M/s. Global Influence, New Delhi V. Addl. CIT, New Delhi

ITA 387/DEL/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7321 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 11-03-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 25-01-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: P N MEHTA
• Keywords: Business expenditure; Onus to prove

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C : NEW DELHI BEFORE SHRI B.C.MEENA , ACCOUNTANT MEMBER AND SHRI A. T. VARKEY, JUDICIAL MEMBER ITA NO. 387 /DEL/ 2013 (ASSESSMENT YEAR: 2005 - 06 ) GLOBAL INFLUENCE 119 - 120, 1 ST FLOOR RECTNAGE ONE, PLOT NO.D - 4, SAKET DISTRICT CENTER, SAKET, NEW DELHI PAN:AAAFG2205M VS. ADDL CIT RANGE - 27 NEW DELHI (APPELLANT) (RESPONDENT) APPELLANT BY : P.N. MEHTA, CA RESPONDENT BY : SATPAL SINGH, SR. DR PER A. T. VARKEY , JUDICIAL MEMBER THIS APPEAL ARISES FROM AN ORDER OF LD CIT(A)XXIV, NEW DELHI DATED 07.01.2011 FOR THE ASSESSMENT YEAR 2005 - 06. 2. GROUND NO.1 RELATES TO DISALLOWANCE OF RS.4,38,605/ - REPRESENTING FOREIGN TRAVEL EXPENSES CLAIMED BY THE ASSESSEE COMPANY . 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED EXPENDITURE IN RESPECT OF TRAVEL OF MR. CHARAN SAREEN AND RAJAN MADHU FOR TRAVEL TO ZURICH AND DUBAI. IT WAS SUBMITTED THAT BOTH THE PARTNERS HAD TRAVELLED ABRO AD TO ZURICH FOR INTRODUCTION AND PROMOTION OF HERBAL MEDICINE TO LEADING PHARMA COMPANIES NAMELY NOVATIS, HOFFMAN, ALCON AND NYCOMET SITUATED THERE . IN RESPECT TO DUBAI, IT WAS SUBMITTED THAT THE VISIT WAS TO FIND OUT THE PROSPECT IN RESPECT OF OPENING A NEW OFFICE AT DUBAI. THE AO, HOWEVER, DENIED THE CLAIM ON THE GROUND THAT NO DOCUMENTARY EVIDENCE HAS BEEN FURNISHED BY THE ASSESSEE. IT WAS HELD THAT ASSESSEE HAS MERELY SUBMITTED DETAILS OF FOREIGN TRAVEL, WITHOUT ANY DETAILS OF SPECIFIC MEETIN G HELD THERE BY ADDUCING SUPPORTING DOCUMENTS LIKE INVITATION LETTER/ CORRESPONDENCE/ EMAIL ETC. 4. THE LD CIT(A) AFFIRMED THE DISALLOWANCE ON THE FOLLOWING BASIS: - PAGE NO. 2 4. THE GROUND OF APPEAL NUMBERED 1 IS IN RESPECT OF THE DISALLOWANCE OUT OF FOREIGN TRAV EL EXPENSES. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND THE AO'S FINDINGS. THE CASE RECORDS SHOW THAT THE ABOVE REFERRED FOREIGN TRAVELLING DETAILS AS STATED BY THE APPELLANT HAVE BEEN FILED BEFORE THE AO DURING THE ASSESSMENT PROCEED INGS. THE AO, AFTER CONSIDERING ALL THESE DOCUMENTS, MADE THE ABOVE MENTIONED DISALLOWANCE OUT OF FOREIGN TRAVELLING EXPENSES ON THE FACT THAT THE ASSESSEE FAILED TO ESTABLISH THAT THESE EXPENSES HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS P URPOSE (PAGE 2 AND 3 OF THE ASSESSMENT ORDER). THE SUBMISSION OF THE AR THAT THE APPELLANT IS ENGAGED IN THE EXPORT BUSINESS, THEREFORE, THE FOREIGN TRAVEL IS FOR BUSINESS PURPOSES DO NOT GET ESTABLISHED. NO DOCUMENTARY EVIDENCE WAS FILED WHICH MAY PROVE T HAT BUSINESS MEETINGS WITH PARTIES HAVE' ACTUALLY TAKEN PLACE AT ANY SPECIFIC VENUE SITUATED AT PLACES WHERE THESE PERSONS VISITED AS NO BILLS AND VOUCHERS OF EXPENDITURE OF THIS KIND WAS PRODUCED IN THE SUPPORT OF THE CLAIM. NO DOCUMENT EITHER THE E - MAIL/ POSTAL CORRESPONDENCE WITH THE PERSONS WITH WHOM THE MEETING INTENDED TO TAKE PLACE WAS FURNISHED GIVING DETAILED NARRATION OF INVITATION FOR MEETING FROM EITHER SIDE. WHETHER THE FOREIGN PARTIES HAVE INVITED THE APPELLANT OR APPELLANT HAS INVITED THE PART IES FOR MEETING IN FOREIGN COUNTRIES HAVE NOT BEEN ESTABLISHED WITH THE HELP OF THE DOCUMENTS. BILLS RELATING TO VENUE EXPENSES ARE ALSO NOT FURNISHED. THEREFORE, THESE FOREIGN TOUR EXPENSES CAN NOT BE SAID TO HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSE THOUGH IT HAS BEEN INCURRED. THE CONDITION OF WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSE HAS TO BE ESTABLISHED BY THE APPELLANT FOR CLAIMING EXPENDITURE AS AN ALLOWABLE BUSINESS EXPENDITURE. 4.1 FURTHER, IT HAS NOT BEEN PROVED BEYOND DOUBT THAT THE EXPENSES DEBITED IN THE BOOKS DO INCLUDE EXPENSES RELATING TO HOTELS BILLS, TAXI BILLS, FOODING AND LODGING, BUSINESS MEETING PLACE EXPENSES AS THE ACTUAL BILLS/CASH MEMOS SHOWING DETAILS OF THESE EXPEN SES HELVE NOT BEEN SUBMITTED EITHER DURING THE COURSE OF ASSESSMENT OR APPELLATE PROCEEDINGS. LUMP - SUM CLAIMS HAVE BEEN DEBITED THROUGH THE SELF MADE VOUCHERS. THEREFORE, IT CAN NOT BE SAID THAT ALL THE EXPENSES DEBITED IN BOOKS OF ACCOUNT ARE GENUINE. THE APPELLANT HAS FAILED TO SUBMIT THE DETAILS ALONG WITH CONCRETE PROOFS OF BUSINESS MEETINGS TAKEN PLACE DURING FOREIGN TOUR. THE OUTCOME OF THE CLAIMED MEETINGS IS ALSO NOT ASCERTAINABLE. EXPORT SALE AND OR RELATED CORRESPONDENCES IN SUPPORT 'OF THE CLAIM OF THE FOREIGN TOURS FOR BUSINESS PURPOSES ARE ALSO NOT FURNISHED. IN SUCH A SITUATION A COMPANY SELLING ITS GOODS THROUGH OUT INDIA CAN SAY THAT ALL TOURS EXPENSES INCLUDING THE NON - BUSINESS EXPENSES DEBITED IN THE BOOKS OF ACCOUNTS ARE BUSINESS EXPENDITU RE. BUT IT IS NOT THE CASE. IN CASE THE SPECIFIC QUERY IS RAISED BY THE AO THE ASSESSEE HAS TO JUSTIFY THE CLAIM THAT IT HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY BUSINESS PURPOSES, THE RATIO RELIED UPON ARE NOT APPLICABLE HERE AS IN THOSE CASES, THE QUANTU M OF DISALLOWANCE WAS IN DISPUTE AND NOT THE PURPOSE OF EXPENDITURE, HERE IN THE CASE OF THE APPELLANT THE PURPOSE ITSELF IS NOT VERIFIABLE, AS REGARDS THE CASE LAWS RELIED UPON BY THE APPELLANT, IT MAY BE MENTIONED THAT THESE CASE LAWS RELIED UPON BY THE APPELLANT ARE DISTINGUISHABLE ON FACTS AND DO NOT APPLY TO THE APPELLANT'S CASE. THE PAGE NO. 3 QUESTION IS ONE OF APPLICABILITY OF THE PRINCIPLES TO THE FACTS IN A GIVEN CASE. IT HAS BEEN A WELL - SETTLED VIEW THAT THE RATIO OF ANY DECISION MUST BE UNDERSTOOD IN THE B ACKGROUND OF THAT CASE. WHAT IS ESSENCE IN A DECISION IS ITS RATIO AND NOT EVERY OBSERVATION FOUND THEREIN NOR WHAT LEGALLY FOLLOWS FROM THE VARIOUS OBSERVATIONS MADE IN IT. IT IS NOT A PROFITABLE TASK TO EXTRACT A SUITABLE SENTENCE HERE AND THERE FROM A JUDGMENT AND TO BUILD UPON IT (VIDE AMBICA QUARRY WORKS V. STATE OF GUJARAT, AIR 1987 SUPREME COURT 1073). SIMILARLY, THE ALLOWANCE OF THE APPEAL IN THE SISTER CONCERNS 'OF THE APPELLANT BY THE C!T(A) ON THE FACT THAT FBT PAID IS OF NO RELEVANCE IN THIS CA SE BECAUSE HERE THE EXPENDITURE HAVE BEEN FOUND TO HAVE NOT BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES WHERE AS IN OTHER CASES IT IS NOT LIKE THAT. 4.2 IN VIEW OF THE FOREGOING DISCUSSION, CASE LAWS AND FOR THE REASONS GIVEN BY THE AO, TI LE FINDING OF THE AO DISALLOWING RS. 4,38,605/ - OUT OF FOREIGN TRAVEL EXPENSES IS HELD JUSTIFIED ON FACTS BECAUSE IT IS BASED ON PROPER APPLICATION OF LAW ON GIVEN FACTS, THE ACTION OF THE AO IN THIS REGARD IS THEREFORE, UPHELD. 5. THE LD AR, SUBMITTED T HAT THE ASSESSEE IS A 100% EXPORTER AND TOTAL EXPORTS DURING THE YEAR AMOUNTED TO RS.20.09 CRS AS COMPARED TO RS.18.8 CRS DURING THE PRECEDING YEAR. ASSESSEE EXPORTS MEDICINES AND HAS GOT ITS OFFICES LOCATED IN SYRIA AND MOSCOW. 6. IT WAS FURTHER SUBMITTE D THAT EXPLANATION WAS TENDERED BY THE ASSESSEE AND IN THE LIGHT OF THE NATURE OF BUSINESS, SUCH EXPLANATION SHOULD NOT HAVE BEEN REJECTED BY THE AO. IT WAS FURTHER SUBMITTED THAT IN SUBSEQUENT YEARS, IDENTICAL EXPENSES HAVE BEEN ALLOWED AS DEDUCTION EXCEPT TRAVEL TO ZURICH. HE FURTHER SUBMITTED THAT THE CASE LAWS RELIED UPON BY THE AO IS NOT APPLICABLE TO THE FACTS OF THE ASSESSEE. IT WAS THUS PRAYED THAT DISALLOWANCE MAY BE DELETED. ON THE OTHER HAND, THE LD DR SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSION AND HAVE GONE THROUGH THE P APER BOOK AND RECORDS BEFORE US AND THE CASE - LAWS CITED BY BOTH THE PARTIES; WE FIND THAT THE EXPENDITURE INC URRED BY THE ASSESSEE HAS NOT BEEN ESTABLISHED TO HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS OF THE ASSESSEE. THERE IS NOT EVEN A SHRED OF EVIDENCE TO SUPPORT THAT EXPENDITURE HAS BEEN INCURRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE COMPAN Y. MERE SUBMISSION OF INVOICES DOES NOT DISCHARGE THE BURDEN U/S 37(I) OF THE ACT. WE ARE IN AGREEMENT WITH THE PAGE NO. 4 AUTHORITIES BELOW THAT NO COGENT EVIDENCE WAS PLACED ON RECORD WHICH MAY PROVE THAT THERE WERE PRESENTATIONS HELD AT ZURICH OR TO OPEN A N OFFICE AT DUBAI. THE EXPLANATION THAT THE ASSESSEE IS AN EXPORTER OR HAS OFFICES AT MOSCOW AND SYRIA, DOES NOT ABSOLVE THE ASSESSEE THE BURDEN TO PROVE THE NEXUS BETWEEN THE EXPENDITURE INCURRED IN THE BUSINESS OF THE ASSESSEE, AT ZURICH AND DUBAI. WE THEREF ORE UPHO LD THE DISALLOWANCE AND GROUND NO.1 IS DISMISSED. 8 . GROUND NO. 2 TO 5 IS REGARDING DISALLOWANCE OF SUM OF RS.6,38,645/ - IN RESPECT OF EXPENSES INCURRED AT THE OFFICE SITUATED AT SYRIA AND DISALLOWED U/S 40(A)(III). 9 . THE AO HAS OBSERVED THAT ASSESS EE HAS MADE PAYMENTS OF RS.6,38,645/ - IN SYRIA, IN RESPECT OF WHICH PROPER BILLS HAVE NOT BEEN FURNISHED. 10 . THE LD CIT(A) SUSTAINED THE DIS ALLOWANCE AND HELD THAT ASSESSEES ARGUMENT THAT EXPENDITURE HAS BEEN DISALLOWED U/S 40(A)(III) IS FACTUALLY INCORRECT, SINCE ORDER OF ASSESSMENT REVEALS THAT EXPENDITURE WAS DISALLOWED ON THE GROUND THAT THE ASSESSEE FAILED TO ESTABLISH EXISTENCE OF OFFICE AT SYRIA. HE HAS FURTHER HELD TH AT NO INDEPENDENT EVIDENCE HAS BEEN LED TO PROVE EXISTENCE OF OFFICE AT SYRIA SINCE ASSESSMENT YEAR 2003 - 04. 11 . THE LD AR BEING AGGRIEVED HAS SUBMITTED THAT THE AUDITORS REPORT SUPPORTS THE CLAIM THAT THERE WAS AN OFFICE AT SYRIA. HE FURTHER SUBMITTED TH AT EVEN A PERUSAL OF THE BILLS WILL REVEAL THAT SUCH EXPENDITURE WAS INCURRED AT SYRIA. HE ALSO DREW OUR ATTENTION TO TAX AUDIT REPORTS FOR THE ASSESSMENT YEAR S 2004 - 05, 2006 - 07 AND 2007 - 08. HE SUBMITTED THAT IN THE SUCCEEDING YEAR, THE AO HAS ACCEPTED THE EXISTENCE OF OFFICE AT SYRIA. HE THUS PRAYED THAT DISALLOWANCE SUSTAINED BE DELETED. ON THE OTHER HAND THE LD DR SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 12 . WE HAVE HEARD BOTH THE PARTIES AND HAVE PERUSED THE RECORDS OF THE CASE. ON CONSIDERATION O F THE FACTUAL MATRIX OF THE CASE WE FIND THAT THE AO DENIED THE CLAIM OF EXPENDITURE ON THE GROUND THAT IT IS NOT SUPPORTED BY PROPER BILLS. WHEREAS THE LD CIT(A) HAS OPINED THAT THERE IS NO INDEPENDENT PROOF OF EXISTENCE OF OFFICE AT SYRIA. THE ASSESSEE H OWEVER IS OF THE OPINION THAT SUCH EXPENDITURE PAGE NO. 5 HAS BEEN DISALLOWED U/S 40(A)(III) OF THE ACT AND THAT THE AO IN THE SUBSEQUENT ASSESSMENT YEARS HAS ACCEPTED THAT ABOUT THE EXISTENCE OF THE OFFICE AT SYRIA . IN THE AFORESAID PECULIAR FACTS AND CIRCUMSTANCES AND IN OUR CONSIDERED OPINION IT WOULD BE THUS IN ALL FAIRNESS TO REMIT THE ISSUE BACK TO THE FILE OF AO, FOR RE - CONSIDERATION AND RE - ADJUDICATION AFTER MAKING ALL NECESSARY ENQUIRIES AND AFTER GRA N TING EFFECTIVE OPPORTUNITY TO THE ASSESSEE. WE DIRECT THE AO TO RECORD A SPECIFIC FINDING IN RESPECT OF THE CLAIM MADE ABOUT THE EXISTENCE OF THE OFFICE AT SYRIA. THEREFORE WE SET ASIDE THE ISSUE BACK TO THE FILE OF AO AND DIRECT THE AO TO PASS ORDERS AFRESH AS STATED ABOVE. 13 . IN THE RESULT THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 2 6 . 09 . 2014. - S D / - - S D / - ( B.C.MEENA ) (A. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 2 6 / 09 / 2014 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI