Systronics (India) Limited, Ahmedabad V. The Asstt. Commissioner of Income Tax, Circel-2(1)(1), Baroda

ITA 319/AHD/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 9126 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-07-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 07-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business expenditure; Capital expenditure
• Section: 37(1)

Judgement Text

- , - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI PRADIPKUMAR KEDIA, ACCOUNTANT MEMBER ./ ITA NO.319/AHD/2017 / ASSTT. YEAR: 2012-13 SYSTRONICS (INDIA) LTD. B/116-129, SUPATH-II COMPLEX NR.JUNA VADAJ BUS TERMINUS ASHRAM ROAD AHMEDABAD 380 013. PAN : AADCS 2709 J VS. ACIT, CIR.2(1)(1) BARODA. ( APPLICANT ) (RESPONDENT) ASSESSEE BY : SHRI VARTIK CHOKSHI, AR REVENUE BY : SHRI VINOD TANWANI, SR.DR ! '#$ % &' / DATE OF HEARING : 08/07/2019 ()* % &' / DATE OF PRONOUNCEMENT: 9/07/2019 ,- / O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST O RDER OF LD.CIT(A)-2, VADODARA DATED 29.11.2016 PASSED FOR T HE ASSTT.YEAR 2012-13. 2. ASSESSEE HAS TAKE FIVE GROUNDS OF APPEAL, BUT IT S GRIEVANCE REVOLVES AROUND TWO ISSUES VIZ. (A) THE LD.CIT(A) H AS ERRED IN UPHOLDING DISALLOWANCE OF INTEREST AMOUNTING TO RS. 63,67,512/-, ITA NO.319/AHD/2017 2 AND (B) LD.CIT(A) HAS ERRED IN CONFIRMING DISALLOWA NCE OF FOREIGN TRAVEL EXPENSES OF RS.22,25,767/-. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE-COM PANY HAS FILED ITS RETURN OF INCOME ON 26.9.2012 DECLARING T OTAL INCOME AT RS.1,96,47,205/-. THE CASE OF THE ASSESSEE WAS SEL ECTED FOR SCRUTINY ASSESSMENT AND NOTICE UNDER SECTION 143(2) WAS ISSUED AND SERVED UPON THE ASSESSEE. THE ASSESSEE AT THE RELEVANT TIME WAS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TR ADING OF SCIENTIFIC ELECTRONICS INSTRUMENTS AND BROADCAST AU DIO VIDEO EQUIPMENTS. IT HAS SHOWN TURNOVER OF RS.4641.06 L AKHS. ON SCRUTINY OF THE ACCOUNTS, IT REVEALED TO THE AO THA T THE ASSESSEE COMPANY HAS PAID AN INTEREST OF RS.1,91,02,535/- TO ASE LTD. AT THE RATE OF 18% ON UNPAID PRICE OF ELECTRONICS DIVI SION. IT FURTHER EMERGES OUT THAT A MEMORANDUM OF UNDERSTANDING WAS EXECUTED WITH ASE LTD. ON 8.5.2010 VIDE WHICH IT WAS AGREED THAT ASE WOULD TRANSFER ITS ELECTRONIC DIVISION TO THE ASSES SEE-COMPANY FOR A CONSIDERATION OF RS.23.77 CRORES. 50% OF THE CON SIDERATION WAS DECIDED TO BE PAID BY WAY OF ISSUE OF SHARES AND TH E BALANCE 50% OF THE CONSIDERATION BEING UNPAID PRICE CONSIDERATI ON TO BE PAID BY WAY OF MONTHLY PAYMENT OF RS.7 LAKHS AT A SIMPLE IN TEREST OF 12% PER ANNUM COMMENCING FROM EXPIRY OF 3 YEARS FROM TH E DATE OF EXECUTION OF THE MOU. IT IS ALSO PERTINENT TO NOTE THAT INTEREST WAS TO BE PAYABLE FROM THE DATE OF MOU I.E. 8.5.2010 . THEREAFTER, SOME CHANGES HAVE BEEN EFFECTED IN THE RATE OF INTEREST AND THE INTEREST WAS PAID AT THE RATE OF 1 8%. THE AO WAS OF THE VIEW THAT INTEREST AT THE RATE OF 12% IS AVA ILABLE IN THE OPEN MARKET AND INTEREST PAID ON UNPAID CONSIDERATION OV ER AND ABOVE 12% DESERVES TO BE DISALLOWED. WITH THE AID OF SECT ION 40A(2)B), ITA NO.319/AHD/2017 3 THE INTEREST OF RS.63,67,512/- WAS DISALLOWED. THE APPEAL TO THE CIT(A) DID NOT BRING ANY RELIEF TO THE ASSESSEE. 4. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT N O DOUBT IN THE MOU DATED 8.5.2010 THE ASSESSEE HAS AGREED TO PA Y SIMPLE INTEREST AT THE RATE OF 12% ON THE UNPAID PURCHASE CONSIDERATION; BUT LATER ON 1.3.2012 IN THE BOARD MEETING IT WAS RE SOLVED THAT INTEREST WILL BE PAYABLE AT THE RATE OF 18%. IT WA S ALSO POINTED OUT THAT THE ASSESSEE HAS SUBMITTED ALL THESE FACTS TO THE AO IN A LETTER DATED 2.3.2015. IT WAS POINTED THAT BANK US ED TO CHARGE INTEREST AT THE RATE OF 14% ON THE LOAN BORROWED BY THE ASSESSEE, BUT ON THE LOAN FROM ASE LTD. ASSESSEE WAS NOT REQU IRED TO FURNISH BANK GUARANTEE AND COULD AVOID SO MANY OTHE R HURDLES. THE LD.COUNSEL FOR THE ASSESSEE TOOK US THROUGH THE REPLY OF THE ASSESSEE REPRODUCED ON PAGE NOS.2 TO 4 OF THE ASSES SMENT ORDER. ON THE OTHER HAND, THE LD.DR RELIED UPON THE ORDERS OF THE REVENUE AUTHORITIES. 5. IT IS PERTINENT TO OBSERVE THAT IN ORDER TO CLAI M EXPENDITURE UNDER SECTION 37(1) OF THE INCOME TAX ACT, THE ASSE SSEE IS REQUIRED TO FULFILL CERTAIN CONDITIONS VIZ. (A) THE RE MUST BE EXPENDITURE, (B) SUCH EXPENDITURE MUST NOT BE OF TH E NATURE DESCRIBED IN SECTIONS 30 TO 36, (C) THE EXPENDITURE MUST NOT BE IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPEN DITURE OF THE ASSESSEE, AND (D) EXPENDITURE MUST BE LAID OUT OR E XPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR PROFESSION. THE EXPRESSION WHOLLY EMPLOYED IN SECTION 37 REFE RS TO QUANTIFICATION OF EXPENDITURE WHILE EXPRESSION EXC LUSIVELY REFERS TO THE MOTIVE, OBJECTIVE AND PURPOSE OF THE EXPENDI TURE. ITA NO.319/AHD/2017 4 6. IN THE LIGHT OF THE ABOVE, LET US EXAMINE THE FA CTS OF THE PRESENT CASE. NO DOUBT THE INTEREST EXPENDITURE IN CURRED BY THE ASSESSEE HAS BEEN CONSIDERED BY THE AO AS INCURRED IN CONNECTION WITH THE BUSINESS. THE DISPUTE BETWEEN THE ASSESSE E AND THE AO RELATES TO RATE OF INTEREST EXPENDITURE. THE AO WA S OF THE VIEW THAT THE ASSESSEE OUGHT TO HAVE INCURRED INTEREST E XPENDITURE AT THE RATE OF 12% ONLY AND SHOULD NOT HAVE PAID AT 18 %. THE AO HAS MADE REFERENCE TO THE TERMS OF THE MOU EXECUTED ON 8.5.2010, BUT LOST SIGHT OF SUBSEQUENT AMENDMENT CA RRIED OUT IN THE RESOLUTION OF THE BOARD OF DIRECTORS. A COPY OF SUCH RESOLUTION PASSED BY THE BOARD IS PLACED AT PAGE NO.18-19 OF TH E PAPER BOOK. WE HAVE PERUSED THIS RESOLUTION, AND THE RELEVANT P ART READS AS UNDER: 4. REVISION OF INTEREST RATE ON UNPAID CONSIDERATIO N OF ACQUISITION