DBS CORPORATE SERVICES P. LTD, MUMBAI V. DCIT CIR 3(1), MUMBAI

ITA 5490/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56151 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 07-12-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 06-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C G K NAIR
• Assessee Lawyers: R C JAIN
• Keywords: Business expenditure; Commercial expediency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D, MUMBAI BEFORE SHRI J. SUDHAKAR REDDY, A.M. AND SHRI V. DU RGA RAO, J.M. ITA NO. 5490/MUM/2010 ASSESSMENT YEAR: 2004-05 DBS CORPORATE SERVICES PVT. LTD., APPELLANT 213, RAHEJA CHAMBERS, NARIMAN POINT, MUMBAI 400 021. (PAN AAACD 2131N) VS. DY. COMMISSIONER OF INCOME-TAX, RESPONDEN T CIRCLE 3(1), MUMBAI ITA NO. 5885/MUM/10 ASSESSMENT YEAR: 2004-05 DY. COMMISSIONER OF INCOME-TAX, A PPELLANT CIRCLE 3(1), MUMBAI VS. DBS CORPORATE SERVICES PVT. LTD., RESPONDENT 213, RAHEJA CHAMBERS, NARIMAN POINT, MUMBAI 400 021. (PAN AAACD 2131N) ASSESSEE BY : MR. R.C. JAIN REVENUE BY : MR. C.G.K. NAIR DATE OF HEARING : 07/12/2011 DATE OF PRONOUNCEMENT: 23/12/2011 ORDER PER V. DURGA RAO, J.M.: BOTH THESE APPEALS FILED BY THE ASSESSEE BEING ITA NO. 5490/MUM/10 AND BY THE REVENUE BEING ITA NO. 5885/M UM/10 ARE DIRECTED AGAINST THE ORDER OF THE CIT(A)-7, MUMBAI, PASSED ON 12/03/10. ITA NOS. 5490 & 5885/MUM/10 DBS CORPORATE SERVICES PVT. LTD. 2 2. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE COMPA NY FILED ITS RETURN OF INCOME ON 29/10/04 DECLARING NIL INCOME. THE CASE WAS SELECTED FOR SCRUTINY AND ORDER U/S 143(3) WAS PASS ED ON 15/12/06 DETERMINING TOTAL INCOME AT RS. 57,34,914/-. THE AO IN THE ASSESSMENT ORDER HAD OBSERVED THAT ON PERUSAL OF TH E TAX AUDIT REPORT FILED ALONG WITH THE RETURN OF INCOME THAT THE ASSE SSEE COMPANY HAD INCURRED FOREIGN TRAVEL OF RS. 6,50,283/- ON FOREIG N HOSPITALIZATION CHARGES OF MRS. P.S. AGARWAL AMOUNTING TO RS. 32,21 ,250/-. THE AO FURTHER OBSERVED THAT IN THE BALANCE SHEET IT HAD B EEN STATED THAT THE DIRECTOR'S REMUNERATION INCLUDES REIMBURSEMENT OF M EDICAL EXPENSES BEING INLAND MEDICAL EXPENSES OF RS. 45,000/- AND F OREIGN HOSPITALIZATION CHARGES OF RS. 32,21,250/- AND IT W AS ALSO SEEN FROM THE DETAILS FILED REGARDING FOREIGN TRAVEL EXPENSES INCLUDING THE EXPENDITURE ON FOREIGN TRAVEL OF MRS. VANITA BHANDA RI OF RS. 3,96,751/-, MRS. SHAHEEN AGARWAL OF RS. 5,14,893/- AND MRS. JYOTI SAWANT OF RS. 1,17,253/- FOR THE PURPOSE OF HOSPITA LIZATION OF MRS. P.S. AGARWAL. ON BEING ASKED BY THE AO TO FURNISH T HE DETAILS OF EXPENDITURE AND TO SHOW CAUSE AS TO WHY THE SAME SH OULD NOT BE CONSIDERED AS NON-BUSINESS EXPENDITURE, THE ASSESSE E HAD EXPLAINED THAT WHILE VISITING USA FOR VISITING A CONFERENCE M S. P.S. AGARWAL HAD TO UNDERGO AN EMERGENCY OPERATION AND, THEREFORE, THE COMPANY AUTHORISED THAT ALL HER MEDICAL EXPENSES INCLUDING ATTENDANT BE BORNE BY THE COMPANY. TO THIS EFFECT, A COPY OF THE RESOL UTION AND OTHER DETAILS OF THE MEDICAL EXPENDITURE HAD BEEN FILED. THE AO HAD OBSERVED DURING THE COURSE OF ASSESSMENT PROCEEDING S THAT MS. P.S. AGARWAL HAD UNDERGONE A MAJOR HEART SURGERY INCLUDI NG VALVE REPLACEMENT IN USA. HE FURTHER OBSERVED THAT THE DO CTOR HAD STATED THAT MS. P.S. AGARWAL WAS SUFFERING FROM CONGENITAL AORTIC STENOSIS RELATED TO A BICUSPID VALVE. HE WAS OF THE VIEW THA T THIS IS NOT A MEDICAL PROBLEM WHICH HAPPENS SUDDENLY AND MS. AGAR WAL WAS ITA NOS. 5490 & 5885/MUM/10 DBS CORPORATE SERVICES PVT. LTD. 3 SUFFERING FROM THIS PROBLEM EVEN BEFORE SHE EMBARKE D ON THE JOURNEY TO USA. HE NOTED THAT THE ASSESSEE HAD NOT FURNISHE D ANY DETAILS OF THE CONFERENCE HELD IN USA, THE BENEFIT ARISING TO THE BUSINESS OF THE ASSESSEE BY ATTENDING THE CONFERENCE AND THE NECESS ITY OF MS. P.S. AGARWAL TO ATTEND THE CONFERENCE. THE AO, THEREFORE , CAME TO THE CONCLUSION THAT MS. P.S. AGARWAL HAD GONE TO USA FO R ATTENDING TO THE MEDICAL PROBLEM AND ATTENDING THE CONFERENCE IS ONL Y A REASON FOR CLAIMING THE EXPENDITURE INCURRED AS BUSINESS EXPEN DITURE. SINCE THE ASSESSEE HAD NOT FURNISHED ANY REASON/EVIDENCE TO S HOW THAT THE EXPENDITURE HAD BEEN INCURRED FOR THE PURPOSE OF BU SINESS AND FAILED TO ESTABLISH THAT THE EXPENDITURE HAD BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, THE TOTAL AMOUNT OF RS. 49,00,430/- WAS DISALLOWED AS NON-BUSINESS EXPENDIT URE AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. ON A PPEAL, THE CIT(A) SUSTAINED THE DISALLOWANCE TO THE EXTENT OF RS. 42 ,50,147/- BY WAY OF GIVING A RELIEF OF RS. 6,50,283/- TO THE ASSESSEE. THEREAFTER, THE AO INITIATED PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT, ON THE GROUND THAT NON-FURNISHING OF EVIDENCES AND JUSTIFICATION TO THE EXPENSES CLAIMED IN THE RETURN OF INCOME AMOUNTS TO FURNISHI NG OF INACCURATE PARTICULARS OF INCOME AND IT IS CLEAR THAT ENOUGH M ATERIAL WAS BROUGHT ON RECORD TO PROVE THAT THE ASSESSEE MADE A CONSCIO US ATTEMPT TO CONCEAL ITS INCOME AND HENCE IT IS JUSTIFIED TO LEV Y PENALTY U/S 271(1)(C) OF THE ACT. ACCORDINGLY HE LEVIED A PENAL TY OF RS. 15,24,740/- ON THE INCOME ON WHICH TAX SOUGHT TO BE EVADED. AGG RIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CI T(A). 3. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT T HE HON'BLE ITAT IN ITS ORDER DATED 30 TH JULY, 2009 HAD HELD THAT THE EXPENSES WERE INCURRED FOR THE PURPOSE OF BUSINESS AND THAT MRS. AGARWAL'S ILLNESS HAPPENED DURING THE COURSE OF HER BUSINESS TRIP WAS AN UNFORESEEN EMERGENCY. AN EXPENDITURE AMOUNTING TO RS. 1,17,523 /- INCURRED IN ITA NOS. 5490 & 5885/MUM/10 DBS CORPORATE SERVICES PVT. LTD. 4 THE TRAVELLING OF MRS. JYOTI SAWANT TO US TO LOOKAF TER MRS. P.S. AGARWAL WHEN SHE WAS HOSPITALIZED WAS ALSO ALLOWED. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE CI T(A) HELD AS UNDER:- 6. THE TOTAL DISALLOWANCE OUT OF TRAVEL EXPENSES AN D MEDICAL EXPENSES WAS RS. 49,00,430/-. THE TRIBUNAL HAD DEL ETED THE DISALLOWANCE AMOUNTING TO RS. 33,38,503/-. THE BALA NCE AMOUNT OF DISALLOWANCE WHICH REMAINS IS RS. 9,12,644/-. S INCE THE APPELLANT HAS NOT FILED AND EXPLANATION IN RESPONSE TOTHE NOTICE U/S 271(1)(C), PENALTY IS IMPOSABLE ON THE DISALLOW ANCE OF RS. 9,12,644/-, WHICH HAS BEEN CONFIRMED BY THE TRIBUNA L. THE AO IS DIRECTED TO RE-WORK THE AMOUNT OF PENALTY ACCORDIN GLY. 4. AGGRIEVED BY THE ORDER OF THE CIT(A) THE ASSESSE E IS IN APPEAL BEFORE US AGAINST THE ACTION OF THE CIT(A) IN CONFI RMING THE PENALTY WITH REFERENCE TO FOREIGN TRAVELLING EXPENSES TO TH E EXTENT OF RS. 9,12,644/- AND THE REVENUE IS ALSO IN APPEAL BEFORE US AGAINST THE ACTION OF THE CIT(A) IN DELETING PENALTY LEVIED U/S 271(1)(C) OF THE ACT, ON THE AMOUNT OF RS. 33,38,503/-. 5. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT ALL THE DETAILS IN RESPECT OF EXPENDITURE INCURRED ON ACCOUNT OF TWO DIRECTORS WERE PRODUCED BEFORE THE AO AND ACCORDING TO THE AUTHORITIES BELOW THE EXPENDITURE IS NOT ALLOWABLE. HE, THEREFORE, SUBMITTED THAT THE ASSESSEE NEITHER CONCEALED ITS I NCOME NOR FURNISHED INACCURATE PARTICULARS OF INCOME. HE POIN TED OUT THAT IT IS NOT A CASE OF THE ASSESSEE THAT THE CLAIM OF THE AS SESSEE IS FALSE, THEREFORE, THE AO OUGHT NOT TO HAVE INVOKED THE PRO VISIONS OF SECTION 271(1)(C) OF THE ACT. 6. ON THE OTHER HAND, THE LEARNED DR SUBMITTED THAT THE CLAIM OF THE ASSESSEE IS NOT ALLOWABLE AS PER LAW, THEREFORE , IT IS AMOUNTING TO FURNISHING OF INACCURATE PARTICULARS OF INCOME. THE LEARNED DR, ITA NOS. 5490 & 5885/MUM/10 DBS CORPORATE SERVICES PVT. LTD. 5 THEREFORE, SUBMITTED THAT THE AO HAS RIGHTLY INVOKE D THE PROVISIONS OF SECTION 271(1)(C) AND LEVIED PENALTY ACCORDINGLY. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSE D THE RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELO W. THE ONLY DISPUTE BEFORE US IS WHETHER THE TRAVELING EXPENSES INCURRED BY THE ASSESSEE, WHICH WAS CONFIRMED BY THE AO AND CIT(A) AMOUNTING TO FILING OF CONCEALMENT OR INACCURATE PARTICULARS OF INCOME ? AFTER CAREFUL CONSIDERATION OF THE FACTS OF THE CASE AND PERUSING THE ORDERS OF THE AUTHORITIES BELOW, WE FIND THAT THE ASSESSEE HAS SUBMITTED ALL THE DETAILS OF EXPENDITURE INCURRED BY IT TOWARDS F OREIGN TRAVEL BEFORE THE AO AND EXPLAINED THAT MRS. P.S. AGARWAL, MANAGI NG DIRECTOR AND TWO OTHER DIRECTORS AND PERSONAL ATTENDANT WENT TO ABROAD TO ATTEND BUSINESS CONFERENCE WHEREIN MS. P.S. AGARWAL WHILE ATTENDING BUSINESS CONVENTION ON BEHALF OF THE COMPANY, THE A SSESSEE WAS HOSPITALIZED AND HAD TO UNDERGO EMERGENCY OPERATION . THE AO WAS OF THE VIEW THAT THE EXPENDITURE INCURRED BY THE ASSES SEE IS NOT FOR THE PURPOSE OF BUSINESS. IN OUR CONSIDERED VIEW, THE AS SESSEE HAS NEITHER CONCEALED ITS INCOME NOR FURNISHED INACCURATE PARTI CULARS OF ITS INCOME AND, THEREFORE, THIS IS NOT FIT CASE TO LEVY PENALTY U/S 271(1)(C) OF THE ACT. ACCORDINGLY, WE DELETE THE PENALTY LEVI ED BY THE AO ON THIS COUNT. 8. AS REGARDS THE GROUND RAISED BY THE REVENUE IN I TS APPEAL THAT THE CIT(A) ERRED IN DELETING PENALTY LEVIED U/S 271(1)(C) OF T HE ACT ON THE AMOUNT OF RS. 33,38,503/-, IT IS OBSERVED THAT IN THE QUANTUM APP EAL, THE TRIBUNAL VIDE ITS ORDER DATED 30 TH JULY, 2009 IN ITA NO. 5947/MUM/07, DELETED THE ADD ITION MADE BY THE AO BY OBSERVING AS UNDER:- 16. IN THE CASE OF SUNDARAM INDUSTRIES LTD.. VS. CI T, 239 ITR 405 (MAD) AND ENNORE FOUNDARIES LTD. VS. CIT 259 ITR 414 (MAD ), IT HAS BEEN HELD THAT THE REIMBURSEMENT OF MEDICAL EXPENSES WOULD CO NSTITUTE BENEFIT OR AMENITY TO THE DIRECTOR AND IS REQUIRED TO BE TAKEN INTO ACCOUNT FOR ITA NOS. 5490 & 5885/MUM/10 DBS CORPORATE SERVICES PVT. LTD. 6 COMPUTING THE CEILING LIMIT U/S 40C OF THE ACT. THE FACT THAT MS. P.S. AGARWAL IS THE MANAGING DIRECTOR OF THE ASSESSEE CO MPANY FOR PAST SEVERAL YEARS AND IS THE KEY PERSONNEL WHO HAD TO A TTEND THE BUSINESS CONVENTION AS A COMMERCIAL EXPEDIENCY CANNOT BE DIS PUTED AND WHILE ATTENDING THE CONVENTION HER AILMENT NECESSITATED A N EMERGENCY OPERATION DURING HER BUSINESS TOUR IN USA. THE AO CANNOT PRES UME THAT MS. P.S. AGARWAL WS ALREADY SUFFERING THE AILMENT BEFORE HER DEPARTURE AND THEREFORE SHE WENT THERE FOR TREATMENT ONLY. FURTHE R, THE TRAVELING EXPENSES INCURRED TO MR.S JYOTI SAWANT, PERSONAL SERVANT IS TO BE ALLOWED IN VIEW OF THE SERIOUS AILMENT WHICH RESULTED IN EMERGENCY OPE RATION AND IN SUCH A SITUATION AN ATTENDANT TO HELP THE PATIENT IS A NEC ESSITY. THEREFORE, WE ARE OF THE OPINION THAT THE EXPENDITURE HAS BEEN INCURR ED DURING THE COURSE OF HER ATTENDING THE CONVENTION WAS WHOLLY AND NECESSA RY FOR THE PURPOSE OF BUSINESS AND THEREFORE, WE ALLOW THE EXPENSES OF MS . P.S. AGARWAL AMOUNTING TO RS. 32,21,250/- AND THE TRAVELING EXPE NSES OF MRS. JYOTI SAWANT AMOUNTING TO RS. 1,17,253/-. HOWEVER, THE EX PENSES INCURRED BY OTHER DIRECTORS SHALL BE DISALLOWED. 9. SINCE THE TRIBUNAL HAS DELETED THE DISALLOWANCE AMOUNTING TO RS. 33,38,503/-, PENALTY LEVIED ON SUCH NON-EXISTENT AD DITION CANNOT WITHSTAND. THEREFORE, THE CIT(A) HAS RIGHTLY DELETED THE PENAL TY LEVIED BY THE AO U/S 271 (1)(C) OF THE ACT, ON THE SAID ADDITION, THEREFORE, THE ORDER OF THE CIT(A) IS HEREBY UPHELD AND THE GROUND RAISED BY THE REVENUE IS DISM ISSED. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D AND THE APPEAL OF THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 23 RD DAY OF DECEMBER, 2011. SD/- SD/- (J. SUDHAKAR REDDY) (V. DURG A RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 23 RD DECEMBER, 2011. KV ITA NOS. 5490 & 5885/MUM/10 DBS CORPORATE SERVICES PVT. LTD. 7 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, D BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI. KV