M/s Lokesh Machines Ltd., Hyderabad V. JCIT, Hyderabad

ITA 652/HYD/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3150 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 1 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 03-06-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 18-05-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: H PHANI RAJU
• Assessee Lawyers: B R MAHESH
• Keywords: Business expenditure; Opportunity of being heard; Additional evidence; Corroborative evidences
• Section: 143(3); 37

Judgement Text

ITA NO.652/HYD/2009 M/S.LOKESH MACHINES LTD., HYD. 1 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI AKBER BASHA, ACCOUNTANT MEMBER ITA NO. 652/HYD/09 : ASSTT. YEAR: 2005-06 M/S/ LOKESH MACHINES LTD., HYDERABAD. PAN:AABCL 4244 L VS JCIT, RANGAE-16, HYDERABAD. (APPELLANT) (RESPONDENT) APPELLANT BY : SRI B.R. MAHESH RESPONDENT BY : SHRI H. PHANI RAJU O R D E R PER AKBER BASHA, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGA INST THE ORDER OF THE CIT (A)-V, HYDERABAD DATED 25-3-2009 PERTAINING TO THE ASSESSMENT YEAR 2005-06. 2. GROUNDS RAISED BY THE ASSESSEE READ AS UNDER:- '1. THE LEARNED CIT (A) HAS ERRED ON POINTS OF LAW AND FACTS. 2. THE CIT (A) OUGHT TO HAVE ALLOWED THE FOREIGN T RAVEL EXPENDITURE OF RS.4,13,105 BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE. ITA NO.652/HYD/2009 M/S.LOKESH MACHINES LTD., HYD. 2 3. THE CIT (A) OUGHT TO HAVE ALLOWED THE DEPOSITS W RITTEN OFF AMOUNTING TO RS.9,24,298 AS BUSINESS EXPENDITURE BA SED ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 4. THE CIT (A) OUGHT TO HAVE ALLOWED EXPENDITURE I NCURRED ON MEMBERSHIP, AMOUNTING TO RS.2,25,000 AS BUSINESS EX PENDITURE BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE.' 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE C OMPANY, ENGAGED IN THE MANUFACTURING OF SPECIAL AND GENERAL PURPOSE MACHINES, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATI ON ON 28-10-2005 DECLARING TOTAL INCOME OF RS.5,02,35,900. THE RETU RN WAS PROCESSED UNDER SECTION 143(1) ON 31-3-2006. SUBSEQUENTLY, THE CAS E WAS SELECTED FOR SCRUTINY AND A NOTICE UNDER SECTION 143(2) WAS ISSU ED ON 19-10-2006. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT UNDER SE CTION 143(3) OF THE ACT DETERMINING TOTAL INCOME AT RS.7,01,56,800 AFTER MA KING DISALLOWANCES UNDER 5 DIFFERENT HEADS. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT (A) CHALLENG ING DISALLOWANCES MADE UNDER 5 DIFFERENT HEADS. ON APPEAL, THE CIT (A) A FTER CONSIDERING THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND DISCUSSING TH E ISSUES ELABORATELY IN HIS ORDER, PARTLY ALLOWED THE APPEAL OF THE ASSESSEE AN D CONFIRMED THE DISALLOWANCE UNDER THREE HEADS. FURTHER AGGRIEVED BY THE FINDINGS AND THE DECISION OF THE FIRST APPELLATE AUTHORITY, THE ASSE SSEE IS IN APPEAL BEFORE US. 4. GROUND NOS.1 AND 5 ARE GENERAL IN NATURE AND N O ADJUDICATION IS REQUIRED. GROUND NO.2 RELATES TO DISALLOWANCE M ADE OUT OF FOREIGN TRAVEL EXPENSES. THE ASSESSEE CLAIMED A SUM OF RS.22.82 LA KHS TOWARDS FOREIGN TRAVEL EXPENDITURE IN HIS RETURN OF INCOME. THE AS SESSING OFFICER DISALLOWED RS.4,13,105 ON THE GROUND THAT THE ASSESSEE COULD N OT FURNISH THE DETAILS/VOUCHERS TOWARDS VISIT OF THE MANAGING DIRE CTOR TO COLOMBO AND ITALY AND TREATED THE SAID EXPENDITURE INCURRED NOT FOR T HE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. BEFORE THE CIT (A) TH E ASSESSEE SUBMITTED THAT ITA NO.652/HYD/2009 M/S.LOKESH MACHINES LTD., HYD. 3 THE MANAGING DIRECTOR OF THE COMPANY HAS VISITED IT ALY FOR EXPORT BUSINESS NEGOTIATIONS AND TO COLOMBO FOR BUSINESS CONFERENCE . HE FURNISHED COPIES OF THE LEDGER ACCOUNT OF THE FOREIGN TRAVEL EXPENDITUR E ALONG WITH THE BOARD RESOLUTION AND CASH MEMO. THE CIT (A) CONFIRMED T HE DISALLOWANCE IN THE ABSENCE OF ANY SUPPORTING EVIDENCE PRODUCED BY THE ASSESSEE THAT THE ASSESSEE MADE THE TOUR TO COLOMBO AND ITALY FOR THE PURPOSE OF BUSINESS. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AUTHORITIES NOT DOUBTED THE GENUINENESS OF THE PAYMENT BUT ONLY DOU BTED THE PURPOSE OF VISIT WHETHER IT IS MEANT FOR THE BUSINESS OR NOT. THE VISIT OF THE MANAGING DIRECTOR ALWAYS FOR THE PURPOSE OF BUSINESS AND THE REFORE THE SAID AMOUNT IS INCURRED ONLY FOR THE PURPOSE OF BUSINESS AND NOT F OR PERSONAL PURPOSE. HENCE, THE SAME IS ALLOWABLE UNDER SECTION 37 OF THE ACT. IN THIS REGARD, HE PLACED COPIES OF THE LEDGER ACCOUNT PERTAINING TO FOREIGN TRAVEL EXPENDITURE IN HIS PAPER BOOK FILED AT PAGES 3 TO 8 AND SUBMIT TED THAT THE MANAGING DIRECTOR OF THE ASSESSEE TRAVELED SO MANY TIMES ABR OAD AND THE DEPARTMENT DOUBTED THE VISITS OF TOUR TO COLOMBO AND ITALY IN PARTICULAR. THE CIT (A) NOT ADMITTED THE ADDITIONAL EVIDENCES FILED BY THE ASSE SSEE IN THE FORM OF VOUCHERS, PHOTO COPIES OF BOARD RESOLUTION ETC., AN D CONFIRMED THE ADDITION. IT IS SUBMITTED THAT CIT (A) HAS POWERS TO ADMIT AD DITIONAL EVIDENCE IN TERMS OF PROVISIONS OF RULE 46A (3). IN THIS REGARD, HE RELIED ON THE DECISION OF THE GOWHATI HIGH COURT IN THE CASE OF CIT VS. PODDAR SW ADESH UDYOG P. LTD. 295 ITR 252 (GAUHATI). 5. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REP RESENTATIVE SUBMITTED THAT SUFFICIENT OPPORTUNITY WAS ALREADY G IVEN TO THE ASSESSEE FOR FURNISHING THE EVIDENCES AND HENCE THE CIT (A) IS R IGHT IN NOT ADMITTING THE ADDITIONAL EVIDENCE FILED BY THE ASSESSEE. EVEN OT HERWISE, IN THE ABSENCE OF ANY SUPPORTING EVIDENCE, IT CANNOT BE SAID THAT THE SAID EXPENDITURE INCURRED BY THE ASSESSEE WAS EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. ITA NO.652/HYD/2009 M/S.LOKESH MACHINES LTD., HYD. 4 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND FROM THE ORD ER OF THE CIT(A) THAT THE ASSESSING OFFICER VIDE HIS QUESTIONNAIRE DATED 12-1 2-2007 ASKING THE ASSESSEE TO FURNISH THE BREAK-UP OF THE TRAVEL EXPE NDITURE ALONG WITH DETAILS OF TRAVEL WITH SUPPORTING EVIDENCE AND THE ASSESSIN G OFFICER PASSED HIS ORDER ON 31-12-2007. FROM THIS IT SHOWS THAT THE ASSESSE E HAS NOT BEEN GIVEN SUFFICIENT OPPORTUNITY BY THE ASSESSING OFFICER DUR ING THE ASSESSMENT PROCEEDINGS TO EXPLAIN ITS CLAIM. UNDER THESE CIRCU MSTANCES, IN THE INTEREST OF JUSTICE, WE FEEL IT PROPER TO ADMIT THE ADDITIONAL EVIDENCES FILED BY THE ASSESSEE AND RESTORE THE ISSUE TO THE FILE OF THE A SSESSING OFFICER FOR RECONSIDERATION IN ACCORDANCE WITH LAW AFTER AFFORD ING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THUS, THIS GROUND OF THE AS SESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 7. GROUND NO.3 RELATES TO DISALLOWANCE OF RS.9,94, 298 TOWARDS DEPOSITS WRITTEN OFF. THE ASSESSEE HAS CLAIMED AN A MOUNT OF RS.11.25 LAKHS TOWARDS DEPOSITS WRITTEN OFF. OUT OF RS.11.25 LAKH S, THE ASSESSING OFFICER DISALLOWED RS.9.94 LAKHS. AGGRIEVED BY THE ORDER O F THE ASSESSING OFFICER, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT (A) AND THE CIT (A) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. FURTHER AGGRIEVED, THE ASSESSEE IN APPEAL BEFORE US. THE LEARNED COUNSEL FOR THE A SSESSEE SUBMITTED THAT THE ASSESSEE HAS IMPORTED THE MACHINERY PARTS FROM ITAL Y AND PAID A SUM OF RS.9.25 TOWARDS NON REFUNDABLE CUSTOMS DEPOSIT. THE SAME WOULD BE REFUNDABLE, ONLY IF THE SPARE PARTS ARE USED FOR RE -EXPORT OF MACHINERY. SINCE, THE ASSESSEE CONSUMED THE SPARE PARTS AND ON LY PARTS OF THE SPARES WERE USED FOR RE-EXPORT AND FOR THE BALANCE, THERE WAS DELAY IN EXPORT. THE ASSESSEE CONTENDED THAT IT WAS CORRECTLY WRITTEN OF F IN THE YEAR UNDER CONSIDERATION AS THE MATERIAL WAS CONSUMED LOCALLY AND THE SAME WAS CRYSTALLIZED IN THE YEAR CONSIDERATION. IT IS SUBMI TTED THAT THE CUSTOM DUTY WAS PAID TO THE GOVERNMENT WHICH IS A GENUINE EXPEN DITURE. IN RESPECT OF THE OTHER AMOUNTS, IT IS SUBMITTED THAT THE SAME AR E SMALL DEPOSITS WHICH ITA NO.652/HYD/2009 M/S.LOKESH MACHINES LTD., HYD. 5 WERE PENDING FOR LONG TIME AND THOSE AMOUNTS REPRES ENT BUSINESS EXPENDITURE. HENCE, IT IS CONTENDED THAT ITS CLAIM F OR WRITING OF THOSE AMOUNTS SHOULD BE ALLOWED AS DEDUCTION. 8. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL RE PRESENTATIVE SUBMITTED THAT THE ASSESSEE PAID THE SAID AMOUNT TO WARDS NON-REFUNDABLE CUSTOMS DUTY FOR IMPORTING MACHINERY PARTS AND THE ASSESSEE DID NOT IMPORT ANY MACHINERY. EVEN OTHERWISE, THE DEDUCTION CAN BE ALLOWED IN THE WHEN THE ASSESSEE HAS MADE SUCH DEPOSIT AND NOT IN THE Y EAR UNDER CONSIDERATION. 9. WE HAVE CONSIDERED THE SUBMISSIONS OF THE RIVA L PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE CIT (A) FOUND THAT THE ASSESSEE HAS PAID A SUM OF RS.9,20,236 TOWARDS NON REFUNDABLE CUSTOMS DUTY FOR IMPORTING MACHINERY PARTS/SPARE PARTS FROM FPT, ITALY. HOWEVER, FROM THE DETAILS FURNISHED BY THE ASSESSEE AS REFER RED TO BY THE ASSESSING OFFICER IN PARA 5 OF THE ASSESSMENT ORDER, IT MAY B E SEEN THAT WHILE CLARIFYING ON THE SAID DEPOSIT OF RS.9,20,236 THE ASSESSEE HAS SUBMITTED BEFORE HIM THAT THOUGH SUCH DEPOSIT HAS BEEN MADE FOR IMPORT O F MACHINERY IN THE PAST, THE COMPANY DID NOT IMPORT ANY MACHINERY. THUS, TH E ASSESSEE HAS MADE ALTOGETHER DIFFERENT SUBMISSION BEFORE THE CIT (A). THE CIT (A) RIGHTLY HELD THAT WHEN THE ASSESSEE HAS NOT IMPORTED ANY MACHINE RY, THEN SUCH DEPOSITS OF RS.9,20,236 MADE TOWARDS CUSTOMS DUTY WITH GOVER NMENT AUTHORITY COULD NOT BE ALLOWED AS DEDUCTION THOUGH WRITTEN OFF BY T HE ASSESSEE IN ITS BOOKS OF ACCOUNTS. IT WAS HELD BY THE CIT (A) THAT EVEN IF THE ASSESSEE HAS IMPORTED MACHINERY/SPARE PARTS AGAINST THE SAID AMO UNT OF RS.9,20,236 PAID TOWARDS CUSTOMS DUTY AND SUCH MACHINERY SPARE PARTS WERE CONSUMED BY THE COMPANY, THEN DEDUCTION FOR THAT AMOUNT COULD B E ALLOWED IN THE YEAR WHEN THE ASSESSEE HAS MADE SUCH DEPOSIT AND NOT IN THE CURRENT YEAR RELEVANT TO THE ASSESSMENT YEAR 2005-06. IN THIS V IEW OF THE MATTER, HE HELD THAT THE CLAIM OF THE ASSESSEE FOR THE SAID AMOUNT OF RS.9,20,236 TOWARDS FPT CUSTOMS DUTY COULD NOT BE ALLOWED AS DEDUCTION IN THE ASSESSMENT YEAR UNDER CONSIDERATION. THE LEARNED COUNSEL FOR THE A SSESSEE DID NOT BRING ANY ITA NO.652/HYD/2009 M/S.LOKESH MACHINES LTD., HYD. 6 EVIDENCE ON RECORD EXCEPT FILING A LEDGER EXTRICATE DEPOSIT WRITTEN OFF IN THE ASSESSEE'S BOOKS OF ACCOUNT IN SUPPORT OF HIS CONTE NTION. AFTER CONSIDERING THE FACTS AND THE CIRCUMSTANCES OF THE CASE, WE FIN D THAT THE CIT (A) IS RIGHT IN CONFIRMING THE DISALLOWANCE MADE BY THE ASSESSIN G OFFICER AND HENCE NO INTERFERENCE IS CALLED FOR IN THIS REGARD. ACCORDI NGLY, WE UPHOLD HIS ORDER AND DISMISS THE GROUND RAISED BY THE ASSESSEE. 10. THE GROUND 4 RELATES TO DISALLOWANCE OF CLUB MEMBERSHIP FEE OF RS.2,25,000. WE FIND THAT THE ISSUE IS SQUARELY CO VERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF DELHI HIGH COURT IN TH E CASE OF CIT VS. SAMTEL COLOUR LIMITED REPORTED IN 180 TAXMAN 82 WHEREIN TH E DELHI HIGH COURT HELD THAT THE EXPENDITURE INCURRED TOWARDS CLUB MEMBERSH IP FEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 37 OF THE ACT BY FOLLOWING THE RATIO OF THE JUDGMENT OF THE DELHI HIGH COURT IN THE CASE OF CIT VS. NEST LE INDIA LIMITED REPORTED IN 296 ITR 682 (DEL) AND THAT OF MUMBAI HIGH COURT IN T HE CASE OF OTIS ELEVATOR COMPANY INDIA LIMITED VS. CIT REPORTED IN 195 ITR 6 82 AND IN THAT CASE, THE DELHI HIGH COURT DISAGREED WITH THE RATIO OF THE JU DGMENT OF THE KERALA HIGH COURT IN THE CASE OF FRAMATONE CONNECTOR OEN LIMITE D VS. DCIT REPORTED IN 294 ITR 559 ON WHICH THE CIT(A) HAS RELIED UPON. I N VIEW OF THE ABOVE, WE HOLD THAT THE ASSESSEE IS ELIGIBLE TO CLAIM CLUB ME MBERSHIP FEE AS EXPENDITURE UNDER SECTION 37 OF THE ACT. THUS, THI S GROUND OF THE ASSESSEE IS ALLOWED. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSE E IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER WAS PRONOUNCED IN THE COURT ON 30 -6-2010. SD/- N.R.S. GANESAN SD/- AKBER BASHA JUDICIAL MEMBER ACCOUNTANT MEMBER. DT/- 30TH JUNE, 2010 ITA NO.652/HYD/2009 M/S.LOKESH MACHINES LTD., HYD. 7 COPY FORWARDED TO: 1. M/S. MAHESH, VIRENDER & SRIRAM, CAS, 6-3-788/36 & 37A, AMEERPET, HYDERABAD. 2 JCIT, RANGE-16, HYDERABAD. 3. 5. THE CIT, AP, HYDERABAD. 4) CIT (A)-V, HYDERABAD. DR, ITAT, HYDERABAD. JMR*