DCIT 9(1), MUMBAI V. DOLPHIN ELECTRO MAGNETIC TECHNOLOGIES P. LTD, MUMBAI

ITA 4266/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8883 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 07-08-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 25-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R A PANT
• Keywords: Commercial expediency; Revenue expenditure

Judgement Text

PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B, MUMBAI BEFORE SHRI G.E. VEERABHADRAPPA (PRESIDENT) & SHRI VIVEK VARMA, JUDICIAL MEMBER I.T.A. NO. 4266/MUM/2011 ASSESSMENT YEAR : 2007-08 ASST. COMMISSIONER OF I.T. 9(1), MUMBAI. VS. M/S DOLPHIN ELECTROMAGNETIC TECHNOLOGIES PVT. LTD., 110/111, B WING, GANPAT TOWER, KANDIVALI (E), MUMBAI 400 101. PAN: AAACD 1936 D (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R. A. PANT. RESPONDENT BY : SHRI DEEPAK TRALSHAWALA. DATE OF HEARING: 07-08-2012. DATE OF PRONOUNCEMENT: 05.09.2012 O R D E R PER VIVEK VARMA, JM: THE APPEAL IS FILED BY THE DEPARTMENT AGAINST THE O RDER OF CIT(A) 19, MUMBAI, DATED 04-03-2011, WHEREIN THE DE PARTMENT HAS RAISED THE FOLLOWING GROUNDS : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE IN RES PECT OF FOREIGN TRAVEL EXPENSES TO 50% OF RS. 24,66,040/- AS AGAINS T 100% DISALLOWED BY THE ASSESSING OFFICER IN THE LIGHT OF THE FACT THAT THE LD. CIT(A)S HAD HERSELF POINTED OUT THAT THERE WAS NO MATERIAL TO JUSTIFY THAT THE EXPENDITURE HAD BEEN INCURRED WHOL LY AND EXCLUSIVELY FOR BUSINESS PURPOSE AND ALSO THAT THE ASSESSEE COM PANY WAS UNABLE TO PROVE THAT THE FOREIGN TRAVEL WAS CONDUCTED FOR BUSINESS PURPOSE. 2. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE REST ORED. M/S DOLPHIN ELECTROMAGNETIC TECHNOLOGIES PVT. LTD. I.T.A.NO.4266/MUM/2011 PAGE 2 OF 5 2. THE SOLITARY EFFECTIVE GROUND IS AGAINST THE DEL ETION OF RS. 12,33,030/- BEING 50% OF RS. 24,66,040/- EXPENDED O N FOREIGN TRAVEL BY THE DIRECTORS OF THE ASSESSEE COMPANY. 3. FROM THE ORDERS OF THE REVENUE AUTHORITIES, WE F IND THAT THE ASSESSEE HAD CLAIMED RS. 32,78,572/- AS TRAVELLING EXPENSES DURING THE YEAR. THE AO CALLED FOR DETAILS, WHICH WERE FURNISH ED AND WE FIND THAT THE SAME ARE REPRODUCED IN THE ORDER. AFTER CONSIDE RING THE DETAILS, THE AO REJECTED THE EXPLANATION AND DISALLOWED THE ENTI RE EXPENSE OF RS. 32,78,572/-. 4. AGGRIEVED, THE ASSESSEE APPROACHED THE CIT(A), B EFORE WHOM IT WAS PLEADED THAT OUT OF THE TOTAL EXPENSES DEBITED AT RS. 32,78,572/-, RS. 3,49,260/- PERTAINED TO INLAND / DOMESTIC TRAVE L AND THE BALANCE RS. 29,29,252/- PERTAINED TO FOREIGN TRAVEL, WHICH, THE AO HAD ACTUALLY INTENDED TO DISALLOW. THE ASSESSEE, THEREFORE, SUBM ITTED THAT, FACTUALLY THE AMOUNT IMPUGNED BEFORE THE CIT(A) WAS ONLY RS. 29,29,252/-. 5. THE CIT(A), EXAMINED THE INITIAL CLAIM AND ACCEP TED THAT THE DISPUTED SUM IS ONLY RS. 29,29,252 AND NOT RS. 32,7 8,572/-. 6. THE CIT(A) THEN EXAMINED THE NATURE OF EXPENSE A ND CAME TO THE CONCLUSION, .THAT THE EXPENDITURE HAS TO BE T REATED AS REVENUE EXPENDITURE IS THOUGH ACCEPTABLE IN PRINCIPLE HAS B EEN FURTHER EXAMINED. THE CIT(A), THEN CALLED FOR THE DETAILS OF FOREIGN TRAVEL AND AFTER FURTHER EXAMINATION, CIT(A) CAME TO THE CONCL USION THAT RS. 5,23,211 UNDERTAKEN ON TRIPS TO HOLLAND AND UK COUL D NOT BE TAKEN TO M/S DOLPHIN ELECTROMAGNETIC TECHNOLOGIES PVT. LTD. I.T.A.NO.4266/MUM/2011 PAGE 3 OF 5 BE IN LINE OF EXISTING BUSINESS AND HAS TO BE DISAL LOWED. HE, THEREFORE, SET APART THIS EXPENSE AS DISALLOWABLE AND ALLOWED RS. 12,33,020/-, BEING 50% ON THE BALANCE OF RS. 24,66,040/- (RS. 29 ,29,252 - RS. 5,23,211). IN EFFECT, AFTER THE CIT(A)S ORDER, WE FIND THAT RS. 19,63,426/- STANDS DISALLOWED (32,78,512 - 3,49,260 = 29,29,252 / 2 = 19,63,426). 7. THE DEPARTMENT IS IN APPEAL AS TO WHY THE RELIEF OF RS. 12,33,030/- HAS BEEN GIVEN. 8. THE DR HAS RELIED ON THE ORDER OF THE AO AND AR HAS RELIED ON THE ORDER OF THE CIT(A). 9. WE HAVE PERUSED THE ORDERS OF THE REVENUE AUTHOR ITIES AND FIND THAT THE CIT(A) HAS ACTUALLY CAME TO THE CONCLUSION THAT THE EXPENDITURE HAS TO BE TREATED AS REVENUE . ONCE THE CONCLUSION HAS BEEN DRAWN THAT THE EXPENSE IS IN THE REVENUE REALM , THEN, IT HAS TO BE PROCEEDED ON THE PRUDENCE OF THE ASSESSEE. WE HAVE SEEN THAT THE CASE OF THE ASSESSEE IS THAT OF THE COMPANY, WHERE, TO DISALLOW AN OTHERWISE ALLOWABLE EXPENSES, A VERY HEAVY BURDEN I S CAST ON THE DEPARTMENT TO PROVE IT OTHERWISE. 10. IN THE INSTANT CASE, THE BASIS FOR DISALLOWANCE HAS NOT BEEN PROVED CONCLUSIVELY EITHER BY THE AO OR BY THE CIT( A) (WHO HAS GIVEN PART RELIEF). 11. IN OUR CONSIDERED OPINION, THE AO HAS ERRED IN DISALLOWED THE EXPENSE ON FLIMSY GROUND AND SUBSEQUENTLY, EVEN THE CIT(A) HAS NOT M/S DOLPHIN ELECTROMAGNETIC TECHNOLOGIES PVT. LTD. I.T.A.NO.4266/MUM/2011 PAGE 4 OF 5 BEEN ABLE TO CONCLUSIVELY COME TO AN OBSERVATION AS TO WHY TO DISALLOW A PART OF THE EXPENSE AND ALLOW A PART OF THE EXPEN SE, THAT TOO, AFTER COMING TO A FINDING THAT THE EXPENSE IS OF A REVENU E NATURE AND PERTAINS TO THE COMPANY, WHO IS A SEPARATE AND DIST INCT LEGAL ENTITY. MERELY RECORDING A HALF HEARTED FINDING, THAT BUSIN ESS REQUIREMENT OR COMMERCIAL EXPEDIENCY HAS NOT BEEN SUBSTANTIATED IS NOT CONCLUSIVE ENOUGH. IN THE CIRCUMSTANCES, WE REJECT THE GROUND OF APPEAL. 12. IN THE LIGHT OF OUR OBSERVATIONS, WE DISMISS TH E APPEAL FILED BY THE DEPARTMENT. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 05/09/2012. SD/- (G.E. VEERABHADRAPPA) PRESIDENT SD/- (VIVEK VARMA) JUDICIAL MEMBER MUMBAI, DATE: 05/09/2012 . P/-* COPY TO- 1) APPELLANT 2) RESPONDENT 3) CITA MUMBAI. 4) CIT CITY MUMBAI 5) DR BENCH MUMBAI TRUE COPY BY ORDER DY /ASST.REGISTRAR,ITAT MUMBAI.