M/s Evergreen Publication (India) Ltd., Jalandhar V. Dy Commissioner of Income Tax, Jalandhar

ITA 36/ASR/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7810 (ITAT-AMRITSAR)
• Duration Of Justice: 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 08-08-2017
• Assessment Year: 2013-2014
• Appeal Filed On: 17-01-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: R D SHARMA
• Keywords: Rejection of books of accounts; Gift; Corroborative evidences; Assessment record

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. T. S. KAPOOR, ACCOUNTANT MEMBER AND SH. N.K. CHOUDHRY, JUDICIAL MEMBER I.T.A NO. 36/(ASR)/2017 ASSESSMENT YEAR: 2013-14 PAN: AAACE8776A M/S. EVERGREEN PUBLICATION (INDIA) LTD., 40, CHANDAN NAGAR, JALANDHAR. VS. DY. C. I. T., CIRCLE-IV, JALANDHAR. (APPELLANT) (RESPONDENT) APPELLANT BY : SH. R. D. SHARMA (C.A. ) RESPONDENT BY: SH. RAHUL DHAWAN (D. R.) DATE OF HEARING: 08.08.2017 DATE OF PRONOUNCEMENT: 20.09.201 7 ORDER PER T. S. KAPOOR (AM): THIS IS AN APPEAL FILED BY ASSESSEE AGAINST THE ORD ER OF LD. CIT(A), JALANDHAR DATED 03.11.2016 FOR ASST. YEAR: 2013-14. 2. THE GROUNDS OF APPEAL TAKEN BY ASSESSEE ARE REPR ODUCED BELOW: 1. LEARNED CIT(A)-2, JALANDHAR IS NOT JUSTIFIED IN LAW IN CONFIRMING DISALLOWANCE OF A SUM OF RS.1158795/- OUT OF FOREIG N TRAVELLING EXPENSES OF RS.4635180/- WHICH IS ARBITRARY AND WIT HOUT ANY MATERIAL AND HAS FAILED TO APPRECIATE THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. LEARNED CIT(A)-2, JALANDHAR IS NOT JUSTIFIED IN LAW IN CONFIRMING DISALLOWANCE OF RS.4,00,000/- OUT OF SALES PROMOTIO N EXPENSES OF RS.9,23,4180/- WHICH IS ARBITRARY AND WITHOUT ANY M ATERIAL EXTRANEOUS AND HAS FAILED TO APPRECIATE THE FACTS A ND CIRCUMSTANCES OF THE CASE. 3. THE BRIEF FACTS AS NOTED IN THE ASSESSMENT ORDER ARE THAT THE ASSESSEE IS A PUBLISHER OF BOOKS. DURING THE YEAR U NDER CONSIDERATION ITA NO. 36(ASR)/2017 ASSESSMENT YEAR: 2013-14 2 THE ASSESSEE FILED ITS RETURN OF INCOME DECLARING A N INCOME OF RS.7,89,46,160/-. DURING ASSESSMENT PROCEEDINGS, TH E ASSESSING OFFICER OBSERVED THAT ASSESSEE HAD CLAIMED TRAVELLING EXPEN DITURE TO THE EXTENT OF RS.197,14,957/- AGAINST THE SIMILAR EXPENDITURE OF RS.158,19,701./- IN THE EARLIER YEAR. THE ASSESSING OFFICER FURTHER OBSERVED THAT THESE EXPENSES INCLUDED FOREIGN TRAVELLING BY THE DIRECTO RS TO THE EXTENT OF RS.46,35,180/- AND THE FOREIGN TRIPS WERE UNDER TAK EN TO U.S.A., EUROPE, MIDDLE EAST, HONGKONG & CHINA. ON QUERY FROM THE AS SESSING OFFICER, THE ASSESSEE EXPLAINED THAT THE FOREIGN TRAVELLING EXPENSES WERE INCURRED IN CONNECTION WITH THE IMPORTS MADE IN THIS YEAR AN D FOR EXPLORING THE MARKETS FOR EXPORTS IN THE MIDDLE EAST. HOWEVER THE ASSESSING OFFICER OBSERVED THAT THE MACHINERY ONLY WORTH RS.1.21 CROR E WAS IMPORTED FROM ITALY WHERE NO TRIP WAS MADE AND THEREFORE HE HELD THAT FOREIGN TOURS WAS NOT RELATED TO THE BUSINESS. THE ASSESSING OFFI CER ON FURTHER EXPLANATION FROM ASSESSEE HELD THAT THERE CAN BE SO ME TRUTH IN THE EXPLANATIONS OFFERED BY THE ASSESSEE TO JUSTIFY THE FOREIGN TRIPS, AND THEREFORE HE DISALLOWED 50% OF FOREIGN TRAVELLING E XPENSES. THE ASSESSING OFFICER FURTHER MADE A DISALLOWANCE AT THE RATE OF 10% OUT OF SALES PROMOTIONS EXPENSES BY HOLDING THAT IT WAS NOT VERI FIABLE AS TO HOW MANY EXPENSES WERE ACTUALLY RELATED TO BUSINESS. 4. AGGRIEVED THE ASSESSEE FILED APPEAL BEFORE LD. C IT(A). THE LD. CIT(A) PARTLY ALLOWED, THE APPEAL FILED BY ASSESSEE BY HOLDING AS UNDER: FOREIGN TRAVELLING EXPENSES ITA NO. 36(ASR)/2017 ASSESSMENT YEAR: 2013-14 3 4.5. I HAVE CONSIDERED THE MATERIAL AVAILABLE ON R ECORD INCLUDING THE ASSESSMENT RECORD AND FIND THAT APPEL LANT HAS REITERATED THE SUBMISSIONS MADE BEFORE THE AO AND H AS FAILED TO BRING ON RECORD ANY OTHER EVIDENCE TO JUSTIFY TH E PURPOSE OF FOREIGN TRAVELLING UNDERTAKEN BY THE DIRECTORS. THE APPELLANT COULD NOT JUSTIFY THE REASONS AND THE BUSINESS PURP OSE OF FOREIGN TRAVEL TO SPECIFIC COUNTRIES WITH MATERIAL EVIDENCE IN TERMS OF RESULTS OF THOSE FOREIGN VISITS. THE REASO NS GIVEN BY THE APPELLANT ARE GENERIC IN NATURE AND ARE NOT BAC KED WITH ANY SUPPORTING EVIDENCE. 4.6. I HAVE CAREFULLY CONSIDERED THE JUDICIAL DECIS ION OF HONBLE ITAT CITED BY THE APPELLANT AND FIND THAT T HE FACTS IN THAT CASE ARE QUITE DIFFERENT AS IN THAT CASE DISAL LOWANCE WAS MADE BY THE AO ON ACCOUNT OF PERSONAL EXPENDITURE O UT OF BUSINESS TRAVELLING EXPENSES. IN THIS CASE, APPELLA NT HAS FAILED TO BRING OUT SUFFICIENT EVIDENCE ON RECORD T O JUSTIFY THE PURPOSE OF FOREIGN TRAVELLING 'EXPENSES AND ITS LIN KAGE TO THE BUSINESS ACTIVITIES. HOWEVER, TAKING INTO ACCOUNT T HE EVIDENCE PLACED ON RECORD BY THE APPELLANT BEFORE THE AO, I HOLD THAT IT WOULD BE FAIR AND JUST TO RESTRICT THE DISALLOWANCE TO 25% OF THE TOTAL FOREIGN TRAVELLING EXPENSES OF DIRECTORS. ACCORDINGLY, THE DISALLOWANCE OF RS. 11,58,795 IS CONFIRMED OUT OF THE TOTAL DISALLOWANCE OF RS.23 , 17,590 MADE BY THE AO OUT OF FOREIGN TRAVELLING EXPENSES. OUT OF SALES PROMOTION EXPENSES 5.3 I HAVE PERUSED THE ASSESSMENT ORDER PASSED BY T HE AO AND DETAILED SUBMISSIONS MADE BY THE APPELLANT AND FIND THAT AN ADDITION OF RS 9,23,420 HAS BEEN MADE BY THE AO OUT OF SALES PROMOTION EXPENSES ON THE GROUND THAT IT COULD NOT BE VERIFIED AS TO HOW MUCH EXPENSES ARE RELATED TO BUSINESS. THE APPE LLANT HAS STATED THAT THESE EXPENSES CONSIST OF CONFERENCES, PARTICIPATION AT BOOK FAIRS, MEETINGS WITH EDUCATIONISTS, AUTHORS, T EACHERS ETC. IT IS FURTHER STATED THAT THESE EXPENSES ARE INTEGRAL PAR T OF THE BUSINESS AND ARE INCURRED EVERY YEAR AND NO SUCH DISALLOWANC E WAS MADE IN THE EARLIER YEAR. AO HAS FAILED TO GIVE ANY YARD STICK FOR MAKING THE DISALLOWANCE. 5.4 HAVING CONSIDERED THE SUBMISSIONS MADE IN REGAR D, I FIND THAT THE DISALLOWANCE HAS BEEN MADE BY THE AO ON TH E GROUND THAT THESE EXPENSES PRIMARILY CONSISTS OF COST OF F REE GIFTS DISTRIBUTED TO VARIOUS PERSONS, EXPENSES FOR CONFER ENCES, STAY IN HOTELS AND AIR TRAVEL EXPENSES. THE APPELLANT HA S JUSTIFIED THE CLAIM OF THESE EXPENSES ON THE GROUND THAT THES E EXPENSES WERE INCURRED FOR THE PURPOSES OF BUSINESS AND HAVE BEEN ACCEPTED IN THE PRECEDING YEARS AS WELL. FURTHER 1 FIND THAT APPELLANT HAS FAILED TO BRING ON RECORD A NY EVIDENCE TO JUSTIFY THE NEXUS OF THESE EXPENSES WITH THE BUS INESS PURPOSES. THE FINDINGS GIVEN BY THE AO HAVE NOT BEE N CONTROVERTED WITH ANY MATERIAL EVIDENCE. THEREFORE, AFTER ITA NO. 36(ASR)/2017 ASSESSMENT YEAR: 2013-14 4 CONSIDERING ALL THESE FACTS THAT NO DISALLOWANCE ON THIS ACCOUNT HAS BEEN MADE IN THE PRECEDING YEARS, 1 HOL D THAT IT WOULD BE APPROPRIATE TO RESTRICT THE DISALLOWANCE O UT OF SALES PROMOTION EXPENSES TO RS. 4 LACS OUT OF THE TOTAL D ISALLOWANCE OF RS.9,23,420 MADE BY THE AO CONSIDERING THE FINDI NGS GIVEN BY THE AO AND CONTENTIONS OF THE APPELLANT. 5. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 6. AT THE OUTSET, THE LD. AR SUBMITTED THAT SIMILA R DISALLOWANCE OUT OF FOREIGN TRAVELLING EXPENSES WAS MADE BY ASSESSIN G OFFICER DURING ASSESSMENT YEAR 2010-11 AND 2011-12, AND LD. CIT(A) HAD RESTRICTED THE DISALLOWANCE TO 10% AND ON FURTHER APPEAL THE HON'B LE ITAT HAD FURTHER RESTRICTED THE DISALLOWANCE TO 50% OF DISALLOWANCE SUSTAINED BY LD. CIT(A). IT WAS SUBMITTED THAT ENDS OF JUSTICE WILL BE MET IF SIMILAR DISALLOWANCE WAS SUSTAINED DURING THE PRESENT YEAR ALSO. AS REGARDS THE OTHER ADDITION OUT OF SALES EXPENSES , THE LD. AR SUBMITTED THAT THE AUTHORITIES BELOW HAD MADE ADHOC DISALLOWANCE WITHOUT PIN POINTING ANY DEFECT IN THE BOOKS OF ACC OUNTS AND WITHOUT REJECTING THE BOOKS OF ACCOUNT U/S 145(3) OF THE AC T AND WHICH WAS NOT SUSTAINABLE. THE LD. AR IN THIS RESPECT SUBMITTED T HAT THESE EXPENSES WERE INCURRED FOR THE PURPOSES OF BUSINESS AND THER EFORE NO DISALLOWANCE WAS WARRANTED. 7. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE TH OUGH THE MATERIAL PLACED ON RECORD. AS REGARDS FOREIGN TRAVELLING EXP ENSES, THE ASSESSING OFFICER HELD THAT THE DIRECTORS HAD INCURRED SUCH H UGE EXPENDITURE ON SUMMER TRIPS TO WEST. WHILE DISALLOWING 50% OF EXPE NDITURE, THE ITA NO. 36(ASR)/2017 ASSESSMENT YEAR: 2013-14 5 ASSESSING OFFICER DID NOT AGREE WITH THE CONTENTION S OF ASSESSEE THAT THESE TRIPS WERE UNDERTAKEN TO VISIT BOOK FARES IN U.S.A. AND TO PURCHASE TABLET & PCS FROM CHINA AND HONGKOK. THE LD. CIT(A) FURTHER RESTRICTED THE DISALLOWANCE TO 25% OF TOTAL EXPENDITURE. WHILE ALLOWING PART RELIEF THE LD. CIT(A) HAS HELD THAT IN THIS YEAR THE ASSES SEE WAS NOT ABLE TO DEMONSTRATE ANY BUSINESS LINKAGE WITH THE FOREIGN T RAVELLING EXPENSES WHERE AS IN THE EARLIER YEAR THE HON'BLE ITAT HAD R EDUCED THE DISALLOWANCE AS ASSESSING OFFICER HAD MADE DISALLOW ANCE FOR PERSONAL EXPENSES OUT OF FOREIGN TRAVELLING EXPENSES. HOWEVE R WE FIND THAT THE DIRECTORS OF THE ASSESSEE COMPANY HAS BEEN UNDERTAK ING FOREIGN TOURS ALMOST EVERY YEAR. DURING ASSESSMENT YEAR 2010-11 A ND 2011-12 THE HON'BLE ITAT VIDE ORDER DATED 13.07.2016 HAD UPHELD THE ADDITION TO THE EXTENT OF RS.75425/- OUT OF DISALLOWANCE SUSTAINED BY LD. CIT(A) TO THE EXTENT OF RS.150849/-. THEREBY HON'BLE ITAT HAD ALL OWED RELIEF TO THE EXTENT OF 50% OF DISALLOWANCE SUSTAINED BY LD. CIT( A). THEREFORE FOLLOWING THE ABOVE WE IN THIS YEAR ALSO RESTRICT T HE DISALLOWANCE TO 50% OF DISALLOWANCE SUSTAINED BY LD. CIT(A). IN VIEW OF THE ABOVE GROUND NO. 1 IS PARTLY ALLOWE D. AS REGARDS ADHOC DISALLOWANCE OF 4,00,000/- SUSTAI NED BY LD. CIT(A) OUT OF SALE PROMOTION EXPENSES, THE ACTION O F THE AUTHORITIES BELOW IS NOT JUSTIFIED AS THE BOOKS OF ACCOUNTS HAS NOT BEEN REJECTED U/S 145(3) OF THE ACT AND NO SPECIFIC DISCREPANCY WAS P OINTED OUT BY THE ASSESSING OFFICER. ITA NO. 36(ASR)/2017 ASSESSMENT YEAR: 2013-14 6 THE AMRITSAR BENCH OF HON'BLE ITAT IN THE CASE OF HARPREET SINGH GULATI IN ITA NO. 317/ASR/2013 VIDE ITS ORDER DATED 15.09.2017 HAS HELD THAT ADHOC DISALLOWANCE WITHOUT REJECTION OF BOOKS OF ACCOUNTS CAN NOT BE MADE. THE FINDINGS OF THE HON'BLE TRIBUNAL ARE R EPRODUCED BELOW: 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. WE CONCUR WITH THE FINDINGS OF THE LD. CIT(A) THAT THE ASSESSING OFFICER HAS FAILED TO RECORD ANY FINDING IN THE ASS ESSMENT ORDER THAT THE CASE OF THE ASSESSEE IS AKIN TO THE PROVISIONS OF S ECTION 145(3) OF THE ACT. THE ARGUMENTS MADE BY THE LD. COUNSEL FOR THE ASSES SEE BEFORE THE LD. CIT(A) ARE THAT THE ASSESSEE FURNISHED AUDITED ACCO UNTS/TAX AUDIT REPORT ALONGWITH BOOKS OF ACCOUNT AND BILLS/VOUCHERS FOR P URCHASE/SALES OF LIQUOR AND RELATING TO EXPENSES WERE PRODUCED FOR VERIFICA TIONS. THE DETAILS AND BASIS OF VALUATION OF CLOSING STOCK WERE PLACED ON RECORD DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE STATE EXCISE AND TAX ATION DEPARTMENT KEEPS STRICT CONTROL AND SUPERVISION OVER THE LIQUO R TRADE CARRIED OUT BY THE ASSESSEE. THE PURCHASES OF LIQUOR CAN BE MADE BY T HE ASSESSEE AGAINST THE PERMITS ISSUED BY THE STATE EXCISE DEPARTMENT A ND SIMILARLY THE SALES OF THE LIQUOR BY THE ASSESSEE TO THE RETAILERS HAVI NG 1-2 LICENSES CAN ONLY BE MADE AGAINST THE PERMITS ISSUED BY THE STATE EXC ISE DEPARTMENT. THE ASSESSING OFFICER FAILED TO REBUT THE CONTENTION OF THE ASSESSEE THAT THAT THE NET REBATE OF RS.16586467/- IS A PART OF THE TR ADING