S. KUMARS LTD, MUMBAI V. DCIT 4(3), MUMBAI

ITA 4501/MUM/2016

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 7370 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 29-06-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: ASHOK J PATIL
• Keywords: Depreciation; Question of law; Difference of opinion; TDS
• Section: 115JB; 40(a)(ia); 194C; 195; 201

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G MUMBAI BEFORE SHRI SAKTIJIT DEY (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 4500/MUM/2016 ASSESSMENT YEAR: 2010-11 & ITA NO. 4501/MUM/2016 ASSESSMENT YEAR: 2011-12 M/S S. KUMARS LTD., 99 NIRANJAN, GROUND FLOOR, MARINE DRIVE, MUMBAI- 400002. VS. INCOME TAX OFFICER-4(3)(4), AAYAKARBHAVAN, MUMBAI-400002 PAN NO. AAACS0728A APPELLANT RESPON DENT ASSESSEE BY : MR. ASHOK J. PATIL, AR REVENUE BY : MR. NITIN WAGHMODE, DR DATE OF HEARING : 07/08/2019 DATE OF PRONOUNCEMENT : 28/10/2019 ORDER PER N.K. PRADHAN, AM THE CAPTIONED APPEALS FILED BY THE ASSESSEE ARE DIR ECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEAL S)-9, MUMBAI [IN SHORT CIT(A)] AND ARISE OUT OF THE ASSESSMENT COM PLETED U/S 143 OF THE INCOME TAX ACT 1961 (THE ACT). AS COMMON ISSUES A RE INVOLVED, WE ARE PROCEEDING TO DISPOSE THEM OFF THROUGH A CONSOLIDAT ED ORDER FOR THE SAKE OF CONVENIENCE. M/S S. KUMARS LTD. ITA NOS. 4500 & 4501/MUM/2016 2 ITA NO. 4500/MUM/2016 ASSESSMENT YEAR: 2010-11 2. THE 1 ST GROUND OF APPEAL THE CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE MADE BY ASSESSING OFFICER(AO) OF THE FACILITY FEES TO THE EXTENT OF R S.64,34,560/- BY ALLEGING SHORT DEDUCTION OF TDS AND WRONGLY INVOKING THE PRO VISIONS OF SECTION 40(A)(IA) OF THE ACT FOR SUCH SHORT DEDUCTION. IN T HIS REGARD, IT IS SUBMITTED THAT THE APPELLANT COMPANY HAS DEDUCTED TDS ON SUCH FACILITY FEES U/S. 194C (I.E. @2%) OF THE ACT, WHILE AS PER THE AO, TDS OUG HT TO HAVE BEEN DEDUCTED U/S. 194I (I.E. @10%) OF THE ACT. ACCORDINGLY, THE FACILITY FEES HAS BEEN DISALLOWED WRONGLY INVOKING THE PROVISIONS OF SECTI ON 40(A)(IA) OF THE ACT BY THE AO. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR (AY) 2010- 11 ON 15.10.2010 DECLARING TOTAL INCOME OF RS.NIL AFTER SETTING OFF BROUGHT FORWARD BUSINESS LOSS OF RS.4,91,03,204/-. FURTHER, THE ASS ESSEE DISCLOSED BOOK PROFIT OF RS.4,29,84,450/- U/S 115JB OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A O OBSERVED THAT THE FOLLOWING EXPENSES CLAIMED BY THE ASSESSEE WERE FOUND TO HAVE ATTRACTED THE PROVISIONS OF SECTION 40(A)(IA) OF TH E ACT : - PAYMENT OF FACILITY FEES OF RS.64,34,560/- - COMMISSION TO FOREIGN AGENTS OF RS.9,17,999/- - LABOUR CHARGES OF RS.2,67,803/- IN RESPECT OF FACILITY FEES, THE AO NOTED THAT THE ASSESSEE HAS DEBITED RS.79,41,600/- IN THE P&L ACCOUNT IN CONNEC TION WITH M/S M/S S. KUMARS LTD. ITA NOS. 4500 & 4501/MUM/2016 3 AVADH REALITY SERVICES PVT. LTD. (ARSPL). THESE EXP ENSES DEBITED ARE PURSUANT TO A MEMORANDUM OF UNDERSTANDING (MOU) DAT ED 01.04.2009 WITH ARSPL, WHICH IS MENTIONED AS A DIVISION OF M/S SHREE RAM URBAN INFRASTRUCTURE LTD. (SRUIL). IN RESPONSE TO QUERY R AISED BY THE AO TO EXPLAIN THE REASONS FOR MAKING THE TDS U/S 194C INS TEAD OF SECTION 194I AND WHY THE PROVISIONS OF SECTION 40(A)(IA) SHOULD NOT BE APPLIED, THE ASSESSEE FILED A REPLY STATING THAT THE PROVISIONS OF SECTION 40(A)(IA) DO NOT APPLY TO A CASE OF SHORT DEDUCTION OF TAX AT SO URCE AND SINCE THE ASSESSEE HAD ALREADY DEDUCTED TAX U/S 194C, IT WAS NOT A CASE OF NON- DEDUCTION OF TAX. THE ASSESSEE FURTHER REPLIED THAT IF THERE IS A SHORTFALL DUE TO DIFFERENCE OF OPINION AS TO WHICH PROVISION WOULD APPLY, THE ASSESSEE MAY BE TREATED AS A DEFAULTER U/S 201 BUT NO DISALLOWANCE CAN BE MADE U/S 40(A)(IA) OF THE ACT. IN THIS REGARD, R ELIANCE WAS PLACED BY THE ASSESSEE ON THE ORDER OF THE TRIBUNAL IN THE CA SE OF DCIT V. S.K. TEKRIWAL , CHANDABHOY AND JASSOBHOY . HOWEVER, THE AO WAS NOT CONVINCED WITH THE ABOVE EX PLANATION OF THE ASSESSEE AND HELD THAT A PROPORTIONATE WORKING IS REQUIRED TO BE MADE IN ORDER TO ARRIVE AT THE AMOUNT WHICH IS DISA LLOWABLE. AS PER THE PROVISIONS OF SECTION 194I, THE APPLICABLE RATE OF TAX DEDUCTION IS 10% WHICH WORKS OUT TO RS.7,94,160/- ON THE EXPENSE OF RS.79,41,600/-. THE TAX DEDUCTED BY THE ASSESSEE IS RS.1,50,704/-. THER EFORE, THE AO HELD THAT THE BALANCE AMOUNT OF TAX NOT DEDUCTED OF RS.6 ,43,456/- REPRESENTED PROPORTIONATE GROSS AMOUNT OF RS.64,34, 560/-. ACCORDINGLY, HE MADE A DISALLOWANCE OF RS.64,34,560/- U/S 40(A)( IA) OF THE ACT. M/S S. KUMARS LTD. ITA NOS. 4500 & 4501/MUM/2016 4 IN APPEAL, THE LD. CIT(A) AGREED WITH THE ABOVE DI SALLOWANCE MADE BY THE AO. 4. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUBM ITS THAT THE APPELLANT HAD ENTERED INTO MOU WITH ARSPL. THE ASSE SSEE PAID FACILITY FEES OF RS.79,41,600/- AND DEDUCTED TAX AT SOURCE @ 2% AS PER PROVISIONS OF SECTION 194C. IT IS ARGUED THAT THE A O WRONGLY HELD THAT THE FEES TANTAMOUNT TO PAYMENT OF RENT AND THEREFORE, T HE ASSESSEE OUGHT TO HAVE DEDUCTED TAX AT SOURCE @ 10% AS PER PROVISIONS OF SECTION 194I OF THE ACT. IT IS FURTHER SUBMITTED BY HIM THAT NO DIS ALLOWANCE CAN BE MADE FOR SHORT DEDUCTION OF TAX IN VIEW OF THE DECISION IN CIT V. S.K. TEKRIWAL 361 ITR 432 (CAL), DISH TV INDIA PVT. V. ACIT 190TTJ 537 (MUM), DCIT V. CHANDABHOY & JASSOBHOY 49 SOT 448 (MUM), ACIT V. HINDUSTAN THOMPSON 1206/M/2018, DCIT V. BEEKAYLON SYN. P. LTD . (ITA NO. 6506/M/2008). ON THE OTHER HAND THE LD. DEPARTMENTAL REPRESENTAT IVE (DR) SUPPORTS THE ORDER PASSED BY THE LD. CIT(A). 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. IN S.K. TEKRIWAL (SUPRA), THE ASSESSEE DEDUCTED TAX U/S 194C(2) FROM PAYMENTS MADE TO SUB-CONTRACTORS. ACCORDING TO THE REVENUE, THE PAYMENTS WERE IN THE NATURE OF MACHINE RY HIRE CHARGES FALLING UNDER THE HEAD RENT AND THE PROVISIONS OF SECTION 194I WERE APPLICABLE. ON THE GROUND THAT THE ASSESSEE HAD DED UCTED TAX AT 1% U/S 194C(2) AS AGAINST THE ACTUAL DEDUCTION TO BE MADE AT 10% U/S 194C(2) AS AGAINST THE ACTUAL DEDUCTION TO BE MADE AT 10% U /S 194I, THE PAYMENTS WERE DISALLOWED PROPORTIONATELY INVOKING T HE PROVISIONS OF M/S S. KUMARS LTD. ITA NOS. 4500 & 4501/MUM/2016 5 SECTION 40(A)(IA). THE TRIBUNAL HELD THAT WHERE TAX WAS DEDUCTED BY THE ASSESSEE, THOUGH UNDER A BONAFIDE WRONG IMPRESSION UNDER WRONG PROVISIONS, THE PROVISIONS OF SECTION 40(A)(IA) COU LD NOT BE INVOKED AND THAT IF THERE WAS ANY SHORTFALL DUE TO ANY DIFFEREN CE OF OPINION AS TO THE TAXABILITY OF ANY ITEM OR THE NATURE OF PAYMENTS FA LLING UNDER VARIOUS TAX DEDUCTION AT SOURCE PROVISIONS, THE ASSESSEE COULD BE DECLARED TO BE AN ASSESSEE IN DEFAULT U/S 201 BUT NO DISALLOWANCE COU LD BE MADE INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. ON APPEAL, THE HONBLE HIGH COURT HELD THAT NO SUBSTANTIAL QUESTION OF LAW AROSE FROM THE SAID ORDER OF THE TRIBUNAL. IN VIEW OF THE ABOVE POSITION OF LAW, WE DELETE TH E DISALLOWANCE OF RS.64,34,560/- MADE BY THE AO U/S 40(A)(IA) AND ALL OW THE 1 ST GROUND OF APPEAL. 6. THE 2 ND GROUND OF APPEAL THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE MAD E BY THE AO OF COMMISSION PAID TO FOREIGN PARTIES TO THE EXTENT OF RS.9,17,999/- ON ACCOUNT OF NON-DEDUCTION OF TDS BY WRONGLY INVOKING THE PRO VISIONS OF SECTION 40(A)(I) OF THE ACT (HOWEVER IN THE ASSESSMENT ORDE R, THE SAME HAS BEEN MENTIONED AS 40(A)(IA) OF THE ACT). IN THIS REGARD, IT IS SUBMITTED THAT THE APPELLANT COMPANY HAS PAID COMMISSION TO CERTAIN FO REIGN PARTIES FOR PROCURING SALES IN THEIR RESPECTIVE COUNTRIES AND N O TDS HAS BEEN DEDUCTED ON SUCH PAYMENTS AS SUCH INCOME WAS NOT DEEMED TO A CCRUE OR ARISE IN INDIA AND ACCORDINGLY NOT TAXABLE IN INDIA. 7. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED THE FOLLOWING DETAILS OF PAYMENT MADE TO FOREIGN COMMIS SION AGENTS : M/S S. KUMARS LTD. ITA NOS. 4500 & 4501/MUM/2016 6 SR. NAME LOCATED IN PROPOSED REASONS FOR NON AMOUNT IN DATE OF DEDUCTION OF TAX RS./ - REMITTANCE U/S 195 AS PER CA'S CERTIFICATE 1 ALMUHEET TRADING - SAUDI ARABIA 06/06/2011 CIRCULAR NO. 786 36673 MOHAMMED YOUNOUS SALEEM 2 VETCO INTERNATIONAL LLC UAE 20/07/2010 CIRCULAR NO. 786 363347 3 ANILYERI VELANDY KUWAIT 20/07/2010 CIRCULAR NO. 786 110861 PREMAMOHANAN 4 GULBANI RAJU UAE 20/07/2010 CIRCULAR NO. 786 332848 5 JAINTEX LEBANON 21/05/2010 CIRCULAR NO. 786 74270 TOTAL 917999 THE AO HELD THAT IN THE PRESENT CASE, THE PROVISIO NS OF SECTION 195 ARE APPLICABLE TO THE ASSESSEE AS WELL AS THE PAYEE S AND CONSEQUENTLY, SINCE THERE WAS NO TDS MADE U/S 195, PROVISIONS OF SECTION 40(A)(IA) ARE ATTRACTED. ACCORDINGLY, HE MADE A DISALLOWANCE OF RS.9,17,999/-. IN APPEAL, THE LD. CIT(A) CONFIRMED THE ABOVE DISA LLOWANCE MADE BY THE AO. 8. BEFORE US, THE LD. COUNSEL SUBMITS THAT IT IS NO T THE DEPARTMENTS CONTENTIONS THAT THE PAYMENTS WERE MADE TO NON-RESI DENTS AND THE INCOME HAD NO CONNECTION WITH SERVICES RENDERED IN INDIA. IN THIS REGARD RELIANCE IS PLACED BY HIM ON THE DECISION IN GE INDIA TECHNOLOGY CENTRE (P.) LTD. V. CIT 327 ITR 456 SC, ACIT V. NGC NETWORK (I) PVT. LTD. 1382/M/2014 AND CHANNEL GUIDE INDIA PVT. LTD. V. ACIT 153 TTJ (MUM) 432. M/S S. KUMARS LTD. ITA NOS. 4500 & 4501/MUM/2016 7 ON THE OTHER HAND, THE LD. DR RELIES ON THE ORDER PASSED BY THE LD. CIT(A). 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. IN THE CASE OF GE INDIA TECHNOLOGY CENTRE (P.) LTD . (SUPRA), IT IS HELD THAT A PERSON PAYING INTEREST O R ANY OTHER SUM TO A NON-RESIDENT IS LIABLE TO DEDUCT TAX U/S 195 ONLY I F SUCH SUM IS CHARGEABLE TO TAX IN INDIA AND NOT OTHERWISE. IN THE INSTANT CASE, FOLLOWING THE ABOVE DECISION WE DELETE THE DISALLOWANCE OF RS.9,17,999/- MADE BY THE AO AND AL LOW THE 2 ND GROUND OF APPEAL. 10. 3 RD GROUND OF APPEAL THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE MAD E BY THE AO OF THE LABOUR CHARGES TO THE EXTENT OF RS.2,67,803/- ON AC COUNT OF NON- DEDUCTION OF TDS BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. WITHOUT PREJUDICE, CIT(A) ERRED IN CONFIRMING THE A DDITION MADE BY THE AO OF LABOUR CHARGES OF RS.2,32,872/- (WHICH HAS BEEN CAP ITALIZED BY THE APPELLANT COMPANY TO THE FIXED ASSETS) AND WHICH HAS NOT BEEN CLAIMED BY THE APPELLANT COMPANY IN THE COMPUTATION OF TOTAL INCOME. IN ADDI TION, THE AO HAS ERRED IN DISALLOWING THE DEPRECIATION CLAIMED TO THE EXTENT OF RS.34,931/- ON SUCH ADDITION. RESULTANTLY, THE AGGREGATE AMOUNT OF ADDI TION TO RS.2,67,803/-, HAS BEEN MADE BY THE AO, AS TABULATED AS UNDER: ADDITION (RS.) DEPRECIATION @ 15% TOTAL (RS.) 1,93,500 29,025 2,22,525 39,372 5,906 45,278 2,32,872 34,931 2,67,803 M/S S. KUMARS LTD. ITA NOS. 4500 & 4501/MUM/2016 8 IN VIEW OF THE ABOVE, IT IS SUBMITTED THAT THE ADDI TIONS TO FIXED ASSETS CAN NEVER, BY ANY STRETCH OF IMAGINATION, BE ADDED TO T HE TOTAL INCOME AS THE SAME HAS NOT BEEN CLAIMED IN THE COMPUTATION OF TOTAL IN COME. 11. IN THE ASSESSMENT PROCEEDINGS, THE AO FOUND THA T IN RESPECT OF LABOUR CHARGES, THE ASSESSEE HAS DEDUCTED TAX U/S 1 94C ON A PAYMENT OF RS.61,000/- ONLY. FURTHER, HE FOUND THAT ON THE BAL ANCE AMOUNT OF RS.1,93,500/-, TAX HAS NOT BEEN DEDUCTED U/S 194C. SIMILARLY, THE ASSESSEE HAS DEDUCTED TAX U/S 194C O N A PAYMENT OF RS.4,48,357/-. FURTHER HE FOUND THAT ON THE BALANCE AMOUNT OF RS.39,372/-, TAX HAS NOT BEEN DEDUCTED US 194C. THUS THE AO MADE A TOTAL DISALLOWANCE OF RS.2,67,80 3/-. IN APPEAL, THE LD. CIT(A) CONFIRMED THE ABOVE DISAL LOWANCE MADE BY THE AO. 12. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUB MITS THAT THE EXPENSES ARE NOT DEBITED TO THE P&L ACCOUNT ; THE E XPENSES ARE CAPITALIZED. FURTHER, IT IS STATED BY HIM THAT SHOR T DEDUCTION OF TDS EXPENSES CANNOT BE DISALLOWED. ON THE OTHER HAND, THE LD. DR RELIES ON THE ORDER OF THE LD. CIT(A). 13. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. WE FIND THAT THE EXPENSES DISA LLOWED BY THE AO ARE NOT DEBITED TO THE P&L ACCOUNT. IN FACT THESE EXPEN SES ARE CAPITALIZED. FURTHER, AS HELD BY THE HONBLE CALCUTTA HIGH COUR T IN CASE OF S.K. TERKRIWAL (SUPRA), IF THERE WAS ANY SHORTFALL DUE TO ANY DIF FERENCE OF M/S S. KUMARS LTD. ITA NOS. 4500 & 4501/MUM/2016 9 OPINION AS TO THE TAXABILITY OF ANY ITEM OR THE NAT URE OF PAYMENTS FALLING UNDER VARIOUS TAX DEDUCTION AT SOURCE PROVISIONS, T HE ASSESSEE COULD BE DECLARED TO BE IN DEFAULT U/S 201 BUT NO DISALLOWAN CE COULD BE MADE INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. IN VIEW OF THE ABOVE POSITION OF LAW, WE DELETE TH E DISALLOWANCE OF RS.2,67,803/- MADE BY THE AO AND ALLOW THE 3 RD GROUND OF APPEAL. 14. THE 4 TH GROUND OF APPEAL A. THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF LOSS ON SALE OF RETURNED GOODS OF RS,12,94,653/- MADE BY THE AO WIT HOUT UNDERSTANDING THE FACTS OF CASE. IN THIS REGARD, IT IS SUBMITTED THAT THE APPELLANT COMPANY HAS DEBITED TO THE PROFIT & LOSS ACCOUNT, THE AMOUNT OF PROFIT ELEMENT INVOLVED IN THE MATERIALS SUPPLIED DURING THE YEAR UNDER CONSID ERATION TO THE DIRECTOR GENERAL & INSPECTOR GENERAL OF POLICE, KARNATAKA WH ICH WAS RETURNED BY THE SAID PARTY AND HENCE NO SUCH PROFITS CAN BE HELD TO BE TAXABLE FOR THE YEAR UNDER CONSIDERATION. THEREFORE, IT IS PRAYED THAT S UCH ADDITION SHOULD BE DELETED. B. THE CIT(A) ERRED IN CONFIRMING THE CALCUL ATION OF THE BOOK PROFIT AS PER SECTION 115JB OF THE ACT AS CALCULATED BY THE AO, A ND ERRED IN MAKING ADDITION OF LOSS ON SALE OF RETURNED GOODS TO THE EXTENT OF RS.12,94,653/- BY CONSIDERING THE SAME AS UNASCERTAINED LIABILITY. TH E SAID LOSS CAN NEVER, BY ANY STRETCH OF IMAGINATION, BE CONSTRUED AS UNASCER TAINED LIABILITY AND ACCORDINGLY CANNOT BE ADDED SAID LOSS TO THE BOOK P ROFIT FOR THE YEAR UNDER CONSIDERATION. 15. IN A NUTSHELL, THE FACTS ARE THAT DURING THE AY 2010-11, THE ASSESSEE HAD SOLD GOODS TO THE KARNATAKA POLICE IN FEBRUARY 2010 FOR RS.192,95,306/-. HOWEVER, THE SAID CONSIGNMENT WAS REJECTED BY THE M/S S. KUMARS LTD. ITA NOS. 4500 & 4501/MUM/2016 10 CLIENT VIDE LETTER DATED 01.03.2010, THOUGH THE GOODS WERE RET URNED IN THE SUBSEQUENT YEAR. THE ASSESSEE CLAIMED THE LOSS PERTAINING TO THE SALE IN THE FINANCIAL YEAR 2009-10 RELEVANT TO THE ASSES SMENT YEAR 2010-11. THE WORKING OF THE LOSS OF GOODS RETURNED WAS RS.12 ,94,653/- (SALE PRICE RS.1,92,95,306/- MINUS RS.1,80,00,653/-). THE AO MADE A DISALLOWANCE OF THE ABOVE SUM OF RS.12,94,653/- WHI CH WAS CONFIRMED BY THE LD. CIT(A). 16. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBM ITS THAT THE LOSS SHOULD BE ASSESSED IN THE SUBSEQUENT YEAR, WHEN THE GOODS HAVE BEEN RETURNED AND NOT CONSIDERED IN SUBSEQUENT YEAR. ON THE OTHER HAND, THE LD. DR RELIES ON THE ORDER OF THE LD. CIT(A). 17. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. THE FACT REMAINS THAT DURING T HE AY 2010-11, THE ASSESSEE HAD SOLD GOODS TO THE KARNATAKA POLICE IN FEBRUARY 2010 FOR RS.192,95,306/-. HOWEVER, THE SAID CONSIGNMENT WAS REJECTED BY THE CLIENT VIDE LETTER DATED 01.03.2010. AS THE ASSESSEE IS FOLLOWI NG THE MERCANTILE SYSTEM OF ACCOUNTING, THE AO HAS RIGHTLY MADE A DISALLOWANCE OF RS.12,94,653/- ON ACCOUNT OF LOSS ON SALE OF GOO DS RETURNED IN AY 2010-11. THUS THE 4 TH GROUND OF APPEAL IS DISMISSED. HOWEVER, WE DIRECT THE AO TO ALLOW IT IN AY 2011-1 2. 18. THE 5 TH GROUND OF APPEAL THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF THE FOREIGN TRAVELLING EXPENSES OF RS.7,03,559/- BY TREATING SUCH EXPENSES AS NOT BEING INCURRED M/S S. KUMARS LTD. ITA NOS. 4500 & 4501/MUM/2016 11 WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSIN ESS. IT IS SUBMITTED THAT SUCH DISALLOWANCE IS MADE WITHOUT CONSIDERING THE F ACTS AND CIRCUMSTANCES OF THE CASE AND THEREFORE, SUCH ADDITION SHOULD BE DELETED. 19. THE AO FOUND THAT AS PER THE DETAILS FILED, THE ASSESSEE HAD INCURRED FOREIGN TRAVEL EXPENDITURE IN THE FOLLOWIN G CASES: - SHRI SHAMBHUKUMAR S. KASLIWAL- TO SWITZERLAND (COST RS.3,50,905/-) - SMT. RAJKUMRI KASLIWAL TO SWITZERLAND (COST RS.2 ,82,593/-) - SHRI AJAY DHARIWAL TO DUBAI, JEDDAH AND KUWAIT (C OST RS.2,26,726/-) THE AO OBSERVED THAT THE ASSESSEE HAD PAID COMMISSI ON TO FOREIGN AGENTS AND NONE OF THEM WERE IN SWITZERLAND, BUT WE RE BASED IN UAE, KUWAIT, SAUDI ARABIA AND LEBANON. IN RESPONSE TO QU ERY RAISED BY THE AO, THE ASSESSEE SUBMITTED THAT SMT. RAJKUMARI KASL IWAL IS THE WIFE OF SHRI SHAMBHUKUMAR S. KASLIWAL, WHO IS A DIRECTOR OF THE ASSESSEE- COMPANY. DURING THE COURSE OF ASSESSMENT PROCEEDING S, THE ASSESSEE SUBMITTED THAT SHAMBHUKUMAR S. KASLIWAL HAS TRAVELL ED TO VISIT KLOPMAN INTERNATIONAL FOR PURCHASE OF SPINNING MACH INERY AND THAT THE DEAL WAS FINALIZED IN FY 2010-11 RELEVANT TO THE AY 2011-12. HOWEVER, THE ASSESSEE FAILED TO FILE ANY EVIDENCE THAT IT WA S DUE TO SHRI SHAMBHUKUMAR S. KASLIWALS VISIT TO SWITZERLAND ALO NG WITH HIS WIFE TO FINALIZE A DEAL FOR PURCHASE OF SPINNING MACHINERY FROM M/S KLOPMAN INTERNATIONAL. AS THE ASSESSEE FAILED TO EXPLAIN THE BUSINESS EXIG ENCY IN UNDERTAKING A FOREIGN VISITS, THE AO MADE A DISALLO WANCE OF RS.7,03,559/-. M/S S. KUMARS LTD. ITA NOS. 4500 & 4501/MUM/2016 12 IN APPEAL, THE LD. CIT(A) CONFIRMED THE ABOVE DISAL LOWANCE MADE BY THE AO. 20. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUB MITS THAT THE COMPANY HAS STARTED EXPORT IN ONLY THE LAST COUPLE OF YEARS. IT IS STATED THAT IT IS NOT NECESSARY THAT EVERY COUNTRY A PERSO N VISITS, ONE GETS ORDERS; MANY A TIMES THE ASSESSEE GETS CONTACTS FRO M WHICH IT GETS ORDERS FROM OTHER COUNTRIES. IT IS FURTHER EXPLAINE D THAT THE ASSESSEE HAS MADE EXPORTS TO COUNTRIES, WHERE NONE FROM THE COMP ANY HAVE TRAVELLED TO LIKE GERMANY AND LEBANON. IT IS ALSO S TATED THAT FOR AY 2012- 13 THE SAME EXPENSES HAVE BEEN ALLOWED. ON THE OTHER HAND, THE LD. DR SUPPORTS THE ORDER P ASSED BY THE LD. CIT(A). 21. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. IN THE INSTANT CASE, THE ASSES SEE FAILED TO FILE ANY EVIDENCE THAT IT WAS DUE TO SHRI SHAMBHUKUMAR S. KA SLIWALS VISIT TO SWITZERLAND ALONG WITH HIS WIFE TO FINALIZE A DEAL FOR PURCHASE OF SPINNING MACHINERY FROM M/S KLOPMAN INTERNATIONAL. FURTHER, WE FIND THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESS EE HAD PAID COMMISSION TO FOREIGN AGENTS AND NONE OF THEM WERE IN SWITZERLAND BUT WERE BASED IN UAE, KUWAIT, SAUDI ARABIA AND LEBANON . AS THE ASSESSEE FAILED TO JUSTIFY THE BUSINESS EXIGENCY OF THE FORE IGN TRAVEL, THE AO HAS RIGHTLY MADE A DISALLOWANCE OF RS.7,03,559/- AND WE CONFIRM IT. THUS THE 5 TH GROUND OF APPEAL IS DISMISSED. M/S S. KUMARS LTD. ITA NOS. 4500 & 4501/MUM/2016 13 THE ASSESSEE HAS NOT PRESSED THE 6 TH GROUND OF APPEAL. ACCORDINGLY, THE 6 TH GROUND OF APPEAL IS DISMISSED AS NOT PRESSED. 22. FACTS BEING IDENTICAL, OUR DECISION FOR THE AY 2010-11 APPLIES MUTATIS MUTANDIS TO AY 2011-12. AS WE HAVE CONFIRMED THE DISALLOWAN CE OF RS.12,94,653/- IN RESPECT OF LOSS ON SALE OF RET URNED GOODS IN AY 2010-11, WE DIRECT THE AO TO ALLOW IT IN AY 2011-12 . 23. IN THE RESULT, THE APPEALS ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28.10.2019 SD/- SD/- (SAKTIJIT DEY) (N.K. PR ADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED: 28/10/2019 S. SAMANTA, P.S (ON TOUR). COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (ASSISTANT REGISTRAR) ITAT, MUMBAI