TO THE CASE OF THE ASSESSEE HERE ALSO. THE ASSESSEE HAS EXPA NDED HIS BUSINESS BY SETTING UP A UNIT IN AUSTRALIA. THE ASSESSEE IS A SOLE DIRECTOR AND SOLE SHARE HOLDER OF THE COMPANY. SO, IT IS CLEAR TH AT MANAGEMENT OF ITS AFORESAID OVERSEAS UNIT AT MELBOURNE AND ITS OL D PROPRIETARY BUSINESS JEEVAN ENTERPRISES HERE IN INDIA IS THE SA ME. IT IS ALSO FACTUALLY CORRECT THAT THERE IS ALSO COMPLETE UNITY OF CONTROL AND THERE ITA NO. 3044/DEL/2009 9 WAS COMMON FUND. MOREOVER, THE ACTIVITY OF THE AUS TRALIA COMPANY WAS SAME AS HERE IN INDIA. IN THESE CIRCUMSTANCES , WE FIND THAT ASSESSEE HAS A COGENT CASE THAT REVENUE AUTHORITIE S HAVE ERRED IN DISALLOWING THE EXPENDITURE CLAIMED OF ` 391477/-. ACCORDINGLY, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND D ECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 08/6/2012. SD/- SD/- [ [[ [I.C. SUDHIR I.C. SUDHIR I.C. SUDHIR I.C. SUDHIR] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 08/6/2012 SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES