CREATIVE GARMENTS, MUMBAI V. ACIT 18(1), MUMBAI

ITA 4516/MUM/2009

• Counselvise Citation: 451619914 RSA 2009
• Duration Of Justice: 1 year(s) 9 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 04-05-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 31-07-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation
• Section: 143(3); 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C MUMBAI BEFORE SHRI BEFORE SHRI BEFORE SHRI BEFORE SHRI J. SUDHAKAR REDDY J. SUDHAKAR REDDY J. SUDHAKAR REDDY J. SUDHAKAR REDDY (AM) AND (AM) AND (AM) AND (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) SMT. ASHA VIJAYARAGHAVAN (JM) SMT. ASHA VIJAYARAGHAVAN (JM) SMT. ASHA VIJAYARAGHAVAN (JM) ITA NO.4516/MUM/2009 ASSESSMENT YEAR-2005-06 CREATIVE GARMENTS, 401, SUN INDL. COMPOUND, LOWER PAREL, MUMBAI-400 013 PAN-AAAFC 06911F VS. THE ACIT 18(1), PIRAMAL CHAMBERS, LOWER PAREL, MUMBAI-400 013 (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI RAJIV KHANDELWAL RESPONDENT BY: SHRI R.K. GUPTA O R D E R O R D E R O R D E R O R D E R PER ASHA VIJAYARAGHAVAN (JM) PER ASHA VIJAYARAGHAVAN (JM) PER ASHA VIJAYARAGHAVAN (JM) PER ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 5.3.2009 PASSED BY THE LD. CIT(A)-XVIII F OR THE ASSESSMENT YEAR 2005-06. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING , TRADER, DEALERS AND EXPORT OF ALL KINDS OF GARMENTS, T EXTILES AND/OR ALLIED BUSINESS. THE RETURN OF INCOME DECLARING A TOTA L INCOME OF `. 6,16,72.260/- WAS FILED ON 31.10.2005. THE RETURN W AS PROCESSED U/S. 143(1) THE CASE WAS SELECTED FOR SCRUTINY AND NOTICES U/ S. 143(2) & 142(1) ALONG WITH QUESTIONNAIRE WERE ISSUED SERVED ON T HE ASSESSEE AND THE ASSESSMENT WAS COMPLETED U/S. 143(3) OF THE I.T. ACT. WHILE COMPLETING THE ASSESSMENT, THE ASSESSING OFFICER MADE DI SALLOWANCES OF CERTAIN EXPENSES. ITA NO. 4516/M/09 2 3. AGGRIEVED, ASSESSEE WENT ON APPEAL BEFORE THE LD. CI T(A). 4. THE LD. CIT(A) AS FAR AS DISALLOWANCE OF RS. 2,68,92 7/- ON ACCOUNT OF FOREIGN VISIT COSTS FOR TRAVEL TO BANGKOK AND HONG KONG IS CONCERNED, SET ASIDE THE MATTER TO THE FILE OF THE AO AND THIS ISSU E IS NOT BEFORE US. THE AO DISALLOWED A FURTHER AMOUNT OF RS. 1 LAC ON AD HOC BASIS ON THE FOLLOWING BASIS: IT IS FURTHER OBSERVED FROM THE DETAILS OF THE BALANC E EXPENSES THAT THE SAME WERE INCURRED BY PARTNERS AND OT HERS WHICH INCLUDES BOARDING, LODGING AND OTHER EXPENSES AT FOREIGN COUNTRIES. NORMALLY IF A PERSON VISITS FOREIGN COUNTRY INVOLVEMENT OF PERSONAL ELEMENT CANNOT BE RULED OUT IN EXPENSES INCURRED AT FOREIGN COUNTRY. IN RESPECT OF L OCAL TRAVELLING EXPENSES, IT IS OBSERVED THAT SOME OF THE PAY MENTS WERE MADE IN CASH AND SUPPORTED WITH SELF MADE VOUCHE RS. HENCE, A SUM OF RS. 1,00,000/- IS DISALLOWED OUT OF RE MAINING FOREIGN TRAVELLING AND LOCAL TRAVELLING EXPENSES BEIN G EXPENSES INCURRED FOR NON-BUSINESS PURPOSE/WANT OF VERIFICATION AND ADDED TO THE TOTAL INCOME. 5. AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE THE LD. CIT( A) AND POINTED OUT THAT OUT OF THE TOTAL LOCAL EXPENSES OF ` . 7,70,654/- ONLY AN AMOUNT OF `. 32,093/- APPROX. HAS BEEN INCURRED IN C ASH AND BALANCE PAYMENTS ARE MADE BY CHEQUE MAINLY TO VARIOUS TRAVEL AGENTS FOR BOOKING FOR BUSINESS PURPOSES . 6. THE LD. CIT(A) HELD AS FOLLOWS: APPELLANTS ARGUMENT IN THIS REGARD HAVE BEEN CONSIDERED. HOWEVER THE FACT REMAINS THAT EVEN IN TH E DETAILS OF FOREIGN TRABVEL EXPENSES AS DISCUSSED AFORESAID - CONCISTS OF FOREIGN TICKETS PURCHASED/CURRENCY CHARGES ` . 12,07,324/- AND OTHER FOREIGN TRIP EXPENSES `. 4,30,0 26/-. SOME PERSONAL ELEMENT IS CERTAINLY INVOLVED IN THESE CURRENCY CHARGES OF `. 12,07,324/- AND OTHER FOREIGN TRIP EXPENSE SOF `. 4,30,026/-. THIS VIEW HAS ALSO BEEN UPHE LD IN THE CASE OF COMET HANDICRAFTS VS ACIT, 114 TTJ (DE L) 124 ITA NO. 4516/M/09 3 7. AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE US AND SUBMITTE D AS FOLLOWS: LOCAL DOMESTIC TRAVELLING EXPENSES, WE ARE ENCLOSING HEREWITH LEDGER ACCOUNT COPY OF THE SAID EXPENSES. YO UR GOODSELVES WILWL OBSERVE THAT 99% OF THE TOTAL PAYMEN TS HAVE BEEN MADE TO TRAVEL IMBUR4SEMENTS ON ONLY TWO THREE OCCASIONS WHERE TICKETS HAD TO BE BOUGHT BY THE EMPLOYEES ON THE SPOT, OR IN RELATION TO LOCAL TRAVE LLING AT THAT OUTSTATION (WHICH OBVIOUSLY WOULD BE SUPPORTED BY SELF-MADE VOUCHERS). IN THAT SCENARIO TO DISALLOW RS. 1,00,000/- FOR WANT OF SUPPORTING AND TO STATE THAT T HE SAME HAVE BEEN INCURRED FOR NON-BUSINESS PURPOSES, IS GROSSLY MISTAKEN. FURTHER MORE, COMPARING THE SAID EXPENSE OVER A PERIOD OF THE LAST THREE YEARS WITH THE BUSINESS OF THE ASSESSEE, STILL THE POSITION REMAINS FAVOURABLE. ASST. YEAR TURNOVER LOCAL TRAVELING 2002 - 03 2568.67 LACS 3.18 LACS 2003 - 04 3891.23 LACS 5.71 LACS 2004 - 05 2492.49 LACS 4.11 LOACS 2005 - 06 4415.43 LACS 7.71 LACS 8. WE FIND THAT THE FOREIGN TRAVEL EXPENSES ARE EXCLU SIVELY FOR THE PURPOSE OF BUSINESS. FURTHER THE TURNOVER OF THE ASSESSEE HAS INCREASED CONSIDERABLY AND HENCE THERE SEEMS TO BE A PR OPORTIONATE INCREASE IN EXPENSES AS COMPARED TO EARLIER YEAR. FURTH ER THE ASSESSEE HAS SUBSTANTIATED ITS CLAIM BY PRODUCING THE LEDGER ACC OUNT. THIS GROUND RAISED BY THE ASSESSEE IS ALLOWED. 9. THE SECOND GROUND RAISED BY THE ASSESSEE RELATES TO 10% DISALLOWANCE AGGREGATING TO `. 1,64,498/- OUT OF TEL EPHONE EXPENSES. 10. THE ASSESSING OFFICER DISALLOWED 10% OF THE TELEPHON E EXPENSES AS THE SAME INCLUDES PARTNERS MOBILE PHONE EXPENSES ALSO. THE LD. ITA NO. 4516/M/09 4 CIT(A) HELD THAT IT HAD BEEN POINTED OUT THAT NO SEP ARATE LOG BOOK IN THIS RESPECT HAS BEEN MAINTAINED BY THE ASSESSEE AND UPHEL D THE VIEW OF THE AO. THE LD. CIT(A) FOLLOWED THE DECISION IN THE CASE OF COMET HANDICRAFTS VS ACIT 114 TTJ (DEL). 11. AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE SHRI RAJIV KHANDELWAL SUBMITTED BEFORE US TH AT ONLY TWO OF THE SIX PARTNERS ARE IN MUMBAI AND ACTIVELY INVOLV ED IN THE BUSINESS OF THE ASSESSEE AND LONG DISTANCE CALLS ARE ESSENTIAL FOR T HE BUSINESS OF THE ASSESSEE AND ARE TO BE MADE AND RECEIVED IN INDIA D URING LATE EVENINGS AND EARLY MORNING I.E. NOT DURING OFFICE HO URS. 12. IN THE CASE OF MIDLAND PVT. LTD. VS DY. CIT 109 I TR 198 THE FACTS WERE AS FOLLOWS: THE ASSESSEE COMPANY CLAIMED DEDUCTION OF TELEPHONE EXPENSES AND CAR EXPENSES/DEPRECIATION. THE AO DISALLOW ED ONE-TENTH OF THE SAID EXPENSES/DEPRECIATION ON THE RE ASONING THAT THE ELEMENT OF PERSONAL EXPENDITURE BY THE ASSESSEE COULD NOT BE RULED OUT. ON APPEAL, THE COMMISSIONER (APPEALS) PLACING RELIANCE ON THE DECISION OF THE MADRAS HIGH COURT IN THE CASE OF N EW AMBADI ESTATES (P) LTD VS STATE OF TAMIL NADU (2002) 256 ITR 64, UPHELD THE IMPUGNED ORDER. 13. THE TRIBUNAL HELD AS FOLLOWS: WHEN THE GUJARAT HIGH COURT IN THE CASE OF SAYAJI I RON & ENGG. CO. LTD. VS CIT (2002) 253 ITR 749/121 TAXMAN 43 AND THE VARIOUS TRIBUNALS HAVE CONSISTENTLY BEEN DECIDING THE S IMILAR ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE, THE COMMISSIONER (APPEALS) WAS NOT JUSTIFIED IN DISALLOWING T HE CLAIM OF THE ASSESSEE BY MERELY FOLLOWING THE DECISION O F THE MADRAS HIGH COURT IN THE CASE OF NEW AMBADI ESTATES (P ) LTD. (SUPRA) WHICH WAS NOT OF THE JURISDICTIONAL HIGH COURT . HENCE, THE TOTAL TELEPHONE EXPENSES AND CAR EXPENSES/DEPRECIAT ION AS ITA NO. 4516/M/09 5 CLAIMED BY THE ASSESSEE WERE TO BE ALLOWED. THEREFORE, DISALLOWANCE SUSTAINED BY THE COMMISSIONER (APPEALS) IN THIS REGARD WAS TO BE DELETED. FOLLOWING THE ABOVE DECISION, WE DELETE THE DISALLOW ANCE TOWARDS TELEPHONE EXPENSES. 12. THE THIRD GROUND RELATES TO 10% DISALLOWANCE AGGR EGATING TO `. 2,34,905/- OUT OF MOTOR CAR EXPENSES AND MOTOR CAR DE PRECIATION. 13. THE ASSESSEE HAS GIVEN A COMPLETE BREAK-UP OF MOTOR CAR EXPENSES. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED BEFOR E US THAT MOTOR JEEPS WHICH ARE USED FOR THE PURPOSE OF BUSINESS C ANNOT BE DENIED DEPRECIATION AND ONLY CERTAIN PERCENTAGE OF EXPENSES OF THE CAR OF THE PARTNERS CAN BE DISALLOWED ON THE GROUND THAT SOME PERSONAL USE HAS BEEN EXERCISED. WE RESTRICT THE DISALLOWANCE TO 5% OF THE MOTOR CAR EXPENSES AND ALLOW THE DEPRECIATION ON MOT OR CAR RELYING ON THE DECISION OF MUKESH K. SHAH VS ITO 92 TTJ (MUM) 106 0 WHEREIN IT HAS BEEN HELD AS FOLLOWS: IF THE CAR IS USED BY THE ASSESSEE FIOR THE PURPOSE OF HI S BUSINESS, THEN THE DEPRECIATION NEED TO BE ALLOWED AS P ER THE RATE SUGGESTED BY THE STATUTE DEPRECIATION IS AN STATUTORY ALLOWANCE. THE STATUTORY ALLOWANCE CANNOT BE RESTRICTED ON THE BASIS OF THE VOLUME OF BUSINESS USE AND VOLUME OF PERSONAL USE. THE CONDITION TO BE SATISFIED IS THAT THE ASSET SHOULD BE OWNED BY THE ASSESSEE AND IT SHOULD BE USED FOR THE BUSINESS OR PROFESSION. BOTH THE CONDITIONS ARE SATISFIED HERE. PERSONAL USE OF THE CAR CANNOT FETTER THE GRANTING OF STATUTORY ALLOWANCE. THEREFORE, THE DISALLOWANCE MADE ON ACCOUNT OF DEPRECIATION IS DELETED. 14. THE LAST GROUND RELATES TO ADHOC DISALLOWANCE AGG REGATING TO `. 2,34,905/- OUT OF BUSINESS PROMOTION EXPENSES. ITA NO. 4516/M/09 6 15. THE AO MADE DISALLOWANCE OF `. 1 LAC OUT OF BUSIN ESS PROMOTION EXPENSES OF `. 14,72,265/- STATING THAT THESE EXPENSES WE RE INCURRED ON HOTEL EXPENSES FOR FOREIGN BUYERS, MODELING CHARGE S AND HONG KONG FAIR EXPENSES WHERE POSSIBILITY OF PERSONAL ELEMEN T EXISTS. THE AO FURTHER POINTED OUT THAT ASSESSEE COULD NOT PRODUCE SOME OF THE BILLS/VOUCHERS FOR VERIFICATION. THE ASSESSEE HAS GIVEN THE DETAILS OF BUSINESS PROMOTION EXPENSES AS UNDER: MODELING CHARGES `. 83,830/- HOTEL EXPENSES FOR FOREIGN BUYERS `.1,73,922/- HONGKONG FAIR EXP. JULY 2004 & JAN. 2005 `.8,05,210/- CONFERENCE CHARGES `.4,09,302/- 16. THE ASSESSEE FURTHER POINTED OUT THAT THERE IS NO QU ESTION OF PERSONAL ELEMENT IN MODELING EXPENSE AND THE SAME ARE VOUCHED AND THAT HOTEL EXPENSES ARE BASED ON ACTUAL FARE EXPENSES A ND CONFERENCE CHARGES HAVE BEEN PAID BY THE PARTNERS THROUGH CREDIT CARD ETC. FOR BUSINESS PURPOSES AND REIMBURSED BY THE ASSESSEE. THE LD. CI T(A) HELD THAT SOME PERSONAL ELEMENT IS INVOLVED AT THE HON G KONG FAIR/IN CONFERENCES-WHICH CANNOT BE SEPARATED OUT. ACCORDIN GLY, THE DISALLOWANCE ON ACCOUNT OF PERSONAL ELEMENT IN HONG K ONG FAIR EXPENSES/CONFERENCES CHARGES AT `. 1 LAC WAS UPHELD BY T HE LD. CIT(A). 17. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE DETAILS OF THE EXPENSES HAVE BEEN ALREADY SUBMITTED BE FORE THE LOWER AUTHORITIES FROM WHICH IT CAN BE GATHERED THAT THERE HAS BEEN NO PERSONAL ELEMENT INVOLVED IN THESE EXPENSES ESPECIALLY W HEN IT IS A FACT THAT ONLY ONE OF THE 6 PARTNERS HAVE VISITED THE FAIR. FURTHER THE EXPENSES WERE DIRECTLY RELATED TO THE BOOKING OF THE FAIR AND FOR THE ITA NO. 4516/M/09 7 MODELS AND THE CONFERENCES HELD THEREOF. THE LD. COU NSEL FOR THE ASSESSEE RELIED ON 109 ITD 198. 70 SOT 90 AND 152 TAXMA N 90. 18. IN THE CASE OF SHANKER TRADING CO. (P) LTD. VS AC IT 152 TAXMAN 49 WITH RESPECT TO ADHOC DISALLOWANCE, IT WAS HELD BY THE TRIBUNAL THAT THE AO WAS NOT EMPOWERED TO MAKE ANY ADHOC DISALLOWA NCE WITHOUT POINTING OUT DEFECTS IN VOUCHERS PRODUCED BY THE ASSESSE E AND DELETED THE ADHOC DISALLOWANCE MADE BY THE AO. HENCE WE DE LETE THE ADHOC DISALLOWANCE OF ONE LAC UNDER THE HEAD BUSINESS PROMOTI ON EXPENSES. 19. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED ON THIS 27 TH DAY OF MAY, 2011 SD/- SD/- (J. SUDHAKAR REDDY) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEM BER MUMBAI, DATED 27 TH MAY , 2011 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR C BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI