DCIT - 8(2), MUMBAI V. M/s. OCEANAIR EXPRESS FORWARDERS P. LTD., MUMBAI

ITA 3424/MUM/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7685 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 14-01-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 04-05-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIRENDRA OJHA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH, MUMBAI BEFORE SHRI R.K. GUPTA, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 3424/MUM/2007 (ASSESSMENT YEAR: 2003-04) DCIT 8(2) M/S. OCEANAIR EXPRESS FORWARDERS ROOM NO. 216-A, AAYAKAR BHAVAN PVT. LTD., C-11, ROY APARTMENT M.K. ROAD, MUMBAI 400020 VS. SAHAR ROAD, ANDHERI (E) MUMBAI 400009 PAN - AAACO 1035 G APPELLANT RESPONDENT APPELLANT BY: SHRI VIRENDRA OJHA RESPONDENT BY: SHRI SATISH R. MODY O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER OF THE CIT(A) VIII, MUMBAI DATED 05.02.2007. 2. THE REVENUE HAS RAISED THE FOLLOWING THREE GROUNDS: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING THE EXCESSIVE EXPENDIT URE OF RS.11,00,000/- INCURRED ON RESEARCH & TRAINING, WIT HOUT APPRECIATING THE FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN DELETING THE DISALLOWANCE M ADE IN RESPECT OF FOREIGN TRAVEL EXPENSES OF RS.1,20,304/-, WITHOU T APPRECIATING THE FACTS OF THE CASE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF 1% ON RS.74,88,723/- INSTEAD OF 1% ON RS.4,25,96,066/- ON ACCOUNT OF EXPENSES ON AIR & SEA (IMPORT & EXPORT EXPENSES.) 3. WE HAVE HEARD THE LEARNED D.R. AND THE LEARNED COUN SEL WHO ALSO PLACED ON RECORD VOLUMINOUS DETAILS IN PAPER BOOK R UNNING FROM PAGES 1 TO 300 IN SUPPORT OF THE FACTS. 4. REGARDING GROUND NO. 1 THE A.O. IN HIS ORDER HAS ST ATED THAT THE ASSESSEE PAID A SUM OF RS.12,00,000/- TO P.N. WRITE R & CO. PVT. LTD. (PNWC) ON ACCOUNT OF RESEARCH AND TRAINING EXPENSES. THE A .O. FOUND THAT THE ITA NO. 3424/MUM/2007 M/S. OCEANAIR EXPRESS FORWARDERS PVT. LTD. 2 QUANTUM OF EXPENDITURE INCURRED FOR RESEARCH AND TR AINING EXPENSES PAID TO M/S. PNWC WAS NOT COMMENSURATE TO THE SERVICES PROV IDED BY PNWC. THE A.O. THEREAFTER CONCLUDED THAT THE PAYMENT WAS EXCE SSIVE AND SHOULD NOT EXCEED RS.1000 PER MAN DAY. HE ACCORDINGLY DISALLOW ED A SUM OF RS.11,00,000/- ALLOWING THE SUM OF RS.1,00,000/-. B EFORE THE CIT(A) THE ASSESSEE ARGUED THAT THE A.O. COMMITTED AN ERROR IN MAKING THE DISALLOWANCE AS WOULD BE EVIDENT FROM THE FACTS. TH E ASSESSEE HAS ARGUED THAT SUCH AN EXPENDITURE HAS ALWAYS BEEN MADE OVER SEVERAL YEARS TO PNWC FOR RESEARCH AND TRAINING FACILITIES PROVIDED TO ITS VARIOUS EMPLOYEES. IT HAS FURTHER BEEN ARGUED THAT EVEN DURING THE SUBSEQUENT YEAR, THE DEPARTMENT HAS ACCEPTED THE CLAIM TO THE EXTENT OF RS.10,00,00 0/- AND MADE A DISALLOWANCE OF RS.2,00,000/- UNDER THIS HEAD. FURT HER, IT HAS BEEN ARGUED THAT COMPARED TO OTHER PARTIES RENDERING SUCH SERVI CES, THE EXPENDITURE WAS VERY REASONABLE. THE CIT(A) HAS EXAMINED THE ISSUE AND FOUND THAT THE A.O. HAS NOT BEEN ABLE TO MAKE OUT A CASE OF EXCESSIVE P AYMENTS TO M/S. PNWC. THE ONUS WAS ON THE A.O. TO BRING FORWARD SUCH EVID ENCE WHEREIN THE PAYMENTS MADE FOR SIMILAR SERVICES TO UNRELATED PAR TIES COULD BE COMPARED AND CONTRASTED. THERE IS ABSOLUTELY NO EVIDENCE TO SUPPORT THE CLAIM OF THE A.O. THAT THE PAYMENT WAS EXCESSIVE. THE A.O. HAS M ERELY POINTED OUT TO THE INADEQUACY OF THE SERVICES FOR MAKING THE DISALLOWA NCE, WHEREAS, IT WAS IMPERATIVE ON HIM TO MAKE A COMPARISON OF SUCH SERV ICES AND THE EXPENDITURE NORMALLY INCURRED FOR THE SERVICES AND THEN PROCEED TO SEE WHETHER THE EXPENDITURE WAS EXCESSIVE. HAVING FAILE D TO DO SO, IT WOULD NOT BE CORRECT BOTH ON FACTS AND IN LAW TO DISREGARD TH E CLAIM OF THE ASSESSEE. ACCORDINGLY HE DELETED THE DISALLOWANCE. 5. SINCE THE CIT(A) HAS EXAMINED THE FACTUAL ISSUE AND CORRECTLY COME TO THE CONCLUSION THERE IS NO NEED TO INTERFERE WITH T HE ORDER OF THE CIT(A). SINCE REVENUE HAS BROUGHT NOTHING ON RECORD TO COUN TER THE FINDINGS OF THE CIT(A), THE GROUND OF THE REVENUE IS REJECTED. 6. GROUND NO. 2 PERTAINS TO DISALLOWANCE MADE IN RESPE CT OF FOREIGN TRAVEL EXPENSES. THE A.O. HAS MADE A DISALLOWANCE O F RS.1,20,304/- ON ACCOUNT OF FOREIGN TRAVEL EXPENSES STATING THAT THE ASSESSEE COULD NOT SUBMIT THE DETAILS OF THE EXACT NATURE OF THE BUSIN ESS UNDERTAKEN NOR COULD IT GIVE DETAILS PERTAINING TO THE AGENTS AND THE PL ACES VISITED. BEFORE THE ITA NO. 3424/MUM/2007 M/S. OCEANAIR EXPRESS FORWARDERS PVT. LTD. 3 CIT(A) THE ASSESSEE ARGUED THAT SUCH AN ADHOC DISA LLOWANCE WAS UNCALLED FOR, SPECIALLY IN VIEW OF THE FACT THAT THE ENTIRE EXPENDITURE ON TRAVEL WAS DONE BY THE VARIOUS EMPLOYEES OF THE ASSESSEE COMPA NY WHICH INCLUDES THE BUSINESS DEVELOPMENT MANAGER, THE GENERAL MANAGER A ND THE MANGER AND ALL OF THESE WERE FOR SHORT DURATION RANGING FROM 4 TO 10 DAYS MADE ALONE BY SUCH EMPLOYEES AND WAS EXCLUSIVELY FOR BUSINESS PUR POSES. THE CIT(A) HAS EXAMINED THE ISSUE AND DELETED THE DISALLOWANCE MAD E BY THE A.O. STATING THAT SUCH ADHOC DISALLOWANCE CANNOT BE SUSTAINED WH EN THERE IS NO EVIDENCE ON RECORD WHICH COULD EVEN INDICATE THAT T HE EXPENDITURE WAS NOT FOR BUSINESS PURPOSES. THE EXPENDITURE ON FOREIGN T RAVEL WAS UNDERTAKEN BY THE EMPLOYEES OF THE ASSESSEE COMPANY AND THERE IS NO REASON FOR THE A.O. TO CONCLUDE THAT THE EXPENDITURE WAS NOT FOR BUSINE SS PURPOSES. 7. SINCE THE DECISION OF THE CIT(A) IS CORRECT ON THE FACTS OF THE CASE WE DO NOT SEE ANY REASON TO INTERFERE WITH THE DECISIO N OF THE CIT(A). REVENUES GROUND ON THIS ISSUE IS REJECTED. 8. GROUND NO. 3 PERTAINS TO THE DISALLOWANCE MADE BY T HE A.O. BUT CONFIRMED BY THE CIT(A) OF 1% ON RS.74,88,723/- INS TEAD OF 1% ON RS.4,25,96,066/- MADE BY THE AO ON ACCOUNT OF EXPEN SES ON AIR & SEA. THE A.O. EXAMINED THE EXPENSES ON AIR AND SEA REGARDING IMPORT AND EXPORT EXPENSES AND STATED THAT THOUGH THE PAYMENTS HAVE B EEN MADE TO M/S. JOSCO INTERNATIONAL SHIPPING AGENCY PVT. LTD. AND T O M/S. WRITER SAFE GUARD PVT. LTD., THE ULTIMATE EXPENDITURE HAVE BEEN INCUR RED IN CASH AND AS THE PAYMENT HAVE BEEN MADE TO GROUP CONCERNS, SECTION 4 0A(2)(B) WOULD BE APPLICABLE AND DISALLOWED 1% OF THE EXPENSES WHICH AMOUNTED TO RS.4,25,960/-. BEFORE THE CIT(A) THE ASSESSEE ARGUE D THAT NO SUCH DISALLOWANCE WAS CALLED FOR IN AS MUCH AS THE ENTIR E DETAILS OF THE EXPENDITURE MADE TO THE AFORESAID CONCERNS WAS MADE AVAILABLE TO THE A.O. AND THERE IS NO EVIDENCE TO EVEN SUPPORT THE CONCLU SION DRAWN THAT THE PAYMENTS WERE NOT FOR BUSINESS PURPOSES OR WERE EXC ESSIVE SO AS TO ATTRACT THE PROVISIONS OF SECTION 40A(2)(B). THE ASSESSEE A LSO DREW THE ATTENTION OF THE CIT(A) TO THE DETAILS OF THE EXPENDITURE INCURR ED ON ACCOUNT OF THE BILLING MADE BY M/S. JOSCO INTERNATIONAL SHIPPING AGENCY PV T. LTD. TO THE ASSESSEE. THE CIT(A) HAS ALLOWED PARTIAL RELIEF TO THE ASSESS EE HOLDING AS UNDER: - ITA NO. 3424/MUM/2007 M/S. OCEANAIR EXPRESS FORWARDERS PVT. LTD. 4 I HAVE EXAMINED THE ISSUE IN DETAIL AND FIND THAT THERE IS NO EVIDENCE WHICH CAN SUPPORT THE CONCLUSION OF THE A. O. IT IS NOT UNDERSTOOD HOW THE A.O. HAD MADE A DISALLOWANCE OF SECTION 40A(2)(B) WITHOUT SHOWING THAT THE PAYMENTS WERE EXCESSIVE AN D UNREASONABLE WHEN MADE TO ASSOCIATE CONCERNS. THE ONUS WAS ON TH E A.O. TO ESTABLISH THAT THE EXPENDITURE INCURRED WHETHER BY CHEQUE OF BY CASH WAS NOT FOR THE PURPOSES OF BUSINESS. THERE IS ABSOLUTELY NO EV IDENCE TO THIS EFFECT. AT THE SAME TIME, HAVING EXAMINED THE DETAILS OF T HE PARTY WISE EXPENSE, I FIND THAT UNDER THE HEAD VARIOUS TRANSP ORT AGENCIES AND UNDER THE HEAD VARIOUS AGENCIES EXPENDITURE TO TH E EXTENT OF RS.2,40,213/- AND RS.72,48,510/- HAS BEEN INCURRED. THE BALANCE OF THE EXPENDITURE HAS GONE TO SPECIFIC PARTIES FOR SPECIF IC SERVICES RENDERED. SR.NO. PARTIES NATURE OF EXPENSES AMOUNT 1 VARIOUS TRANSPORT AGENCIES LOCAL TRANSPORTATION CHARGES 240,213 2 VARIOUS AGENCIES CUSTOM DUTY, AAI CHARGES, OCTROI CHARGES, DEMURRAGE, CLEARING, STAMP DUTY, LOCAL TRANSPORT, LOADING, UN- LOADING, N-FORM, RETRIEVAL CHARGES, AMENDMENT CHARGES, TRANSHIPMENT CHARGES, DOCUMENTATION CHARGES ETC. 7,248,510 KEEPING IN VIEW THE ABOVE DISCUSSION AND THE FACTS AND CIRCUMSTANCES OF THE CASE, AND THE FACT THAT THE AP PELLANT IS UNABLE TO JUSTIFY EACH AND EVERY EXPENDITURE UNDER THE AFORES AID TWO HEADS, IT WOULD BE CORRECT AND PROPER TO UPHOLD THE DISALLOWA NCE TO THE EXTENT OF 1% OF RS.74,88,723/- WHICH WHEN ROUNDED OFF WOULD C OME TO RS.75,000/- . ACCORDINGLY, THE APPELLANT IS ALLOWED RELIEF. THE A.O. SHALL RE-COMPUTE THE INCOME ACCORDINGLY. THIS GROUND IS THEREFORE ALLOWE D IN PART. 9. SINCE THE CIT(A) HAS EXAMINED THE FACTUAL ISSUES AN D COME TO THE CONCLUSION WE DO NOT SEE ANY REASON TO INTERFERE WI TH THE ORDER OF THE CIT(A). NOTHING WAS BROUGHT ON RECORD TO DIFFER FROM THE AB OVE FINDINGS. ACCORDINGLY, THIS GROUND ALSO IS REJECTED. 10. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH FEBRUARY 2010. SD/- SD/- (R.K. GUPTA) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 12 TH FEBRUARY 2010