DCIT 14(3)(1), MUMBAI V. TEMA INDIA LTD, NAVI MUMBAI

ITA 4884/MUM/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0110 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2011-2012
• Appeal Filed On: 07-09-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SOMANATH S UKKALI
• Assessee Lawyers: M SUBRAMANIAN
• Keywords: Business expenditure; Revenue expenditure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL E , BENCH , MUMBAI , , , BEFORE SHRI RAJENDRA, AM AND SHRI RAM LAL NEGI, JM . / ITA NO. 4884 / MUM/ 201 5 ( / ASSESSMENT YEAR: 2011 - 12 ) THE DCIT - 14(3)(1), 155, AAYAKAR BHAVAN, 4 TH FLOOR, M.K. MARG, MUMBAI - 400020 VS. M/S TEMA INDIA LIMITED, B - 607, BSEL TECH PARK, SECTOR 30, VASHI, OPPOSITE VASHI STATION, NAVI MUMBAI - 400705 ./ ./ PAN/GIR NO. : AAACT 1735 C ( / APPELLANT ) .. ( / RESPONDENT ) / REVENUE BY : SHRI SOM ANATH S. UKKALI (DR) / ASSESSEE BY : SHRI M. SUBRAMANIAN (AR) / DATE OF HEARING : 01 / 0 6 /201 7 / DATE OF PRONOUNCEMENT : 31 /08 /2017 / O R D E R PER RAM LAL NEGI, JM THE PRESEN T APPEAL HA S BEEN FILED BY THE REVENUE AGAINST ORDER DATED 01/06/2015 PASSED BY THE LD. CIT (APPEALS) - 22 , MUMBAI PERTAINING TO THE ASSESSMENT YEAR 20 11 - 12 , WHEREBY THE LD. CIT (A) HAS ALLOWED THE APPEAL FILED BY THE ASSESSEE AGAINST ASSESSMENT ORDER PASSE D U/S 143 (3) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT). 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF SOPHISTICATED HIGH POWER HEAT EXCHANGERS AND PRESSURE VESSELS AND RENDERING SERVICES F ILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION DECLARING THE TOTAL INCOME OF RS. 21,08,07,171/ - . THE CASE WAS SELECTED FOR SCRUTINY AND AFTER VERIFICATION AO DETERMINED THE TOTAL INCOME OF ASSESSEE AT RS. 21,90,04,790/ - UNDER THE 2 ITA NO 4 884 /MUM/201 5 ASSESSMENT YEAR: 20 11 - 12 PRO VISIONS OF INCOME TAX ACT, MAKING DISALLOWANCE OF A DVANCE WRITTEN OFF TO THE TUNE OF RS. 62,20,839/ - , DISALLOWANCE OF RS. 4,38,865/ - OUT OF TOTAL MISCELLANEOUS EXPENDITURES CLAIMED, DISALLOWANCE OF RS.9,24,423/ - OUT OF TOTAL AMOUNT OF FOREIGN TRAVEL EXPENSES CLAIMED AND DISALLOWANCE OF RS. 6,08,490/ - OUT OF TOTAL BUSINESS PROMOTION EXPENSES CLAIMED. 2. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE CHALLENGED THE ASSESSMENT ORDER BY FILING APPEAL BEFORE THE LD. CIT (A). THE LD. CIT (A) AFTER HEARING THE ASSESSEE ALLOWED THE APPEAL OF THE ASSESSEE. THE DEPARTMENT IS IN APPEAL AGAINST THE SAID ORDER PASSED BY THE LD. CIT (A). 3 . THE REVENUE HAS CHALLENGED THE IMPUGNED ORDER ON THE FOLLOWING E F FECTIVE GROUND S : - . 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN ALLOWING THE CLAIM OF THE ASSESSEE COMPANY AMOUNTING TO RS. 62,20,839/ - ON ACCOUNT OF ADVANCE WRITTEN OFF IN THE BOOKS OF ACCOUNTS, WITHOUT APPRECIATING THE FACT THAT THE IMPUGNED ADVANCES WRITTEN OFF FROM T HE BOOKS OF ACCOUNTS BEING IN THE NATURE OF CAPITAL LOSS SHOULD NOT BE ALLOWED TO DEBITED TO PROFIT & LOSS ACCOUNT AS REVENUE EXPENDITURE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN ALLOWING THE CLAIM OF THE A SSESSEE COMPANY AMOUNTING TO RS. 4,38,865/ - BEING 20% OF THE MISCELLANEOUS EXPENDITURE OF RS. 21,94,32/ - , WITHOUT APPRECIATING AMOUNTING TO RS. 21,94,327/ - PURELY IN CASH AND THE DETAILS THEREOF ARE NEITHER ON RECORD NOR VERIFIABLE PHYSICALLY. 3. ON THE F ACTS AND IN THE CIRCUMSTANCE3S OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN ALLOWING THE CLAIM OF THE ASSESSEEE COMPANY AMOUNTING TO RS. 9,29,423/ - BEING 30% OF THE TOTAL FOREIGN EXPENDITURE AMOUNTING TO RS. 30,98,076/ - , WITHOUT APPRECIATING THE FACT T HAT AFTER VERIFICATION BY THE AO, IT IS 3 ITA NO 4 884 /MUM/201 5 ASSESSMENT YEAR: 20 11 - 12 GATHERED THAT THE ASSESSEE HAS INCURRED THE FOREIGN EXPENDITURE OF RS. 9,29,423/ - PURELY FOR PERSONAL VISITS AND NOT FOR ANY OFFICIAL BUSINESS PURPOSE. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN ALLOWING THE CLAIM OF THE ASSESSEE COMPANY AMOUNTING TO RS. 6,08,490/ - BEING 20% OF THE BUSINESS PROMOTION EXPENDITURE OF RS. 30,42,449/ - , WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS INCURRED THE BUSINESS PROMOTION EXPENDI TURE AMOUNTING TO RS. 6,08,499/ - PURELY IN CASH AND THE SAME IS PURELY FOR PERSONAL PURPOSE UNDER THE DISGUISE OF BUSINESS PROMOTION EXPENDITURE DEBITED TO PROFIT & ACCOUNT. 4. GROUND NO. 1 OF THE APPEAL PERTAINS TO DISALLOWANCE OF RS. 62,20,839/ - THE L D. DEPARTMENTAL REPRESENTATIVE (DR) SUBMITTED THAT THE LD. CIT (A) HAS ERRED IN ALLOWING THE CLAIM OF THE ASSESSEE COMPANY AMOUNTING TO RS. 62,20.839/ - ON ACCOUNT OF ADVANCES WRITTEN OFF IN THE BOOKS OF ACCOUNT WITHOUT APPRECIATING THE FACT THAT THE SAME A RE IN THE NATURE OF CAPITAL LOSS AND SHOULD NOT BE ALLOWED AS REVENUE EXPENDITURE. THEREFORE, THE IMPUGNED ORDER IS LIABLE TO BE SET ASIDE. 5. ON THE OTHER HAND, THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE (AR) RELYING ON THE FINDINGS OF LD. CIT (A) SUBMITTED THAT THE FINDINGS OF LD. CIT (A) IS BASED ON THE PRINCIPLES OF LAW LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. STAR CHEMICALS 313 ITR 126 (BOMB.) IN WHICH THE HONBLE HIGH COURT HAS HELD THAT IF THE ADVANCES IS WRITTEN OFF THE SAME WILL BE TREATED AS BUSINESS LOSS AND MAY BE ALLOWED AS BUSINESS EXPENDITURE IN THE YEAR IT WAS WRITTEN OFF. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALSO GONE THROUGH THE MATERIAL PLACED BEFORE US. WE NOTICE THAT THE LD. CIT (A) HAS BASED HIS FINDINGS ON THE DECISION OF HONBLE HIGH COURT OF BOMBAY RENDERED IN CIT VS. STAR CHEMICALS (SUPRA) AND DECISION OF MUMBAI TRIBUNAL RENDERED IN ACIT VS. SET INDIA LTD. (2010) 3 ITR (T) 454 (MUM). WE NOTICE THAT THE ASSESSE E HAS 4 ITA NO 4 884 /MUM/201 5 ASSESSMENT YEAR: 20 11 - 12 SUBMITTED THE BREAK - UP OF THE TOTAL ADVANCE . AS POINTED OUT BY THE LD. CIT (A) THE ADVANCE TO COMSOFT SOLUTIONS P. LTD., ROBOSOFT SOLUTION P. LTD. AND ITISL SYSTEMS AND NETWORKING SOLUTIONS WERE MADE FOR SOFTWARE UP GRADATION AND MAINTENANCE OF COMPUTERS. HOWEVER, THE SOFTWARE WAS NOT FULLY INSTALLED AND THE ASSESSEE WAS UNABLE TO TRACE THE COMPANY. THEREFORE, THE APPELLANT HAD DEC IDED TO WRITE OFF THESE ADVANCES. PAYMENTS TO RAJENDRA MECHANICAL INDIA LTD. AND JINDAL STAINLESS STEEL WAY LTD. WERE MADE FOR SUPPLY OF MATERIAL . S INCE THE MATERIA L WAS NOT OF STANDARD QUALITY AND THE SAME WERE NOT UTILIZED FOR APPELLANTS BUSINESS . AS OBSERVED BY THE LD. CIT (A) SINCE, THESE ADVANCES WERE MADE BASICALLY FOR THE BUSINESS PURPOSES, THE SAME HAS TO BE TREATED AS BUSINESS LOSS . SIM I LARLY, PAYMENT TO EN GINEERING INDIA LTD. FOR TESTING AND CERTIFICATION CHARGES, CUSTOM DUTY FOR IMPORT OF MATERIALS, TO MTNL TOWARDS INTERNET BILL AND OTHER MISCELLANEOUS EXPENDITURES ARE MADE FOR THE BUSINESS PURPOSES AND HAVE TO BE TREATED AS BUSINESS LAW. HENCE, WE DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF THE LD. CIT(A). WE , THEREFORE, DISMISS THIS GROUND OF APPEAL OF THE REVENUE . 7. VIDE GROUND NO 2 THE REVENUE HAS CHALLENGED THE ACTION OF THE LD. CIT(A) IN DELETING THE DISALLOWANCE OF RS. 4,38,865/ - MADE BY THE AO O UT OF TOTAL MISCELLANEOUS EXPENDITURES CLAIMED. THE LD. DR SUBMITTED THAT THE LD CIT(A) HAS WRONGLY DELETED THE DISALLOWANCE OF RS. 4,38,865/ - I.E., 20% OF THE TOTAL AMOUNT OF MISCELLANEOUS EXPENDITURES CLAIMED. A O HAS MADE THE SAID DISALLOWANCE AS THE ASS ESSEE HAS FAILED TO PRODUCE DOCUMENTARY EVIDENCE FOR VERIFICATION. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSESSEE RELYING ON THE FINDINGS OF THE LD. CIT(A) SUBMITTED THAT SINCE ENTIRE EXPENDITURE HAS BEEN INCURRED IN CONNECTION OF THE BUSINESS OF THE A SSESSEE, THE LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION MADE BY THE AO ON AD HOC BASIS. 8. AS POINTED OUT BY THE LD. CIT(A) THE ASSESSEE HAD INCURRED EXPENDITURE IN CASH ONLY 0.9% OF THE TOTAL EXPENDITURE. MOREOVER, NOT EVEN A SINGLE PAYMENT 5 ITA NO 4 884 /MUM/201 5 ASSESSMENT YEAR: 20 11 - 12 EXCEEDING RS . 20,000/ - WAS FOUND MADE IN CASH, THE LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION MADE ON AD HOC BASIS. THE EXPENDITURE WAS INCURRED FOR THE POOJA EXPENSES BOOKS AND PERIODICALS AND ADVERTISEMENT IN LOCAL PERIODICALS FOR CASUAL VACANCIES PURCHASE OF CLEANI NG MATERIALS FIRE EXTINGUISHER REFILLING AND PURCHASE OF CONSUMABLES ETC. SO, W E DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF THE LD. CIT (A) TO INTERFERE WITH THE SAME . HENCE , WE DISMISS THIS GROUND OF APPEAL OF THE REVENUE. 9. THIRD GROUND PERTAINS TO DISALLOWANCE OF 30% OF TOTAL EXP EN SES ON ACCOUNT OF FOREIGN TRAVEL. THE LD. DR SUBMITTED BEFORE US THAT THE ASSESSEE HAS FAILED TO FURNISH AND EXPORT EVIDENCE SUCH AS BILLS, VOUCHERS ETC. HENCE, THE AO HOLDING THAT THE PERSONAL ELEMENT IN THESE EXPENSES CA NNOT BE RULED OUT IN THE ABSENCE OF THE REQUISITE DETAILS MADE DISALLOWANCE OF RS. 9,29,423/ - I.E. 30% OF THE TOTAL EXPENSES. ON THE OTHER HAND T HE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LD. CIT (A) HAS RIGHTLY DELETED THE ADDITION KEEPING IN VIEW THE NATURE OF THE BUSINESS OF THE ASSESSEE. 10 THE LD CIT(A) HAS NOTICED THAT THE APPELLANT IS ENGAGED IN FABRICATION OF ITEMS WHICH ARE EXPORTED TO VARIOUS COUNTRIES AND DURING THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION FOR WHICH THE APPELLANT HAD TO VISIT FOREIGN COUNTRIES FOR PROMOTION OF ITS PRODUCTS AND OBTAIN ORDERS . WE NOTICE THAT T HE AMOUNT OF EXPORT WAS RS. 1 2 , 62 ,8 1 , 816 / - DURING THE FINANCIAL YEAR 2011 - 12 AGAINST RS. 19,16,616/ - IN FINANCIAL YEAR 2010 - 11 . THE LD. CIT (A) HAS DELETED THE ADDITION HOLDING THAT FOREIGN TRAVEL IS REQUIRED FOR OBTAINING ORDERS AND IMPLANTATION OF PROJECTS. WE ALSO AGREE WITH THE LD. CIT (A) AND HOLD THAT THE ASSESSEE HAS GENUINELY INCURRED EXPENDITURE AND THERE IS NO JUSTIFICATION OF MAKING DISALLOWANCE ON AD HOC BASIS. HENCE, WE UPHOLD THE FINDINGS OF THE LD. CIT (A) AND DISMISSED THIS GROUND OF APPEAL OF THE ASSESSEE. 6 ITA NO 4 884 /MUM/201 5 ASSESSMENT YEAR: 20 11 - 12 11. GROUND NO 4 PERTAINS TO DISALLOWANCE OF RS.6,08,490/ - I.E., 20% OF THE TOTAL AMOUNT OF RS. 30,42,449/ - CLAIMED BY THE A SSESSEE AS BUSINESS PROMOTION EXPENDITURE. THE LD DR SUBMITTED THAT SINCE SOME OF THE EXPENSES HAVE BEEN MADE IN CASH AND THE ASSESSEE COULD NOT PRODUCE DOCUMENTARY EVIDENCE TO PROVE THE SAME AS BUSINESS EXPENSES, THE AO HAS RIGHTLY MADE THE DISALLOWANCE I N QUESTION. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE RELYING ON THE FINDINGS OF THE LD. CIT (A) SUBMITTED THAT THE AO HAS MADE THE DISALLOWANCE IN QUESTION WITHOUT POINTING OUT ANY EVIDENCE . 12. THE LD. CIT (A) HAS POINTED OUT THAT THE ASSESS EE HAS CLAIMED BUSINESS PROMOTION EXPENDITURE OF RS. 30,42,449/ - , WHICH IS 0.15% OF THE TOTAL TURNOVER OF THE COMPANY. HENCE, THERE IS NO JUSTIFICATION IN MAKING AD HOC DISALLOWANCE OF 20% OF THE TOTAL EXPENSES. AS POINTED OUT BY THE LD. COUNSEL, THE ACCOU NTS OF THE APPELLANT COMPANY ARE PROPERLY AUDITED. THE ASSESSEE HAS NOT MADE ANY PAYMENT IN CASH EXCEEDING RS. 20,000/ - . WE, THEREFORE, UPHOLD THE FINDINGS OF THE LD. CIT(A) AND DISMISS THIS GROUND OF APPEAL OF THE REVENUE. IN THE RESULT, APPEAL FILED BY THE REVENUE FOR ASSESSMENT YEAR 2011 - 2012 IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST . AUGUST , 2017. SD/ - SD/ - ( RAJENDRA ) ( RAM LAL NEGI ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; DATED: 31 / 08 / 2017 ALINDRA, PS 7 ITA NO 4 884 /MUM/201 5 ASSESSMENT YEAR: 20 11 - 12 / 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// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI