DCIT 11(2)(1), MUMBAI V. SHROFF TEXTILES LTD, MUMBAI

ITA 365/MUM/2016

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3565 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-06-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 25-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LOVE KUMAR; MANJUNATH SWAMY
• Keywords: Depreciation; Corroborative evidences; Non compliance
• Section: 12

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI E BENCH, MUMBAI BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER. ITA. NOS. 512 & 365/MUM/2016 (ASSESSMENT YEAR: 2011-12) M/S. SHROFF TEXTILES LTD., 303, B WING, KOTIA NIRMAN, NEW LINK ROAD, ANDHERI (W), MUMBAI 400 053 APPELLANT VS. DCIT 8(3), MUMBAI RESPONDENT & THE DY. COMMISSIONER OF INCOME TAX - 11(2)(1), MUMBAI 400 020 APPELLANT VS. M/S. SHROFF TEXTILES LTD., 303, B WING, KOTIA NIRMAN, NEAR FUN REPUBLIC CINEMA, NEW LINK ROAD, ANDHERI (W), MUMBAI 400 053 RESPONDENT PAN: AAACS6476K ITA NOS.512 & 365/MUM/16 A.YS. 11-12 [M/S. SHROFF TEXTILES LTD. VS. DCIT] PAGE 2 / BY ASSESSEE : SHRI RAJIV KHANDELWAL & SHRI NEELKANTH KHANDELWAL, A.R. / BY REVENUE : SHRI MANJUNATH SWAMY & SHRI LOVE KUMAR, D.R. /DATE OF HEARING : 20.06.2016 /DATE OF PRONOUNCEMENT : 28.06.2016 ORDER PER SHAILENDRA KUMAR YADAV, J.M: THESE CROSS APPEALS BY ASSESSEE AND REVENUE ARISING OUT OF COMMISSIONER OF INCOME-TAX (APPEALS)-18, MUM BAI, DATED 09.11.2015 FOR A.Y. 2011-12. 2. IN ITA NO.512/MUM/2016, ASSESSEE HAS FILED THE APPEAL ON THE FOLLOWING GROUNDS: 1. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEAL) ERRED IN AFFIRMING THE DECISION OF LD. AO FOR DISALLOWING COMMISSION PAYMENT OF RS. 1,41,21,044/- TO M/S DELITE INTERNATIONAL WITHOUT APPRECIATING THE FACT THAT EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 2. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEAL) ERRED IN AFFIRMING THE DECISION OF LD. AO FOR DISALLOWING TRANSPORTATION CHARGES OF RS. 74,13,811/- IN ARBITRARY MANNER AND WITHOUT ANY FINDING ON THE REASONABLENESS AS REQUIRED UNDER SECTION 40A(2) (B) OF THE INCOME TAX ACT, 1961. ITA NOS.512 & 365/MUM/16 A.YS. 11-12 [M/S. SHROFF TEXTILES LTD. VS. DCIT] PAGE 3 3. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEAL) ERRED IN AFFIRMING THE DECISION OF LD. AO FOR DISALLOWING FOREIGN TOUR EXPENSES OF RS. 14,83,542/ - WITHOUT APPRECIATING THE FACT THAT EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 4. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN NOT ADJUDICATING THE FOLLOWING THREE \ GROUNDS RAISED BEFORE HIM ON THE BASIS THAT SUCH GROUNDS WERE NOT PRESSED BEFORE HIM, DESPITE OF THE FACT THAT THESE GROUNDS WERE DISCUSSED IN DETAIL DURING APPELLATE PROCEEDINGS: I. DISALLOWANCE OF DEPRECIATION OF RS. 27,45,524/- CLAIMED ON ADDITION TO FIXED ASSETS MERELY ON THE BASIS OF BASELESS ALLEGATIONS THAT THEY ARE NOT PUT TO USE. II. DISALLOWANCE OF COMMISSION OF RS. 9,00,000/- PA ID TO EMPLOYEE MRS. VIJAYA BHARADWAJ MERELY BECAUSE NO TAX AT SOURCE WAS DEDUCTED. III. DISALLOWANCE OF RS. 1,00,000/- PAID TO M/S AMB Y VALLEY LTD. FOR BOOKING ACCOMMODATION WITHOUT APPRECIATING THE FACT THAT SUCH EXPENDITURE WAS INCURRED FOR THE PURPOSE OF SALES PROMOTION. 3. IN ITA NO.365/MUM/2016, REVENUE HAS FILED THE APPEAL ON THE FOLLOWING GROUNDS: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING T HE DISALLOWANCE OF INTEREST PAID TO M/S DELITE INTERNATIONAL AND M/S TECHNICAL WORKS INDUSTRIES LINK LTD WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE FAILED TO PROVE THE GENUINENESS OF THE ALLEGED PAYMENT BOTH DURING THE ASSESSMENT PROCEEDINGS AND REMAND PROCEEDINGS.? 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING T HE DISALLOWANCE OF INTEREST FREE ADVANCES GIVEN BY THE COMPANY TO COMPANY'S STAFF SINCE AS PER THE ITA NOS.512 & 365/MUM/16 A.YS. 11-12 [M/S. SHROFF TEXTILES LTD. VS. DCIT] PAGE 4 PROVISIONS OF SECTION 36(1)(III) OF THE IT ACT, ANY AMOUNT OF INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSE OF BUSINESS OR PROFESSION IS ALLOWED AS A DEDUCTION ONLY IF THE BORROWED FUNDS ARE UTILIZED FOR THE PURPOSE OF BUSINESS AND CONTINUES AS SUCH.? 3. WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD.CIT(A) ERRED IN NOT FOLLOWI NG THE RATIO LAID DOWN BY THE HON'BLE MADRAS HIGH COURT IN THE CASE OF K. SOMASUNDARAM AND BROS. VS. CIT(1999) 238 ITR 939. ?' ITA NO.512/MUM/2016 (ASSESSEES APPEAL) 4. ASSESSEE IS A LIMITED COMPANY ENGAGED IN THE BUS INESS OF MANUFACTURING OF EXPANDED POLY. FOAM, ASSY FLOOR MATS AND ARTICLES OF PLASTIC. FIRST ISSUE IN THIS APPEA L IS WITH REGARDS TO DISALLOWANCE OF COMMISSION PAYMENT OF RS . 1,41,21,044/- PAID BY ASSESSEE TO M/S DELITE INTERN ATIONAL. M/S. DELITE INTERNATIONAL IS A PROPRIETARY CONCERN OF MR. ASHOK PANDEY, AND HE WAS ALSO A DIRECTOR IN M/S. SH ROFF TEXTILES LTD., ASSESSEE COMPANY. THUS, MR. ASHOK P ANDEY, PROPRIETOR OF M/S. DELITE INTERNATIONAL, IS A PERSO N SPECIFIED U/S. 40A(2)(B) OF THE ACT. AS FAR AS PAYMENT OF CO MMISSION AMOUNTING TO RS.1,41,21,044/- IS CONCERNED, ASSESSI NG OFFICER ASKED THE ASSESSEE COMPANY TO EXPLAIN THE B ASIS FOR MAKING SUCH COMMISSION PAYMENT, ALONGWITH EVIDENCES REGARDING NATURE OF SERVICES RENDERED, COPIES OF IN VOICES ETC. ACCORDING TO ASSESSING OFFICER, ASSESSEE FAILED TO PROVIDE JUSTIFICATION/BASIS FOR MAKING THE IMPUGNED PAYMENT AND SUPPORTING EVIDENCES DURING ASSESSMENT PROCEEDINGS. SO, ITA NOS.512 & 365/MUM/16 A.YS. 11-12 [M/S. SHROFF TEXTILES LTD. VS. DCIT] PAGE 5 SAME WAS DISALLOWED AND ADDED TO THE TOTAL INCOME O F ASSESSEE. 4.1 MATTER WAS CARRIED BEFORE THE FIRST APPELLATE A UTHORITY, WHEREIN ASSESSEE SUBMITTED A COPY OF COMMISSION AGREEMENT WITH M/S. DELITE INTERNATIONAL INTER ALIA ASSESSEE AGREED TO PAY COMMISSION @ 5.25% ON NET SALES TURNO VER TO M/S. DELITE INTERNATIONAL ON MONTHLY BASIS AT ACTUA L MONTHLY BILLING OF THE ASSESSEE. THE COMMISSION AGREEMENT SPECIFIES THAT THE COMMISSION AGENT IS TO PERFORM FOLLOWING J OBS; 1. PRODUCT AWARENESS TO THE CONSUMER, 2. CREATING CONSUMERS INTEREST IN A PRODUCT, 3. PROVIDING INFORMATION RELATING TO PRODUCT, 4. LIASIONING WITH O/E AND GOVERNMENT UNDERTAKINGS, 5. SALES BACKUP AT THE SHOP FLOOR / PLANT LEVEL AND 6. COLLECTION OF PAYMENTS & SALES TAX CONCESSIONAL FORMS. ACCORDING TO CIT(A), ASSESSEE COULD NOT SUBSTANTIAT E THE CLAIM WITH EVIDENCES TO JUSTIFY THE PAYMENT TO M/S. DELITE INTERNATIONAL IN RESPECT OF THE ENTIRE SALES EFFECT ED BY THE ASSESSEE FOR WHICH COMMISSION WAS PAID. IN ABSENCE OF ANY PROOF, THE ENTIRE SALES OF ASSESSEE WERE THE RESULT OF EFFORTS OF M/S. DELITE INTERNATIONAL AND CONSIDERING THAT ALL SALES/MARKETING EXPENSES WERE TO BE BORNE BY ASSESS EE COMPANY AND NOT BY M/S. DELITE INTERNATIONAL. CIT( A) HELD THAT DISALLOWANCE OF COMMISSION PAYMENT AMOUNTING T O RS.1,41,21,044/- MADE BY ASSESSEE COMPANY TO M/S. D ELITE INTERNATIONAL DESERVES TO BE SUSTAINED AND ACCORDIN GLY APPEAL OF ASSESSEE WAS DISMISSED. ITA NOS.512 & 365/MUM/16 A.YS. 11-12 [M/S. SHROFF TEXTILES LTD. VS. DCIT] PAGE 6 4.2 BEFORE US, LD. AUTHORIZED REPRESENTATIVE DREW O UR ATTENTION TO VARIOUS CLAUSES OF AGREEMENT I.E. PAGE NOS. 16, 17 18 & 19 OF PAPER BOOK. ACCORDING TO WHICH, AS P ER CLAUSE 2(A) OF THE SAID AGREEMENT, COMPENSATION HAS BEEN D EALT INTER ALIA COMMISSION WAS DECIDED TO BE PAID @ 5.25 % ON NET SALES TURNOVER BEFORE SALES TAX PLUS SERVICE TAX ON MONTHLY BASIS AT ACTUAL MONTHLY BILLING. ABOVE SAID COMMIS SION AGENT AGREED AS PER CLAUSE (B), TO EXECUTE/FULFILL AND DISCHARGE JOBS AGREED UPON BY HIM EFFICIENTLY AND T O THE FULL SATISFACTION OF ASSESSEE COMPANY. AGREEMENT ALSO ENUMERATES THE RIGHTS AND OBLIGATIONS OF COMMISSION AGENT AS WELL AS RIGHTS AND OBLIGATIONS OF ASSESSEE COMPA NY. LD. AUTHORIZED REPRESENTATIVE DREW OUR ATTENTION TO PAG E NO.35 OF THE PAPER BOOK INTER ALIA DETAILS OF COMMISSION PAID TO M/S. DELITE INTERNATIONAL HAS BEEN MENTIONED MONTH WISE DETAILS. SIMILARLY ATTENTION WAS DRAWN TO PAGE NO. 36 OF THE PAPER BOOK INTER ALIA SALES STATEMENT FOR ACCOUNTIN G PERIOD OF 01.04.2010 TO 31.03.2011 HAS BEEN DETAIL HAVING GRO SS AMOUNT, NET VAT ETC. LD. AUTHORIZED REPRESENTATIVE ALSO BROUGHT TO OUR KNOWLEDGE THE DETAILS OF TDS ON PAYM ENT MADE TO SAID M/S. DELITE INTERNATIONAL TO ESTABLISH THE FACT THAT FACTUAL WORK HAS BEEN DONE AND SAME HAS BEEN ACCOUNTED FOR. FURTHERMORE, LD. AUTHORIZED REPRESE NTATIVE DREW OUR ATTENTION TO THE RETURN OF INCOME AS WELL AS TO SUBSTANTIATE THE PAYMENT OF THE AMOUNT IN QUESTION ITS ACCOUNTING FOR PURPOSE OF INCOME TAX PROVISION. TH E STAND OF ASSESSEE HAS BEEN THAT THE FACT IS THAT BOTH ASSESS EE AND M/S. DELITE INTERNATIONAL ARE PAYING TAX ON HIGHER SIDE RATE, ITA NOS.512 & 365/MUM/16 A.YS. 11-12 [M/S. SHROFF TEXTILES LTD. VS. DCIT] PAGE 7 SO THIS IS A TAX NEUTRALITY AS LAID DOWN IN THE CAS E OF CIT VS. INDO SAUDI SERVICES (TRAVEL) P.LTD. (2009) 310 ITR 306 (BOM). IN VIEW OF ABOVE, IT WAS SUBMITTED THAT THERE IS NO COLOURABLE DEVICE IN MAKING SUCH PAYMENTS. ACCORDING TO LD. AUTHORIZED REPRESENTATIVE, THE PROVISIONS OF SECTIO N 40A(2)(B) OF THE ACT HAS BEEN TRIED TO INVOKE TO DI SALLOW THE AMOUNT IN QUESTION BUT NO COMPARABLE CASE HAS BEEN TRIED TO BE QUOTED AND ULTIMATELY, WHOLE AMOUNT IS DISALL OWED, WHICH IS NOT IN THE TRUE SPIRIT OF THE PROVISIONS O F SECTION 40A(2)(B) OF THE ACT. ON THE OTHER HAND, LD. DEPAR TMENTAL REPRESENTATIVE RELIED ON THE ORDER OF AUTHORITIES B ELOW AND SUBMITTED THAT ASSESSEE WAS NOT ABLE TO SUBSTANTIAT E ITS CLAIM BEFORE THE AUTHORITIES BELOW WITH REGARD TO P AYMENT IN QUESTION. FOR THE SAME, ASSESSEE CANNOT BE ALLOWED SUCH BIG DEDUCTION IN ABSENCE OF SUBSTANTIATING EVIDENCE. LD . DEPARTMENTAL REPRESENTATIVE ALSO DREW OUR ATTENTION TO PAGE NO.57 OF THE PAPER BOOK INTER ALIA DETAILS OF THE I NVOICES HAVE NOT BEEN GIVEN AND SUBMITTED THAT ALL THE PAYMENTS WERE BOGUS. SO, SAME HAS RIGHTLY BEEN DISALLOWED BY AUT HORITIES BELOW. ACCORDINGLY, STRONGLY REQUESTED ORDER OF CI T(A) BE UPHELD ON THIS POINT. 4.3 AFTER GOING THROUGH RIVAL SUBMISSIONS AND MATER IAL ON RECORD, WE FIND THAT ASSESSEE HAS PAID COMMISSION I N QUESTION TO M/S. DELITE INTERNATIONAL WHEREIN ASHOK PANDEY WAS A KEY PERSON AND HE IS ALSO A DIRECTOR IN ASSES SEES COMPANY. THE PROFESSIONAL COMPETENCY OF ASHOK PAND EY HAS NOT BEEN DISPUTED AS HE HAS BEEN RENDERING SERVICES TO ITA NOS.512 & 365/MUM/16 A.YS. 11-12 [M/S. SHROFF TEXTILES LTD. VS. DCIT] PAGE 8 ASSESSEE SINCE LONG. ASSESSEE WAS HAVING SUPPLIES TO VARIOUS COMPANIES AND COMMISSION FOR THE SAME HAS BEEN PAID EARLIER YEARS AS WELL. ON THE ANALYSIS OF DIFFEREN T CLAUSES OF AGREEMENT, WE FIND THAT SAID M/S. DELITE INTERNATIO NAL HAS TO RENDER SERVICES OF PRODUCT AWARENESS TO THE CONSUME R, CREATING CONSUMERS INTEREST IN A PRODUCT, PROVIDING INFORMATION RELATING TO PRODUCT, LIASIONING WITH O/ E AND GOVERNMENT UNDERTAKINGS, SALES BACKUP AT THE SHOP FLOOR/PLANT LEVEL AND COLLECTION OF PAYMENTS AND SA LES TAX CONCESSIONAL FORMS. HE HAS TO PERFORM THE SAID JOB AS PER ASSIGNMENT. THE SAID M/S. DELITE INTERNATIONAL HAS SELECTED THE NUMBER OF STAFFS REQUIRED FOR COMPLETION OF JOB . COMMISSION AGENT WAS SUPPOSED TO DECIDE THE MODE AN D MANNER OF THE WORK TO BE DONE BY STAFFS. IN CASE A SSESSEE COMPANY SUFFERS ANY DAMAGE OR LOSS OR HARM DUE TO A NY ACTS OF COMMISSION AGENT OR OMISSION OF MISREPRESENTATIO N BY THE COMMISSION AGENT, IT WAS BOUND TO INDEMNIFY THE SAM E. THE COMMISSION AGENT AGREEING TO RIGHTS AND OBLIGATIONS OF COMMISSION AGENT, HE WAS RESPONSIBLE FOR LOSS TO AS SESSEE COMPANY CAUSED DUE TO NEGLIGENCE/ACT OF THE STAFFS EMPLOYED BY HIM AND SHALL COMPENSATE OR REIMBURSE THE COMPAN Y ADEQUATELY FOR SUCH LOSS WHICH SHALL BE ASSESSED AN D DETERMINED BY THE ASSESSEE COMPANY. THE SAID COMMI SSION AGENT WERE SUPPOSED TO SUBMIT BILLS TO THE COMPANY ON MONTHLY BASIS. THE COMMISSION AGENT SHALL NOT DISC LOSE TO ANY ONE REGARDING THE INFORMATION, FORMULAE OF COMP ANY ADVERSELY AFFECTING THE INTEREST OF THE COMPANY. I T IS NOT IN DISPUTE THAT SIMILAR PAYMENT HAS BEEN MADE IN EARLI ER YEAR ITA NOS.512 & 365/MUM/16 A.YS. 11-12 [M/S. SHROFF TEXTILES LTD. VS. DCIT] PAGE 9 AS WELL. ASSESSEE WAS ALSO DEDUCTING TDS ON THE PA YMENT MADE TO M/S. DELITE INTERNATIONAL. THUS, M/S. DELI TE INTERNATIONAL WAS GIVING NOT ONLY SERVICES OF COMMI SSION AGENT BUT COMPOSITE SERVICES TO THE ASSESSEE. REVE NUE OFFICERS HAD TRIED TO INVOKE THE PROVISIONS OF SECT ION 40A(2)(B) OF THE ACT. COMPARATIVE CASES HAVE TO BE BROUGHT ON RECORD TO JUSTIFY THE DISALLOWANCE IN QUESTION, BUT IN THIS CASE, HAVING DISCUSSED THE PROVISIONS OF SECTION 40 A(2)(B) OF THE ACT, FULL AMOUNT HAS BEEN DISALLOWED. HONBLE BOMBAY HIGH COURT IN CASE OF CIT VS. INDO SAUDI SERVICES ( TRAVEL) P. LTD. (SUPRA) HAD HELD THAT IN CASE OF TAX NEUTRALIT Y, DISALLOWANCE IN QUESTION ARE NOT JUSTIFIED BECAUSE BOTH PAYEE AND RECIPIENT ARE PAYING TAX ON HIGHEST SLAB. ASSE SSING OFFICER HAS NOT BROUGHT ON RECORD TO ESTABLISH COLO URABLE DEVICE IN SUCH PAYMENT. THERE IS NOTHING ON RECORD THAT PAYMENT IS AGAINST PUBLIC POLICY. THERE IS ALSO NO THING ON RECORD THAT SUCH PAYMENT HAVE ROUTED BACK TO ASSESS EE IN ANY MANNER. LASTLY, ASSESSEE HAS PAID THE AMOUNT I N QUESTION AFTER DEDUCTING TDS AND RECIPIENT HAS PAID TAXES ON SAME. TAKING ALL FACTS AND CIRCUMSTANCES OF THE CAS E INTO CONSIDERATION, WE ARE OF THE VIEW THAT PAYMENT IN Q UESTION @5.25% LOOKING TO THE SERVICES RENDERED BY SAID PAR TY IS JUSTIFIED AND SAME IS ALLOWED. 5. NEXT ISSUE IS WITH REGARD TO PAYMENT OF TRANSPOR T CHARGES MADE BY ASSESSEE COMPANY TO M/S. DELITE INTERNATIONAL. ASSESSING OFFICER ASKED THE ASSESSE E COMPANY TO FURNISH THE DETAILS. ACCORDING TO ASSESSING OFF ICER, ITA NOS.512 & 365/MUM/16 A.YS. 11-12 [M/S. SHROFF TEXTILES LTD. VS. DCIT] PAGE 10 ASSESSEE DID NOT DISCHARGE THE ONUS TO SUBSTANTIATE THE CLAIM WITH SUPPORTING EVIDENCES. SO, IT WAS DISALL OWED. 5.1 IN APPEAL, ASSESSEE HAS FILED COPIES OF BILLS O F M/S. DELITE INTERNATIONAL. THERE ARE A TOTAL OF 12 BILL S, ONE FOR EACH MONTH OF F.Y. 2010-11. CIT(A) DID NOT BELIEVE THE SAME BECAUSE THEY WERE OF SIMILAR NATURE. ACCORDING TO REVENUE AUTHORITIES, MANY DETAILS LIKE CHALLAN NO., QUANTIT Y, RATE ETC. WERE NOT FILLED UP. FURTHER, THE NUMBER OF TRIPS B ETWEEN PLACE OF ORIGIN AND DESTINATION WAS NOT STATED. MO REOVER, DETAILS OF OCTROI, TOLL TAX ETC. WERE NOT STATED. IN ABSENCE OF RELEVANT DETAILS, ACCORDING TO CIT(A), ASSESSEE FAI LED TO ESTABLISH THAT TRIPS FOR WHICH TRANSPORTATION CHARG ES HAD BEEN CLAIMED. ACCORDING TO CIT(A), ASSESSEE COULD NOT ESTABLISH THAT AMOUNTS WERE ACTUALLY MADE AND THAT THESE TRIPS WERE WHOLLY AND EXCLUSIVELY FOR THE BUSINESS OF ASSESSEE COMPANY. AFTER TAKING SUPPORT OF PROVISIONS OF SECT ION 40A(2)(B) OF THE ACT, REVENUE AUTHORITIES ULTIMATEL Y DISALLOWED THE EXPENSES IN QUESTION. 5.2 BEFORE US, THE STAND OF ASSESSEE HAS BEEN THAT SIMILAR EXPENSES WERE CLAIMED IN EARLIER YEAR, NO DISALLOWA NCE WAS MADE. PAYMENTS WERE MADE AFTER DEDUCTION OF TDS. BOTH PAYEE AND RECIPIENT ARE RESPONSIBLE FOR PAYING TAX ON HIGHER SLAB. SO, IT IS TAX NEUTRALITY AS LAID DOWN IN CAS E OF CIT VS. INDO SAUDI SERVICES (TRAVEL) P.LTD. (SUPRA). ASSES SEE HAS DEDUCTED TDS AND TAKEN CONSEQUENTIAL STEPS IN THIS REGARD. ASSESSEE DREW OUR ATTENTION TO THE AGREEMENT PLACED ON PAGE NOS. 53 TO 56 OF PAPER BOOK. ACCORDING TO WHICH, P AYEE WAS ITA NOS.512 & 365/MUM/16 A.YS. 11-12 [M/S. SHROFF TEXTILES LTD. VS. DCIT] PAGE 11 HAVING SUFFICIENT NUMBER OF TRANSPORT VEHICLE AND I T HAS ACTUALLY TRANSPORTED THE GOODS MANUFACTURED BY ASSE SSEE TO DIFFERENT DESTINATIONS, SO AMOUNT IN QUESTION WERE REQUESTED TO BE ALLOWED. ON OTHER HAND, LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTED THE ORDER OF CIT( A) AND SUBMITTED THAT CONCEPT OF TAX NEUTRALITY WOULD NOT HELP ASSESSEE NOR TDS WILL HELP TO SUBSTANTIATE THE NATU RE OF SERVICE PROVIDED BY RECIPIENT TRANSPORT CHARGES FRO M ASSESSEES OFFICE WILL NOT HELP THE AGREEMENT. ASS ESSEE HAS NOT SUBSTANTIATED ITS CLAIM WITH REGARD TO THE PAYM ENT IN QUESTION. SO, REVENUE AUTHORITIES WERE JUSTIFIED I N DISALLOWING THE CLAIM OF ASSESSEE. 5.3 AFTER GOING THROUGH RIVAL SUBMISSIONS AND MATER IAL ON RECORD, WE FIND THAT SIMILAR SERVICE HAS BEEN RENDE RED BY M/S. DELITE INTERNATIONAL IN EARLIER YEARS AND NO ADVERSE VIEW HAS BEEN TAKEN IN THIS REGARD. THE TDS HAD BE EN DEDUCTED ON THE AMOUNT PAID BY ASSESSEE TO THE RECI PIENT. THE PAYMENT HAS BEEN MADE TO M/S. DELITE INTERNATIO NAL AS PER AGREEMENT DATED 02.02.2009 BETWEEN ASSESSEE AND M/S. DELITE INTERNATIONAL. ACCORDING TO SAID AGREEMENT, M/S. DELITE INTERNATIONAL WAS ENGAGED AS TRANSPORT CONTR ACTOR FOR A PERIOD OF 2 YEARS FOR DELIVERING THE PRODUCTS MAN UFACTURED BY ASSESSEE FROM ITS FACTORY SITUATED AT PLOT NO.J- 78, MIDC INDUSTRIAL AREA, BOISAR, DISSTT. THANE TO ITS VENDO RS/ GODOWNS. TRANSPORTER WAS SUPPOSED TO SUPPLY VEHICL E TO ASSESSEE COMPANY ON REGULAR BASIS. THE TRANSPORTER WAS SUPPOSED TO PROVIDE REGISTERED COMMERCIAL VEHICLES OF ITA NOS.512 & 365/MUM/16 A.YS. 11-12 [M/S. SHROFF TEXTILES LTD. VS. DCIT] PAGE 12 VARIOUS SIZES RANGING SMALL SIZE TO BIG SIZE. IN T HE EVENT OF NON AVAILABILITY OF ITS OWN VEHICLE FOR ANY MECHANI CAL FAILURE/BREAKDOWN OF VEHICLE THE TRANSPORTER WAS SU PPOSED TO ARRANGE ANOTHER ALTERNATIVE VEHICLE AT ITS OWN C OST AND RISK. NON COMPLIANCE MAY ATTRACT PENALTY OF RS.1,5 00/- PER INSTANCE. ACCORDING TO AGREEMENT, TRANSPORTER SUPP OSED TO ASSIGN THE JOB OF DRIVING OF VEHICLES ONLY TO EXPER IENCED LICENSED DRIVERS ETC. IT WAS ALSO EXPRESSED UNDERS TANDING BETWEEN PARTIES THAT THE PARTY OF SECOND PART WILL BE SOLELY RESPONSIBLE FOR THE COST OF FUELS, LUBRICANTS, REPA IRS, MAINTENANCE, RTO TAXES, OTHER GOVERNMENT TAXES AND INSURANCE, PAYMENTS OF WAGES TO DRIVERS & CLEANERS ETC. PAYMENTS WERE TO BE MADE ON THE BASIS OF USAGE AND FINAL BILL AS SUBMITTED BY TRANSPORTER. IT IS NOT IN DIS PUTED THAT ASSESSEE WAS MANUFACTURING GOODS AND SAME WERE TRANSPORTED TO VARIOUS PLACES, FOR THEM TRANSPORTS WERE NECESSARY. SO, ASSESSEE HAS PREFERRED TO TRANSPORT THEIR GOODS TO DIFFERENT DESTINATIONS THROUGH M/S. DELITE INTERNATIONAL. REVENUE AUTHORITIES HAD TRIED TO IN VOKE THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. THEY H AVE NOT BROUGHT ON RECORD ANY COMPARATIVE INSTANCES TO NEGA TE THE ASSESSEES CLAIM OF ASSESSEE AND ULTIMATELY DISALLO WED THE WHOLE EXPENSES, WHICH IS NOT TRUE SPIRIT OF THE SEC TION 40A(2)(B) OF THE ACT. REVENUE AUTHORITIES HAVE NOT DISPUTED THE FACT THAT POSSESSION OF TRANSPORT VEHICLES WAS M/S. DELITE INTERNATIONAL AND TRANSPORTATION BY ASSESSEE. THEY HAVE NOT BROUGHT ANYTHING ON RECORD THAT GOODS HAVE BEEN TRANSPORTED BY OTHER THAN VEHICLES OF THE M/S. DELI TE ITA NOS.512 & 365/MUM/16 A.YS. 11-12 [M/S. SHROFF TEXTILES LTD. VS. DCIT] PAGE 13 INTERNATIONAL. IT IS A TAX NEUTRALITY AS HELD BY H ONBLE BOMBAY HIGH COURT IN CASE OF CIT VS. INDO SAUDI SER VICES (TRAVEL) P. LTD. (SUPRA) AS BOTH THE PARTIES ARE PA YING TAX ON HIGHEST RATE. NO COLOURABLE DEVICE HAS BEEN SUGGES TED BY ASSESSING OFFICER WITH REGARDS TO THESE TRANSPORTS PAYMENTS. SIMILAR TYPE PAYMENTS HAVE BEEN MADE IN ASSESSMENT ORDER FOR EARLIER YEAR HAS NOT BEEN DISTURBED IN ANY MANN ER. WE ARE OF THE VIEW THAT ASSESSEE IS SUPPOSED TO MAINTA IN ITS AFFAIR IN ITS OWN WAY AND REVENUE AUTHORITIES HAD B ROUGHT NOTHING ON RECORD TO SUGGEST THAT SUCH PAYMENTS WER E NOT FOR BUSINESS PURPOSE. SO, TAKING ALL FACTS AND CIR CUMSTANCES OF THE CASE INTO CONSIDERATION, ASSESSING OFFICER I S DIRECTED TO ALLOW THESE EXPENSES IN QUESTION. 6. NEXT ISSUE IS WITH REGARDS TO DISALLOWANCE OF RS.14,83,542/- PAID FOR FOREIGN TOUR. ASSESSING OF FICER HAS DISCUSSED THIS ADDITION IN PARA 7 OF THE ASSESSMENT ORDER INTER ALIA OBSERVED THAT THIS EXPENDITURE WAS IN AD DITION TO A SEPARATE OF RS.13,14,169/- UNDER THE HEAD TRAVELIN G EXPENSES. ASSESSING OFFICER OBSERVED THAT SALES AN D PURCHASES OF ASSESSEE WERE WITH PARTIES LOCATED IN INDIA. FURTHER, ASSESSEE DID NOT FURNISH ANY DETAILS REGAR DING THE PURPOSE OF FOREIGN TRAVEL AND EVIDENCES TO PROVE TH AT EXPENDITURE HAS BEEN INCURRED FOR THE PURPOSE OF BU SINESS. SO, SAME WAS DISALLOWED BY ASSESSING OFFICER AND CO NFIRMED BY CIT(A). 6.1 IN THIS REGARD, STAND OF ASSESSEE HAS BEEN THAT ASSESSEE HAS INCURRED EXPENSES AS MENTIONED ON FOREIGN TRAVE L WHOLLY ITA NOS.512 & 365/MUM/16 A.YS. 11-12 [M/S. SHROFF TEXTILES LTD. VS. DCIT] PAGE 14 FOR THE BUSINESS PURPOSES ONLY. THE DETAILS OF THE SAID EXPENSES HAVE BEEN SUBMITTED DURING COURSE OF ASSES SMENT PROCEEDINGS. FOREIGN TRAVEL CARRIED OUT WITH RESPE CT TO BUSINESS DEVELOPMENT ALONG WITH RESEARCH GAUGING TH E FOREIGN MARKET WITH RESPECT TO NEWLY DEVELOPED METH ODOLOGY AND TECHNICAL NOVICE FOR THE MANUFACTURING OF THE P RODUCTS WHICH ARE PRODUCED BY ASSESSEE. THUS, EXPENSES INC URRED FOR FOREIGN TRAVEL COULD NOT BE MARKED AGAINST THE SALES AND PURCHASES AS SUGGESTED BY CIT(A), BUT FOREIGN TRAVE L EXPENSES RELATE ALSO TO THE TECHNICAL STUDY ALONG W ITH MARKET DEVELOPMENT STUDY FOR FUTURE PROSPECTS WHICH WOULD BE HIGHLIGHTED SUBSEQUENTLY ON DEVELOPMENT AND FURTHER STUDY ON THE SAME. THEREFORE, ASSESSEE REQUESTED TO ALLO W THE SAME. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESEN TATIVE SUPPORTED THE ORDERS OF AUTHORITIES BELOW ON THE IS SUE AND SUBMITTED THAT PURCHASES WERE MADE ON DOMESTIC MARK ET, THERE WAS NO PURPOSE FOR VISITING THE ABROAD FOR TH E SAME. 6.2 AFTER GOING THROUGH RIVAL SUBMISSIONS AND MATER IAL ON RECORD, WE FIND THAT ASSESSEE IS ENGAGED IN THE BUS INESS OF MANUFACTURING OF EXPANDED POLY. FOAM, ASSY FLOOR M ATS AND ARTICLES OF PLASTIC. LD. AUTHORIZED REPRESENTA TIVE SUBMITTED BEFORE US THAT THEY WANTED TO PURCHASE CE RTAIN MACHINERY FROM ABROAD BUT AFTER VISITING ABOVE PLAC ES, ASSESSEE MANAGEMENT FINALLY DECIDED TO PURCHASE THE SAME FROM DOMESTIC MARKET. THE MANAGEMENT SKILLS AND LA TEST TECHNICAL KNOWHOW ACQUIRED BY ASSESSEE BY INCURRING EXPENSES FOR FOREIGN TRAVEL AND BENEFITTED ASSESSEE IN ITA NOS.512 & 365/MUM/16 A.YS. 11-12 [M/S. SHROFF TEXTILES LTD. VS. DCIT] PAGE 15 RUNNING ITS BUSINESS. ASSESSEE MIGHT HAVE REACHED TO ITS BUSINESS DECISION AFTER MAKING DETAIL SURVEY OF PRO DUCT AND TECHNIQUE. EVEN IF AFTER ABOVE FOREIGN TRAVEL DECI SION IS TAKEN FOR MAKING PURCHASE FROM DOMESTIC MARKET IT CANNOT BE SAID THAT FOREIGN TRAVEL WAS NOT FOR ASSESSEES BUSINESS . IT IS BUSINESS DECISION OF ASSESSEE WHICH SHOULD NOT BE D ISTURBED BY REVENUE AUTHORITIES WITHOUT BRINGING OUT ANYTHIN G OTHERWISE ON THE RECORD. REVENUE AUTHORITIES FAILE D TO BRING ANY MATERIAL ON RECORD TO ESTABLISH THAT IT WAS A P LEASURE TRIP AS SAME WERE UNDERTAKEN BY THE SAID PERSONS INDIVID UALLY. ASSESSEE IS NOT SUPPOSED TO DISCLOSE ALL STRATEGIC DECISION TO THE REVENUE AUTHORITIES INCLUDING FINAL CONCLUSION OF PURCHASING CERTAIN MACHINERY AND RUNNING THE BUSINE SS IN MORE EFFICIENT TECHNICAL AND ADMINISTRATIVE MANNER. AS STATED ABOVE, REVENUE AUTHORITIES HAVE NOT BROUGHT ANYTHING ON RECORD TO SUGGEST THAT IT IS A DEVISE TO AVOID T HE TAX. TAKING ALL FACTS AND CIRCUMSTANCES OF THE CASE IN T O CONSIDERATION, ASSESSING OFFICER IS DIRECTED TO ALL OW THE TRAVEL EXPENSES IN QUESTION. 7. NEXT ISSUE IS WITH REGARD TO DIFFERENT EXPENSES AS DETAILED IN GROUND NO.4: I. DISALLOWANCE OF DEPRECIATION OF RS. 27,45,524/- CLAIMED ON ADDITION TO FIXED ASSETS, II. DISALLOWANCE OF COMMISSION OF RS. 9,00,000/- PA ID TO EMPLOYEE MRS. VIJAYA BHARADWAJ, III. DISALLOWANCE OF RS. 1,00,000/- PAID TO M/S AM BY VALLEY LTD. FOR BOOKING ACCOMMODATION. ITA NOS.512 & 365/MUM/16 A.YS. 11-12 [M/S. SHROFF TEXTILES LTD. VS. DCIT] PAGE 16 CIT(A) DISMISSED THESE ISSUES BY OBSERVING THAT SAM E WERE NOT PRESSED. 7.1 LD. AUTHORIZED REPRESENTATIVE BEFORE US SUBMITT ED IN AFFIDAVIT INTER ALIA DEPOSED THAT CIT(A) ERRED IN N OT ADJUDICATING THE AFORESAID GROUND. ACCORDING TO AF FIDAVIT DEPOSED BY ASHOK PANDEY, ASSESSEE HAS NEVER AUTHORI ZED ANY PERSON TO NOT PRESS THE LEGAL AND FACTUAL GROUN DS IN QUESTION. THESE ARE LEGAL CLAIMS WHICH CAN BE DEMO NSTRATED BY ASSESSEE ON MERIT. ASSESSEE HAS DEPOSED THE FAC T THAT ASSESSEE HAS NOT AUTHORIZES ONE FOR NOT PRESSING TH ESE GROUNDS AND WAS NEVER DONE ON BEHALF OF THEM. SAME SHOULD BE DECIDED ON MERIT. IN THE INTEREST OF JUS TICE AND IN VIEW OF DEPOSITION BY DEPONENT, WE RESTORE THIS ISS UE TO ASSESSING OFFICER WITH DIRECTION TO DECIDE THE SAME AS PER FACT AND LAW AFTER PROVIDING DUE OPPORTUNITY OF HEA RING TO THE ASSESSEE. AS A RESULT, THESE ISSUES ARE ALLOWED FO R STATISTICAL PURPOSES. SINCE WE ARE RESTORING THE ISSUE ON PREL IMINARY GROUND, SO WE ARE REFRAINING TO COMMENT ON MERIT OF ISSUE AT HAND. ITA NO.365/MUM/2016 (REVENUES APPEAL) 8. ASSESSING OFFICER HAS DISALLOWED THE INTEREST EX PENSES OF RS.68,09,927/- (RS.46,07,791/- PAID TO M/S. DELI TE INTERNATIONAL + RS.22,02,136/- PAID TO TECHNICAL WO RKS INDUSTRIAL LINK LTD.). ASSESSING OFFICER STATED TH AT THERE WERE NO LOAN OUTSTANDING IN RESPECT OF THESE PARTIE S AND FURTHER THAT THE ASSESSEE HAS NOT FURNISHED ANY SUP PORTING ITA NOS.512 & 365/MUM/16 A.YS. 11-12 [M/S. SHROFF TEXTILES LTD. VS. DCIT] PAGE 17 EVIDENCES REGARDING THE INTEREST CREDITED TO THESE TWO PARTIES, SO SAME WAS DISALLOWED. 8.1 MATTER WAS CARRIED BEFORE THE FIRST APPELLATE A UTHORITY, WHEREIN VARIOUS CONTENTIONS WERE RAISED ON BEHALF A SSESSEE AND HAVING CONSIDERED THE SAME, CIT(A) HAS ALLOWED THE CLAIM OF ASSESSEE BY OBSERVING THAT INTEREST PAID T O M/S. DELITE INTERNATIONAL WAS TOWARDS BILL DISCOUNTING F ACILITY FROM M/S. DELITE INTERNATIONAL. HE FURTHER OBSERVED THA T THERE WAS NOTHING ON RECORD TO SUGGEST THAT THIS INTEREST PAYMENT WAS PARTLY AND WHOLLY FOR PURPOSES OTHER THAN THE B USINESS OF ASSESSEE. FURTHER, INTEREST PAID TO M/S. TECHNI CAL WORKS INDUSTRIAL LINK LTD. WAS A REIMBURSEMENT THE INTERE ST INCURRED BY M/S. TECHNICAL WORKS INDUSTRIAL LINK LT D. ON OVERDRAFT FACILITY IN BANK, WHICH WAS AVAILED AGAIN ST FIXED DEPOSITS OF M/S. TECHNICAL WORKS INDUSTRIAL LINK LT D. FOR THE PURPOSES OF BUSINESS OF ASSESSEE. AS STATED ABOVE, CIT(A) FOUND NOTHING ON RECORD TO SHOW THAT THIS PAYMENT W AS PARTLY OR WHOLLY FOR PURPOSES OTHER THAN THE BUSINE SS PURPOSE. THE SUBMISSIONS OF ASSESSEE WERE SENT TO ASSESSING OFFICER. HOWEVER, ASSESSING OFFICER HAS NOT BROUGHT ANY FACT TO THE KNOWLEDGE OF CIT(A) TO SUGG EST THAT INTEREST PAYMENT MADE TO M/S. DELITE INTERNATIONAL OF RS.46,07,791/- OR TO M/S. TECHNICAL WORKS INDUSTRIA L LINK LTD. OF RS.21,04,071/- WAS PARTLY OR WHOLLY ATTRIBU TABLE TO PURPOSES OTHER THAN BUSINESS OF ASSESSEE. IN THESE FACTS AND CIRCUMSTANCES, CIT(A) WAS JUSTIFIED TO HELD THAT TH ESE EXPENSES HAVE BEEN INCURRED FOR BUSINESS PURPOSES O F ITA NOS.512 & 365/MUM/16 A.YS. 11-12 [M/S. SHROFF TEXTILES LTD. VS. DCIT] PAGE 18 ASSESSEE AND THIS REASONED FINDING OF CIT(A) NEEDS NOT INTERFERENCE FROM OUR SIDE. WE UPHOLD THE SAME. 9. AS A RESULT, APPEAL FILED BY ASSESSEE IS PARTLY ALLOWED AND THE APPEAL FILED BY REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS THE 28 TH DAY OF JUNE, 2016. SD/- SD/- ( RAJESH KUMAR ) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBE R MUMBAI: DATED 28/06/2016 TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO:- 1. / REVENUE 2. / ASSESSEE 3. ! / CONCERNED CIT 4. !- / CIT (A) 5. )*+ ,--, , / DR, ITAT, MUMBAI 6. +12 34 / GUARD FILE. BY ORDER / , / , ,