Sona Somic Lemforder Components Ltd., New Delhi V. DCIT, New Delhi

ITA 3503/DEL/2012

• Counselvise Citation: 350320114 RSA 2012
• Duration Of Justice: 2 year(s) 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-04-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 24-03-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 03-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR B R R KUMAR
• Assessee Lawyers: VIDHUR PURI

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: G NEW DELHI BEFORE SMT DIVA SINGH, JUDICIAL MEMBER AND SH. T.S.KAPOOR, ACCOUNTANT MEMBER I.T.A .NO. - 3503 /DEL/201 2 (ASSESSMENT YEAR - 200 6 - 0 7 ) SONA SOMIC LEMFORDER COMPONENTS LTD., UGF - 6, INDRA PRAKASH BUILDING, 21, BARAKHAMBA ROAD, NEW DELHI - 110001 PAN - AAACS4766Q . (APPELLANT) VS DCIT, CIRCLE - 9(1), C.R. BUILDING, NEW DELHI (RESPONDENT) APPELLANT BY SH. VIDHUR PURI, CA RESPONDENT BY DR.B.R.R.KUMAR , SR. DR ORDER PER DIVA SINGH, JM BY THE PRESENT APPEAL THE ASSESSEE A SAILS THE CORRECTNESS OF THE ORDER DATED 29 .05.201 2 OF CIT(A) - X II, NEW DELHI UPHOLDING THE PENALTY IMPOSED BY THE ASSESSING OFFICER IN 200 6 - 0 7 ASSESSMENT YEAR . 2. THE RELEVANT FACTS OF THE CASE ARE THAT RETURN FILED BY THE ASSESSEE DECLARING A LOSS OF RS.8,35,51,857/ - WAS VARIED TO THE DISADVANTAGE OF THE ASSESSEE IN COMPLETING THE ASSESSMENT AT A LOSS OF RS.8,09,74,290/ - . THE VARIANCE OCCURRED AS A RESULT OF TWO ADDITIONS MADE IN THE ASSESSMENT PROCEEDINGS OF RS.5,92,192/ - AND RS.19,85,375/ - U/S 40(A)(I) ON ACCOUNT OF NON - DEDUCTION OF T DS FOR TRAVELLING BILLS OF PROF. Y.KATO, WHO VISITED ASSESSEE CONCERN FOR IMPARTING TRAINING ; AND ADDITION BY WAY OF DISALLOWANCE OF FOREIGN TRAVEL EXPENSES OF THE MANAGING DIRECTOR FOR WANT OF DOCUMENTARY EVIDENCE RESPECTIVELY. THE ASSESSEE CHALLENGED THE SE ADDITIONS IN THE QUANTUM PROCEEDINGS AND THE APPEALS CONSISTENTLY FAILED BEFORE THE CIT(A) AS WELL AS THE ITAT ON THE ISSUE OF TRAVELLING EXPENSES OF THE MANAGING DIRECTOR. HOWEVER THE ADDITION OF RS.5,92,192/ - OUT OF FOREIGN TRAVEL EXPENSES U/S 40(A)( I) WAS DELETED BY THE ITAT. AS A RESULT OF CONFIRMATION OF THE ADDITION ON ACCOUNT OF THE DATE OF HEARING 24 .03.2015 DATE OF PRONOUNCEMENT 24 .0 4 .2015 I.T.A .NO. - 3503/DEL/2012 2 FOREIGN TRAVEL EXPENSES OF THE MANAGING DIRECTOR, THE AO INITIATED PENALTY U/S 271(1)(C). CONSIDERING THE FACTS AND THE EXPLANATION OF THE ASSESSEE, PENALTY OF RS.6, 68,270/ - WAS IMPOSED HOLDING AS UNDER: - THE ASSESSEE COMPANY HAS DEBITED RS.53,40,546/ - UNDER THE FOREIGN TRAVELLING . THE DETAILS OF FOREIGN TRAVEL REVEALED THAT OUT OF TOTAL TRAVELLING, SOME VISITS WERE MADE BY MR.SANJAY KAPUR (MANAGING DIRECTOR) OF T HE COMPANY TO LONDON. THE PURPOSE OF SUCH VISITS WERE SHOWN AS MEETING WITH REPRESENTATIVES OF M/S. MAVAL MANUFACTURING INC. CONCERNING SALE/SUPPLY OF ASSESSEE S PRODUCTS AND PRICING THEREOF; THAT SHRI. SANJAY KAPUR WAS HAVING A WORK EXPERIENCE OF OVER 12 YEARS; THAT HE WAS A GRADUATE IN BUSINESS ADMINISTRATION FROM U.K. WITH MAJOR INTEREST IN BUSINESS STRATEGY AND HUMAN RELATIONS; THAT HE HAD EARLIER WORKED IN SONA KOYO STEERING SYSTEMS LTD., A PUBLIC LISTED COMPANY, AS VICE PRESIDENT (PROJECT AND HRD); T HAT THERE HE HAD PARTICIPATED IN THE BUSINESS PROMOTION, DEVELOPMENT AND IN FORMULATING BUSINESS STRATEGIES; TRYING UP STRATEGIC COLLABORATION AND DEVELOPMENT OF NEW BUSINESS; AND THAT THE ASSESSEE COMPANY HAD TO FIND POTENTIAL CUSTOMERS AND TO VISIT THEM PRICE NEGOTIATION AND TAKING ORDERS. THE ASSESSEE HAS NOT SUBMITTED ANY EVIDENCE CONCERNING THE STATED CLIENT MEETING OR THEIR OUTCOME IMPACTING THE ASSESSEE S BUSINESS WHICH RESULTED IN THE ADDITION OF RS.19,85,375/ - AS PERSONAL IN NATURE. THE ADDITION MADE BY THE AO WAS CONFIRMED BY THE LD. CIT(A) AND HON BLE TRIBUNAL WHICH ESTABLISHES THAT THE ASSESSEE HAS CONCEALED INCOME BY WAY FURNISHING INACCURATE PARTICULARS IN THE FORM OF CLAIM OF FOREIGN TRAVEL EXPENSES OF RS.19,85,375/ - WHICH WAS ACTUALLY INCUR RED IN CONNECTION WITH THE PERSONAL TRIP OF THE MANAGING DIRECTOR. NO DOCUMENTS/EVIDENCE HAS BEEN PRODUCED AT ANY STAGE TO ESTABLISH THAT EVEN A SINGLE MEETING TOOK PLACE FOR BUSINESS PURPOSE BETWEEN THE MANAGING DIRECTOR AND MANAGEMENT OF M/S MAVAL MANUF ACTURING INC. EVEN THOUGH 8 SUCH TRIPS WERE MADE AND WHICH ESTABLISHES THAT ANY NEGOTIATION TOOK PLACE BETWEEN THE RESPECTIVE AND PROSPECTIVE CUSTOMERS. 3. THE ASSESSEE CHALLENGED THE SAID ORDER PLEADING THAT THE FACTS HAVE BEEN WRONGLY CONSIDERED IN THE QUANTUM PROCEEDINGS. IT WAS SUBMITTED THAT M/S MAVEL MANUFACTURING INCORPORATION CONSIDERED TO BE A SUPPLIER IN THE QUANTUM PROCEEDINGS IS ACTUALLY A CUSTOMER OF THE ASSESSEE. BEING AN OLD CUSTOMER IT WAS CANVASSED THAT MR. SANJAY KAPUR AS MANAGING DIREC TOR OF THE ASSESSEE COMPANY WAS NOMINATED AS THE COMPETENT PERSON FOR HOLDING MEETINGS WITH THE OLD CUSTOMER FOR SUPPLY, QUALITY AND PRICING MATTER ETC. HOLDING OF MEETINGS WITH THE CUSTOMERS , IT WAS ARGUED , IS AN ONGOING PROCESS AS A RESULT OF WHICH THE EXPORT SALES OF THE ASSESSEE OVER THE YEARS HAD BEEN INCREASED. THE STATEMENT WAS SUPPORTED BY THE FOLLOWING CHART WHICH IS EXTRACTED FROM THE IMPUGNED ORDER: - I.T.A .NO. - 3503/DEL/2012 3 ASSESSMENT YEAR AMOUNT OF EXPORT SALES IN RS. 2003 - 04 1,76,76,308 2004 - 05 2,51,48,749 2005 - 06 3,24,46,421 2006 - 07 3,15,62,377 2007 - 08 4,76,78,083 4. HOWEVER IN VIEW OF THE FACT THAT NO DOCUMENTS IN SUPPORT OF ANY MEETINGS SET UP WITH THE M/S MAVEL MANUFACTURING INC. WAS PLACED ON RECORD THE CIT(A) CONFIRMED THE PENALTY ORDER. 5. AGGRIEVED BY THIS THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 6. THE LD. AR REFERRING TO THE FACTS ON RECORD AS RECORDED IN THE QUANTUM PROCEEDINGS BY THE CIT(A) AND THE TRIBUNAL SUBMITTED THAT NO DOUBT THE ASSESSEE HAS NOT LED ANY EVIDENCE IN SUPPORT O F HOLDING OF MEETINGS, HOWEVER ABSENCE OF THE SAME RELYING ON THE REASONING IN THE QUANTUM PROCEEDINGS CANNOT BE THE GROUND FOR LEVYING PENALTY. THE ARGUMENT ADVANCED AS PER JUDICIAL PRECEDENT IN THE PENALTY PROCEEDINGS IT WAS SUBMITTED HAS TO BE INDEPEND ENTLY CONSIDERED AND CANNOT BE IGNORED ON THE SAME REASONING AS IN THE QUANTUM PROCEEDINGS. THE FACTS IT WAS SUBMITTED HAVE TO BE SEEN IN THE PROPER PERSPECTIVE WHEREIN GIVING DUE CARE AND CONSIDERATION TO THE REALITIES AND FACTS ON RECORD. T HE ASSESSEE IT WAS SUBMITTED IS NOT A PRIVATE LIMITED COMPANY CONSISTING OF HIMSELF AND SOME CLOSE FAMILY MEMBERS. INVITING ATTENTION TO THE DETAILS FILED ON RECORD WHERE PARTICULARS OF THE PERSONS WHO WERE BENEFICIAL OWNERS OF THE EQUITY SHARE HOLDING IN THE ASSESSE E COMPANY NOT LESS THAN 10% OF THE VOTING POWER AT ANY TIME FROM 01.04.2005 TO 31.03.2006 WERE RELIED UPON. REFERRING TO THE SAME IT WAS SUBMITTED THAT 33.7% OF THE SHARES W ERE HELD BY SONA INVESTMENT PVT. LTD. AN INDEPENDENT ASSESSEE ; AND 26.66% WAS H E LD BY ZF LEMFORDER METALLWAREN AG ; AND 39.64% BY SOMIC ENGINEERING INC. WHERE THE LAST TWO COMPANIES HAD THEIR OFFICES IN GERMANY AND JAPAN. THE NOMINATION OF MR. SANJAY KAPOOR AS MANAGING DIRECTOR TO TRAVEL TO UK IN THE BUSINESS INTERESTS OF THE ASS ESSEE IT WAS SUBMITTED IN THE PENALTY PROCEEDINGS NEEDS TO CONSIDERED IN THE PROPER PERSPECTIVE. REFERRING TO THESE DETAILS IT WAS POINTED OUT THAT IT CAN BE SEEN THAT THE I.T.A .NO. - 3503/DEL/2012 4 CHAIRMAN/DIRECTOR OF THE ASSESSEE COMPANY WAS MR. KOZO ISHIKAWA AND OUT OF THE FOUR DIRECTOR S , ONE DIRECTOR WAS BASED IN CHINA AND THE ORDER DIRECTOR WAS IN JAPAN AND TWO DIRECTORS WERE BASED IN DELHI. APART FROM THAT THE DY. MANAGING DIRECTOR WAS BASED IN JAPAN. ACCORDINGLY THE NOMINATION FOR BUSINESS PURPOSES OF THE MANAGING DIRECTOR WAS NOT A CASUALLY TAKEN DECISION BY A COMPANY CONTROLLED BY A FAMILY CONCERN AND INFACT HAD GONE THROUGH RIGOROUS DECISION MAKING PROCESS BY PERSONS OF VARIOUS INTERNATIONAL COMPANIES. THUS THESE FACTS WOULD SHOW AND ALSO ENSURE THAT THE NEED AND NECESSITY FOR THE TRAVEL WAS NOT A CASUAL DECISION AND EVEN THOUGH FOR THE PURPOSES OF THE QUANTUM PROCEEDINGS THE EVIDENCE FILED MAY HAVE BEEN CONSIDERED TO BE NOT ADEQUATE HOWEVER IN THE PENALTY PROCEEDINGS THE REQUIREMENTS ARE DIFFERENT. THE FACTS SHOW IT WAS SUBMI TTED THAT NEITHER THERE WAS CONCEALMENT NO R FILING OF INACCURATE PARTICULARS. ACCORDINGLY THE PENAL ACTION ON FACTS IT WAS SUBMITTED SHOULD NOT HAVE BEEN ATTRACTED. REFERRING TO THE ASSESSMENT ORDER IT WAS SUBMITTED THAT THE ASSESSEE COMPANY IS A MANUFAC TURER OF BALL JOINTS FOR STEERING SYSTEMS USED MAINLY IN MANUFACTURING OF AUTOMOBILES AND THE VISIT IN THIS BACKGROUND BY A PERSON OF THE RANK OF THE MANAGING DIRECTOR OF THE COMPANY BEING NOMINATED TO REPRESENT THE INTERESTS OF THE ASSESSEE COMPANY AND VI SITING ITS OLD CUSTOMER IN REGARD TO SATISFY THE ASSESSEE AND THE CUSTOMER ABOUT THE QUALITY, SUPPLY AND OTHER ISSUES ON WHICH SATISFACTION OF THE CUSTOMER IS NECESSARY FOR THE GOODWILL AND EXTENSION OF THE COMPANY IT WAS SUBMITTED CANNOT BE DISCARDED. I T WAS HIS SUBMISSION THAT NO REPORT IS REQUIRED TO BE GENERATED BY A PERSON OF THE STATURE OF A MANAGING DIRECTOR. IT WAS SUBMITTED THAT LACK OF THE SAME MAY BE GOOD FOR QUANTUM PROCEEDINGS BUT THE PENALTY PROCEEDINGS REQUIRED A RE - APPRAISAL OF THE ENTIRE FACTS, CIRCUMSTANCES AND EXPLANATION TO BE CONSIDERED INDEPENDENTLY. IN THESE FACTS AND CIRCUMSTANCES CONSIDERING THE JUDICIAL PRECEDENT AS SETTLED BY PRICE WATERHOUSE COOPERS (P.) LTD. VS CIT (2012) 348 ITR 306 (SC); CIT VS RELIANCE PETROPRODUCTS (P.) LTD. 322 ITR 158 (SC); CIT VS GEM GRANITES (KARNATAKA) (2014) 42 TAXMANN.COM 493 JUDGEMENT DELIVERED BY THE MADRAS HIGH COURT ON 12.11.2013 AND VARIOUS UNPUBLISHED ORDERS OF THE TRIBUNAL NAMELY SHERNIK M. SJHAH VS DCIT (ITA NO. - 4886/MUM/2012) (ITAT MUMBAI) ; VISTAR CONSTRUCTIONS PVT. LTD. VS DCIT (ITA NO. - 5149/DEL/2011) I.T.A .NO. - 3503/DEL/2012 5 (ITAT DELHI); ACIT VS T.R.B. EXPORTS (P.) LTD. (2011) 45 SOT 22 (CHD)(URO) COPY PLACED AT PAGES 50 - 51, IT WAS SUBMITTED THAT IT CANNOT BE SAID TO BE A CASE OF CONCEALMENT AS FULL FACTS WERE AVAILABLE BEFORE THE AO WHO INCORRECTLY CONSIDERS M/S MAVEL MANUFACTURING INC. AS A SUPPLIER WHEREAS THE SAID CONCERN IS AN OLD CUSTOMER OF THE ASSESSEE. IT WAS ALSO HIS SUBMISSION THAT IT IS NOT EVEN A CASE OF FILING OF INACCURATE PARTICULARS OF INCOME A S THE FACTS PERTAINING TO THE TWO VISITS IN THE YEAR UNDER CONSIDERATION IN JULY 2005 AND FEB. 2006 AMOUNTING TO RS. 9,97,448 AND RS.9,87,927 RESPECTIVELY IS FULLY DISCLOSED BY THE ASSESSEE AND INFACT IT IS THE DISCLOSURE OF THE ASSESSEE WHICH HAS BEEN THE BASIS FOR THE ADDITION. 7. THE LD. SR. DR IN REPLY RELYING UPON THE FINDINGS IN THE QUANTUM PROCEEDINGS WHICH HAS BEEN REPRODUCED IN THE PENALTY PROCEEDINGS SUBMITTED THAT EVIDENTLY TILL DATE NO EVIDENCE IN SUPPORT OF THE DETAILS OF TRAVEL BY WAY OF AN Y COGENT EVIDENCE HAS BEEN FILED BY THE ASSESSEE ACCORDINGLY THE IMPUGNED ORDER DESERVES TO BE UPHELD. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD INCLUDING THE FINDINGS IN THE QUANTUM PROCEEDINGS AND THE JUDICIAL PR ECEDENT RELIED UPON. ON A CUMULATIVE CONSIDERATION THEREOF WE ARE OF THE VIEW THAT NO DOUBT THE ASSESSEE FAILED IN THE QUANTUM PROCEEDINGS RIGHT UP TO THE ITAT FOR WANT OF CORROBORATIVE EVIDENCE TO SUPPORT ITS CLAIM, HOWEVER CONSIDERING THE ARGUMENT ON FA CTS QUA THE BENEFICI AL OWNERS OF EQUITY SHARE HOLDING PATTERN OF THE ASSESSEE WHICH HAS NOT BEEN ASSAILED BY THE REVENUE , EVIDENTLY THE ASSESSEE IS NOT A FAMILY CONTROLLED CONCERN WHERE EXPENSES OF A PERSONAL NATURE CAN BE SAID TO HAVE BEEN PASSED ON AS TH E EXPENSES OF THE COMPANY. THE PRESENCE OF VARIOUS DIRECTORS BASED IN CHINA, JAPAN ETC WOULD NECESSARILY ACT AS A DETERRENT TO ANY SUCH PRACTICE. THE LD. AR HAS PLEADED THAT A MANAGING DIRECTOR IS NOT REQUIRED TO GENERATE A REPORT ON HIS FOREIGN TRAVEL, WE FIND FOR THE ABSENCE OF THE SAME ADDITION IN THE QUANTUM PROCEEDINGS HAS CORRECTLY BEEN MADE HOWEVER IN THE PECULIAR FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE FIND THAT THE ARGUMENTS ADVANCED BEFORE THE CIT(A) AND EVEN BEFORE US HA VE NOT BEEN CO NTROVERTED BY THE FIRST APPELLATE AUTHORITY OR BY THE SR. DR. IT IS SEEN THAT T HE PENALTY ON FACTS HAS BEEN IMPOSED AND CONFIRMED SOLELY ON THE GROUND THAT THE ADDITION HAS BEEN I.T.A .NO. - 3503/DEL/2012 6 MADE AND SUBSEQUENTLY SUSTAINED. IT IS SEEN THAT THE CIT(A) HAS NOT EVEN CA RED TO ADDRESS THE FACT THAT M/S MAVEL MANUFACTURING INCORPORATION WAS A CUSTOMER OF THE ASSESSEE AND NOT A SUPPLIER. IT IS FURTHER SEEN THAT THE EXPORT SALES OF THE ASSESSEE HAVE INCREASED OVER THE YEARS WHICH TO SOME EXTENT CAN BE SAID TO BE ON ACCOUNT OF CONTINUED CUSTOMER SATISFACTION AND THE RATIONALE THOUGH NOT BEING GOOD ENOUGH FOR QUANTUM PROCEEDINGS CAN BE A RELEVANT ARGUMENT IN THE PENALTY PROCEEDINGS IN THE PECULIAR NATURE OF ASSESSEE S BUSINESS. WE NOTE THAT NO DOUBT THE CLAIM PUT FO RTH BY THE ASSESSEE WAS NOT ALLOWED HOWEVER IT CANNOT BE SAID CONSIDERING THE JUDICIAL PRECEDENT CITED THAT THERE WAS ANY FILING OF INACCURATE PARTICULARS OR NON - DISCLOSURE ON THE PART OF THE ASSESSEE. IT IS MERELY A CASE OF CLAIM NO T ALLOWED. IT IS ALSO SEEN THAT IN THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE, THE PENALTY HAS BEEN IMPOSED AND UPHELD PURELY ON ACCOUNT OF THE FINDINGS ARRIVED AT IN THE QUANTUM PROCEEDINGS WHICH IS NOT THE MANDATE OF LAW. THE EXPLANATION OFFERED BY THE ASSESSEE IN TH E PENALTY PROCEEDINGS HAS TO BE CONSIDERED INDEPENDENTLY AND JUDICIOUSLY AND ONLY THEREAFTER A FINDING HAS TO BE RECORDED. THIS EXERCISE IS FOUND MISSING BOTH IN THE PENALTY ORDER AS WELL AS THE IMPUGNED ORDER. CONSIDERING THE JUDICIAL PRECEDENT AND THE REASONING SET OUT HEREIN ABOVE ACCEPTING THE EXPLANATION OF THE ASSESSEE AS BONAFIDED THE IMPUGNED ORDER IS SET ASIDE AND BY ALLOWING THE APPEAL OF THE ASSESSEE, THE PENALTY ORDER IS QUASHED. 9 . IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED. THE SAI D ORDER WAS PRONOUNCED IN THE OPEN COURT ON 24 TH APRIL , 2015. SD/ - SD/ - (T.S.K APOOR) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: THE 24 TH APRIL , 2015 *AMIT KUMAR* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI