KURODA ELECTRIC INDIA PRIVATE LIMITED, HARYANA V. ACIT, CIRCLE 2(1), GURGAON

ITA 3123/DEL/2023

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 3473 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 25-02-2024
• Assessment Year: 2016-2017
• Appeal Filed On: 02-11-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: VARUN CHANDNA
• Section: 37(1); 64; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI (DELHI BENCH ‘C’ : NEW DELHI) BEFORE SHAMIM YAHYA, ACCOUNTANT MEMBER AND SH. YOGESH KUMAR U.S., JUDICIAL MEMBER ITA No. 3123/Del/2023, A.Y. 2016-17 Kuroda Electric India Private Ltd. Unit No. 511, Suneity Business Tower, Sector-54, Golf Course, Road Gurgaon, Chakkarpur B.O., Gurgaon Haryana, India 122002 PAN : AAFCK9587N Vs. ACIT, Circle -2(1), Gurgaon Appellant Respondent Assessee by Shri Varun Chandna, CA Revenue by Shri Sandip Kumar Mishra, Sr. DR Date of Hearing 26/02/2024 Date of Pronouncement 08/03/2024 ORDER PER YOGESH KUMAR, U.S. JM: This appeal is filed by the Assessee against the order of Learned Commissioner of Income Tax (Appeals), NFAC [“Ld. CIT(A)”, for short], dated 29/11/2022 for the Assessment Year 2016-17. 2. Grounds of the Assessee are as under :- “1. The learned ACIT and the Honorable CIT(A) failed to consider the fact that the travelling done during the year is a Business Decision, taken by the Board of Directors and key managerial persons to expand the business which results in continuous increment in the Turnover. 2 ITA No. 3123/Del/2023 Kuiroda Electric India Vs. ACIT 2. Also the Appellant is Japanese company who infused a FDI of Rs. 13,00,00,000 in India. On one hand India supports make in India & Work in India & offer many ways for ease of doing business, but the Income Tax Department is harassing the appellant in the very first year with invalid grounds. 3. That on the facts and in the circumstances of the case, the learned CIT(A) erred in ignoring the fact that the Appellant company is a wholly owned subsidiary of a Japanese Parent Company and foreign nationals were appointed as directors of the Indian subsidiary justifying the foreign travelling expenses incurred for carrying out business in India. 4. That on the facts and in the circumstances of the case, the learned CIT(A) erred in not quashing the penalty proceedings initiated by the learned ACIT in spite of the fact that no concealment of income or furnishing of inaccurate particulars has taken place on the part of the Appellant as the additions relate to certain incorrect assumptions made by the learned ACIT. 5. That the appellant craves leave to add, alter and / or amend the grounds of appeal at the time of hearing and resubmit any documents as may be required as additional evidence under Rule 29 of Income Tax Rules, 1962. 6. That on the facts and in the circumstances of the case, the learned Commissioner of Income Tax (Appeals) [hereinafter referred to as CIT(A) erred in upholding the ACITs Order arbitrarily disallowing 30% of expenses incurred by the 3 ITA No. 3123/Del/2023 Kuiroda Electric India Vs. ACIT Appellant on car hire, domestic and foreign travel without any evidence merely on the basis of certain incorrect assumptions, suspicion, surmise and conjecture. 7. That on the facts and in the circumstances of the case, the learned CIT(A) erred in ignoring the submissions made by the Appellant to prove genuineness of the expenses incurred. 8. That on the facts and in the circumstances of the case, the learned Commissioner of Income Tax (Appeals) erred in ignoring the fact that the subject year is the year of incorporation of the Appellant company, and it is only natural that substantial travelling expenses are to be incurred in the initial years to set up the business and establish connections with suppliers, agents and customers.” 3. There is a delay of 279 days in filing the present Appeal. The assessee filed an application for condonation of the delay contending that the time limit for filing the Appeal before the Tribunal was up to 28/01/2023 and the assessee made payment of Court Fee on 20/01/2023 and filed Appeal in online on 24/01/2023 in Form No. 36. The assessee enquired the status in the registry of the Tribunal on 30/10/2023 and came to know that the Appeal filed by the assessee did not get registered as the physical copy of the documents were not received by the Tribunal, therefore, immediately the assessee filed the present 4 ITA No. 3123/Del/2023 Kuiroda Electric India Vs. ACIT appeal in the physical form, thus there was a delay of 279 days in filing the present Appeal which is not intentional, but for the bonafide reasons shown above, therefore, sought for condonation of the delay. 4. For the reasons stated in the application for condonation of delay, satisfied with the reasons narrated in the application filed by the Assessee, we condone the delay of 279 days in filing the present Appeal. 5. Brief facts of the case as mentioned in the order of the ld. CIT(A) are as under:- “ The appellant has e-filed its return of income for the A.Y. 2016-17 declaring loss of alongwith questionnaire. In response, the AR of the appellant attended and filed their submission. From the P&L A/C, the AO observed that appellant has booked car charges of Rs. 15,10,854/-, foreign travelling of Rs. 8,43,895/- and domestic travelling of Rs. 23,31,777) To examine the nature of these expenses, the AO called for the ledger copies of the expenses with name, employee number, date of travelling, name & business purpose of travelling and names and addresses of the persons with whom meeting was held, copies of correspondence 5 ITA No. 3123/Del/2023 Kuiroda Electric India Vs. ACIT regarding fixing of meetings, minutes of meeting, consequent effect on sale and further dealings if any, etc. In response to this, the appellant submitted that during this period, the sale has increased. However, requisite information regarding travelling was not provided. The appellant submitted that eight new companies were added in the next F.Y. relevant to A.Y. 2017-18. However, details of communication, meetings and other information as required by the AO with these companies were not provided to establish that appellant's claim of addition of these clients and consequent increase in sale in next year have resulted from these travels. The Counsel of the appellant submitted that these companies are located in Gurugram, Delhi and Manesar. Hence, the AO observed that since these companies are located in nearby areas, foreign and other domestic travels were not required. The AO has further observed that as per Appointment agreements with the directors, who are Japanese citizens, are entitled for journey only once a year. Further, the AO also observed that even if it is admitted that parent companies of these Indian companies may be located in Japan or any other foreign country, they are not supposed to take decision on behalf of the Indian subsidiaries whose registered office, 6 ITA No. 3123/Del/2023 Kuiroda Electric India Vs. ACIT manufacturing units, CPOs and other decision makers are here in Gurugram, Delhi and Manesar. Thus, the AO concluded that in the absence of information which could establish that the travels were actually made for business purpose, the appellant has failed to discharge its onus. Relying on the decision of the Hon'ble ITAT in the case of Kanu Kitchen Kulture (P) Ltd Vs. DCIT [2014] 49 taxmann.com 64 (Delhi-Trib), Hon'ble Supreme Court in the case of CIT Vs. Imperial Chemical Industries (India) P. Ltd. [1969] 74 ITR 17, the Hon'ble ITAT held that burden of proving that a particular expense has been laid out or incurred wholly and exclusively for the purpose of business is entirely on the assessee. The discharge of the burden has to be effective and meaningful and not to cover up merely book entries and paper work. Accordingly claim of the appellant with regard to car charges of Rs.15,10,854/- foreign travelling of Rs. 8,43,895/- and domestic travelling of Rs. 23,31,777/- (totaling to Rs 46,86,526/-) was not accepted by the AO and 30% of these expenses which was Rs.29,73,339/- were disallowed and added to the total income of the appellant.” 7 ITA No. 3123/Del/2023 Kuiroda Electric India Vs. ACIT 6. Aggrieved by the above additions made by the A.O., the assessee preferred an Appeal before the CIT(A). The Ld. CIT(A) vide order dated 29/11/2022, confirmed the additions made by the CIT(A), but corrected the computation error made by the A.O., and restricted the disallowance of 30% to total expenses claimed of Rs. 46,86,526/-. Aggrieved by the order of the Ld. CIT(A), assessee preferred the present Appeal on the grounds mentioned above. 7. The solitary issue involved in the present appeal is regarding 30% ad-hoc disallowance of travelling expenses being car charges of Rs. 15,10,854/-, foreign travelling expenses of Rs. 8,43,895/- and domestic travelling expenses of Rs. 23,31,777/- totaling to Rs. 46,86,526/-, 30% of which comes to Rs. 14,05,958/-. The Ld. Counsel for the assessee submitted that the expenses claimed by the assessee are bound to be more in the initial year of set up, as it involves extra travelling setting up of new business unit which does not correlate to transaction and business of the company, further submitted that, in the subsequent years, the import volume was Rs. 425,80,056.14 in the A Y 2016-17; while Rs. 340.39,625.23 in A Y 2017-18; and 8 ITA No. 3123/Del/2023 Kuiroda Electric India Vs. ACIT total purchases in A Y 2019-20 Rs. 985,32,747 and sales Rs. 11,74,85,724 as reflected in the ITR and after setting up to the business the foreign travel expenses gradually declined. 8. The Ld. Counsel further submitted that the Lower authorities have failed to appreciate the above facts and without their being any basis made ad-hoc disallowance of 30% of the expenses. The Ld. Counsel has also relied on several judgments of the Tribunal, Hon'ble High Court and also Hon'ble Supreme Court and sought for deletion of the addition. 9. Per contra, the Ld. Departmental Representative submitted that, the assessee could not prove that the expenses incurred/claimed are wholly and exclusively for the purpose of the business of the Company and relying on the findings and the conclusions of the Ld. CIT(A), sought for dismissal of the Appeal filed by the assessee. 10. We have heard both the parties and perused the material available on record. The assessee Company is a Japanese Subsidiary Incorporated in India on 16/10/2015 which is 9 ITA No. 3123/Del/2023 Kuiroda Electric India Vs. ACIT mainly into trading of electrical materials, general electronic parts, semiconductors and electric and non-electronic auto components to/from Japan, India and internationally. It has been noticed by the A.O. that in the P & L Account of the assessee, the assessee booked car charges of Rs. 15,10,854/-, foreign traveling of Rs. 8,43,895/- and domestic traveling of Rs. 23,31,777/-. The assessee was asked to give ledger copies of the expenses with name, employee number, date of travelling, name and business purpose of traveling and sought for names and address of the person with whom meeting was proposed, copies of correspondence regarding fixing of meetings, minutes of meetings, consequent effect on sale and further dealing if any. The assessee through his Representative provided certain details, and clarifications but the Ld. A.O. not satisfied with the explanation given by the Assessee's Representative. However, the A.O. has not disallowed the entire expenditure claimed by the assessee, but made ad-hoc disallowance of 30% of the expenses claimed by the assessee, taking into consideration that it would not be proper to completely disallow the expenses. 10 ITA No. 3123/Del/2023 Kuiroda Electric India Vs. ACIT 11. It is not in dispute that the assessment was pertaining to first year of incorporation/business establishment of the assessee. It is the case of the assessee that the expenses on car charges, foreign traveling and domestic traveling are bound to be more in the initial year of set up, as it involves much extra travelling in setting up a new business unit and does not correlate to transaction and business of the Company. The said fact has been not considered by the Lower Authorities. It is not the case of the Revenue that the assessee has not incurred any expenditure, on the contrary, the A.O. himself observed that ‘it would not be proper to completely disallow the expenses’ and made ad-hoc disallowance. The assessee on 29/11/2018 provided detailed submission on the questionnaire raised along with all the invoices, vouchers and other documentary evidence supporting the expenses incurred by the assessee. Further, on 04/12/2018 once again provided detailed submission with respect to all travel made by the employees along with the agenda of the meetings and other relevant details corroborating the business purposes of the travelling and car hire charges. 11 ITA No. 3123/Del/2023 Kuiroda Electric India Vs. ACIT 12. The Hon’ble Supreme Court in the case of CIT Vs. Delhi Safe Deposit Co. Ltd. (1982) 133 ITR 756 (SC) held that the true test of an expenditure laid out wholly and exclusively for the purposes of business is that it is incurred by the assessee as incidental to his trade for the purpose of keeping the trade going. The expenditure incurred must be for commercial expediency. In the circumstances, the Ld. A.O. has been totally wrong in considering the fact that the discharge of the burden has to be effective and meaningful and not to cover up merely by book entries and paper work. 13. The Jurisdictional High court in the case of Dalmia Cement (254 ITR 377), held as under:- “ Under Section 37(1) of the Income tax Act, 1961, the jurisdiction of the Revenue is confined to deciding the reality of the business expenditure, viz., whether the amount claimed as a deduction was factually expended or laid out and whether it was wholly and exclusively for the purpose of the business. It must not, however, suffer from the vice of collusiveness or colorable device. The reasonableness of the expenditure could be gone into only for the purpose of determining whether, in fact the amount was spent. Once it is established that there was a nexus between the expenditure and the purpose of the business, the Revenue cannot justifiably claim to put itself in the armchair of the business man or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize his profits.” 12 ITA No. 3123/Del/2023 Kuiroda Electric India Vs. ACIT 14. In the present case, at no point of time, the Lower Authorities have disputed the genuineness of the vouchers, payments, approvals, travel dates etc. but without their being any contrary evidence and without any material in hand erroneously made ad-hoc disallowance of Rs. 30% of the expenses claimed by the assessee. In our opinion, the Lower Authorities have committed error in making ad-hoc 30% disallowance of the expenses claimed by the assessee. Finding the merits in the Grounds of appeal of the Assessee, we allow the Grounds of Appeal of the Assessee and delete the disallowance made by the Lower Authorities. 15. In the result, the Appeal filed by the assessee is allowed. Order pronounced in the open court on 07th March, 2024. Sd/- Sd/- (SHAMIM YAHYA) (YOGESH KUMAR U.S.) ACCOUNTANT MEMBER JUDICIAL MEMBER Date:- 07.03.2024 *Binita,/R.N, SR.P.S* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT 13 ITA No. 3123/Del/2023 Kuiroda Electric India Vs. ACIT ASSISTANT REGISTRAR ITAT, NEW DELHI