RESULTS AND ALSO THE GROSS PROFIT. THE ASSESSING OFFICER HAS TRIED T O MAKE OUT A CASE THAT THE ABOVE STATED AMOUNT OF RS.16586467/- IS THE INC OME OF THE ASSESSEE AS PER HIS OWN VERSION BY TWISTING THE CONTENTIONS OF THE ASSESSEE IN WRITTEN REPLY FILED DURING THE COURSE OF ASSESSMENT PROCEEDINGS BY RECORDING THE FINDING THAT A FACT THAT EMERGES IS THAT WHETHER THE REBATE RECEIVED BY THE ASSESSEE IS ULTIMATELY PASSED IN TO TO TO THE RETAILERS AS PER THE ASSESSEES WON VERSION AS STATED ABOVE OR NOT BECAUSE THE WORD IN TOTO HAS BEEN INTRODUCED BY THE ASSESSING OFFICER B UT THE COUNSEL OF THE ASSESSEE DID NOT USE THIS WORD IN THE WRITTEN REPLY . THE DETAILS OF REBATE RECEIVED FROM THE SELLERS FROM WHOM THE LIQUOR WAS PURCHASED AND PAID TO THE PURCHASERS L-2 LICENSE HOLDERS TO WHOM THE LIQU OR WAS SOLED, ALONGWITH THE SUPPORTING EVIDENCE WAS FILED BEFORE THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND NO DEFECT WAS POINTED OUT BY THE ASSESSING OFFICER EITHER DURING THE COUR SE OF THE ASSESSMENT PROCEEDING OR IN THE ASSESSMENT ORDER. NO OPPORTUNI TY WAS ALLOWED BY THE ASSESSING OFFICER TO THE ASSESSEE BEFORE MAKING THE ADDITION OF RS.48,16,438/-. 6.1. AS MENTIONED HEREINABOVE, WE CONCUR WITH THE F INDINGS OF THE LD. CIT(A) THAT THE CASE OF THE ASSESSEE IS COVERED BY THE JUDGMENT OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. K.S. BHATIA REPORTED IN 269 ITR 577 AND THE JUDGMENT OF THE HON'BLE CHHA TTISGARH HIGH COURT IN THE CASE OF ACIT, RAIPUR VS. ROOP CHAND THARANI REPORTED IN 249 CTR 326 IN WHICH IT HAS BEEN HELD THAT THE PROFITS CANN OT BE ESTIMATED WITHOUT REJECTING THE BOOKS OF ACCOUNT BY POINTING OUT THE SPECIFIC DEFECTS AND RECORDING THE FINDING REGARDING THE SAME. THE CONTE NTIONS OF THE AR OF THE ITA NO. 36(ASR)/2017 ASSESSMENT YEAR: 2013-14 7 ASSESSEE ARE FACTUALLY CORRECT AND THE ASSESSING OF FICER HAS FAILED TO POINT OUT ANY DISCREPANCY IN THE BOOKS OF ACCOUNT TO JUST IFY HIS ACTION OF ESTIMATING THE INCOME OF THE ASSESSEE AT RS.1658646 7/- AS AGAINST THE INCOME OF RS.11770029/- DECLARED IN THE PROFIT AND LOSS ACCOUNT. 6.2. THUS, IN VIEW OF THE FACTS AND CIRCUMSTANCES O F THE CASE DISCUSSED ABOVE, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A), WHO HAS RIGHTLY DELETED THE ADDITION OF RS.48,16,438/-. WE ACCORDIN GLY, UPHOLD THE ORDER OF THE LD. CIT(A) AND DISMISS THE APPEAL OF THE REV ENUE. IN VIEW OF THE ABOVE JUDICIAL PRECEDENTS GROUND NO. 2 OF THE APPEAL IS ALLOWED. 8. IN NUTSHELL, THE APPEAL FILED BY ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20.09.2017 SD/- SD/- (N. K. CHOUDHRY) (T. S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 20.09.2017. /GP/SR. PS . COPY OF THE ORDER FORWARDED TO: (1) THE ASSESSEE: (2) THE (3) THE CIT(A), (4) THE CIT, (5) THE SR DR, I.T.A.T., TRUE COPY BY ORDER