GATEWAY TERMINALS INDIA P.LTD, NAVI MUMBAI V. DCIT 5(1), MUMBAI

ITA 3595/MUM/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1433 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-04-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 06-03-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 24-05-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B S BIST
• Assessee Lawyers: KIRAN NISAR
• Keywords: Gift; Transfer pricing; Business expenditure; Opportunity of being heard; Principle of natural justice; International transaction; Commercial expediency; Revised return; Capital expenditure
• Section: 143(3); 115JB; 37(1); 37

Judgement Text

H IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE SHRI C.N. PRASAD, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO. 3595/ MUM/2016 ( / ASSESSMENT YEAR : 2009-10) GATEWAY TERMINALS INDIA PVT. LTD., GTI HOUSE, JAWAHARLAL NEHRU PORT, SHEVA, DISTRICT URAN, NAVI MUMBAI 400 707. / V. DY. COMMISSIONER OF INCOME TAX, 5(1), AAYKAR BHAVAN, M.K. ROAD, MUMBAI. ./ PAN : AACCG1899E ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY : SHRI KIRAN NISAR REVENUE BY : SHRI B.S. BIST, DR / DATE OF HEARING : 06-03-2017 / DATE OF PRONOUNCEMENT : 06-04-2017 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE ASSESSEE, BEING ITA NO. 3595/MUM/2016, IS DIRECTED AGAINST THE APPELLATE ORDER DATED 29 TH FEBRUARY, 2016 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)- 10, M UMBAI (HEREINAFTER CALLED THE CIT(A)), FOR THE ASSESSMENT YEAR 2009- 10, THE APPELLATE PROCEEDINGS BEFORE THE LEARNED CIT(A) ARISING FROM THE ASSESSMENT ORDER DATED 25 TH MARCH, 2013 PASSED BY LEARNED ASSESSING OFFICER (H EREINAFTER CALLED THE AO) U/S 143(3) OF THE INCOME-TAX ACT,1 961 (HEREINAFTER CALLED THE ACT). ITA 3595/MUM/2016 2 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN MEMO OF APPEAL FILED WITH THE INCOME-TAX APPELLATE TRIBUNAL, MUMBAI (HER EINAFTER CALLED THE TRIBUNAL) READ AS UNDER:- GROUND I: ADDITION OF PROVISION OF SLOW MOVING / OB SOLETE STOCK TO THE BOOK PROFIT OF THE APPELLANT WHILE COMPUTING THE TAX LI ABILITY UNDER SECTION 115JB OF THE ACT: RS. 1,51,33,620 1.1 THE LEARNED CIT(A) HAS ERRED IN LAW AND FACTS OF THE CASE IN CONFIRMING THE ACTION OF THE AO BY TREATING THE PROVIS ION FOR SLOW MOVING / OBSOLETE STOCK AS AN UNASCERTAINED LIABILIT Y AND ADDING IT TO THE BOOK PROFIT OF THE APPELLANT WHILE COMPUTING THE TAX LIABILITY UNDER SECTION 115JB OF THE ACT. 1.2 THE LEARNED CIT(A) FAILS TO APPRECIATE THAT SUCH PROVISION FOR SLOW MOVING / OBSOLETE STOCK WAS MADE TO RECORD THE CL OSING STOCK AT NET REALIZABLE VALUE WHICH IS IN ACCORDANCE WITH ACC OUNTING STANDARD-2 (VALUATION OF INVENTORY) 1.3 WITHOUT PREJUDICE TO THE ABOVE, IF THE ACTION OF CI T(A) ON THIS GROUND IS CONFIRMED THEN THE APPELLANT SHOULD BE AL LOWED REDUCTION FOR REVERSAL MADE IN THE YEAR UNDER APPEAL OF THE PROVISI ON MADE IN THE IMMEDIATELY PRECEDING YEAR. GROUND II: DISALLOWANCE OF CORPORATE SOCIAL RESPON SIBILITY EXPENSES ('CSR'): RS. 38,82,316 2.1 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) - 10, MUMBAI ['CIT(A)'] HAS ERRED IN LAW AND ON FACTS IN CONFIRMI NG THE ACTION OF THE INCOME TAX OFFICER 5(1 )(2), MUMBAI (' AO') BY DISA LLOWING RS. 38,82,316 DEBITED UNDER THE HEAD 'CSR EXPENSES' 2.2 THE LEARNED CIT(A) FAILS TO APPRECIATE THAT SUCH EXPENSES INCLUDE BUSINESS PROMOTION EXPENSES OF RS. 22,95,302 ERRONEO USLY INCLUDED UNDER THE HEAD 'CSR EXPENSES' AND SUCH BUSINESS PRO MOTION EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS 2.3 THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT A CTUAL CSR EXPENSES OF RS. 15,87,014 INCURRED FOR PROVIDING VA RIOUS MEDICAL FACILITIES CANNOT BE REGARDED AS WHOLLY OUTSIDE THE AM BIT OF BUSINESS OF THE APPELLANT. ITA 3595/MUM/2016 3 GROUND III: ADD-HOC DISALLOWANCE OF 25% OF BUSINESS PROMOTION EXPENSES - RS. 881,280/-. 3.1 THE LEARNED CIT(A) HAS ERRED IN LAW AND FACTS OF THE CASE IN CONFIRMING THE ACTION OF THE AO MAKING AD-HOC DISALLO WANCE OF 25% OF BUSINESS PROMOTION EXPENSES. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE C OMPANY IS ENGAGED IN THE BUSINESS OF DEVELOPING BULK TERMINAL OF JAWAHARLAL NEHRU PORT INTO A NEW CONTAINER TERMINAL, OPERATING AND MAINTAINING THE S AME. THE ACTIVITIES CARRIED OUT BY THE ASSESSEE BROADLY INCLUDE LOADING AND UNL OADING OF CONTAINERS FROM SHORE TO SHIP AND FROM SHIP TO SHORE; REEFER SERVIC ES; CONTAINER STORAGE FACILITIES; HANDLING OVER-DIMENSIONAL AND HAZARDOUS CONTAINERS; ETC. 4.THE A.O. OBSERVED DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S 143(3) R.W.S. 143(2) OF 1961 ACT THAT THE ASSESSEE HAD CLA IMED MISCELLANEOUS EXPENSES TO THE TUNE OF RS. 49,88,230/-. THE ASSESS EE WAS ASKED BY THE AO TO FURNISH DETAILS OF MISCELLANEOUS EXPENSES. BASED U PON THE REPLY OF THE ASSESSEE, IT WAS OBSERVED BY THE AO THAT THE ASSESS EE HAD DEBITED AN AMOUNT OF RS.38,82,316/ - TOWARDS SPONSORSHIP OF CORPORATE SOCIAL RESPONSIBILITY (CSR). THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE SAID AMOUNT EXPENDED TOWARDS CSR SHOULD NOT BE DISALLOWED. IN R EPLY, THE ASSESEE SUBMITTED AS UNDER:- THE COMPANY IS LOCATED VERY FAR OFF FROM THE MAIN CITY AND IS SURROUNDED BY MANY VILLAGES. MANY INHABITANTS OF SU CH VILLAGES ARE EMPLOYEES OF THE COMPANY. THESE VILLAGES LACK M EDICAL FACILITIES AND FOR THE WELL BEING OF THE FAMILY OF THE EMPLOYEES, THE COMPANY PROVIDES AMBULANCE SERVICES, PARAMEDICAL SE RVICES AND MEDICAL SUPPLIES TO VILLAGERS IN THE VICINITY OF IT S BUSINESS PREMISES. FURTHER PROVIDING OF SUCH FACILITIES ENHA NCES THE ITA 3595/MUM/2016 4 CORPORATE IMAGE OF THE COMPANY. ALSO SUCH EXPENSES WERE INCURRED ON THE WELFARE OF ITS EMPLOYEES AS THEY WERE DIRECT LY OR INDIRECTLY BENEFITED BY IT. SUCH EXPENSES HAVE BEEN INCURRED O UT OF COMMERCIAL EXPEDIENCY AND SHOULD BE TREATED AS AN A LLOWABLE BUSINESS EXPENSE U/S. 37(1) OF THE ACT.' THE A.O. REJECTED THE CONTENTION OF THE ASSESSEE AN D OBSERVED THAT SEC.37(1) OF THE ACT SPECIFICALLY STATES THAT THE ASSESSEE SH ALL BE ALLOWED ONLY THOSE EXPENSES THAT HAVE BEEN WHOLLY & EXCLUSIVELY INCURR ED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THE A.O. OBSERVED THAT CS R EXPENSES ARE IN THE NATURE OF DONATION AND THE SAME CANNOT SAID TO HAVE BEEN INCURRED FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE. THE A.O. OBSE RVED THAT THE ASSESSEE IS IN THE BUSINESS OF DEVELOPING BULK TERMINAL OF JAWA HARLAL NEHRU PORT INTO A NEW CONTAINER TERMINAL, OPERATING AND MAINTAINING T HE SAME, WHILE THE EXPENSES WERE INCURRED TOWARDS AMBULANCE SERVICES, PARAMEDICAL SERVICES AND MEDICAL SUPPLY TO VILLAGES WHICH CAN IN NO WAY BE SAID TO HAVE BEEN EVEN CONNECTED WITH THE BUSINESS ACTIVITY OF THE ASSESSE E COMPANY. THE CONTENTION OF THE ASSESSEE THAT IT ENHANCES IMAGE OF THE ASSES SEE WAS ALSO REJECTED BY THE AO , AS THEN IN THAT SITUATION IT WAS HELD THAT THEN IT WILL BE CAPITAL EXPENDITURE WHICH SHALL NOT BE ALLOWABLE U/S 37(1) OF 1961 ACT. IT WAS OBSERVED BY THE AO THAT THE ASSESSEE HAS NOT FURNIS HED ANY DOCUMENTARY EVIDENCE IN SUPPORT OF ITS CLAIM. FURTHER, IN ASSES SEE'S OWN CASE, THE AO OBSERVED THAT SIMILAR ADDITION WERE MADE IN ASSESSM ENT YEAR 2008-09 WHILE THE ASSESSEE HAS NOT FILED ANY APPEAL BEFORE LEARNE D CIT(A) AND THE ADDITIONS MADE HAD ATTAINED FINALITY FOR ASSESSMENT YEAR 2008 -09. IT WAS ALSO OBSERVED BY THE AO THAT THE ASSESSEE WH ILE FILING RETURN OF INCOME WITH REVENUE HAD ADDED AN AMOUNT OF RS.L,51,33,620/ - ON ACCOUNT OF PROVISION FOR OBSOLETE STOCK, WHILE DETERMINING BOO K PROFITS U/S 115JB OF 1961 ACT. BUT WHILE REVISING THE RETURN OF INCOME W ITH REVENUE, ASSESSEE HAD ITA 3595/MUM/2016 5 WITHDRAWN THE PROVISION FOR OBSOLETE STOCK WHILE DE TERMINING BOOK PROFIT U/S 115JB OF 1961 ACT. THE ASSESSEE WAS ASKED TO EXPLAI N AS TO WHY THE PROVISION FOR OBSOLETE STOCK ORIGINALLY ADDED TO THE BOOK PRO FIT AND DISALLOWED IN COMPUTATION VIDE ORIGINAL RETURN OF FILED WITH REVE NUE WAS SUBSEQUENTLY WITHDRAWN FROM MAT COMPUTATION IN THE REVISED RETUR N OF INCOME FILED WITH REVENUE , AND WHY THE SAME SHOULD NOT BE ADDED TO T HE BOOK PROFIT U/S 115JB OF 1961 UNDER MAT PROVISIONS AS THE SAME IS P ROVISION FOR UNCERTAIN LIABILITY. IN REPLY THE ASSESSEE SUBMITTED AS UNDER :- IN THE ORIGINAL ROI, THE COMPANY HAD ERRONEOUSLY T REATED RECORDING OF INVENTORY AT REDUCED MARKET VALUE FOR THE PURPOSE OF MANAGEMENT INFORMATION SYSTEM (MIS) AS PROVISION FO R OBSOLETE STOCK AND ADDED THE SAME TO THE BOOK PROFIT. HOWEVE R, SINCE THE PROVISION IS IN THE NATURE OF BUSINESS LOSS/RISK RA THER THAN DIMINUTION IN THE VALUE OF ASSETS, THE ADJUSTMENT T OWARDS THE SAME WAS NOT WARRANTED FOR COMPUTING TAX UNDER SECT ION 115JB OF THE ACT. THE A.O. OBSERVED THAT THE ASSESSEE HAS NOT SUBMITT ED ANY SUPPORTING DOCUMENT IN SUPPORT OF ITS CLAIM OF THE SAID LOSS O N ACCOUNT OF OBSOLESCENCE AND HENCE ALL PROVISIONS ARE IN THE NATURE OF UNCER TAINED LIABILITY WHICH NEEDED TO BE ADDED BACK WHILE DETERMINING BOOK PRO FIT. THE AO OBSERVED THAT THE ASSESSEE ITSELF ACCEPTED THE BOOK PROFIT T REATING THE PROVISION OF OBSOLETE STOCK AS TAXABLE UNDER BOOK PROFIT WHILE F ILING THE ORIGINAL RETURN OF INCOME WITH REVENUE . THE A.O., ACCORDINGLY DISALLO WED AN AMOUNT OF RS. 1,51,33,620/~ TREATING THE SAME AS NOT ALLOWABLE TO ARRIVE AT BOOK PROFIT, WHILE FRAMING ASSESSMENT VIDE ORDERS DATED 25-03-20 13 U/S 143(3) OF 1961 ACT. THE A.O. FURTHER OBSERVED THAT THE ASSESSEE HAS INC URRED BUSINESS PROMOTION EXPENSES AND ACCORDINGLY DETAILS WERE CALLED FOR. IN THE OPINION OF THE A.O. THESE EXPENSES WERE NOT INCURRED WHOLLY AND EXCLUSI VELY FOR THE PURPOSE OF BUSINESS. THE DETAILS OF THE EXPENSES ARE AS UNDER :- ITA 3595/MUM/2016 6 (I) CORPORATE GIFT RS.2,07,808 (II) EVENT WORK FOR HELP MANAGEMENT OF CUSTOMER RS.24,13,196 (III) BOARD MEETING EXPENSES RS.L,30,713 (IV) AIR TICKET FOR COPOLA LUNGI RS.7,73,005 _______________ TOTAL RS.35,24,722 ________________ THE ASSESSEE SUBMITTED THAT THESE ARE REVENUE EXPEN SES WHILE THE A.O. OBSERVED THAT CORPORATE GIFT TO VALUED CUSTOMERS ON SPECIAL OCCASIONS, FESTIVALS ARE TO INCREASE THE GOODWILL OF THE ASSES SEE IN THE MINDS OF CUSTOMER AND ARE IN THE NATURE OF BRAND BUILDING EXPENDITURE TO MAINTAIN GOOD RELATIONS WITH THE CUSTOMERS WHICH CANNOT BE TREATE D AS REVENUE EXPENSES. THESE WERE HELD TO BE IN THE NATURE OF BRAND BUILDI NG WHICH IN THE OPINION OF THE AO ARE TO BE TREATED AS CAPITAL EXPENDITURE AND NOT FULLY ALLOWABLE. THE A.O. RELIED ON THE DECISION OF HONBLE SUPREME COUR T IN THE CASE OF BROOKE BOND INDIA LIMITED, (1997) 225 ITR 798 (SC) WHEREIN THE HONBLE SUPREME COURT HELD THAT IF BENEFITS OF AN EXPENDITURE ARE O F ENDURING IN NATURE, IT SHOULD BE TREATED AS CAPITAL EXPENDITURE. SIMILARLY, WITH RESPECT TO EXPENDITURE OF RS. 24,13 ,196/- CLAIMED ON ACCOUNT OF EVENT WORK FOR HELPING MANAGEMENT OF CUSTOMER, T HE ASSESSEE CLAIMED THAT EVENT WAS ORGANIZED AT A GROUP LEVEL AND WAS AIMED AT BUILDING RELATIONS WITH TOP CUSTOMERS OF EACH OF THE TERMINAL ENTITIES. THE SAME WAS AGAIN TREATED AS EXPENSES FOR BUILDING RELATIONS WITH THE CUSTOMERS AND BENEFITS WERE HELD TO BE ENDURING IN NATURE. THE AO ALSO HELD THE SAME TO BE IN THE NATURE OF ITA 3595/MUM/2016 7 CAPITAL EXPENDITURE AND NOT FULLY ALLOWABLE , RELYI NG UPON DECISION OF HONBLE SUPREME COURT IN THE CASE OF BROOKE BOND INDIA LIMI TED(SUPRA). WITH RESPECT TO THE EXPENSES OF AIR TICKET AND MEET ING EXPENSES TO THE TUNE OF RS.9,03,718/- , THE A.O. HELD THAT THESE EXPENSES A RE NOT FULLY ALLOWABLE AS BUSINESS EXPENDITURE . THE AO DISALLOWED 25% OF THE TOTAL EXPENSES OF RS. 35,24,722/- , WHICH COMES TO RS. 8,81,180/- WHICH STOOD DISALLOWED U/S 37(1) OF THE ACT AND WERE ADDED TO THE TOTAL INCOME OF THE ASSESSEE BY THE AO , VIDE ASSESSMENT ORDER DATED 25 TH MARCH, 2013 PASSED BY THE AO U/S 143(3) OF THE ACT . 5. AGGRIEVED BY THE ASSESSMENT ORDER DATED 25.03.20 13 PASSED BY THE A.O. U/S 143(3) OF 1961 ACT, THE ASSESSEE FILED FIRST AP PEAL BEFORE THE LD. CIT(A). 6. BEFORE THE LD. CIT(A) , THE ASSESSEE SUBMITTED T HAT THE CSR EXPENSES ENHANCE THE CORPORATE IMAGE OF THE COMPANY. IT WAS SUBMITTED THAT OUT OF RS. 38,82,316/- DEBITED UNDER THE HEAD CSR EXPENSES TO THE P&L ACCOUNT FOR THE YEAR UNDER CONSIDERATION, RS. 22,95,302/- PERTA INED TO BUSINESS PROMOTION/SPONSORSHIP EXPENSES WHILE THE BALANCE OF RS. 15,87,014/- PERTAINED TO CSR EXPENSES. IT WAS SUBMITTED THAT TH ESE EXPENSES ARE CONNECTED WITH THE ASSESSEES BUSINESS AND HENCE AL LOWABLE U/S 37(1) OF 1961 ACT . THE LD. CIT(A) CONSIDERED THE SUBMISSIONS OF THE AS SESSEE AND OBSERVED THAT THE ASSESSEE HAD DEBITED SPONSORSHIP/CSR EXPENDITUR E TO THE EXTENT OF RS. 38,82,316/- UNDER THE HEAD MISCELLANEOUS EXPENSES I N THE P&L ACCOUNT. THE LD. CIT(A) OBSERVED THAT THE ASSESSEE HAS CLAIMED D URING APPELLATE PROCEEDINGS THAT RS. 22,95,302/- PERTAINED TO BUSIN ESS PROMOTION EXPENSES ITA 3595/MUM/2016 8 LIKE PRESENTATIONS, DINNER, SPONSORSHIP OF MAPS, CO ST OF KITS ETC AND ONLY THE BALANCE OF RS. 15,87,014/- WAS SHOWN BY THE ASSESSE E UNDER CSR EXPENSES, DURING APPELLATE PROCEEDINGS. THE LEARNED CIT(A) OB SERVED THAT THE ASSESSEE SUBMITTED FOLLOWING EXPLANATIONS BEFORE THE A.O. WI TH RESPECT TO THE CSR EXPENDITURE:- THE COMPANY IS LOCATED IN A VERY FAR OF PLACE FROM THE MAIN CITY AND IS SURROUNDED BY MANY VILLAGES. MANY INHABITANT S OF SUCH VILLAGES ARE EMPLOYEES OF THE COMPANY. THESE VILLAG ES LACK MEDICAL FACILITIES AND FOR THE WELL-BEING OF THE FAMILY OF THE EMPLOYEES, THE COMPANY PROVIDES AMBULANCE SERVICES, PARAMEDICAL SE RVICES AND MEDICAL SUPPLIES TO VILLAGERS IN THE VICINITY OF IT S BUSINESS PREMISES. FURTHER PROVIDING OF SUCH FACILITIES ENHA NCES THE CORPORATE IMAGE OF THE COMPANY. ALSO SUCH EXPENSES WERE INCURRED ON THE WELFARE OF ITS EMPLOYEES AS THEY WERE DIRECT LY OR INDIRECTLY BENEFITED BY IT, SUCH EXPENSES HAVE BEEN INCURRED O UT OF COMMERCIAL EXPEDIENCY AND SHOULD BE TREATED AS AN A LLOWABLE BUSINESS EXPENDITURE U/S 37 OF THE ACT. . THE LD. CIT(A) OBSERVED THAT THE EXPENSES INCURRED TOWARDS AMBULANCE SERVICES, PARAMEDICAL SERVICES AND MEDICAL SUPPLIES TO VILLAGES CAN IN NO WAY BE SAID TO HAVE BEEN EVEN CONNECTED WITH THE ACTIVI TY OF THE ASSESSEE, HENCE, CSR EXPENSES CANNOT BE ALLOWED AS BUSINESS EXPENSES AS THEY ARE NOT GOING TO HELP THE BUSINESS OF THE ASSESSEE. ACCORDINGLY, THE LD. CIT(A) CONFIRMED THE ADDITION MADE BY THE A.O. BY CONFIRMING THE DISALLO WANCE OF CSR EXPENSES TO THE TUNE OF RS. 15,87,014/- , VIDE APPELLATE ORDER DATED 29-02-2016 PASSED BY LEARNED CIT(A). WITH REGARD TO THE BUSINESS PROMOTION EXPENSES OF RS. 22,95,302/-, THE LD. CIT(A) OBSERVED THAT THE ASSESSEE HAS NOT SUBMITTED ANY EVIDENCE EVEN DURING APPELLATE PROCEEDINGS TO SHOW THAT THIS AMOU NT HAD BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, HENCE, THE LD. CIT(A) CONFIRMED THE ADDITIONS MADE BY THE A.O. BY DISALLO WING THE EXPENSE TO THE ITA 3595/MUM/2016 9 TUNE OF RS. 22,95,302/- , VIDE APPELLATE ORDER DATE D 29-02-2016 PASSED BY LEARNED CIT(A). WITH RESPECT TO THE ISSUE OF DISALLOWANCE OF BUSIN ESS PROMOTION EXPENSES OF RS.8,81,180/- U/S 37(1) OF THE ACT DEBITED IN THE P &L ACCOUNT, THE ASSESSEE SUBMITTED THAT THE A.O. ERRED IN MAKING AD-HOC DISA LLOWANCE OF 25% OF THE BUSINESS PROMOTION EXPENSES INCURRED BY THE ASSESSE E DURING THE YEAR BY CONCLUDING THAT ALL THE EXPENSES INCURRED BY THE AS SESSEE WERE NOT IN THE NATURE OF REVENUE EXPENSES AND NOT ALLOWABLE AS BUS INESS EXPENSES. THE A.O. HELD THAT SUCH EXPENSES WERE CAPITAL IN NATURE AS THE BENEFITS ARE OF ENDURING NATURE , RELYING ON HONBLE APEX COURT DEC ISION IN THE CASE OF BROOKE BOND INDIA LIMITED(SUPRA). THE ASSESSEE SUB MITTED BEFORE LEARNED CIT(A) THAT SUCH EXPENSES WERE ROUTINE BUSINESS EXP ENSES INCURRED BY THE ASSESSEE IN THE NORMAL COURSE OF BUSINESS, WHOLLY A ND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND HENCE ALLOWABLE U/S 37(1) O F 1961 ACT. THE LD. CIT(A), HOWEVER, REJECTED THE CONTENTIONS O F THE ASSESSEE AND HELD THAT THE A.O. DISALLOWED 25% OF THE EXPENSES BY TREATIN G THE SAME AS NOT RELATING TO BUSINESS AND NOT OF REVENUE IN NATURE. THE LEAR NED CIT(A) OBSERVED THAT THE A.O. DULY VERIFIED THE ACCOUNTS AND APPLIED HIS DISCRETION AND DISALLOWED 25% OF THE EXPENDITURE DEBITED IN THE BOOKS OF ACCO UNTS , THUS AS PER THE LD. CIT(A), NO INTERFERENCE IS REQUIRED IN THE ASSESSME NT ORDER OF THE A.O., WHICH ADDITION OF THE LEARNED AO WAS UPHELD BY LEARNED CI T(A) , VIDE APPELLATE ORDER DATED 29-02-2016 PASSED BY LEARNED CIT(A). WITH RESPECT TO THE ADDITION OF PROVISION OF SLOW M OVING/OBSOLETE STOCK TO THE BOOK PROFITS U/S 115JB OF 1961 ACT, THE LEARNED CIT (A) OBSERVED THAT THE ASSESSEE HAD ADDED BACK RS. 1,51,33,620/- IN THE CO MPUTATION OF INCOME ON ABOVE ACCOUNT AND OFFERED IT FOR TAXATION WHILE WOR KING OUT BOOK PROFIT U/S 115JB OF 1961 ACT IN THE RETURN OF INCOME ORIGINALL Y FILED WITH THE REVENUE , ITA 3595/MUM/2016 10 BUT IN THE REVISED RETURN OF INCOME FILED WITH REVE NUE, THE ASSESSEE HAD WITHDRAWN THE ABOVE PROVISION ON THE BASIS THAT THE SAID AMOUNT IS NOT PROVISION OR UNASCERTAINED LIABILITY. IT WAS SUBMIT TED THAT THE SAID AMOUNT WAS CORRECTLY REDUCED BY THE ASSESSEE AS VALUE OF S LOW MOVING INVENTORIES WHICH IS DETERMINED ON SCIENTIFIC BASIS CONSISTENTL Y OVER SEVERAL YEARS AND HENCE THE SAME SHOULD BE ALLOWED TO THE ASSESSEE. T HE LD. CIT(A) AFTER CONSIDERING THE CONTENTIONS OF THE ASSESSEE HELD TH AT GOING BY THE PROVISIONS OF THE ACT, ANY PROVISION MADE WITHOUT THE ACTUAL P AYMENT OF THE AMOUNT DURING THE YEAR WILL BECOME UNASCERTAINED LIABILITY AND THE SAME IS NOT TO BE ALLOWED WHILE WORKING OUT BOOK PROFIT U/S 115 JB OF THE ACT. THE LEARNED CIT(A) HELD THAT THE ASSESSEE HAS NOT FURNISHED ANY DETAILS WITH REGARD TO THE COMPUTATION OF THE OBSOLETE STOCK WHICH REALLY BEC OME OBSOLETE AND SAME REQUIRED TO BE REDUCED. THE LEARNED CIT(A) ALSO OBS ERVED THAT THE ASSESSEE HAS ITSELF REVERSED THE ENTRY FOR THE NEXT ASSESSME NT YEAR. THE LD. CIT(A) ACCORDINGLY CONFIRMED THE ADDITIONS MADE BY THE A.O ., VIDE APPELLATE ORDER DATED 29-02-2016 PASSED BY LEARNED CIT(A). 7. AGGRIEVED BY THE APPELLATE ORDER DATED 29-02-21 06 PASSED BY THE LD. CIT(A), THE ASSESSEE FILED SECOND APPEAL BEFORE THE TRIBUNAL. 8. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS WHAT WERE MADE BEFORE THE LOWER AUTHORITIES, WHICH ARE NOT RE PEATED . WITH RESPECT TO GROUND 1, THE LD. COUNSEL SUBMITTED THAT WHILE COMP UTING THE BOOK PROFIT U/S 115JB OF 1961 ACT THE ASSESSEE HAD ADDED AN AMOUNT OF RS. 1,51,33,620/- ON ACCOUNT OF PROVISION FOR OBSOLETE STOCK IN THE O RIGINAL RETURN OF INCOME FILED WITH THE REVENUE , WHICH WAS LATER ON WITHDRAWN IN THE REVISED RETURN OF INCOME FILED WITH THE REVENUE. IT WAS SUBMITTED THA T IT IS COST OF OBSOLESCENCE AND LOSS ON ACCOUNT OF OBSOLETE AND SLOW MOVING INV ENTORY WHICH WERE WRITTEN OFF AND IT IS NOT A MERE PROVISION OR AN UN ASCERTAINED LIABILITY RATHER THE SAME IS AN ASCERTAINED LIABILITY . THE SAID COS T OF OBSOLESCENCE AND LOSS ON ITA 3595/MUM/2016 11 ACCOUNT OF SLOW MOVING AND OBSOLETE INVENTORY IS DE TERMINED CONSISTENTLY OVER THE YEARS ON SCIENTIFIC BASIS. THE LD. COUNSEL INVITED OUR ATTENTION TO PAPER BOOK / PAGE 40 FILED WITH THE TRIBUNAL WHICH IS AN AUDITED BALANCE SHEET OF THE ASSESSEE COMPANY WHEREIN THE INVENTORY OF THE ASSESSEE AT YEAR END IS REFLECTED. HE ALSO INVITED OUR ATTENTION TO PAPER BOOK / PAGE 45 WHICH IS PART OF AUDITED FINANCIAL STATEMENT OF THE ASSES SEE, WHEREIN PROVISION FOR SLOW MOVING/NON-MOVING INVENTORY IS REFLECTED. IN PAPER BOOK / PAGE 50 THE ASSESSEE DREW OUR ATTENTION TO NOTES TO AUDITED FIN ANCIAL ACCOUNTS ,WHEREIN ACCOUNTING POLICY IS REFLECTED TO MAKE PROVISION FO R COST OF OBSOLESCENCE AND OTHER ANTICIPATED LOSSES FOR VALUING INVENTORIES. IT IS SUBMITTED THAT NO ADDITION HAS BEEN MADE IN REGULAR ASSESSMENT UNDER NORMAL PROVISIONS AND THE A.O. ACCEPTED THE SAME BUT WHILE COMPUTING BOOK PROFITS U/S 115JB OF 1961 ACT, ADDITIONS HAVE BEEN MADE. THE LD. COUNSE L PLACED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF AP OLLO TYRES V. CIT [2002] 122 TAXMAN 562 (SC) AND ALSO DECISION OF HONBLE AP EX COURT IN THE CASE OF VIJAYA BANK V. CIT & ANR., CIVIL APPEAL NO. 3286-32 87 OF 2010 ARISING OUT OF SLP(C) NOS. 21568-21569 OF 2009, JUDGMENT DATED 15 TH APRIL, 2010. THE LD. COUNSEL CONTENDED THAT THE SAID AMOUNT OF LOSS ON A CCOUNT OF OBSOLETE AND SLOW MOVING INVENTORY TO THE TUNE OF RS. 1,51,33,62 0/- SHOULD BE ALLOWED AND SHOULD NOT BE ADDED TO THE BOOK PROFIT AS THESE ARE ACTUAL BUSINESS LOSSES SUSTAINED BY THE ASSESSEE. THE LD. COUNSEL ALSO RE LIED ON THE DECISION OF THE MUMBAI-TRIBUNAL IN THE CASE OF ESQUIRE PRIVATE LIMI TED V. DCIT IN ITA NO. 5688/MUM/2011 FOR ASSESSMENT YEAR 2008-09 VIDE ORDE RS DATED 29.8.2012. WITH RESPECT TO GROUND NO. 2, IT IS SUBMITTED THAT THE ASSESSEE HAS INCURRED CSR EXPENSES OF RS. 15,87,014/- DURING THE YEAR WHICH SHOULD BE ALLOWED AS A DEDUCTION U/S 37(1) OF THE ACT. THE L D. COUNSEL DREW OUR ATTENTION TO THE ASSESSMENT ORDER OF THE A.O. AND A RGUED THAT THESE ARE NORMAL BUSINESS EXPENSES. IT IS SUBMITTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DEVELOPING BULK TERMINAL OF JAWAHARLAL NEHRU PORT INTO A BULK ITA 3595/MUM/2016 12 CONTAINER TERMINAL WHICH IS LOCATED IN A REMOTE ARE A AND THE VILLAGES LACK MEDICAL FACILITIES AND FOR THE WELL-BEING OF THE FA MILY OF THE EMPLOYEES, THE COMPANY PROVIDES AMBULANCE SERVICES, PARAMEDICAL SE RVICES AND MEDICAL SUPPLIES TO VILLAGERS IN THE VICINITY OF ITS BUSINE SS PREMISES. FURTHER PROVIDING OF SUCH FACILITIES ENHANCES THE CORPORATE IMAGE OF THE COMPANY AND SUCH EXPENSES WERE INCURRED ON THE WELFARE OF ITS EMPLOY EES AS THEY WERE DIRECTLY OR INDIRECTLY BENEFITED BY IT. IT IS SUBMITTED THA T OUT OF RS. 38,82,316/- DEBITED UNDER THE HEAD CSR EXPENSES TO THE P&L ACCO UNT FOR THE YEAR UNDER CONSIDERATION, RS. 22,95,302/- PERTAINED TO BUSINES S PROMOTION/SPONSORSHIP EXPENSES WHILE THE BALANCE OF RS. 15,87,014/- PERTA INED TO CSR EXPENSES. IT IS SUBMITTED THAT THESE ARE NORMAL BUSINESS EXPENSE S AS THE TURNOVER OF THE COMPANY IS AROUND RS. 500 CRORES . THE LD. COUNSEL DREW OUR ATTENTION TO PAPER BOOK PAGE NO. 1-5 AND 18 TO 25 WHEREBY THE RE PLIES GIVEN BEFORE THE AUTHORITIES BELOW WERE PLACED ALONG WITH THE INVOIC ES IN RESPECT TO THESE EXPENSES. IT WAS SUBMITTED THAT THESE ARE NOT CAPI TAL EXPENDITURE AND NO ENDURING BENEFIT HAS BEEN OBTAINED BY THE ASSESSEE. THE ASSESSEE RELIED UPON DECISION OF TRIBUNAL IN THE CASE OF JCIT V. ITC LTD . (2008) 112 ITD 57 (KOL. TRIB.). WITH RESPECT TO GROUND NO. 3, IT IS SUBMITTED THAT THE A.O. DISALLOWED 25% OF TOTAL EXPENSES ON AD-HOC BASIS WHICH IS NOT SUSTAINABLE IN LAW. THE LEARNED COUNSEL DREW OUR ATTENTION TO THE ORDERS OF THE AUTHORITIES BELOW. IT WAS SUBMITTED THAT CORPORATE GIFTS TO THE TUNE OF R S. 2,07,808/- WERE INCURRED FOR GIVING GIFTS TO CLIENTS ON SPECIAL OCC ASIONS AND FESTIVALS. THE LD. COUNSEL DREW OUR ATTENTION TO PAPER BOOK PAGE NO. 8 AND CONTENDED THAT ALL THE DETAILS WERE GIVEN. IT WAS SUBMITTED THAT SOME EXPENSES WERE INCURRED AT BAHRAIN TOWARDS EVENT COST FOR TOP MANAGEMENT OF TH E ASSESSEES CUSTOMERS TO THE TUNE OF RS. 24,13,196/- , OUT OF TOTAL EXPEN SES OF RS. 35,24,782/-. IT WAS SUBMITTED THAT DETAILED LIST OF THE CUSTOMERS B ELONGING TO SHIPPING COMPANIES AND ALSO EMPLOYEES OF THE ASSESSEE COMPAN Y WHO VISITED BAHRAIN ITA 3595/MUM/2016 13 HAS BEEN PLACED AT PAPER BOOK /PAGE 10. IT WAS SUBM ITTED THAT THESE EXPENSES TO THE TUNE OF RS. 24,13,196/- WERE REIMBU RSED TO PARENT COMPANY WHO IS ITS AE.IT WAS SUBMITTED THAT THERE WERE 6 T O CUSTOMERS OF THE ASSESSEE WHO PARTICIPATED IN THE EVENT AT BAHRAIN WHO CONTRI BUTED MORE THAN 25% OF TURNOVER OF THE ASSESSEE ALONG WITH 3 EMPLOYEES OF THE ASSESSEE COMPANY AND THE EVENT TOOK PLACE AT BAHRAIN. IT IS SUBMITTED T HAT THESE ARE INTERNATIONAL TRANSACTIONS AND THE AO HAS REFERRED T INTERNATIONA L TRANSACTIONS WITH AE FOR MAKING TRANSFER PRICING ADJUSTMENT TO TPO WHO HAS A CCEPTED INTERNATIONAL TRANSACTIONS TO BE AT ALP AND NO TP ADJUSTMENT WAS PROPOSED BY TPO . THE LD. COUNSEL INVITED OUR ATTENTION TO THE ASSESSMENT ORDER PAGE 2 WHEREBY THE COMPUTATION OF ALP RECOMMENDED IS GIVEN:- 4. COMPUTATION OF ARMS LENGTH PRICE: IT IS SEEN FROM THE DETAILS IN FORM NO.3CEB FILED A LONG WITH THE RETURN OF INCOME THAT THE ASSESSEE HAS ENTERED INTO INTERNATIONAL TRANSACTION WITH ASSOCIATE ENTERPRISES OF MORE THAN RS.15 CRORES. AS PER CBDT'S INSTRUCTION NO.3 OF 2003 DATED 20.05. 2003, REFERENCE U/S.92CA(1) OF THE I.T. ACT FOR COMPUTATI ON OF ARMS LENGTH PRICE WAS MADE TO TRANSFER PRICING OFFICER O N 16.08.2011. ADDL. COMMISSIONER OF INCOME TAX, TRANSFER PRICING- I(3), MUMBAI VIDE HIS ORDER DATED 31.08.2012 HAS PASSED ORDER UJ S.92CA(3) OF THE I.T. ACT, 1961 WHEREIN HE HAS MADE NO ADJUSTMEN T TO THE VALUE OF THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY T HE ASSESSEE. THE LD. COUNSEL SUBMITTED THAT WITH RESPECT TO BOAR D MEETING AND AIR TICKET EXPENSES TO THE TUNE OF , FOR VERIFICATION PURPOSES THE MATTER CAN BE SENT BACK TO THE A.O.. 9. THE LD. D.R. SUBMITTED THAT WITH RESPECT TO THE PROVISION FOR OBSOLETE AND SLOW MOVING STOCK, THE ASSESSEE ADDED AN AMOUNT OF RS. 1,51,33,620/- ON ACCOUNT OF PROVISION FOR OBSOLETE AND SLOW MOVIN G STOCK IN THE ORIGINAL RETURN OF INCOME WHILE DETERMINING BOOK PROFIT U/S 115JB OF 1961 ACT. THE ASSESSEE IS NOT ABLE TO QUANTITY THE SAME AND DID N OT SUBMITTED DETAILS OF ITA 3595/MUM/2016 14 OBSOLETE AND SLOW MOVING STOCK AND MANNER OF QUANT IFYING IT TO THE TUNE OF RS. 1,51,33,620/-. NO DETAIL WHATSOEVER HAS BEEN F URNISHED BY THE ASSESSEE W.R.T. OBSOLETE AND SLOW MOVING STOCK WAS THE CONTE NTION OF LEARNED DR. IT WAS SUBMITTED BY LEARNED DR THAT IT IS MERELY A PRO VISION RATHER THAN DIMINUTION IN THE VALUE OF INVENTORY DUE TO OBSOLES CENCE OR SLOW MOVING INVENTORY . WITH RESPECT TO THE CSR EXPENSES TO TH E TUNE OF RS. 15,87,014/-, THE LEARNED DR SUBMITTED THAT THESE EXPENSES CANNOT BE ALLOWED AS PER THE RELEVANT PROVISIONS OF THE ACT AS THESE EXPENSES WE RE NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AS NO NEXUS WITH BUSINESS WAS PROVED. WITH RESPECT TO BUSINESS PROMOTION EXPENSE S TO THE TUNE OF RS. 22,95,302/- DEBITED TO CSR INCURRED BY THE ASSESSEE , IT WAS SUBMITTED THAT NO DETAILS WERE FURNISHED BY THE ASSESSEE.IT WAS SU BMITTED THAT THIS MATTER CAN GO BACK TO THE AO FOR FRESH ADJUDICATION . WITH RESPECT TO AD-HOC DISALLOWANCE OF 25% OF BUSINESS PROMOTION EXPENSES, IT WAS SUBMITTED THAT AUTHORITIES BELOW HAVE RIGHTLY DISALLOWED THE SAME. W.R.T. BOARD MEETING EXPENSES AND TRAVEL EXPENSES , LD DR FAIRLY AGREED THAT MATTER MAY BE RESTORED TO AO FOR DE-NOVO EXAMINATION OF THE ISSUE . 10 THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE ADDITIONS HAVE BEEN MADE TO BOOK PROFITS U/S 115JB OF 1961 ACT FOR WHICH ONLY BOOK RESULTS WERE RELEVANT. THE ASSESSEE HAS DULY MADE ENTRIES I N BOOKS OF ACCOUNTS AND THE SAME CANNOT BE TINKERED IN VIEW OF DECISIONS RE LIED UPON BY THE ASSESSEE. 11. WE HAVE CONSIDERED RIVAL CONTENTIONS AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD INCLUDING THE CASE LAWS. WE HA VE OBSERVED THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF DEVE LOPING BULK TERMINAL OF JAWAHARLAL NEHRU PORT INTO A NEW CONTAINER TERMINAL , OPERATING AND MAINTAINING THE SAME. THE ACTIVITIES CARRIED OUT BY THE COMPANY BROADLY INCLUDE THE LOADING AND UNLOADING OF CONTAINERS FRO M SHORE TO SHIP AND FROM SHIP TO SHORE; REEFER SERVICES; CONTAINER STORAGE F ACILITIES; HANDLING OVER- ITA 3595/MUM/2016 15 DIMENSIONAL AND HAZARDOUS CONTAINERS ETC. . WE FIND THAT THE ASSESSEE HAD MADE PROVISION FOR OBSOLETE AND SLOW MOVING STOCK A MOUNTING TO RS. 1,51,33,620/- WHICH WAS ADDED TO THE BOOK PROFIT U/ S 115JB OF THE ACT BUT WAS LATER WITHDRAWN IN THE REVISED RETURN OF INCOME FILED BY THE ASSESSE WITH THE REVENUE. THE ASSESSEE HAD CLAIMED THAT THESE ARE BUSINESS LOSSES ARISING OUT OF COST OF OBSOLESCENCE AND LOSS ON ACC OUNT OF OBSOLETE AND SLOW MOVING INVENTORY WHICH HAS BEEN CONSISTENTLY CLAIME D BY THE ASSESSEE COMPUTED IN A SCIENTIFIC MANNER AND IS NOT MERELY T HE PROVISION OR AN UNASCERTAINED LIABILITY WAS THE AVERMENT OF THE ASS ESSEE. IT IS ALSO AVERRED BY ASSESSEE THAT NO SUCH ADDITION HAS BEEN MADE BY REV ENUE IN THE NORMAL REGULAR COMPUTATION OF INCOME WHILE ONLY ADDITIONS WERE MADE TO BOOK PROFITS COMPUTED U/S 115JB OF 1961 ACT. HOWEVER, THE ASSESS EE HAS NOT SUBMITTED DETAILS OF NON-MOVING/SLOW MOVING AND OBSOLETE INVE NTORIES BEFORE THE AUTHORITIES BELOW AND WAS NOT ABLE TO SUBSTANTIATE THE BASIS OF COMPUTING SAID WORKING WHICH IS CLAIMED TO BE BASED ON SCIENT IFIC METHOD BEEN FOLLOWED CONSISTENTLY OVER THE YEARS. THUS , IN THE ABSENCE OF DETAILS , NO VERIFICATION COULD BE MADE BY THE AUTHORITIES BELOW TO VERIFY TH E CONTENTION OF THE ASSESSEE THAT IT REPRESENTED BUSINESS LOSS ARISING ON ACCOUNT OF COST OF OBSOLESCENCE AND LOSS ON ACCOUNT OF OBSOLETE AND SL OW MOVING INVENTORY AND IT IS AN ASCERTAINED LIABILITY AS CLAIMED BY THE AS SESSEE , INSTEAD OF MERELY BEING A PROVISION OR UNASCERTAINED LIABILITY AS CON TENDED BY REVENUE.KEEPING IN VIEW SPECIFIC PROVISION IN THE STATUTE VIDE EXPL ANATION 1(C) AND(I) TO SECTION 115JB OF 1961 ACT, THE ADDITIONS TO BOOK PROFIT ARE REQUIRED IF THE NATURE OF SAID COST OF OBSOLESCENCE AND LOSS ON ACCOUNT OF OB SOLETE AND SLOW MOVING INVENTORY AS DEBITED IN PROFIT AND LOSS ACCOUNT IS MERELY A PROVISION OR AN UNASCERTAINED LIABILITY FOR WHICH ONUS IS ON THE AS SESSEE TO REBUT THE SAME AND PROVE THAT IT IS A BUSINESS LOSS SUSTAINED BY T HE ASSESSEE AND IS NOT HIT BY EXPLANATION 1(C) AND (I) TO SECTION 115JB OF 196 1 ACT. THE CASE LAWS RELIED UPON BY THE ASSESSEE ARE NOT RELEVANT AT THIS STAGE AS THE ASSESSEE HAS NOT DISCHARGED ITS PRIMA ONUS CAST UNDER LAW AS NO DETA ILS OF OBSOLETE AND SLOW ITA 3595/MUM/2016 16 MOVING INVENTORY AND BASIS OF ITS WORKING WAS SUBMI TTED BEFORE THE AUTHORITIES BELOW .IN OUR CONSIDERED VIEW, THE MATT ER NEED TO GO BACK TO THE FILE OF A.O. FOR DE-NOVO ADJUDICATION OF THE ISSUE ON MERITS BY THE AO AFTER CONSIDERING THE CLAIM OF THE ASSESSEE THAT THE SAID CLAIM WAS TOWARDS COST OF OBSOLESCENCE AND LOSS ON ACCOUNT OF OBSOLETE AND SL OW MOVING INVENTORY INCURRED BY THE ASSESSEE AND IT IS IN THE NATURE OF AN ASCERTAINED LIABILITY , INSTEAD OF MERELY BEING A PROVISION OR UNASCERTAINE D LIABILITY AS CONTENDED BY REVENUE. ACCORDINGLY, WE DIRECT THE ASSESSEE TO PRO DUCE ALL THE DETAILS AND WORKINGS RELEVANT TO THE ISSUE REGARDING NON-MOVING /SLOW MOVING STOCK INCLUDING BEING COMPUTED BASED ON SCIENTIFIC METHOD CONSISTENTLY FOLLOWED BY THE ASSESSEE OVER YEARS BEFORE THE A.O. FOR VERIFIC ATION AND EXAMINATION BY THE AO ON MERITS AND TO CONSIDER THE CLAIM ON MERITS IN ACCORDANCE WITH LAW. NEEDLESS TO SAY THAT PROPER AND ADEQUATE OPPORTUNIT Y OF BEING HEARD SHALL BE PROVIDED TO THE ASSESSEE BY THE AO IN ACCORDANCE WI TH LAW. WE ORDER ACCORDINGLY. WITH RESPECT TO CSR EXPENSES OF RS. 15,87,014/- CL AIMED BY THE ASSESSEE, WE HAVE OBSERVED THAT THE ASSESSEE IS IN THE BUSINESS OF DEVELOPING BULK TERMINAL OF JAWAHARLAL NEHRU PORT INTO A NEW C ONTAINER TERMINAL, OPERATING AND MAINTAINING THE SAME WHICH INCLUDES L OADING AND UNLOADING OF CONTAINERS FROM SHORE TO SHIP AND FROM SHIP TO SHOR E; REEFER SERVICES; CONTAINER STORAGE FACILITIES; HANDLING OVER-DIMENSI ONAL AND HAZARDOUS CONTAINERS ETC.. AS PER THE CONTENTION OF THE ASSES SEE, THE VILLAGES IN THE IMMEDIATE VICINITY OF THE CONTAINER TERMINAL OF THE ASSESSEE LACKS MEDICAL FACILITIES AND FOR THE WELL BEING OF THE VILLAGERS AS WELL FAMILY OF THE EMPLOYEES LIVING IN THESE VILLAGES AROUND ASSESSEES BUSINESS TERMINAL, THE ASSESSEE PROVIDES AMBULANCE SERVICES, PARAMEDICAL SERVICES A ND MEDICAL SUPPLIES TO VILLAGERS IN THE VICINITY OF ITS CONTAINER TERMINAL . HOWEVER, WE