MAFATLAL FABRICS P.LTD, MUMBAI V. DCIT 1(2), MUMBAI

ITA 4394/MUM/2012

• Counselvise Citation: 439419914 RSA 2012
• Duration Of Justice: 1 year(s) 2 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 28-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P SINGH
• Assessee Lawyers: DIVYANGANA JAIN
• Keywords: Business expenditure; Bonafide belief

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI , ,, , , ! ! ! ! '# $% '# $% '# $% '# $% , ,, , & & & & ' ' ' ' BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER . / ITA NO. 4394/MUM./2012 ( &) * !+* / ASSESSMENT YEAR : 200506 ) MAFATLAL FABRICS PVT. LTD. MAFATLAL HOUSE, BACKBAY RECLAMATION MUMBAI 400 020 .. ,- / APPELLANT ) V/S DY. COMMISSIONER OF INCOME TAX CIRCLE1(2)1, MUMBAI .... ./,- / RESPONDENT , ./ PERMANENT ACCOUNT NUMBER AAACP4133C &) *1# 2 3 / ASSESSEE BY : MR. DIVYANGANA JAIN ! 2 3 / REVENUE BY : MR. O.P. SINGH )! 2 # / DATE OF HEARING 31.07.2013 $ 4+ 2 # / DATE OF ORDER 06.09.2013 $ $ $ $ / ORDER '# $% '# $% '# $% '# $% , ,, , & & & & 5 5 5 5 / PER AMIT SHUKLA, J.M. THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESS EE, CHALLENGING THE IMPUGNED ORDER DATED 8 TH MAY 2012, PASSED BY THE LEARNED COMMISSIONER (APPEALS)II, MUMBAI, FOR THE ASSESSME NT YEAR 200506. THE SOLE DISPUTE IN THIS APPEAL IS WITH REGARD TO THE C ONFIRMATION OF PENALTY OF ` 1,00,000 LEVIED U/S 271(1)(C) OF THE INCOME TAX ACT , 1961 (FOR SHORT THE MAFATLAL FABRICS PVT. LTD. 2 ACT ) BY THE LEARNED COMMISSIONER (APPEALS) ON ACCOUNT OF DISALLOWANCE OF FOREIGN TRAVEL EXPENDITURE OF THE WIFE OF ONE OF TH E DIRECTORS. 2. THE ASSESSING OFFICER, DURING THE COURSE OF THE ASS ESSMENT PROCEEDINGS, NOTED THAT THE ASSESSEE HAS DEBITED A SUM OF ` 27,48,256 IN THE PROFIT & LOSS ACCOUNT ON ACCOUNT OF TRAVELING A ND CONVEYANCE EXPENDITURES. THIS INCLUDED EXPENDITURE ON FOREIGN TRAVEL OF THE DIRECTOR FOR THE AMOUNT OF ` 10,41,737 AND FURTHER AMOUNT OF ` 2 ,80,564 ON FOREIGN TRAVEL EXPENDITURE. FROM THE DETAILS SUBMITTED BY T HE ASSESSEE, HE NOTED THAT THERE IS AN AIR TICKET EXPENDITURE OF ` 1,16,4 96, FOR THE FOREIGN TRIP OF MRS. R. MAFATLAL, W/O MR. VISHAL MAFATLAL, ONE OF T HE DIRECTORS, FOR A FOREIGN TRIP TO SINGAPORE AND CHINA. NO OTHER EXPENDITURE O N ACCOUNT OF STAY AND FOOD, RELATING TO HER WERE DEBITED. THE ASSESSEE, I N RESPONSE TO THE SHOW CAUSE NOTICE, FILED VARIOUS SUBMISSIONS VIDE DIFFER ENT LETTERS WHICH HAVE BEEN MENTIONED BY THE ASSESSING OFFICER. AFTER CONSIDERI NG THE EXPLANATION, THE ASSESSING OFFICER FOUND THAT THE SAME ARE NOT SATIS FACTORY FIRSTLY, ON THE GROUND THAT MRS. R. MAFATLAL, IS NOT A DIRECTOR OF THE COMPANY AND NOTHING HAS BEEN BROUGHT ON RECORD TO SHOW THAT THERE WAS A NY BUSINESS PURPOSE OF THE ASSESSEE COMPANY FOR WHICH SHE HAD UNDERTAKEN T HE FOREIGN TOUR. SHE HAS MERELY ACCOMPANIED IN THE STATUS OF WIFE OF MR. VISHAL MAFATLAL. ACCORDINGLY, HE MADE FOLLOWING THE DISALLOWANCE UND ER THIS HEAD. AIR TICKET FOR MRS. R. MAFATLAL ` 1,16,496 50% OF HOTEL EXPENDITURE OF AGGREGATE AMOUNT OF ` 2,47,500 ` 1,23,7650 MEDICLAIM AND CONVEYANCE CHARGES INCLUDED IN FOREIGN TRAVEL GENERAL EXPENSES (VOUCHER NO.171) ` 1,902 AIR TICKET EXPENSES ` 15,000 ` 2,57,148 3. IN THE FIRST APPEAL, THE COMMISSIONER (APPEALS) HAS SUSTAINED THE DISALLOWANCE CLAIMED ON THE FOREIGN TOUR OF MRS. R. MAFATLAL. IN THE COURSE OF PENALTY PROCEEDINGS, THE ASSESSEE SUBMITTED DETAILE D EXPLANATION VIDE LETTER MAFATLAL FABRICS PVT. LTD. 3 DATED 19 TH MARCH 2010 ALONG WITH THE SUPPORTING CASE LAWS WHI CH HAS BEEN INCORPORATED FROM PAGES1 TO 5 OF THE PENALTY ORDER . THE MAIN REASON GIVEN BY THE ASSESSEE WAS THAT THE DIRECTOR HAD GONE TO F OREIGN TOUR FOR MEETING THE BUYERS AND ALSO FOR POTENTIAL NEW BUYERS. SUCH KIND OF MEETINGS REQUIRED ACCOMPANYING OF WIFE AS A MATTER OF PROTOC OL. IN SUPPORT OF ALLOWABILITY OF SUCH EXPENDITURE ON THE TRAVELING O F THE DIRECTORS WIFE, RELIANCE WAS PLACED ON THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN CIT V/S ALFA LAVAL INDIA LTD. [2006] 282 ITR 445 (BOM.) AND THE TRIBUNAL DECISION IN GLAXO LABORATORIES INDIA LTD. V/S SECON D ITO, [1986] 18 ITD 226 (BOM.). ON THE ISSUE OF NONLEVY OF PENALTY UNDER S UCH KIND OF DISALLOWANCE CATENA OF CASE LAWS WERE RELIED UPON. THE ASSESSING OFFICER, HOWEVER, REJECTED THE ASSESSEES EXPLANATION MAINLY ON THE G ROUND THAT MRS. R. MAFATLAL, IS NOT A DIRECTOR OR EMPLOYEE OF THE ASSE SSEE COMPANY AND NO BUSINESS PURPOSES WAS SERVED FOR UNDERTAKING THE FO REIGN TOUR BY HER. THE CLAIM OF SUCH AN EXPENDITURE IS LIABLE FOR PENALTY UNDER SECTION 271(1)(C), AS THE ONUS OF THE ASSESSEE TO PROVE THE CLAIM HAS NOT BEEN DISCHARGED. ACCORDINGLY, HE LEVIED PENALTY OF ` 1,00,000 ON SUCH A DISALLOWANCE. 4. BEFORE THE COMMISSIONER (APPEALS), THE ASSESSEE REI TERATED THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER, WHIC H HAS BEEN INCORPORATED BY HIM IN THE APPELLATE ORDER. THE COMMISSIONER (AP PEALS) REJECTED THE ASSESSEES SUBMISSIONS AND UPHELD THE PENALTY ON TH E REASONING GIVEN BY THE ASSESSING OFFICER AND HELD THAT THE ASSESSEE HA S TRIED TO DISGUISE THE PERSONAL EXPENSES AS BUSINESS EXPENDITURE AND, THER EFORE, IT AMOUNTS TO FURNISHING OF INACCURATE PARTICULARS OF INCOME. 5. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUB MITTED THAT THOUGH, IN THE QUANTUM PROCEEDINGS, THE DISALLOWANC E STANDS AFFIRMED UP TO THE STAGE OF TRIBUNAL, HOWEVER, MERELY BECAUSE THE EXPENDITURE HAS BEEN INCURRED ON THE TRAVELING OF DIRECTORS WIFE, THE S AME CANNOT BE HELD TO BE FOR NON BUSINESS PURPOSE. HE SUBMITTED THAT THE HON'BLE JURISDICTIONAL HIGH COURT IN ALFA LAVAL (SUPRA), HAS ALLOWED SUCH A CLA IM OF EXPENDITURE INCURRED ON TRAVELLING OF DIRECTORS WIFE. HE ALSO POINTED O UT THAT IN SUBSEQUENT MAFATLAL FABRICS PVT. LTD. 4 ASSESSMENT YEAR I.E., ASSESSMENT YEAR 200607, SIMI LAR DISALLOWANCE ON FOREIGN TRAVEL OF DIRECTORS WIFE HAS BEEN ALLOWED BY THE COMMISSIONER (APPEALS). THE RELEVANT OBSERVATION OF THE COMMISSI ONER (APPEALS) IN THE SAID ORDER DATED 26 TH NOVEMBER 2009 WAS POINTED OUT BEFORE US, WHEREIN THE COMMISSIONER (APPEALS) HAS HELD IT TO BE FOR BU SINESS PURPOSE AFTER RELYING UPON THE SAME JUDGMENT. HE ALSO RELIED UPON CATENA OF CASE LAWS THAT ONCE EXPENDITURE HAS BEEN DISALLOWED IT CANNOT BE AUTOMATICALLY HELD THAT IT AMOUNTS TO FURNISHING OF INACCURATE PARTICU LARS OF INCOME AND STRONG RELIANCE WAS PLACED ON THE DECISION OF HON'BLE JURI SDICTIONAL HIGH COURT IN CIT V/S NALIN P. SHAH (HUF), ITA NO.49 OF 2013, ORD ER DATED 4 TH MARCH 2013 AND CIT V/S RELIANCE PETROPRODUCTS PVT. LTD. [2010] 322 ITR 158 (BOM.). 6. ON THE OTHER HAND, THE LEARNED D.R. RELIED UPON THE ORDER OF THE ASSESSING OFFICER AND SUBMITTED THAT THE ASSESSEE C OULD NOT PROVE THE NATURE AND PURPOSE OF THE FOREIGN TRIP UNDERTAKEN B Y THE WIFE OF THE DIRECTOR AND, THEREFORE, ONCE IT HAS BEEN FOUND THAT IT IS N OT FOR THE BUSINESS PURPOSE, THE PENALTY LEVIED BY THE ASSESSING OFFICE R HAS TO BE CONFIRMED. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE PERUSE D THE MATERIAL AVAILABLE ON RECORD. IT IS AN ADMITTED FACT THAT TH E DISALLOWANCE ON ACCOUNT OF FOREIGN TRAVELING EXPENDITURE OF MRS. R. MAFATLA L, WIFE OF THE DIRECTOR HAS BEEN CONFIRMED UP TO THE STAGE OF TRIBUNAL. HOWEVER , SUCH A FINDING IN THE QUANTUM PROCEEDINGS IS NOT CONCLUSIVE INSOFAR AS PE NALTY PROCEEDINGS ARE CONCERNED. THE PLEA AND THE EXPLANATION GIVEN AT TH E PENALTY STAGE HAS TO BE EXAMINED AFRESH AND EVEN THOUGH NO ADDITIONAL EV IDENCE IS PRODUCED, ASSESSEE MAY, STILL RELY ON THE EXISTING MATERIAL A ND OR EXPLANATION TO SHOW THAT HE IS NOT GUILTY OF FURNISHING OF INACCURATE P ARTICULARS OR CONCEALMENT OF INCOME. THE PRESUMPTION RAISED IN THE EXPLANATION 1 TO SECTION 271(1)(C) IS A REBUTTABLE PRESUMPTION AND IT CAN BE REBUTTED BY GIVING AN EXPLANATION THAT THE ASSESSEE WAS UNDER THE BONAFIDE BELIEF IN CLAIMING THE EXPENDITURE OR OFFERING THE INCOME. REJECTION OF EXPLANATION IN THE QUANTUM PROCEEDING CANNOT BE CONSIDERED AS RESJUDICATA FOR THE PURPOSE OF PENALTY PROCEEDINGS. ONCE THE ASSESSEE HAS SUBMITTED THAT THE DIRECTOR, MR. VISHAL MAFATLAL, HAS MAFATLAL FABRICS PVT. LTD. 5 UNDERTAKEN FOREIGN TRAVEL FOR MEETING THE POTENTIAL CLIENTS AND AS A MATER OF PROTOCOL HIS WIFE HAS ACCOMPANIED HIM, SUCH AN EXPL ANATION CANNOT BE HELD TO BE MALAFIDE, ONCE THE FOREIGN TRAVELING EXPENDIT URE RELATING TO HIM HAS BEEN FOUND TO BE FOR THE BUSINESS PURPOSE. MORE SO, IN THIS CASE, IN THE SUBSEQUENT YEARS I.E., ASSESSMENT YEAR 200607, THE LEARNED CIT(A) HAS ACCEPTED THE SIMILAR CLAIM OF EXPENDITURE WHICH WAS DISALLOWED BY THE ASSESSING OFFICER ON THE SAME GROUND. THUS, IN THIS YEAR, IT CANNOT BE HELD THAT THE ASSESSEES EXPLANATION IS FALSE OR MALAFID E. IT CANNOT BE A CASE OF FURNISHING OF INACCURATE, PARTICULARS BECAUSE ALL T HE RELEVANT PARTICULARS WERE FURNISHED WITH REGARD TO THIS EXPENDITURE AND THE D ETAILS HAVE NOT BEEN FOUND TO BE FALSE, EXCEPT DISALLOWING THE SAME ON T HE GROUND THAT THE PURPOSE FOR WHICH THE WIFE HAS ACCOMPANIED IS NOT W HOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. SUCH AN EXPLANATION HAS BE EN REJECTED WITHOUT ANY COGENT MATERIAL ON RECORD. UNDER THESE FACTS, SPECI FICALLY THAT THE ASSESSEES SIMILAR EXPLANATION HAS BEEN FOUND TO BE ACCEPTABLE IN THE QUANTUM PROCEEDINGS AT THE APPELLATE STAGE, WE HOLD THAT TH E PENALTY FOR CONCEALMENT OF INCOME OR FOR FURNISHING OF INACCURATE PARTICULA RS UNDER SECTION 271(1)(C), CANNOT BE WARRANTED IN THIS YEAR ON THE SAME GROUND . CONSEQUENTLY, WE SET ASIDE THE IMPUGNED ORDER AND DELETE THE PENALTY AS LEVIED BY THE ASSESSING OFFICER AND UPHELD BY THE LEARNED COMMISSIONER (APP EALS). THUS, THE GROUND RAISED BY THE ASSESSEE IS TREATED AS ALLOWED. 8. 1 #6 &) *1# 2 !# 7 ) # 89 : 8. IN THE RESULT, ASSESSEES APPEAL IS TREATED AS A LLOWED. $ 2 4+ ; <)6 6 TH SEPTEMBER 2013 2 = : ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH SEPTEMBER 2013 SD/- SANJAY ARORA ACCOUNTANT MEMBER SD/- '# '# '# '# $% $% $% $% & & & & AMIT SHUKLA JUDICIAL MEMBER MUMBAI, <) <) <) <) DATED: 6 TH SEPTEMBER 2013 MAFATLAL FABRICS PVT. LTD. 6 $ 2 .&#'> ?>+# / COPY OF THE ORDER FORWARDED TO : (1) &) *1# / THE ASSESSEE; (2) ! / THE REVENUE; (3) @ () / THE CIT(A); (4) @ / THE CIT, MUMBAI CITY CONCERNED; (5) >!C= .&#&) , , / THE DR, ITAT, MUMBAI; (6) =D* E / GUARD FILE. /># .&# / TRUE COPY $) / BY ORDER . . FG / PRADEEP J. CHOWDHURY !1H &) F! / SR. PRIVATE SECRETARY I / 8 / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI