ACIT, Kottayam V. M.M.Publications Ltd, Kottayam

ITA 438/COCH/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65047 (ITAT-COCHIN)
• Duration Of Justice: 2 year(s) 5 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-12-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 03-04-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 09-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAYAPRABHA
• Assessee Lawyers: Z T ZACHARIAH
• Section: 37

Judgement Text

1 ITA NO.438/COCH/2010 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.R.S. GANESAN (JM) AND SHRI B.R. BASKA RAN(AM) I.T.A NO. 438/COCH/2010 (ASSESSMENT YEAR 2007-08) THE A.C.I.T., CIR.1 VS M.M. PUBLICATIONS LTD KOTTAYAM ERAYILKADAVU, KOTTAYAM PAN : AACCM2082P (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. VIJAYAPRABHA RESPONDENT BY : SHRI Z.T. ZACHARIAH DATE OF HEARING : 03-04-2012 DATE OF PRONOUNCEMENT : 27-04-2012 O R D E R PER N.R.S. GANESAN (JM) THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-IV, KOCHI DATED 30-04-2010 FOR THE ASSESSMENT YEAR 2007-08. 2. THE ONLY ISSUE ARISES FOR CONSIDERATION IS DISAL LOWANCE OF RS. 73,10,705 TOWARDS THE FOREIGN TRAVEL EXPENSES INCURRED BY THE ASSESSE E. 3. SMT. VIJAYAPRABHA, THE LD.DR SUBMITTED THAT THE ASSESSEE INCURRED EXPENSES OF RS. 1,40,46,649 TOWARDS TRAVEL. OUT OF THIS RS.89, 58,244 WAS TOWARDS FOREIGN TRAVEL OF ITS EMPLOYEES. ACCORDING TO THE LD.DR, FOREIGN TRA VEL EXPENSES ARE CENTRALLY BOOKED FROM A SISTER CONCERN OF THE ASSESSEE, VIZ. MALAYAL A MANORAMA & CO LTD AND DEBIT NOTES WERE ISSUED TO THE ASSESSEE. ON EXAMINATION OF THE DEBIT NOTES, THE ASSESSEE COULD NOT ESTABLISH THE NEXUS BETWEEN THE FOREIGN TRIP AND TH E BUSINESS ACTIVITY. THEREFORE, THE 2 ITA NO.438/COCH/2010 ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSES SEE TO THE EXTENT OF RS.73,10,705. HOWEVER, ON APPEAL BY THE ASSESSEE, THE COMMISSIONE R OF INCOME-TAX(A) BY FOLLOWING THE ORDER OF THIS TRIBUNAL IN THE ASSESSEES OWN CA SE FOR THE ASSESSMENT YEARS 2005-06 AND 2006-07 DELETED THE ADDITION MADE BY THE ASSESS ING OFFICER. ACCORDING TO THE LD.DR, IT IS FOR THE ASSESSEE TO ESTABLISH THE NEXUS BETWE EN THE FOREIGN TRAVEL AND THE BUSINESS OF THE ASSESSEE. IN THE ABSENCE OF ANY MATERIAL TO SUBSTANTIATE THE NEXUS AND THE PURPOSE FOR WHICH THE FOREIGN TRAVEL WAS UNDERTAKEN BY ITS EMPLOYEES, ACCORDING TO THE LD.DR, THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE CLAIM OF THE ASSESSEE. 4. ON THE CONTRARY, SHRI Z.T. ZACHARIAH, THE LD.REP RESENTATIVE FOR THE ASSESSEE SUBMITTED THAT AN IDENTICAL ISSUE CAME UP BEFORE TH IS TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE EARLIER ASSESSMENT YEARS 2005-06 AND 2 006-07 IN ITA NOS 906/COCH/2008; I.T.A. NO.490/COCH/2009 & C.O. NO.124/COCH/2008. T HIS TRIBUNAL BY AN ORDER DATED 19- 03-2010 FOUND THAT THE FOREIGN TRAVEL UNDERTAKEN BY THE ASSESSEES EMPLOYEES WAS NECESSITATED TO GROW THE BUSINESS OF THE ASSESSEES MAGAZINES, PERIODICALS, ETC. WHICH IS NOW ON GLOBALIZATION AND ON COMPETITION, WHICH REQU IRES TO KNOW MORE ABOUT TO CUT DOWN THE COST OF THE PUBLICATIONS PRINTINGS AND SU CH OTHER MATTERS, WHICH ARE REQUIRED FOR THE PURPOSE OF THE BUSINESS. ACCORDING TO THE LD.REPRESENTATIVE, SINCE THE ISSUE IS IDENTICAL AS THAT OF THE EARLIER ASSESSMENT YEAR, T HE COMMISSIONER OF INCOME-TAX(A) HAS RIGHTLY ALLOWED THE CLAIM OF THE ASSESSEE BY FOLLOW ING THE ORDER OF THIS TRIBUNAL. 5. WE HAVE CONSIDERED THE SUBMISSIONS ON EITHER SID E AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE IS IN T HE BUSINESS OF PRINTING AND PUBLISHING OF MAGAZINES AND PERIODICAL IN VERNACULAR LANGUAGE. OUT OF THE TOTAL TRAVEL EXPENDITURE OF RS.1,40,46,649, RS.84,58,244 RELATES TO FOREIGN TRAVEL UNDERTOOK BY THE ASSESSEES EMPLOYEES. THE ASSESSING OFFICER, AFTER CONSIDERIN G THE PURPOSE OF THE VISIT UNDERTAKEN BY THE ASSESSEES EMPLOYEES FOUND THAT THERE WAS NO NEXUS BETWEEN THE FOREIGN TRAVEL AND THE BUSINESS OF THE ASSESSEE. THE FACT REMAINS IS THAT A SIMILAR TRAVEL WAS UNDERTAKEN BY THE ASSESSEES EMPLOYEES FOR THE ASSE SSMENT YEARS 2005-06 AND 2006- 3 ITA NO.438/COCH/2010 07. ALMOST ALL OF THOSE EMPLOYEES WHO TRAVELLED IN THE EARLIER YEARS UNDERTOOK THE FOREIGN TRAVEL DURING THE YEAR ALSO. THIS TRIBUNAL , AFTER EXAMINING THE ISSUE FOUND THAT THE FOREIGN TRAVEL UNDERTOOK BY THE EMPLOYEES OF TH E ASSESSEE WAS REQUIRED BY BUSINESS NECESSITY. THE TRIBUNAL FOUND THAT THE EMPLOYEES O F THE ASSESSEE VISITED VARIOUS PLACES IN THE FOREIGN COUNTRY TO EXPLORE THE POSSIBILITIES OF BRINGING ADVERTISEMENT INCOME AND TO EXPLORE THE POSSIBILITIES FOR BRINGING OUT AN IN TERNATIONAL EDITION OF ITS MAGAZINES WHICH WAS NECESSITATED TO MAKE THE STAFF TO TRAVEL ABROAD. THIS, ACCORDING TO THE TRIBUNAL, WAS A BUSINESS NECESSITY. 6. WE HAVE CAREFULLY GONE THROUGH THE ORDER OF THE LOWER AUTHORITIES. THE ASSESSING OFFICER MAINLY RELYING UPON THE RELATIONS HIP BETWEEN THE EMPLOYEES OF THE ASSESSEE AND THE EMPLOYEES OF MALAYALA MANORAMA CO LTD DISALLOWED THE EXPENDITURE BY HOLDING THAT THE SAME WAS NON BUSINESS EXPENDITU RE. THE TRIBUNAL, AFTER TAKING NOTE OF THE RELATIONSHIP BETWEEN THE EMPLOYEES, WHO TRAV ELLED FOUND THAT WHILE THE HUSBAND WAS WORKING IN MALAYALA MANORAMA CO LTD, THE WIFE W AS WORKING IN ASSESSEE COMPANY; THEREFORE, THE WIFES EXPENDITURE HAS TO BE NECESSA RILY BORNE BY THE ASSESSEE COMPANY BECAUSE THE WIFE IS THE EMPLOYEE OF THE ASSESSEE. IT IS ALSO PERTINENT TO NOTE THAT BOTH MALAYALA MANORAMA CO LTD AND THE ASSESSEE UNDER APP EAL ARE IN THE BUSINESS OF PRINTING AND PUBLISHING MAGAZINE AND NEWSPAPER. TH EREFORE, MERELY BECAUSE THE PERSONS WHO TRAVELLED ABROAD ARE RELATED TO EACH OT HER THAT ALONE CANNOT BE A REASON TO DISALLOW THE CLAIM OF THE ASSESSEE. FOR THE PURPOS E OF CONVENIENCE, WE REPRODUCE BELOW THE FINDINGS OF THE TRIBUNAL RECORDED FOR THE ASSESSMENT YEARS 2005-06 AND 2006- 07: 10. WE HAVE HARD RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD INCLUDING THE PRECEDENCE. SECT ION 37 IS A RESIDUARY PROVISION. IT PROVIDES FOR DEDUCTION OF ALL EXPEND ITURE WHOLLY AND EXCLUSIVELY LAID OUT OR EXPENDED FOR THE PURPOSE OF THE BUSINESS. THE EXPENDITURE MUST NOT BE A PROCEEDING IN NATURE BUT AT THE SAME TIME THE EXPENDITURE MUST NOT BE A CAPITAL IN NATURE. UNDER THE CIRCUMSTANCES, WHEN THE EXPENDITURE NOT COVERED BY THE PROVISIONS OF SECTION 30 TO 36 4 ITA NO.438/COCH/2010 AND THE EXPENDITURE WHICH WAS LAID OUT WHOLLY AND E XCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE, THERE SHOU LD NOT BE ANY IMPEDIMENT ON THE PART OF THE AUTHORITIES TO ALLOW IT UNDER THE RESIDUARY PROVISION OF SECTION 37. WE HAVE TO SEE THE INCURR ING OF EXPENDITURE WHETHER IT IS NECESSITATED FOR THE PURPOSE OF BUSIN ESS. IT IS NOT A DISPUTED FACT THAT THE ASSESSEE IS IN THE BUSINESS OF PRINTI NG AND PUBLISHING OF POPULAR MAGAZINES. DURING THE RELEVANT YEAR, THE A SSESSEE HAS EIGHT PERIODICALS PUBLISHING REGULARLY AND OTHER ONE TIME SPECIAL ISSUE OF VARIOUS TOPICS LIKE WRITE UPS, INFORMATIVE ARTICLES , ON SUBJECTS LIKE HEALTH, EDUCATION, FASHION, COOKERY, FACTORS AFFECTING HUMA N LIFE, ETC. ALL THESE PUBLICATIONS HAVE A WIDE READERSHIP OUTSIDE INDIA I S ALSO NOT DISPUTED. FOREIGN TRAVEL UNDERTOOK BY THE STAFF WHO WERE CHIE F EDITOR, ASST.EDITORS, ETC. AND THEIR DESIGNATIONS ARE NOT DISPUTED. IT I S A CLEAR CUT CASE OF THE ASSESSEE THAT THEY HAVE NOTHING TO DO WITH THE MANA GEMENT AND THEY ARE STAFF. IN SOME CASES, THEY ACCOMPANIED THEIR HUSBA ND WHEREAS HUSBAND ARE THE EMPLOYEES OF THE OTHER GROUP CONCERNS OF TH E ASSESSEE, VIZ. MALAYALA MANORAMA. THIS FACT ALSO MADE CLEAR BY TH E LD.COUNSEL THAT THOSE FOREIGN TRAVEL EXPENDITURE OF THE HUSBANDS OF THE STAFF WERE TAKEN CARE BY THEIR EMPLOYER, MALAYALA MANORAMA. THE STA FF OF THE ASSESSEE COMPANY VISITED VARIOUS PLACES IN VARIOUS COUNTRIES TO ATTEND INTER- NATIONAL PRE MEETING, TO EXPLORE THE POSSIBILITIES TO BRING OUT ADVERTISEMENT INCOME AND TO EXPLORE THE POSSIBILITI ES FOR BRINGING OUT AN INTER-NATIONAL EDITION OF ITS MAGAZINES WHICH WAS N ECESSITATED TO MAKE THE STAFF TO TRAVEL ABROAD. THIS IS FOR THE PURPOS E OF BUSINESS OF THE ASSESSEE. 11. THE LD.CIT(APPEALS), HOWEVER, FOUND THAT SOME E LEMENT OF PERSONAL NATURE IS THERE, SOME PLEASURE TRIP WAS UN DERTAKEN. AS RIGHTLY CONTENDED BY THE LD.COUNSEL FOR THE ASSESSEE, NOTHI NG HAS BEEN POINTED OUT THAT THE STAFF OF THE ASSESSEE COMPANY WENT ON PURE PLEASURE TRIPS DISASSOCIATING FROM THE BUSINESS OF THE ASSESSEE SO AS TO REJECT THE CLAIM OF THE ASSESSEE. ON A PERUSAL OF THE ORDERS OF THE AUTHORITIES, WE FIND THAT AN AD HOC DISALLOWANCE HAS BEEN MADE AND NOTHI NG HAS BEEN PIN POINTED FOR THE DISALLOWANCE. ON THE OTHER HAND, T HE LD.COUNSEL FOR THE ASSESSEE WOULD CONVINCE US THAT THIS FOREIGN TRAVEL WAS NECESSITATED TO GROW THE BUSINESS OF THE ASSESSEES MAGAZINES, PERI ODICALS, ETC. WHICH IS NOW ON GLOBALIZATION AND ON COMPETITION, WHICH REQU IRES TO KNOW MORE ABOUT TO CUT DOWN THE COST OF THE PUBLICATIONS AND PRINTINGS AND SUCH OTHER MATTERS, WHICH ARE REQUIRED FOR THE PURPOSE O F THE BUSINESS. UNDER THE ABOVE CIRCUMSTANCES, WE HAVE NO HESITATION IN A CCEPTING THE CLAIM OF THE ASSESSEE THAT THE FOREIGN TRAVEL EXPENSES WERE INCURRED ONLY FOR THE PURPOSE OF BUSINESS. HENCE, THE CROSS OBJECTION FO R THE ASSESSMENT YEAR 5 ITA NO.438/COCH/2010 2005-06 AND THE APPEAL FOR THE ASSESSMENT YEAR 2006 -07 FILED BY THE ASSESSEE ARE ALLOWED. SINCE THE ISSUE IS IDENTICAL AS THAT OF THE ASSESSM ENT YEARS 2005-06 AND 2006-07 THIS TRIBUNAL IS OF THE OPINION THAT THE COMMISSIONER OF INCOME-TAX(A) HAS RIGHTLY DELETED THE ADDITION MADE BY THE ASSESSING OFFICER BY FOLLO WING THE ORDER OF THIS TRIBUNAL. THIS TRIBUNAL, THEREFORE, DO NOT FIND ANY INFIRMITY IN T HE ORDER OF THE COMMISSIONER OF INCOME-TAX(A). THE SAME IS CONFIRMED. 7. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 27 TH DAY OF APRIL, 2012. SD/- SD/- (B.R. BASKARAN) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 27 TH APRIL, 2012 PK/- COPY TO: 1. ASSIST.COMMISSIONER OF INCOME-TAX, CIR.1, KOTTAYAM 2. M.M. PUBLICATIONS LTD, ERAYILKADAVU, KOTTAYAM 3. THE COMMISSIONER OF INCOME-TAX(A)-IV, KOCHI 4. THE COMMISSIONER OF INCOME-TAX, KOTTAYAM 5. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL, COCHIN BENCH 6 ITA NO.438/COCH/2010 1. DATE OF DICTATION : 23-04-2012 2. DATE OF PLACING THE DRAFT ORDER BEFORE THE MEMBER : 24-04-2012 3. DATE OF PLACING THE PROPOSED ORDER BEFORE THE OTHER MEMBER: 4. DATE OF RETURN OF THE ORDER TO PS AFTER APPROVAL : 5. DATE OF PRONOUNCEMENT : 6. DATE ON WHICH THE FILE ALONG WITH THE ORDER SENT TO BC :