FIND THAT THE ASSESSEE COULD NOT PROVE THAT THESE EXPENSES ARE IN CURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS WHICH I S MANDATE OF SECTION 37(1) ITA 3595/MUM/2016 17 OF 1961 ACT. THERE MAY BE A REMOTE NEXUS OF THE ASS ESSEES BUSINESS WITH THESE CSR EXPENSES AS THE VILLAGES ARE SITUATED IN VICINITY OF THE ASSESSEES CONTAINER TERMINAL BUT THAT IS NOT SUFFICIENT TO CL AIM AN EXPENSE AS BUSINESS EXPENSE AS MANDATE OF SECTION 37(1) OF THE ACT IS T HAT EXPENSES ARE TO BE INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS OF THE ASSESSEE, WHICH IN THE INSTANT CASE WE ARE OF CONSIDERED VIEW THAT THE ASS ESSEE COULD NOT DEMONSTRATE THAT HOW SAID EXPENSES ARE INCURRED WHO LLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE. THESE EXP ENSES NO DOUBT HAVE BEEN INCURRED FOR THE BETTERMENT OF VILLAGES AND PEOPLE LIVING AROUND ASSESSEES CONTAINER TERMINAL WHICH IN TURN WILL HELP CREATING GOODWILL AND CONDUCIVE ENVIRONMENT AMONG LOCAL INHABITANTS FOR ASSESSEE TO DO BUSINESS BUT THE NEXUS IS REMOTE AND DOES NOT SATISFY THE MANDATE OF SECTION 37(1) OF 1961 ACT. IT IS RELEVANT TO REFER HERE TO THE DECISION O F HONBLE DELHI HIGH COURT IN THE CASE OF STATE TRADING CORPORATION OF INDIA LIMI TED V. CIT (1974) 94 ITR 496(DEL. HC) , WHEREIN HONBLE DELHI HIGH COURT HEL D AS UNDER : TAKING UP THE SECOND QUESTION, IT IS NECESSARY TO FIND OUT THE PROPER CONNOTATION OF THE EXPRESSION 'FOR THE P URPOSES OF BUSINESS'. THIS EXPRESSION OCCURS IN SECTION 10(2)( XV) OF THE INDIAN INCOME-TAX ACT, 1922, UNDER WHICH, WHILE COM PUTING THE PROFITS OR GAINS OF BUSINESS, PROFESSION OR VOC ATION, THE EXPENDITURE WHICH WILL BE ALLOWED AS A PERMISSIBLE DEDUCTION, MUST BE LAID OUT OR EXPENDED WHOLLY OR EXCLUSIVELY FOR THE PURPOSE OF SUCH BUSINESS, PROFE SSION OR VOCATION. ACCORDING TO MR. SHARMA, THE LEARNED COUN SEL FOR THE ASSESSEE, THIS EXPRESSION HAS A FAIRLY WIDE IMP ORT, SO AS TO INCLUDE ANY EXPENSE, WHICH WOULD HAVE ANY CONNEC TION WITH THE BUSINESS. HE RELIED ON COMMISSIONER OF INC OME-TAX V. MALAYALAM PLANTATIONS LTD. [1964] 53 ITR 140 ; [1964] 7 SCR 693 (SC), WHERE THE SUPREME COURT HELD THAT THI S EXPRESSION IS WIDER IN SCOPE THAN THE EXPRESSION 'F OR THE PURPOSE OF EARNING PROFITS'. HE SUBMITTED THAT THE SUM OF RS. 2,00,000 WAS PAID TO THE MAHARASHTRA GOVERNMENT FOR THE DEVELOPMENT OF ROADS AND THE PORT OF REDI WHICH WER E SERIOUSLY DAMAGED DURING THE RAINS AND FLOODS AND F OR PROVIDING FACILITIES TO THE LABOURERS IN THE VILLAG E WORKING IN ITA 3595/MUM/2016 18 THE MINES, IN ORDER TO ENSURE REGULAR SUPPLIES OF I RON ORE WHICH WAS TO BE EXPORTED BY THE ASSESSEE. THE LEARN ED COUNSEL ALSO RELIED UPON STATE OF MADRAS V. G.J. CO ELHO [1964] 53 ITR 186 ; [1964] 8 SCR 60 (SC), WHERE PAYMENT OF INTEREST ON THE AMOUNT BORROWED BY THE PURCHASER OF THE PLANTATION WAS HELD TO BE CLOSELY RELATED TO THE PL ANTATION AND THE EXPENDITURE WAS HELD TO BE LAID OUT OR EXPE NDED WHOLLY OR EXCLUSIVELY FOR THE PURPOSE OF THE PLANTA TION. MR. SHARMA FURTHER SUBMITTED THAT IF THE SAID PAYMENT H AD NOT BEEN MADE, THE ASSESSEE'S BUSINESS WOULD HAVE SUFFE RED NOT ONLY FOR WANT OF REGULAR SUPPLIES OWING TO DISCONTENTMENT AMONGST THE VILLAGE LABOURERS BUT AL SO ON ACCOUNT OF THE ROADS AND THE PORT NOT BEING IN A CA PACITY TO HANDLE THE REQUISITE VOLUME OF EXPORT. HE ALSO POIN TED OUT THAT IN SUBSEQUENT YEARS THE ASSESSEE HAD TO PAY A LEVY OF FIFTY PAISE PER TONNE EXPORT FROM THIS PORT. MR. B.N. KIRPAL, ON BEHALF OF THE REVENUE, POINTED OUT, ON THE OTHER HAND, A NOTE MADE BY THE CHAIRMAN OF THE ASSE SSEE- CORPORATION TO ITS BOARD OF DIRECTORS ON THE BASIS OF WHICH THE RESOLUTION WAS PASSED AUTHORISING THE MAKING OF THE SAID GRANT TO THE GOVERNMENT OF MAHARASHTRA. HE CONTENDE D THAT THE AMOUNT HAD NOT BEEN GIVEN IN LIEU OF ANY LEVY O N EXPORT, BUT HAD BEEN GIVEN AS AN OUTRIGHT GRANT. IT WAS NOT EVEN CONNECTED WITH THE PRICE STRUCTURE OF THE ORE PURCH ASED BY THE ASSESSEE. EVEN THE WORKERS IN THE VILLAGE TO WH OM THE AMENITIES, ACCORDING TO THE ASSESSEE, HAD BEEN PROV IDED, WERE NOT THE WORKERS OF THE ASSESSEE. THERE WAS NO CONNECTION BETWEEN THE SAID GRANT AND THE BUSINESS CARRIED ON BY THE ASSESSEE. HE, THEREFORE, URGED THAT THE V IEW OF THE TRIBUNAL WAS CORRECT AND THE SAID AMOUNT SHOULD NOT BE REGARDED AS AN EXPENDITURE LAID OUT WHOLLY AND EXCL USIVELY FOR THE PURPOSE OF THE ASSESSEE'S BUSINESS. WHILE CONSIDERING THE TRUE CONNOTATION OF THE EXPRE ESION 'FOR THE PURPOSE OF BUSINESS', THE SUPREME COURT IN THE CASE OF MALAYALAM PLANTATION'S CASE (SUPRA) EXAMINED THE CA SE LAW ON THE SUBJECT, BOTH IN ENGLAND AND IN INDIA. BROAD LY, THE TRUE TESTS APPLIED BY THE ENGLISH COURTS WERE FOUND TO BE: (I)WHETHER THE EXPENDITURE WAS INCURRED FOR THE PURPOSE OF CARRYING ON OF THE BUSINESS AND FOR REMOVING OBSTACLES AND IMPEDIMENTS IN THE CONDUCT O F THE BUSINESS; AND ITA 3595/MUM/2016 19 (II)WHETHER THE ASSESSEE PAID THE AMOUNT IN HIS CAPACITY AS BUSINESSMAN OR IN HIS PERSONAL CAPACITY . EXAMINING THE INDIAN DECISIONS, REFERENCE WAS MADE, AMONGST OTHER CASES, TO TATA SONS LTD. V. COMMISSIO NER OF INCOME-TAX [1950] 18 ITR 460 (BOM.), WHERE THE SHARE OF BONUS VOLUNTARILY PAID BY A COMPANY NOT TO ITS OWN OFFICERS, BUT TO SOME OF THE OFFICERS OF A MANAGED COMPANY, W AS HELD TO BE A PERMISSIBLE DEDUCTION, AS THE OBJECT WAS SA ID TO BE INCREASE THE PROFITS OF THE MANAGED COMPANY AND THE REBY INCREASE ITS OWN SHARE OF THE COMMISSION. ANOTHER C ASE CONSIDERED WAS COMMISSIONER OF INCOME-TAX V. ROYAL CALCUTTA TURF CLUB [1961] 41 ITR 414 ; [1961] 2 SCR 729 (SC), WHERE EXPENDITURE INCURRED BY A RACE CLUB FOR TRAINING ITS JOCKEYS WAS ALLOWED AS A DEDUCTION AS IT WAS HE LD TO BE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE CLUB' S BUSINESS, BECAUSE IF |THE SUPPLY OF JOCKEYS OF EFFI CIENCY AND SKILL FAILED, THE BUSINESS COULD NO LONGER BE POSSI BLE. REFERENCE WAS ALSO MADE TO HAJI AZIZ AND ABDUL SHAK OOR COMMISSIONER OF INCOME-TAX [1961] 41 ITR 350 ; [1961] 2 SCR 651 (SC), WHERE, DISALLOWING DEDUCTION OF PENAL TY AMOUNT PAID TO RELEASE A CONSIGNMENT CONFISCATED BY THE CUSTOMS AUTHORITIES ON THE GROUND THAT SUCH PENALTY COULD NOT BE SAID TO BE A COMMERCIAL LOSS FALLING ON THE ASSESSEE AS A TRADER, THE TEST LAID DOWN WAS THAT EXPENSES W HICH ENABLED A PERSON TO CARRY ON TRADE FOR MAKING PROFI TS IN THE BUSINESS ARE PERMITTED, BUT NOT IF THEY ARE MERELY CONNECTED WITH THE BUSINESS. SUMMING UP, IN MALAYALAM PLANTAT ION'S CASE (SUPRA), THE SUPREME COURT OBSERVED: 'THE EXPRESSION 'FOR THE PURPOSE OF THE BUSINESS' I S WIDER IN SCOPE THAN THE EXPRESSION 'FOR THE PURPOSE OF EARNING PROFITS'. ITS RANGE IS WIDE: IT MAY TAKE IN NOT ONLY THE DAY-TO-DAY RUNNING OF A BUSINESS BUT ALSO THE RATIONALIZATION OF ITS ADMINISTRATION AND MODERNIZA TION OF ITS MACHINERY; IT MAY INCLUDE MEASURES FOR THE PRESERVATION OF THE BUSINESS AND FOR THE PROTECTION OF ITS ASSETS AND PROPERTY FROM EXPROPRIATION, COERCIV E PROCESS OR ASSERTION OF HOSTILE TITLE; IT MAY ALSO COMPREHEND PAYMENT OF STATUTORY DUES AND TAXES IMPOSED AS A PRE-CONDITION TO COMMENCE OR FOR CARRYING ON OF A BUSINESS; IT MAY COMPREHEND MANY OTHER ACTS INCIDENTAL TO THE CARRYING ON OF A BUSIN ESS. HOWEVER WIDE THE MEANING OF THE EXPRESSION MAY BE, ITA 3595/MUM/2016 20 ITS LIMITS ARE IMPLICIT IN IT. THE PURPOSE SHALL BE FOR THE PURPOSE OF THE BUSINESS, THAT IS TO SAY, THE EXPENDITURE INCURRED SHALL BE FOR THE CARRYING ON O F THE BUSINESS AND THE ASSESSEE SHALL INCUR IT HIS CAPACI TY WAS A PERSON CARRYING ON THE BUSINESS.' BOMBAY STEAM NAVIGATION CO. ( 1953) P. LTD. V. COMMISSIONER OF INCOME-TAX [1965] 56 ITR 52 ; [1965] 1 SCR 770 (SC) WAS ANOTHER CASE CITED BEFORE US, WHERE TH E SUPREME COURT WAS OF THE VIEW THAT TRANSACTION OF ACQUISITION OF ASSETS WAS CLOSELY RELATED TO THE COMMENCEMENT AND CARRYING ON OF THE ASSESSEE'S BUSI NESS AND INTEREST PAID ON THE UNPAID BALANCE OF THE CONS IDERATION FOR THE ASSETS ACQUIRED HAD, IN THE NORMAL COURSE, TO BE REGARDED AS EXPENDED FOR THE PURPOSES OF THE BUSINE SS WHICH WAS CARRIED ON IN THE ACCOUNTING PERIODS. IN INDIAN STEEL & WIRE PRODUCTS LTD. V. COMMISSIONER OF INCOM E-TAX [1968] 69 ITR 379 (CAL.) THE CALCUTTA HIGH COURT DISALLOWED THE CONTRIBUTION MADE BY THE ASSESSEE TO THE INDIAN NATIONAL CONGRESS, WHICH WAS A POLITICAL PARTY IN POWER, FOR SEEKING ITS PATRONAGE FOR THE PRESERVATION AND FURTHERANCE OF THEIR BUSINESS. THE CONNECTION BETWEEN EXPENDITURE AND TH E BUSINESS, EVEN IF ANY, WAS CONSIDERED TO BE TOO REM OTE. IN ORISSA CEMENT LTD. V. COMMISSIONER OF INCOME-TAX [1969] 73 ITR 14 (DELHI), THIS COURT ALLOWED THE LEGAL CHARGES INCURRED FOR OBTAINING A LOAN FROM THE INDUSTRIAL F INANCE CORPORATION AS PERMISSIBLE EXPENDITURE ON THE GROUN D THAT IT WAS IRRELEVANT TO CONSIDER THE OBJECT WITH WHICH TH E LOAN WAS OBTAINED. IT WAS OBSERVED THAT EXPENDITURE INCU RRED NEED NOT DIRECTLY BENEFIT THE BUSINESS, YET IT MOST BE INCIDENTAL TO THE BUSINESS AND MUST BE NECESSITATED OR JUSTIFIED BY COMMERCIAL EXPEDIENCY. IT MUST BE DIRE CTLY OR INTIMATELY CONNECTED WITH THE BUSINESS AND MUST BE LAID OUT BY THE TAXPAYER IN HIS CHARACTER AS A TRADER. AN EX PENDITURE REMOTELY CONNECTED WITH THE TRADE WAS HELD TO NOT Q UALIFY FOR PERMISSIBLE DEDUCTION. IN COMMISSIONER OF INCOME-TA X V. BHANNA MAL & CO. P. LTD. [1971] 82 ITR 138 (DELHI) THE EXPENSES INCURRED TOWARDS SALARY OF A PUJARI FOR IN VOKING THE BLESSINGS OF GODS FOR THE BENEFIT OF THE ASEESSEE W ERE NOT CONSIDERED BY THIS COURT AS INCURRED FOR CARRYING O N THE BUSINESS OF THE ASSESSEE. ITA 3595/MUM/2016 21 ACCORDING TO THE TESTS LAID DOWN IN THE AFORESAID J UDGMENTS, THE EXPENDITURE INCURRED BY THE ASSESSEE IN PAYING THE GRANT TO THE MAHARASHTRA GOVERNMENT CANNOT BE SAID TO HAV E BEEN LAID OUT WHOLLY OR EXCLUSIVELY FOR THE PURPOSE OF T HE ASSESSEE'S BUSINESS. THIS AMOUNT, ACCORDING TO THE TRIBUNAL, HAD BEEN GIVEN TO THE GOVERNMENT AS AN OUTRIGHT GRA NT. THE TRIBUNAL HAS FOUND THAT THIS AMOUNT WAS NOT CONNECT ED AT ALL WITH THE PRICE STRUCTURE OF THE ORE PURCHASED B Y THE ASSESSEE OR THE QUANTITY EXPORTED. THE WORKERS WHO WERE SAID TO BE BENEFITED BY THE AMENITIES SOUGHT TO BE PROVIDED WERE NOT EMPLOYEES OF THE ASSESSEE. THERE IS NO FIN DING OR EVEN SUGGESTION THAT THE ROAD DEVELOPMENT IN THE VI LLAGE WAS IN RESPECT OF ANY ROAD LEADING FROM THE ASSESSEE'S PREMISES OR FROM WHERE THE ORE WAS TO BE OBTAINED TO THE POR T OR AS TO HOW OTHERWISE THE SAID DEVELOPMENT COULD BE OF ANY BENEFIT TO THE ASSESSEE'S BUSINESS. THIS PAYMENT WAS FOUND BY THE TRIBUNAL TO HAVE BEEN MADE AS A RESULT OF A NOTE BY THE CHAIRMAN TO THE BOARD OF DIRECTORS OF THE ASSESSEE- CORPORA- TION, WHO HAD PASSED A RESOLUTION ON THE BASIS THER EOF, AUTHORISING THE GRANT OF RS. 2,00,000 TO BE MADE TO THE MAHARASHTRA GOVERNMENT. ACCORDING TO THE SAID NOTE, THE CHIEF MINISTER OF MAHARASHTRA REQUESTED THAT: IN VI EW OF THE SERIOUS DAMAGE SUFFERED BY THE KONKAN REGION DUE TO THE RECENT FLOODS AND HEAVY RAINS THE STATE TRADING COR PORATION SHOULD EXTEND ITS MOST SYMPATHETIC CONSIDERATION. AFTER SOME DISCUSSION THE CHIEF MINISTER AGREED TO A SUM OF RS. 2,00,000 BEING GIVEN BY THE STATE TRADING CORPORATI ON AS OUTRIGHT GRANT AND NOT TO PRESS THE MATTER FURTHER. THIS NOTE BRINGS OUT THE 'SYMPATHETIC CONSIDERATION' WHICH PR EVAILED WITH THE ASSESSEE WHILE MAKING THE GRANT. THE PAYME NT THUS HAD NO CONNECTION WITH THE BUSINESS OF THE ASSESSEE . THE TRIBUNAL DID NOTICE THE ASSESSEE'S ARGUMENT THAT IT S BUSINESS WOULD HAVE SUFFERED IF HIS PAYMENT HAD NOT BEEN MADE BY IT. BUT THE TRIBUNAL DID NOT NOTICE ANY MAT ERIAL TO SUPPORT IT AND WAS UNABLE TO GIVE A FINDING TO THAT EFFECT. THE PROVISION OF AMENITIES TO THE LABOUR NOT OF THE ASS ESSEE- CORPORATION BUT IN THE VILLAGE IN GENERAL AND THE D EVELOPMENT OF THE PORT AND OF THE ROADS IN THE VILLAGE WERE NO T FOUND TO HAVE A CONNECTION WITH THE ASSESSEE'S BUSINESS. IN ANY CASE, EVEN IF THERE MIGHT HAVE BEEN A CONNECTION, IT WAS TOO REMOTE TO BE CONSIDERED AS RELEVANT FOR OUR PURPOSE. THIS EXPENDITURE IN NO CASE, CAN BE SAID TO BE A HOLLY A ND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF THE ASSESSE E'S BUSINESS. EVEN AN INCIDENTAL CONNECTION BETWEEN IT AND THE ITA 3595/MUM/2016 22 ASSESSEE'S BUSINESS HAS NOT BEEN BROUGHT OUT ON REC ORD. NOR CAN THIS EXPENDITURE BE SAID TO BE LAID OUT BY THE ASSEESSEE IN ITS CHARACTER AS A TRADER. THE TRIBUNAL, THEREFO RE, WAS RIGHT IN HOLDING THAT THE PAYMENT OF RS. 2,00,000 W AS NOT AN EXPEDITURE LAID OUT WHOLLY OR EXCLUSIVELY FOR THE P URPOSE OF THE ASSESSEE'S BUSINESS. THE ANSWER TO QUESTION NO. 2, THEREFORE, IS IN THE NEGATIVE, I.E., IN FAVOUR OF T HE REVENUE AND AGAINST THE ASSESSEE. SIMILAR VIEW HAS BEEN TAKEN BY HONBLE BOMBAY HIGH COURT IN THE CASE OF VOLTAS LIMITED V. CIT (1994) 207 ITR 47 (BOM.) . TH E ONUS LIE ON THE ASSESSEE TO PROVE WITH COGENT MATERIAL TO HAVE SUBSTANTIATED ITS CLAIM THAT THE SAID EXPENSES IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE AS REQUIRED U/S 37(1) OF 1961 AS SOME REMOTE CONNECTION WITH BUSINESS IS NOT SUFFICIENT TO CLAIM THE EXPENSES AS BUSINESS EXPENSES, WHICH IN THE INSTANT CASE THE ASSESSEE FAILED TO PROVE TH E SAME. HENCE, THESE EXPENSES OF RS. 15,87,014/- INCURRED FOR CSR BY PRO VIDING AMBULANCE SERVICES, PARAMEDICAL SERVICES AND MEDICAL SUPPLIES TO VILLAGERS IN THE VICINITY OF ITS CONTAINER TERMINAL CANNOT BE ALLOWED AS BUSI NESS EXPENSES AND HENCE, THE APPELLATE ORDER OF LEARNED CIT(A) IS HEREBY CON FIRMED .WE ORDER ACCORDINGLY. WITH RESPECT TO BUSINESS PROMOTION EXPENSES AMOUNT ING TO RS. 22,95,302/- WHICH ARE ADDED IN THE CSR EXPENSES AND WHICH WERE CLAIMED BY THE ASSESSEE AS BUSINESS PROMOTION /SPONSORSHIP EXP ENSES , DETAILS WERE SUBMITTED BY THE ASSESSEE WHICH ARE PLACED IN PAPER BOOK /PAGE 1-5,18 TO 25 FILED WITH TRIBUNAL. IT IS THE CONTENTION OF THE AU THORITIES BELOW THAT NO DETAILS WERE SUBMITTED BEFORE THEM TO SHOW THAT THE SAME WA S INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS OF THE ASS ESSEE . IN OUR CONSIDERED VIEW, , THIS MATTER ALSO NEED TO GO BACK TO THE FI LE OF THE A.O. FOR DENOVO DETERMINATION OF THE ISSUE ON MERITS WHEREIN ASSESS EE IS DIRECTED TO PRODUCE ALL RELEVANT EVIDENCES TO PROVE BEFORE THE AO THAT THE SAID EXPENSES WERE ITA 3595/MUM/2016 23 INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE AND IT SATISFY THE MANDATE OF SECTION 37(1) OF 1961 ACT. ACCORDINGLY, WE DIRECT THE ASSESSEE TO PRODUCE ALL THE DETAILS RELEVANT TO THE ISSUE REGARDING BUSINESS PROMOTION/ SPONSORSHIP EXPENSES OF RS.22,9 5,302/- CLAIMED BY THE ASSESSEE BEFORE THE A.O. FOR VERIFICATION AND EXAMI NATION BY THE AO ON MERITS AND TO CONSIDER THE CLAIM ON MERITS IN ACCORDANCE W ITH LAW.NEEDLESS TO SAY THAT PROPER AND ADEQUATE OPPORTUNITY OF BEING HEARD SHALL BE PROVIDED TO THE ASSESSEE BY THE AO IN ACCORDANCE WITH LAW. WE ORDER ACCORDINGLY. WITH RESPECT TO THE THIRD ISSUE IN RESPECT OF DISA LLOWANCE OF 25% OF RS. 35,24,722/-, WE HAVE OBSERVED THAT THE ASSESSEE SPE NT AN AMOUNT OF RS.24,13,196/- TOWARDS EVENT ORGANIZED IN BAHRAIN A ND PAYMENTS WERE MADE IN THE NATURE OF REIMBURSEMENT TO BAHRAIN TERMINALS WHICH IS AN AE AND THE TRANSACTIONS WITH AE WERE INTERNATIONAL TRANSACTION S. THE TPO HAS NOT PROPOSED ANY TP ADJUSTMENT W.R.T. INTERNATIONAL TRA NSACTIONS ENTERED INTO BY THE ASSESSEE WITH AE. THE ASSESSEE HAS EXPLAINED TH AT THESE EXPENSES WERE INCURRED FOR AN EVENT WHEREIN 6 TOP CUSTOMERS (CONT RIBUTING MORE THAN 25% OF ITS TURNOVER) PARTICIPATED ALONG WITH 3 EMPLOYEE S OF THE ASSESSEE FOR WHICH THESE COSTS WERE INCURRED BY THE ASSESSEE BY REIMBU RSING THE SAME TO BAHRAIN TERMINAL WHICH IS ITS AE. THE ASSESSEE HAS CLAIMED THE SAID EXPENSES AS INCURRED FOR MAINTAINING GOOD RELATIONS WITH TOP 6 CUSTOMERS WHO ARE GIVING BUSINESS OF MORE THAN 25%. IN OUR CO NSIDERED VIEW, THESE EXPENSES ARE BUSINESS EXPENSES WHICH ARE INCURRED W HOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE AND SATISF Y THE MANDATE OF SECTION 37(1) OF 1961 ACT AND IN OUR CONSIDERED VIEW , THE SAID EXPENSES NEED TO BE ALLOWED TO THE ASSESSEE AND IS HEREBY ORDERED TO BE ALLOWED AS BUSINESS EXPENSES U/S 37(1) OF 1961 ACT. FURTHER, THE ASSESS EE HAS CLAIMED RS. 2,07,868/- AS EXPENSES FOR PURCHASE OF CUFF LINKS B EING CORPORATE GIFTS FOR DISTRIBUTION AMONG CUSTOMERS, WHICH IN OUR CONSIDE RED VIEW, IS A NORMAL BUSINESS EXPENSES AND CANNOT BE CONSIDERED TO BE CA PITAL IN NATURE AS NO ITA 3595/MUM/2016 24 ENDURING BENEFIT IS RECEIVED BY THE ASSESSEE AND HE NCE ARE ORDERED TO BE ALLOWED AS NORMAL BUSINESS EXPENSES U/S 37(1) OF 19 61 ACT BEING REVENUE EXPENSES. THE ASSESSEE HAS ALSO CLAIMED BOARD MEET ING EXPENSES OF RS.1,30,713/- WHICH IS BEING REIMBURSED TO CONCOR O F WHOSE NOMINEES ARE ON BOARD OF DIRECTORS TOWARDS THEIR TRAVEL AND RELA TED COSTS TO ATTEND BOARD MEETING ETC. AND ALSO THE ASSESSEE HAS CLAIMED TO H AVE SPENT RS. 7,73,005/- WHICH IS PAID TO BENZY TOURS AND TRAVELS FOR AIR TI CKETS, WHICH WERE CONSIDERED BY THE A.O. AS CAPITAL IN NATURE. THE A SSESSEE HAS CLAIMED THE SAME TO BE NORMAL REVENUE EXPENSES BEING PAID TO CO NCOR WHOSE NOMINEES ARE ON BOARD OF DIRECTORS OF THE ASSESSEE FOR THEIR TRAVEL AND STAYS TO ATTEND BOARD MEETINGS AS ALSO FOR OTHER TRAVELS. THE ASSES SSEE HAS PRAYED THAT IF THE MATTER IS RESTORED TO THE FILE OF THE AO, ALL THE D ETAILS OF THESE EXPENSES ALONG WITH EVIDENCES FOR HAVING INCURRED THESE EXPENSES S HALL BE DULY PLACED BEFORE THE AO TO PROVE THAT THESE EXPENSES WERE INCURRED W HOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE AND IT SAT ISFY THE MANDATE OF SECTION 37(1) OF 1961 ACT. THE LEARNED DR FAIRLY AGREED THA T THIS MATTER CAN BE SET ASIDE TO THE FILE OF AO FOR DE-NOVO ADJUDICATION ON MERITS. THUS, WE ARE INCLINED TO SET ASIDE AND RESTORE THIS MATTER TO TH E FILE OF THE AO FOR DE-NOVO DETERMINATION OF THE ISSUE ON MERITS AND DIRECT THE ASSESSEE TO PRODUCE COGENT MATERIAL AND EVIDENCES IN SUPPORT OF ITS CLA IM BEFORE THE A.O.TO PROVE THAT THE SAID EXPENSES TOWARDS BOARD MEETING TO THE TUNE OF RS.1,30,713/- AND AIR TICKETS FOR COPOLA LUNGI (BENZY TOURS AND T RAVELS) OF RS. 7,73,005/- WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOS ES OF BUSINESS AS REQUIRED U/S 37(1) OF 1961 ACT. ACCORDINGLY, WE SET ASIDE T HIS MATTER BACK TO THE FILE OF THE A.O. AND THE A.O. IS DIRECTED TO VERIFY THE MAT ERIAL PRODUCED BY THE ASSESSEE IN SUPPORT OF ITS CLAIM AND THESE TWO ISSU ES BE DETERMINED DE NOVO ON MERITS BY AO. NEEDLESS TO SAY THAT PROPER AND AD EQUATE OPPORTUNITY OF BEING HEARD SHALL BE PROVIDED TO THE ASSESSEE BY TH E AO IN ACCORDANCE WITH PRINCIPLES OF NATURAL JUSTICE IN ACCORDANCE WITH LA W. WE ORDER ACCORDINGLY. ITA 3595/MUM/2016 25 12. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IN ITA NO. 3595/MUM/2016 FOR ASSESSMENT YEAR 2009-10 IS PARTLY ALLOWED AS IN DICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH APRIL, 2017. # $% &' 06-04-2017 ( ) SD/- SD/- (C.N. PRASAD) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 06-04-2017 .9../ R.K. R.K. R.K. R.K. , EX. SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI H BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI