LANDMARK EDUCATION BREAKTHROUGH TECHNOLOGIES PVT. LTD., MUMBAI V. A,C,I.T.-10(2), MUMBAI

ITA 6302/MUM/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3745 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-05-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 25-06-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 15-10-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: RASHMIKANT C MOD I
• Keywords: Commercial expediency
• Section: 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI . . , !' , # , $ BEFORE S/SHRI B.R.BASKARAN, ACCOUNTANT MEMBER AND AMARJIT SINGH, JUDICIAL MEMBER / I .T.A. NO.6302/MUM/2012 ( # % &% / ASSESSMENT YEAR: 2009-10) LANDMARK EDUCATION BREAKTHROUGH TECHNOLOGIES PRIVATE LIMITED 102, JALAWAR BLDG., PATANWALA COMPOUND, L.B.S.MARG, GHATKOPAR (W) MUMBAI - 400086 / VS. ASSISTANT COMMISSIONER OF INCOME TAX 10(2) AAYAKAR BHAVAN, MARINE LINES, MUMBAI - 400020 ./ ./ PAN/GIR NO. : AABCL3479N ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY: SHRI RASHMIKANT C. MODI DEPARTMENT BY: SHRI MANOJ KUMAR / DATE OF HEARING: 05.01.2016 /DATE OF PRONOUNCEMENT: 11.05.2016 ! / O R D E R PER AMARJIT SINGH, JM: THIS IS AN APPEAL AGAINST THE ORDER DATED 17.07.20 12 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS)-21, MUMBAI [HE REINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO THE ASSESS MENT YEAR 2009-10. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E FILED ITS RETURN OF INCOME FOR THE A.Y.2009-10 DECLARING TOTAL INCOME T O THE TUNE OF RS.3,11,31,660/- ON 29.09.2009. THE RETURN WAS PRO CESSED U/S. 143(1) ITA NO.6302/MUM/2012 ASSESSMENT YEAR: 2009-10 2 OF THE INCOME TAX ACT, 1961 ( IN SHORT THE ACT). THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE U/S143(2) OF THE ACT DATED 24.08.2010 WAS ISSUED AND SERVED UPON THE ASSESSEE. THE ASSESSING OFFICE R DISALLOWED THE SUM OF RS.4,00,038/- ON ACCOUNT OF FOREIGN TRAVEL E XPENSES INCURRED UPON THE FAMILY MEMBER OF MR.GOPAL RAO ONE OF THE D IRECTOR OF THE COMPANY. THEREAFTER, THE ASSESSEE PREFERRED AN APP EAL BEFORE THE LEARNED CIT(A) WHO CONFIRMED THE SAID DISALLOWANCE. THEREFORE, THE ASSESSEE HAS FILED THE PRESENT APPEAL BEFORE US. 3. WE HAVE HEARD THE ARGUMENTS ADVANCED BY THE LEAR NED REPRESENTATIVE OF THE PARTIES AND PERUSED THE RECOR D CAREFULLY. THE ASSESSING OFFICER DISALLOWED THE EXPENDITURE TO THE TUNE OF RS.4,00,038/- INCURRED UPON FOREIGN TRAVELLING EXPE NSES OF THE FAMILY MEMBER OF THE ONE OF THE DIRECTOR MR. GOPAL RAO. T HE DETAILS OF THE EXPENDITURE ARE HEREBY GIVEN BELOW:- NAME OF THE PERSON TRAVELLING DATE NAME OF THE PAYEE RUPEES KAJAL & ISHA RAO 08.11.2008 WELDON TOURS & TRAVELS 1,48,934/- DIPANSHU RAO 02.12.2008 --DO-- 67,652/- KAJAL / ISHA / DIPANSHU / RAO 16.10.2008 --DO-- 1,83,452/- 4,00,038/- 3.1 THE ASSESSING OFFICER DISALLOWED THE EXPENDITUR E ON THE BASIS OF LAW RELIED IN RAM BAHADUR THAKUR LTD., 261 ITR 390, WHEREIN IT HAS BEEN OBSERVED THAT:- ITA NO.6302/MUM/2012 ASSESSMENT YEAR: 2009-10 3 IN ORDER THAT A PARTICULAR ITEM OF EXPENDITURE MAY BE DEDUCTIBLE UNDER SUB-S.(1) OF S. 37 THE FOLLOWING CONDITIONS SHOULD CONCUR : (1) THE EXPENDITURE SHOU LD NOT BE OF THE NATURE DESCRIBED IN SS. 30 TO 36 (2) IT SHOULD HAVE BEEN INCURRED IN THE ACCOUNTING YEAR, ( 3) IT SHOULD BE IN RESPECT OF A BUSINESS WHICH WAS CARRIED ON MY THE ASSESSEE AND THE PROFITS OF WHICH ARE TO BE COMPUTED AND ASSESSED, (4) IT SHOULD NOT BE IN THE NATURE OF PERSONAL EXPENSES OF THE ASSESSEE, (5) IT SHOULD HAVE BEEN LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF SUCH BUSINESS, AND ( 6) IT SHOULD NOT BE IN THE NATURE OF CAPITAL EXPENDITU RE. IT IS FOR THE ASSESSEE WHO CLAIMS DEDUCTION OF THE EXPENDITURE UNDER THIS SUB-SECTION TO SATISFY THE PROVISIONS OF S.40A(2) SO FAR AS A COMPANY IS CONCERNED, IT IS OPEN TO THE TAXING AUTHORITIES TO GO INTO THE REASONABLENESS OF THE EXPENSES ALSO. THE ASSESSING OFFICER IS ALSO ENTITLED TO BE SATISFIED AS TO THE COMMERCIAL NECESSITY OF SPENDING THAT AMOUNT. IN OTHER WORDS, THERE MUST BE NEXUS BETWEEN THE EXPENDITURE AND THE BUSINESS PURPOSE. THE CAPACITY IN WHICH THE ASSESSEE SPENDS WILL ALSO BE RELEVANT. THE PURPOSE MUST BE FOR THE PURPOSE OF THE BUSINESS , I.E., THE EXPENDITURE MUST BE INCURRED FOR CARRYING ON OF THE BUSINESS AND THE ASSESSEE SHOULD HAVE INCURR ED IT IN HIS CAPACITY AS A PERSON CARRYING ON THE ITA NO.6302/MUM/2012 ASSESSMENT YEAR: 2009-10 4 BUSINESS. THE TERM WHOLLY REFERS TO THE QUANTUM OF THE EXPENDITURE AND EXCLUSIVELY REFERS TO THE MOTIVE, OBJECTIVE AND PURPOSE OF THE EXPENDITURE. THE TRUE TEST OF AN EXPENDITURE LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF TRADE OR BUSINESS I S THAT IT IS INCURRED BY THE ASSESSEE AS INCIDENTAL T O HIS TRADE FOR THE PURPOSE OF KEEPING THE TRADE GOING AN D OF MAKING IT PAY AND NOT IN ANY OTHER CAPACITY THAN THAT OF A TRADER. THE MANNER TO APPLY THE TEST IS TO ASK THE QUESTION-HAS THE EXPENSES BEEN INCURRED WIT H THE SOLE OBJECT OF FURTHERING THE TRADE OR BUSINESS INTEREST OF THE ASSESSEE UNALLOYED OR UNMIXED WITH ANY OTHER CONSIDERATION? IT IS TRITE THAT WHERE A N ASSESSEE SEEKS TO DEDUCT FROM HIS BUSINESS PROFITS CERTAIN ITEMS OF EXPENDITURE THE ONUS OF PROVING TH AT SUCH DEDUCTIONS ARE PERMISSIBLE FALLS ON THE ASSESS EE. THIS IS ALL THE MORE SO WHEN THE CLAIMS ARE BASED O N FACTS WHICH ARE WITHIN THE EXCLUSIVE KNOWLEDGE OF THE ASSESSEE. THUS, THE ASSESSEE HAS TO PLACE ALL THE FACTS AND CIRCUMSTANCES BEFORE THE REVENUE AUTHORITIES AND THE LATTER MUST EXAMINE THESE AND MAKE UP ITS MIND AS TO WHETHER THE EXPENSES WAS JUSTIFIED BY COMMERCIAL EXPEDIENCY. (EMPHASIS SUPPLIED) ITA NO.6302/MUM/2012 ASSESSMENT YEAR: 2009-10 5 3.2 IN VIEW OF THE SAID FINDING THE ASSESSING OFFIC ER DISMISSED THE SAID EXPENDITURE. IN APPEAL THE LEARNED CIT(A) HAS ALSO CONFIRMED THE DISALLOWANCE. THE LEARNED REPRESENTATIVE OF THE AS SESSEE HAS ARGUED THAT THE ASSESSEE HAS PAID THE FRINGE BENEFIT TAX. THERE FORE, IN THE SAID CIRCUMSTANCES NO DISALLOWANCE ON ACCOUNT OF FOREIGN EXPENDITURE IS LIABLE TO BE AGREED IN VIEW OF THE JUDICIAL PRONOUN CEMENTS OF THE CO- ORDIANATE BENCH IN I.T.A NO.137/MUM/2012 A.Y.2008-0 9 DATED 31.01.2013 IN CASE OF J.K.H. EXPORT VS. ACIT CIRCLE 19(1). 3.3 ON THE OTHER HAND LEARNED DEPARTMENTAL REPRESEN TATIVE HAS STRONGLY RELIED UPON THE ORDER PASSED BY THE LEARNE D CIT(A). 3.4 KEEPING IN VIEW OF THE ARGUMENT ADVANCED BY THE LEARNED REPRESENTATIVE OF THE PARTIES AND PERUSED THE RECOR D, WE ARE OF THE VIEW THAT IT IS NECESSARY TO ADVERT THE OBSERVATION MADE BY THE ASSESSING OFFICER IN CONNECTION OF DISALLOWANCE OF FOREIGN TR AVELLING EXPENSES TO THE TUNE OF RS.4,00,038/-. 4.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, T HE ASSESSEE VIDE THIS OFFICER ORDER SHEET NOTING DATED 22.12.2011, WAS ASKED TO PROVIDE COMPLETE DETAILS O F FOREIGN TRAVEL NAME OF PERSON, COUNTRY VISITED, P ERIOD OF TRAVEL, PURPOSE OF TRAVEL ALONGWITH SUPPORTING EVID ENCES. IN RESPONSE, THE ASSESSEE SUBMITTED DETAILS ON 26.1 2.2011 AND IT WAS SEEN THAT FOREIGN TRAVEL EXPENDITURE IN CONNECTION WITH FAMILY MEMBERS OF MR.GOPAL RAO (DIRECTOR) WERE ALSO CLAIMED AS INCURRED FOR BUSINE SS PURPOSE. THE ASSESSEE WAS ALSO CONFRONTED WITH THE SAME ITA NO.6302/MUM/2012 ASSESSMENT YEAR: 2009-10 6 AND WAS ASKED AS TO WHY THE ABOVE EXPENSES SHOULD N OT BE DISALLOWED. THE ASSESSEE VIDE LETTER DATED 27.12. 2011 FILED DETAILS OF FOREIGN TRAVEL EXPENSE INCURRED FOR THE FAMILY MEMBERS OF MR. GOPAL RAO WHICH ARE AS UNDER:- NAME OF THE PERSON TRAVELLING DATE NAME OF THE PAYEE RUPEES KAJAL & ISHA RAO 08.11.2008 WELDON TOURS & TRAVELS 1,48,934/- DIPANSHU RAO 02.12.2008 --DO-- 67,652/- KAJAL / ISHA / DIPANSHU / RAO 16.10.2008 --DO-- 1,83,452/- 4,00,038/- IN VIEW OF THE ABOVE, IT CANNOT BE SAID THAT THE AF ORESAID EXPENSES OF RS.4,00,038/- INCURRED TOWARDS FOREIGN TRAVEL OF FAMILY MEMBERS IS FOR THE PURPOSES OF BUSINESS. 4.3 IN THIS CONNECTION, RELIANCE IS PLACED ON THE F ULL BENCH DECISION OF THE KERALA HIGH COURT IN THE CASE OF RAM BAHADUR THAKUR LTD., 261 ITR 390, WHEREIN THE HONBLE COURT HAS EXPRESSED THEIR OPINION AS UNDER: IN ORDER THAT A PARTICULAR ITEM OF EXPENDITURE MAY BE DEDUCTIBLE UNDER SUB-S.(1) OF S. 37 THE FOLLOWING CONDITIONS SHOULD CONCUR : (1) THE EXPENDITURE SHOU LD NOT BE OF THE NATURE DESCRIBED IN SS. 30 TO 36 (2) IT SHOULD HAVE BEEN INCURRED IN THE ACCOUNTING YEAR, ( 3) IT SHOULD BE IN RESPECT OF A BUSINESS WHICH WAS CARRIED ON MY THE ASSESSEE AND THE PROFITS OF WHICH ITA NO.6302/MUM/2012 ASSESSMENT YEAR: 2009-10 7 ARE TO BE COMPUTED AND ASSESSED, (4) IT SHOULD NOT BE IN THE NATURE OF PERSONAL EXPENSES OF THE ASSESSEE, (5) IT SHOULD HAVE BEEN LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF SUCH BUSINESS, AND ( 6) IT SHOULD NOT BE IN THE NATURE OF CAPITAL EXPENDITU RE. IT IS FOR THE ASSESSEE WHO CLAIMS DEDUCTION OF THE EXPENDITURE UNDER THIS SUB-SECTION TO SATISFY THE PROVISIONS OF S.40A(2) SO FAR AS A COMPANY IS CONCERNED, IT IS OPEN TO THE TAXING AUTHORITIES TO GO INTO THE REASONABLENESS OF THE EXPENSES ALSO. THE ASSESSING OFFICER IS ALSO ENTITLED TO BE SATISFIED AS TO THE COMMERCIAL NECESSITY OF SPENDING THAT AMOUNT. IN OTHER WORDS, THERE MUST BE NEXUS BETWEEN THE EXPENDITURE AND THE BUSINESS PURPOSE. THE CAPACITY IN WHICH THE ASSESSEE SPENDS WILL ALSO BE RELEVANT. THE PURPOSE MUST BE FOR THE PURPOSE OF THE BUSINESS , I.E., THE EXPENDITURE MUST BE INCURRED FOR CARRYING ON OF THE BUSINESS AND THE ASSESSEE SHOULD HAVE INCURR ED IT IN HIS CAPACITY AS A PERSON CARRYING ON THE BUSINESS. THE TERM WHOLLY REFERS TO THE QUANTUM OF THE EXPENDITURE AND EXCLUSIVELY REFERS TO THE MOTIVE, OBJECTIVE AND PURPOSE OF THE EXPENDITURE. THE TRUE TEST OF AN EXPENDITURE LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF TRADE OR BUSINESS I S THAT IT IS INCURRED BY THE ASSESSEE AS INCIDENTAL T O HIS TRADE FOR THE PURPOSE OF KEEPING THE TRADE GOING AN D ITA NO.6302/MUM/2012 ASSESSMENT YEAR: 2009-10 8 OF MAKING IT PAY AND NOT IN ANY OTHER CAPACITY THAN THAT OF A TRADER. THE MANNER TO APPLY THE TEST IS TO ASK THE QUESTION-HAS THE EXPENSES BEEN INCURRED WIT H THE SOLE OBJECT OF FURTHERING THE TRADE OR BUSINESS INTEREST OF THE ASSESSEE UNALLOYED OR UNMIXED WITH ANY OTHER CONSIDERATION? IT IS TRITE THAT WHERE A N ASSESSEE SEEKS TO DEDUCT FROM HIS BUSINESS PROFITS CERTAIN ITEMS OF EXPENDITURE THE ONUS OF PROVING TH AT SUCH DEDUCTIONS ARE PERMISSIBLE FALLS ON THE ASSESS EE. THIS IS ALL THE MORE SO WHEN THE CLAIMS ARE BASED O N FACTS WHICH ARE WITHIN THE EXCLUSIVE KNOWLEDGE OF THE ASSESSEE. THUS, THE ASSESSEE HAS TO PLACE ALL THE FACTS AND CIRCUMSTANCES BEFORE THE REVENUE AUTHORITIES AND THE LATTER MUST EXAMINE THESE AND MAKE UP ITS MIND AS TO WHETHER THE EXPENSES WAS JUSTIFIED BY COMMERCIAL EXPEDIENCY. (EMPHASIS SUPPLIED) 4.4 IN THE LIGHT OF ABOVE DISCUSSION, THE EXPENDITU RE INCURRED ON FOREIGN TRAVEL AGGREGATING TO RS.4,00,0 38/- IS BEING DISALLOWED. PENALTY PROCEEDINGS U/S. 271(1)( C) ARE INITIATED SEPARATELY FOR FURNISHING OF INACCURATE P ARTICULARS OF INCOME. 3.5 IT IS ALSO REQUIRED TO BE SEEN WHAT THE LEARNED CIT(A) HAS ORDERED WHILE GIVING THE FINDING ON THE ABOVE MENTIONED DEC ISION. IN THIS REGARD THE PARA NO. 2.3 IS HEREBY REPRODUCED AS UNDER:- ITA NO.6302/MUM/2012 ASSESSMENT YEAR: 2009-10 9 2.3 I HAVE CONSIDERED THE FACTS OF THE CASE. THE APPELLANT HAS INCURRED FOREIGN TRAVEL EXPENSES AT RS.4,00,038/- WHICH PERTAINS TO THE FAMILY MEMBERS OF ONE OF THE DIRECTOR. THE APPELLANT HAS FAILED T O EXPLAIN AS TO HOW INCURRING OF SUCH EXPENDITURE ON FAMILY MEMBERS WILL BE BENEFITED TO THE BUSINESS OF THE APPELLANT. THE EXPENDITURE ON FOREIGN TRAVEL EXPENSES OF FAMILY MEMBERS WAS HAVING NO NEXUS WITH THE APPELLANTS BUSINESS. IN THE FACTS AND CIRCUMSTANCES THE EXPENDITURE WAS NOT INCURRED BY THE APPELLANT WHOLLY AND EXCLUSIVELY FOR THE PURPOS E OF BUSINESS. THE DISALLOWANCE MADE BY A.O. IS THEREFORE, UPHELD. THIS GROUND OF APPEAL IS DISMISSED. 3.5. NOW THE QUESTION AROSE WHETHER THIS FOREIGN EX PENSES OF RS.4,00,038/- IS REQUIRED TO BE ALLOWED MERELY ON T HE GROUND OF THAT THE ASSESSEE HAS PAID THE FRINGE BENEFIT TAX. THE APPE LLANT HAS INCURRED THE FOREIGN TRAVEL EXPENSES TO THE TUNE OF RS.4,00,038/ - PERTAINING TO THE FAMILY MEMBER OF ONE OF THE DIRECTOR. APPARENTLY, THE EXPENDITURE ARE CLEARLY IN THE NATURE OF PERSONAL EXPENDITURE OF TH E FAMILY MEMBER OF THE DIRECTOR. HOWEVER, AT THE TIME OF ARGUMENT THE LEARNED REPRESENTATIVE OF THE ASSESSEE HAS PLACED RELIANCE UPON THE ORDER PASSED BY INCOME TAX APPELLATE TRIBUNAL, MUMBAI IN CASE M/ S. OM INTERCONTINENTAL VS. JCIT CIR 18(2). ON APPRAISAL OF THE SAID ORDER IT IS APPARENT THAT THE SAID ORDER IS IN CONNECTION WITH THE EMPLOYEE OF A ITA NO.6302/MUM/2012 ASSESSMENT YEAR: 2009-10 10 COMPANY WHERE THE FRINGE BENEFIT TAX WAS PAID. BUT IN THE INSTANT CASE THE FOREIGN TRAVELLING EXPENSES WERE CLAIMED ON ACC OUNT OF THE FAMILY MEMBER OF THE DIRECTOR MR. GOPAL RAO. NO DOUBT IN THE SAID CIRCUMSTANCE THE LAW RELIED BY THE LEARNED REPRESEN TATIVE OF THE ASSESSEE IS NOT APPLICABLE TO THE PRESENT CASE. SO FAR AS T O FURNISHING THE FRINGE BENEFIT TAX QUA THE FAMILY MEMBER OF THE ONE OF THE DIRECTOR IS CONCERNED, THE SAME CAN BE CLAIMED BACK IF SO ADVIS ED. IN VIEW OF THE SAID CIRCUMSTANCES WE ARE OF THE VIEW THAT THE LEAR NED CIT(A) HAS PASSED THE ORDER JUDICIOUSLY AND CORRECTLY WHICH DO ES NOT REQUIRED TO BE INTERFERE WITH AT THIS APPELLATE STAGE. 4. IN RESULT THE APPEAL OF THE ASSESSEE IS HEREBY D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH MAY, 2016 SD/- SD/- (B.R.BASKARAN) (AMARJIT SINGH) / ACCOUNTANT MEMBER #$ /JUDICIAL MEMBER % & MUMBAI; ' DATED : 11 TH MAY, 2016 MP MP MP MP ITA NO.6302/MUM/2012 ASSESSMENT YEAR: 2009-10 11 ' ( )# !* +*& / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ( ) / THE CIT(A)- 4. ( / CIT 5. )*+ $$,- , ,- , % & / DR, ITAT, MUMBAI 6. +./ 0 / GUARD FILE. ' / BY ORDER, ) $ //TRUE COPY// , / ' (DY./ASSTT. REGISTRAR) , % & / ITAT, MUMBAI