OF ELECTRONIC UNDERTAKING- THE BOARD WAS INFORMED THAT THERE WERE SERIES OF DIS CUSSION AND PERSONAL MEETINGS BETWEEN THE HOLDING COMPANY AMBALAL SARABHAI ENTERPRISES LIMITED AND THE COMPAN Y FROM TIME TO TIME REGARDING REVISION OF RATE OF INTEREST ON UNPAID CONSIDERATION PAYABLE BY THE COMPANY IN RESPECT OF TRANSFER OF ELECTRONIC UNDERTAKING BY WAY OF SLUMP SALE. CON SIDERING THE MATTER IN TOTALITY IT WAS DECIDED TO REVISE THE RATE OF INTEREST FROM THE PRESENT RATE OF INTEREST @12% TO 18% PER ANNUM WITH EFFECT FROM 1.4.2011 WITH HALF YEARLY RE STS. NOTED AND APPROVED 7. AS FAR AS RATE OF 18% IS CONCERNED, IT IS NOT ON THE HIGHER SIDE BECAUSE ON UNSECURED LOANS, THE TRIBUNAL IS UN ANIMOUS IN HOLDING THAT MARKET RATE CAN BE 16% TO 20% BECAUSE IN THAT BORROWINGS THE ASSESSEE USED TO AVOID PROVIDING BAN K GUARANTEE FOR THE LOANS AND ALSO COULD AVOID EXECUTION OF SO MANY DOCUMENTATION AND OTHER PROCESSING FORMALITIES. TH E AO HAS NOT ITA NO.319/AHD/2017 5 COMPARED THIS 18% WITH THE MARKET RATE OF UNSECURED LOANS. HE HAS COMPARED THIS RATE WITH THE BANK LOAN VIS--VIS MOU EXECUTED BY THE ASSESSEE. THEREFORE, WE ARE OF THE VIEW THA T THERE IS NO JUSTIFICATION TO DISALLOW BUSINESS EXPENDITURE INCU RRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 8. IN THE NEXT GROUND OF APPEAL, GRIEVANCE OF THE A SSESSEE IS THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING THE EXPE NSES INCURRED ON FOREIGN TRAVELS. 9. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HAS DEBITED A SUM OF RS.25.60 LAKHS TOWARDS TRAVELLING EXPENSES. THE AO HAS OBSERVED THAT THIS EXPENDITURE INCLUDED FOREIGN TRA VELLING EXPENSES OF RS.22,25,767/-. HE DIRECTED THE ASSESS EE TO FURNISH TRIP-WISE DETAILS OF TRAVELING AND PROVE BUSINESS E XIGENCIES OF THE EXPENDITURE OF FOREIGN TRAVEL. IN RESPONSE TO THE QUERY OF THE AO THE ASSESSEE HAS FILED NECESSARY DETAILS. THE LD.A O DID NOT CONCUR WITH THE ASSESSEE AND DISALLOWED A SUM OF RS.22,25, 767/- BY OBSERVING AS UNDER: 3.4.3: THE SUBMISSION MADE BY THE ASSESSEE IS CONS IDERED VIS-A-VIS MATERIAL AVAILABLE ON RECORD. ASSESSEE HA S FURNISHED DETAILS OF FOREIGN TRIPS CONDUCTED BY ITS EMPLOYEES DURING THE YEAR IN A TABULATED FORMAT. ON PERUSAL O F THE DETAILS IT IS SEEN THAT THE REASON/PURPOSE OF TRIPS IS EITHER GROUP DISCUSSION OF TECHNICAL STAFF OR ANNUAL DISTR IBUTOR MEETING CONDUCTED AT VARIOUS PLACES OVERSEAS. THE DOCUMENTARY EVIDENCE IN RESPECT OF THE CHINA TRIP I S ONLY COPY OF LETTER TO CHINA EMBASSY IN INDIA FOR OBTAIN ING VISA FOR THE VISIT. MORE THAN THAT NO OTHER DOCUMENTARY EVID ENCE IN SUPPORT OF THE VISITS WERE FURNISHED. FURTHER ASSES SEE HAS ALSO FAILED TO EXPLAIN & JUSTIFY THE BUSINESS EXIGE NCY OF THE FOREIGN TRIPS CONDUCTED BY ITS VARIOUS EMPLOYEES. A SSESSEE COMPANY HAS ALSO FAILED TO ESTABLISH THE BUSINESS CONNECTIONS IN THOSE COUNTRIES TO WHICH THE FOREIGN TRIPS WERE CARRIED OUT. IN VIEW OF THESE FACTS & FINDINGS , THE ITA NO.319/AHD/2017 6 CONTENTION OF THE ASSESSEE REGARDING FOREIGN TRIPS CARRIED OUT FOR BUSINESS PURPOSES IS HEREBY REJECTED. THUS THE AMOUNT OF RS. 22,25,767/- SPENT ON FOREIGN TRAVEL BY THE ASSE SSEE DURING THE YEAR UNDER CONSIDERATION IS DISALLOWED A ND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. I AM SATISFIED THAT ASSESSEE COMPANY HAS FURNISHED INACCURATE PARTICULA RS OF ITS INCOME AND THEREFORE PENALTY PROCEEDINGS U/S. 271(1 )(C) ARE SEPARATELY INITIATED. 10. APPEAL TO THE CIT(A) DID NOT BRING ANY RELIEF T O THE ASSESSEE. 11. WHILE IMPUGNING THE DISALLOWANCE, THE LD.COUNSE L FOR THE ASSESSEE TOOK US THROUGH THE DETAILS OF EXPENDITURE SUBMITTED BY BEFORE THE AO. SUCH DETAILS HAVE BEEN COMPILED IN TABULAR FORM AND ARE AVAILABLE AT PAGE NO.29 TO 37 OF THE PAPER BOOK. 13. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, WE HAVE PERUSED THE DETAILS. FOR THE FACILITY SAKE, WE MAK E REFERENCE TO THE FIRST DETAILS THE ASSESSEE HAS SUBMITTED AGAINS T ACCOUNT REFERENCE NO.TE SR.151/31-5-2011. THIS IS IN RESPE CT OF SHRI JYANT P. PAMERKAR. HE HAS VISITED CHINA. HIS DURATION O F VISIT WAS 16.5.2011 TO 19.5.2011. THE PURPOSE OF VISIT WAS D ESCRIBED AS THE EMPLOYEE OF THE COMPANY WAS SENT TO CHINA TO A TTEND AN ANNUAL DISTRIBUTOR MEETING, BEING A MARKETING MEETI NG CONDUCTED BY VINTEN GROUP, CHINA. THE ASSESSEE-COMPANY WAS I NVITED TO THIS EVENT. COPY OF INVITATION LETTER IS ATTACHED . IN THE LAST COLUMN, TOTAL FOREIGN TOUR TRAVEL EXPENSES FOR THIS TOUR HAS BEEN DEBITED AT RS.1,40,323/-. THE ASSESSEE HAS SUBMITT ED SPECIFIC DETAILS OF THE EXPENSES IN THIS MANNER. THE STAND OF THE LD.DR WAS THAT THOUGH THE DETAILS OF EXPENDITURE WAS GIVE N, BUT SUPPORTING DOCUMENTS WERE NOT GIVEN, I.E. INVITATIO N TO THE MEETING BY CHINAS CONCERN OR WHAT WAS THE PURPOSE OF GOING THERE. TO OUR MIND, THE AO HAS NOT ANALYSED THE D ETAILS ITA NO.319/AHD/2017 7 SUBMITTED BY THE ASSESSEE IN THIS MANNER. THE ASSE SSEE IS DOING BUSINESS. IT HAS SHOWN INCOME OF RS.1.96 CRORES. IT HAS SUBMITTED DETAILS OF CERTAIN EXPENDITURE INCURRED F OR ITS EMPLOYEES WHO WENT TO FOREIGN COUNTRIES. THERE IS NO ALLEGAT ION AGAINST THE ASSESSEE THAT THESE EXPENDITURES WERE INCURRED ON F AMILY MEMBERS FOR PLEASURE TRIPS. EVEN IF SOME ALLEGATIO N OF PLEASURE TRIP EXTENDED TO THE EMPLOYEE IS CONCERNED, THEN TH AT WILL COME UNDER THE EMPLOYEES WELFARE SCHEME, AGAIN A BUSINE SS EXPENDITURE. THERE IS NO JUSTIFIABLE REASON FOR MA KING DISALLOWANCE. THEREFORE, WE ALLOW THIS GROUND OF A PPEAL AND DELETE DISALLOWANCE. 14. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE COURT ON 9 TH JULY, 2019. SD/- SD/- (PRADIPKUMAR KEDIA) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 9/07/2019