M/S. TRACSTAR INVESTMENT PVT LTD, MUMBAI V. THE DY CIT CEN CIR-9, MUMBAI

ITA 3618/MUM/2007

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55601 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 06-09-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 10-05-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI BEFORE SHRI D.K. AGARWAL (JM) AND SHRI RAJENDRA SI NGH (AM) ITA NO. 3618/M/2007 ASSESSMENT YEAR:2003-2004 M/S TRACSTAR INVESTMENT PVT. LTD 12, EVERGREEN INDUSTRIAL ESTATE, SHAKTI MILLS LANE, OPP. HAINS ROAD, MAHALAXMI, MUMBAI 400 011. PAN: AAACT52204 THE DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-9, MUMBAI 400 020. (APPELLANT) (RESPONDENT) ASSESSEE BY: REVENUE BY: SHRI RAKESH JOSHI, AR SHRI D.S. SURENDRA SINGH,DR DATE OF HEARING: DATE OF PRONOUNCEMENT: 06-09-2011 28-09-2011 O R D E R PER RAJENDRA SINGH (AM): 1. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 27.2.2007 OF CIT (A) FOR THE ASSESSMENT YEAR 2003-04. THE ASSES SEE IN THIS APPEAL HAS RAISED DISPUTE ON THREE DIFFERENT GROUNDS. 2. THE FIRST DISPUTE IS REGARDING DISALLOWANCE OF L EGAL EXPENSES AMOUNTING TO RS. 5,62,016/-. THE AO OBSERVED THAT EXPENSES HAD BEEN INCURRED FOR FIGHTING LITIGATION ON BEHALF OF THE OTHERS AND GROUP COMPAN IES. HE, THEREFORE, DISALLOWED THE CLAIM. IN APPEAL, CIT (A) FOLLOWING THE DECISI ON IN ASSESSMENT YEAR 2000-01 AND 2002-2003, CONFIRMED THE DISALLOWANCE AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 2.1. AFTER HEARING BOTH THE PARTIES, WE FIND THAT T HIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF TRIBUNAL IN ASSESSE ES OWN CASE IN ASSESSMENT ITANO.3618/M/2007 M/S TRACSTAR INVESTMENT LTD.. 2 YEAR 2000-01 AND 2002-03 IN ITA NO.5618 & 159/M/200 7. IN THAT YEAR ALSO THE AO HAD DISALLOWED THE LEGAL EXPENSES ON THE GROUND THAT THE SAME WERE INCURRED TO FIGHT CASES ON BEHALF OF THE SUBSIDIARY AND OTHE R GROUP COMPANIES. HOWEVER, THE TRIBUNAL FOLLOWING THE DECISION OF ITAT IN CASE OF M/S STANDARD DISTILLERS & BREWERIES PVT. LTD. IN ITA NO. 2312/M/2004 ALLOWED THE SAME HOLDING THAT THE EXPENSES WERE INCURRED ON COMMERCIAL EXPEDIENCY. F ACTS OF THIS YEAR ARE IDENTICAL. THEREFORE, RESPECTFULLY FOLLOWING THE D ECISION OF TRIBUNAL IN THE EARLIER YEARS (SUPRA), WE SET ASIDE THE ORDER OF CIT (A) AN D ALLOW THE CLAIM OF THE ASSESSEE. 3. THE SECOND DISPUTE IS REGARDING DISALLOWANCE OF TRAVELING EXPENSES (RS. 35,48,465/-); BUSINESS PROMOTION EXPENSES (RS. 1,76 ,423/-) AND CONSULTANCY CHARGES (RS. 36,18,000/-). THE ASSESSEE HAD CLAIMED THAT THE SAID EXPENSES HAD BEEN INCURRED FOR THE FOLLOWING PURPOSES: I) TO EXPLORE THE OPPORTUNITY OFFERED AFTER THE OP ENING OF THE INDIAN MARKET FOR MANUFACTURING UNDER LICENSE REPUT ED INTERNAL BRANDS OF LIQUOR FOR MARKETING N INDIA AND N NEIGHBORING COUNTRIES. II) TO EXPLORE THE POSSIBILITY OF MANUFACTURING OUR BRA NDS OF IMFL IN EUROPE AND FOR DISTRIBUTION IN EUROPE AND O THER OVERSEAS COUNTRIES. III) TO EXPLORE THE OPPORTUNITY OF EXPORTING OUR PRODUCT S TO UK AND USA THROUGH CASH AND CARRY AND RETAIL OUTLETS . IV) TO EXPLORE THE POSSIBILITY OF TIE-UP ARRANGEMENT FO R PRODUCING BRANDS OF OTHER COMPANIES TO UTILIZE THE IDLE CAPACITY AND RECOVER THE FIXED OVERHEAD IN THE DIST ILLERY. V) TO NEGOTIATE WITH KARNATAKA STATE BEVERAGES CORPORA TION TOWARDS FIXATION OF PRICE FOR LOCAL SUPPLY THROUGH THE CORPORATION. 3.1. THE AO, HOWEVER, OBSERVED THAT THE ASSESSEE H AS FAILED TO SUBSTANTIATE THE CLAIM BY ANY DOCUMENTARY EVIDENCE. IT WAS ALSO OBS ERVED BY HIM THAT THERE WAS NO BUSINESS ACTIVITY DURING THE YEAR AND IN THE SUB SEQUENT YEAR ALSO THERE WAS NO BUSINESS. THEREFORE, BUSINESS IN CONNECTION OF EXP ENDITURE WAS NOT ESTABLISHED. ITANO.3618/M/2007 M/S TRACSTAR INVESTMENT LTD.. 3 THE AO, THEREFORE, DISALLOWED THE CLAIM OF EXPENSES . IN APPEAL, CIT (A) CONFIRMED THE ORDER OF AO AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 3.2. BEFORE US, THE AR FOR THE ASSESSEE SUBMITTED T HAT SHRI U.K. GANGULI WAS A PROFESSIONAL DIRECTOR WHO HAD TRAVELED BOTH WITHIN INDIA AND ABROAD TO EXPLORE THE VARIOUS BUSINESS POSSIBILITIES THE DETAILS OF WHICH WERE GIVEN BEFORE THE AO. THE ASSESSEE HAD GIVEN DAY TO DAY TOUR DETAILS AT PAGES 1-3 OF THE PAPER BOOK. IT WAS ALSO SUBMITTED THAT IN REGARD TO THE FOREIGN TRAVEL , THE DIRECTOR HAD GIVEN THE TOUR REPORT TO THE BOARD OF DIRECTORS, A COPY OF WHICH W AS PLACED AT PAGE NO.4 OF THE PAPER BOOK WHICH WAS AVAILABLE BEFORE THE AO BUT TH E SAME HAD NOT BEEN EXAMINED. IT WAS ALSO SUBMITTED THAT SIMILAR FOREI GN TRAVEL AND CONSULTANCY EXPENSES ON ACCOUNT OF SHRI U.K. GANGULI HAD BEEN A LLOWED IN ASSESSMENT YEAR 2001-02 AND 2002-03. AS FOR THE PROFESSIONAL CHARGE S, IT WAS SUBMITTED THAT THE SAME WERE REIMBURSEMENT OF ENTERTAINMENT EXPENSES. IT WAS ALSO SUBMITTED THAT AO WAS NOT CORRECT IN STATING THAT THERE WAS NO BUS INESS ACTIVITY IN THE SUBSEQUENT YEAR AS FOR THE ASSESSMENT YEAR 2004-05, THE ASSESS EE HAD SHOWN SALES OF RS. 3.44 CRORE WHICH WAS CLEAR FROM THE P&L ACCOUNT PLA CED IN PAPER BOOK. IT WAS ALSO SUBMITTED THAT FOREIGN TRAVEL AS WELL AS CONSU LTANCY CHARGES HAD BEEN APPROVED BY THE BOARD OF DIRECTORS. HE ALSO REFERR ED TO THE DECISION OF TRIBUNAL IN ASSESSMENT YEAR 2000-2001 AND 2002-03 (SUPRA) IN WH ICH SIMILAR CLAIMS HAD BEEN ALLOWED BY THE TRIBUNAL. THE LEARNED DR ON THE OTH ER HAND SUBMITTED THAT THE ASSESSEE HAD NOT ESTABLISHED THE NEXUS OF FOREIGN T RAVEL AND CONSULTANCY WORK WITH THE BUSINESS PURPOSES OF THE ASSESSEE AND, THE REFORE, THE EXPENDITURE HAD BEEN CORRECTLY DISALLOWED. 3.3. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING DISALLOWANCE OF VARIOUS EX PENSES SUCH AS CONSULTANCY CHARGES, FOREIGN AND DOMESTIC TRAVEL EXPENSES AND P ROFESSIONAL CHARGES INCURRED ITANO.3618/M/2007 M/S TRACSTAR INVESTMENT LTD.. 4 BY SHRI U.K. GANGULI, PROFESSIONAL DIRECTOR OF THE ASSESSEE COMPANY. THE AUTHORITIES BELOW HAVE DISALLOWED THE CLAIM ON THE GROUND THAT THE ASSESSEE COULD NOT ESTABLISH THAT THE SAID EXPENSES WERE INCURRED FOR ANY BUSINESS ACTIVITY OF THE ASSESSEE. THE CLAIM OF THE ASSESSEE IS THAT THE EX PENSES HAD BEEN INCURRED FOR A VARIOUS BUSINESS PURPOSES, DETAILS OF WHICH WERE GI VEN TO THE AO AND ALSO REPRODUCED IN PARA 8 OF THE ASSESSMENT ORDER. THE A SSESSEE HAD GIVEN DETAILS OF DAY TO DAY TOUR EXPENSES AND ALSO THE REPORT SUBMIT TED BY SHRI U.K. GANGULI REGARDING THE FOREIGN TRAVEL TO THE BOARD OF DIRECT ORS IN WHICH THE DETAILS OF ACTIVITIES DURING THE FOREIGN TRAVEL HAD BEEN GIVEN . WE FIND SUBSTANCE IN THE CLAM MADE BY THE ASSESSEE AS THE AO HAS NOT REFERRED TO THE FOREIGN TOUR REPORT AS WELL AS THE DETAILS OF TRAVEL EXPENSES GIVEN BY THE ASSE SSEE. THE AO WAS REQUIRED TO EXAMINE THE DETAILS AND IN CASE ANY FURTHER EVIDENC E WAS REQUIRED TO SUBSTANTIATE THE CLAIM HE COULD HAVE ASKED FOR THE SAME. BUT TH E AO HAS SUMMARILY DISALLOWED THE CLAIM WITHOUT EXAMINING THE MATERIAL PLACED ON RECORD. HOWEVER, WE MAY POINT OUT THAT LOCAL TRAVELING DETAILS PLACED ON PA GE 1-3 OF THE PAPER BOOK SHOW THAT ON 10.9.2002 MR. U.K. GANGULI HAD VISITED DELH I TO EXPLORE THE TIE-UP ARRANGEMENT FOR PRODUCING BRANDS OF OTHER COMPANIES . BUT IN THE TOUR REPORT SUBMITTED (PLACED AT PAGE 4 OF PAPER BOOK) IT HAD B EEN MENTIONED THAT SHRI U.K. GANGULI HAD VISITED UK AND US DURING THE PERIOD 7-9 -2002 TO 23-9-2002. THIS RECORD HAS TO BE VERIFIED WITH RESPECT TO THE ORIGI NAL DOCUMENTS REGARDING TRAVELING OF SHRI U.K. GANGULI. THE VARIOUS CLAIMS OF SHRI U .K. GANGULI IN THE FOREIGN TOUR REPORT SHOULD ALSO TO BE EXAMINED WITH RESPECT TO E VIDENCE REQUIRED TO SUBSTANTIATE THE CLAIM. AS REGARDS THE DECISION OF TRIBUNAL OF EARLIER YEARS CITED BY LEARNED AR, IN ASSESSMENT YEAR 2000-01, PROFESSIONA L CHARGES HAD BEEN PAID FOR TAKING ADVICE OF CONSULTANT ON SALE OF GROUP COMPAN IES I.E., BIO FOODS PRIVATE LIMITED WHICH HAD BEEN ALLOWED BY TRIBUNAL ON COMME RCIAL EXPEDIENCY. THIS YEAR ITANO.3618/M/2007 M/S TRACSTAR INVESTMENT LTD.. 5 THE CONSULTANCY CHARGES HAVE BEEN CLAIMED ON DIFFER ENT ACCOUNT. EACH ASSESSMENT YEAR IS DIFFERENT AND EXPENDITURE OF A P ARTICULAR YEAR IS REQUIRED TO BE EXAMINED WITH RESPECT TO THE STATED PURPOSES AND TH E EVIDENCES SUPPORTING THE SAME PLACED ON RECORD. IN OUR VIEW, THIS YEAR, THE CLAIM OF THE ASSESSEE HAS NOT BEEN EXAMINED PROPERLY AND REQUIRES FRESH CONSIDERA TION. WE, THEREFORE, SET ASIDE THE ORDER OF CIT (A) AND RESTORE THE MATTER TO THE FILE OF AO FOR PASSING A FRESH ORDER AFTER NECESSARY EXAMINATION IN THE LIGHT OF O BSERVATIONS MADE ABOVE AND AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESS EE. 4. THE DISPUTE RAISED IN GROUND NO.3 IS REGARDING D ISALLOWANCE OF DEPRECIATION OF RS. 4,91,594/- ON THE MACHINERY. THE AO DISALLO WED THE DEPRECIATION ON THE GROUND THAT THERE WAS NO MANUFACTURING ACTIVITY DUR ING THE YEAR. IN APPEAL, CIT (A) CONFIRMED THE DISALLOWANCE FOLLOWING THE DECISI ON TAKEN IN THE EARLIER YEAR, AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 4.1. WE HAVE HEARD BOTH THE PARTIES IN THE MATTER. THE LEARNED AR FOR THE ASSESSEE SUBMITTED THAT DISALLOWANCE OF DEPRECIATIO N IN RESPECT OF SAID MACHINERY HAD NOT BEEN UPHELD BY THE TRIBUNAL IN ASSESSMENT Y EARS 2000-01 & 2002-03 (SUPRA). WE HAVE PERUSED THE SAID ORDER. IN THAT ORDER ALSO, THE AO HAD DISALLOWED THE DEPRECIATION ON THE GROUND THAT THER E WAS NO MANUFACTURING ACTIVITY DURING THE YEAR. THE TRIBUNAL, HOWEVER, N OTED THAT THE MACHINERY HAD EARLIER BEEN TAKEN ON HIRE AND WAS THUS ALREADY INS TALLED AT THE FACTORY PREMISES AND USED FOR THE PURPOSE OF BUSINESS. THE ASSESSEE PURCHASED THE SAME MACHINERY DURING THE YEAR AND CLAIMED DEPRECIATION. SINCE THE AO HAD ALREADY ALLOWED HIRE CHARGES IN THE EARLIER YEAR, IT COULD NOT BE SAID THAT THE MACHINERY WAS NOT PUT TO USE. THE TRIBUNAL, THEREFORE, ALLOW ED THE CLAIM OF THE ASSESSEE FOLLOWING THE JUDGMENT IN CASE OF NIRMA CREDIT AND CAPITAL LIMITED (220 CTR 537). FACTS THIS YEAR ARE IDENTICAL. THEREFORE, RESPECT FULLY FOLLOWING THE DECISION OF ITANO.3618/M/2007 M/S TRACSTAR INVESTMENT LTD.. 6 TRIBUNAL IN THE EARLIER YEAR (SUPRA) WE SET ASIDE T HE ORDER OF CIT (A) AND ALLOW THE CLAIM OF THE ASSESSEE. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED IN TERMS OF THE ORDER ABOVE. THE ORDER WAS PRONOUNCED IN OPEN COURT ON 28 TH SEPTEMBER, 2011 SD/- SD/- (D.K. AGARWARL) (RAJENDRA SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE : 28-09-2011 AT :MUMBAI OKK COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A), MUMBAI CONCERNED 4. THE CIT, MUMBAI CITY CONCERNED 5. THE DR J BENCH, ITAT, MUMBAI // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI