INDO BEARING TRADERS, MUMBAI V. ASST CIT 19(1), MUMBAI

ITA 7119/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8569 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2007-2008
• Appeal Filed On: 20-10-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C G K NAIR
• Assessee Lawyers: H S RAHEJA
• Keywords: Depreciation; Business expenditure; Fair market value
• Section: 260A; 80G

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES I , MUMBAI BEFORE SHRI RAJENDRA SINGH , AM AND SHRI VIJAY PAL RAO , JM ITA NO. 7119 / MUM/ 20 11 ( ASSESSMENT YEAR : 200 7 - 200 8) INDO BEARING TRADERS, 61, PARK VIEW, 10TH RD., MADHU PARK, KHAR (W) , MUMBAI - 400 052. VS. ACIT 19(1), MUMBAI PAN/GIR NO . : AAAFI 7236 A ( APPELLANT ) .. ( RESPONDENT ) /APPELLANT BY : MR. H.S. RAHEJA /RESPONDENT BY : MR. C.G.K.NAIR DATE OF HEARING : 25 TH SEPT.2012 DATE OF PRONOUNCEMENT : 10 TH OCT.,2012 O R D E R PER VIJAY PAL RAO J M : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 6 - 9 - 2011 OF CIT(A) FOR THE ASSESSMENT YEAR 2007 - 08. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN THIS APPEAL : - 1. ON TH E FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSION OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST PAYMENT OF RS. 613,536/ - MADE BY THE ASSESSING OFFICER IN RESPECT OF THE FOLLOWING PARTIES BY APPLYING THE PROVISIO NS OF SECTION 4OA(2(B) OF THE INCOME TAX ACT, 1961: A) DIVYA A. TAHILIANI 73,374 B) PADMA B. TAHILIANI 67,817 C)B.J. TAHILIANI 147,896 D)SMIRTHYA TAHILIANI 147,576 ITA NO. 7119/2011 2 E) KRISHA A. TAHILIANI 47,515 F) ASHISH B. TAHILIANI 129,398 TOTAL 613,576 THE APPELLANT SUBMITS THAT THE DISALLOWANCE CONFIRMED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO BE DELETED. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CON FIRMI NG DISALLOWANCE OF FOREIGN TRAVEL EXPENSES TO THE TUNE OF RS. 2,55, 716/ - OUT OF FOREIGN TRAVELLING EXPENSES OF RS .3,83,574/ - MADE BY THE ASSESSING OFFICER. THE APPELLANT SUBMITS THAT THE ENTIRE FOREIGN TRAVELLING EXPENSES WERE INCURRED FOR THE PURPOSE OF BUSINESS AND HENCE FOREIGN TRAVELLING EXPENSES OF RS. 2,55, 716/ - OUGHT TO BE ALLOWED. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN RESTRICTING THE DISALLOWANCE OF MOTOR CAR EXPENSES TO 10% OF THE TOTAL MOTOR CAR EXPENSES. THE APPELLANT SUBMITS THAT MOTOR CAR EXPENSES WERE INCURRED FOR THE PURPOSE OF BUSINESS AND ON THIS EXPENSE FRINGE BENEFIT TAX HAS BEEN PAID AND HENCE THE EXPENSES CLAIMED OUGHT TO BE ALLOWED FULLY. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN UPHOLDING THE DISALLOWANCE OF DEDUCTION OF RS. 3,250 U/S.80G ON THE DONATION OF RS. 6,500/ - . 2. GROUND NO.1 REGARDING DISALLOWANCE INTEREST PAYMENT TO THE RELATED P ARTIES UNDER SECTION 40A(2)(B) OF THE I .T. ACT. THE ASSESSEE PAID INTEREST @ 18% TO THE FAMILY MEMBERS, WHEREAS THE INTEREST PAID TO ONE UNRELATED PARTY AT 12% ONLY. ACCORDINGLY, THE ASSESSING OFFICER RESTRICTED THE INTEREST AT 12% AND DISALLOWED THE DIFFE RENTIAL RATE OF INTEREST AT 6% PAID TO THE RELATED PARTIES AMOUNTING TO RS .6,13,576 / - UNDER SECTION 40A(2)(B) OF THE I .T. ACT. ON APPEAL, THE CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON THE GROUND THAT THE INITIAL BURDEN IS ON THE AS SESSEE TO PROVE THIS AMOUNT PAID BY IT IS NOT EXCESSIVE OR UNREASONABLE. 2.1 BEFORE US, THE LEANED AR OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE HAS TAKEN THE LOAN FROM THE RELATIVES IN THE EARLIER YEARS AND ITA NO. 7119/2011 3 NOT FOR THE YEAR UNDER CONSIDERATION. HE HAS FURTHER SUBMITTED THAT NO DISALLOWANCE WAS MADE ON ACCOUNT OF INTEREST PAYMENT AT THE RATE OF 18% IN THE EARLIER YEARS. LEARNED AR HAS FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAS COMPARED THE INTEREST PAYMENT WITH ONE PARTY, NAMELY, R.K. CONSTRUCT ION WITHOUT CONSIDERING THE FACT THAT THE AMOUNT OF LOAN IN RESPECT OF THE SAID PARTIES IS NEGLIGIBLE AND ONLY RS .51 ,540/ - . LEARNED AR HAS FURTHER SUBMITTED THAT NO ENQUIRY HAS BEEN MADE BY THE AUTHORITIES BELOW TO DETERMINE THE RATE OF INTEREST AT WHICH THE ASSESSEE COULD GET FUND FROM THE MARKET WITHOUT FURNISHING ANY SECURITY. HE HAS FURTHER SUBMITTED THAT THE RATE OF INTEREST PAID TO THE BANK CANNOT BE COMPARED WITH THE INTEREST PAID TO THE RELATED PARTY BECAUSE THE BANK SECURITY WHICH IS NOT IN THE CA SE OF THE LENDERS, WHO ARE FAMILY MEMBERS. LEARNED AR FURTHER CONTENDED THAT THE RATE OF INTEREST PAID TO THE BANK AGAINST THE SECURITY IS 16.5% AND , HENCE, INTEREST TO THE RELATED PARTY TO 18% WITHOUT ANY SECURITY, CANNOT BE CONSIDERED EXCESSIVE KEEPING I N VIEW THE MARKET CONDITION. LEARNED AR HAS FURTHER SUBMITTED THAT THE PROVISION OF SECTION 40(A)(2)(B) ARE TO BE APPLIED TO CHECK EVASION OF TAX AS HAS BEEN CLARIFIED BY THE CBDT CIRCULAR DATED 6 - 7 - 1968. LEARNED AR HAS POINTED OUT THAT THE RECIPIENTS OF I NTEREST ARE PAYING TAX AT THE HIGHEST RATE ON THE INCOME, THEREFORE, THERE IS NO CASE OF EVASION OF TAX BY PAYING THE INTEREST AT 18% TO THE RELATED PARTIES. HE HAS RELIED UPON THE DECISION OF HONBLE HIGH COURT IN THE CASE OF CIT VS. INDO SAUDI SERVICES ( TRAVEL) P. LTD., REPO RTED IN [2009] 310 ITR 306 (BOM .) AS WELL AS IN THE ITA NO. 7119/2011 4 CASE OF CIT VS. V.S.DE M PO & CO. (P.) LTD., REPORTED IN [2011] 196 TAXMAN 193 AND SUBMITTED THAT THE HONBLE HIGH COURT HAS HELD THAT WHEN THE ASSESSEE AS WELL AS ITS SUBSIDIARIES WERE IN THE SAME TAX BRACKET AND PAID THE SAME RATE OF TAX, THERE WAS NO QUESTION OF DIVERSION OF FUNDS BY PAYING HIGHER RATE TO SUBSIDIARY COMPANIES AND, THEREFORE, NO DISALLOWANCE COULD BE MADE UNDER SECTION 40A(2)(B). THUS, THE LEARNED AR HAS SUBMITTED THAT THERE WAS NO QUESTION TO EVADE TAX BY PAYING INTEREST AT THE RATE OF 18% TO THE RELATED PARTY. 2.2 ON THE OTHER HAND, LEARNED DR HAS SUBMITTED THAT THE ASSESSEE HAS TAKEN LOAN FOR KEEPING THE SAME IN THE FIXED DEPOSIT WITH THE BANK, THEREFORE, THE SAME IS NOT USED FOR THE BUSINESS OF THE ASSESSEE. HE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE CONTENTION OF NO EVASION OF TAX HAS NOT BEEN EXAMINED BY THE LOWER AUTHORITIES; THEREFORE, THE SAME IS LIABLE TO BE VERIFIED. 2.3 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PARTIES AS WELL AS RELEVANT MATERIAL ON RECORD. THE ASSESSEE HAS PAID INTEREST OF RS .6,13,576/ - TO SIX RELATED PARTIES AT THE RATE OF 18%. THE ASSESSING OFFICER NOTED THAT IN CASE OF NON - RELATED PARTY, THE AS SESSEE HAD PAID THE INTEREST @12%, ACCORDINGLY, THE ASSESSING OFFICER HAS DISALLOWED THE DIFFERENTIAL RATE OF INTEREST AT 6% UNDER SECTION 40A(2)(B) WITH RESPECT TO THE INTEREST PAID TO THE RELATED PARTY. THERE IS NO DISPUTE THAT THE LOAN WAS TAKEN FROM TH E RELATED PARTIES IN THE EARLIER YEARS AND NO DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INTEREST ITA NO. 7119/2011 5 PAYMENT UNDER SECTION 40A(2)(B) OF THE IT. ACT. FURTHER, THE DISALLOWANCE IS MADE BY THE ASSESSING OFFICER UNDER SECTION 40A(2)(B) AND NOT U NDER SECTION 36 OR 37. THEREFORE, WE DO NOT FIND ANY MERIT IN THE CONTENTION OF THE LEARNED AR THAT THE LOANS WERE NOT TAKEN FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. AS PER THE CIRCULAR DATED 6 - 7 - 1968, THE SCOPE AND EFFECT OF PROVISION OF SECTION 40A(2 ) HAS BEEN ELABORATED IN PARA 74 AS UNDER : - 74. IT MAY BE NOTED THAT THE NEW PROVISION IS APPLICABLE TO ALL CATEGORIES OF EXPENDITURE INCURRED IN BUSINESS AND PROFESSIONS, INCLUDING EXPENDITURE ON PURCHASE OF RAW MATERIALS, STORES OR GOODS, SALARIES TO E MPLOYEES AND ALSO OTHER EXPENDITURE ON PROFESSIONAL SERVICES, OR BY WAY OF BROKERAGE, COMMISSION, INTEREST, ETC. WHERE PAYMENT FOR ANY EXPENDITURE IS FOUND TO HAVE BEEN MADE TO A RELATIVE OR ASSOCIATE CONCERN FALLING WITHIN THE SPECIFIED CATEGORIES, IT WIL L BE NECESSARY FOR THE INCOME - TAX OFFICER TO SCRUTINISE THE REASONABLENESS OF THE EXPENDITURE WITH REFERENCE TO THE CRITERIA MENTIONED IN THE SECTION. THE INCOME - TAX OFFICER IS EXPECTED TO EXERCISE HIS JUDGMENT IN A REASONABLE AND FAIR MANNER. IT SHOULD BE BORNE IN MIND THAT THE PROVISION IS MEANT TO CHECK EVASION OF TAX THROUGH EXCESSIVE OR UNREASONABLE PAYMENTS TO RELATIVES AND ASSOCIATE CONCERNS AND SHOULD NOT BE APPLIED IN A MANNER WHICH WILL CAUSE HARDSHIP IN BONA FIDE CASES. 2.4 IT IS CLEAR THAT TH E OBJECTIVE OF SECTION 40A(2) IS TO CHECK EVASION OF TAX THROUGH EXCESSIVE OR UNREASONABLE PAYMENTS TO THE ASSOCIATES CONCERN AND, THEREFORE, THIS PROVISION SHOULD NOT BE APPLIED IN A MANNER WHI CH WILL CREATE HARDSHIP IN BONAF IDE CASES. THE ASSESSEE HAS CL AIMED AND FILED DETAILS BEFORE US SHOWING THAT THE RECIPIENT OF THE INTEREST ARE PAYING THE INCOME TAX AT THE HIGHEST RATE AND EQUIVALENT TO THE RATE OF TAX AT WHICH THE ASSESSEES PAYING TAX. TO SUBSTANTIATE THE CONTENTION, THE LEARNED AR OF THE ASSESSEE HAS RELIED UPON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. INDO ITA NO. 7119/2011 6 SAUDI SERVICES (TRAVEL) P. LTD. (SUPRA), WHEREIN THE HONBLE HIGH COURT HAS OBSERVED IN PARA 5 AS UNDER : - 5. IN VIEW OF THE AFORESAID ADMITTED FACTS WE ARE OF THE VIEW THAT THE TRIBUNAL WAS CORRECT IN COMING TO THE CONCLUSION THAT THE COMMISSIONER OF INCOME - TAX (APPEALS) WAS WRONG IN DISALLOWING HALF PER CENT COMMISSION TO THE SISTER CONCERN OF THE ASSESSEE DURING THE ASSESSMENT YEARS 1991 - 92 AND 1992 - 93. THE LEARNED ADVOCATE APPEARING FOR THE APPELLANT IS ALSO NOT IN A POSITION TO POINT OUT HOW THE ASSESSEE EVADED PAYMENT OF TAX BY THE ALLEGED PAYMENT OF HIGHER COMMISSION TO ITS SISTER CONCERN SINCE THE SISTER CONCERN WAS ALSO PAYING TAX AT HIGHER RATE AND CO PIES OF THE PAYMENT ORDERS OF THE SISTER CONCERN WERE TAKEN ON RECORD BY THE TRIBUNAL. 2.5 SIMILARLY, IN THE CASE OF CIT VS. V.S. DEMPO & CO. (P.) LTD.(SUPRA) , THE HONBLE HIGH COURT HAS HELD IN PARA 4 AS UNDER : - 4. CLAUSE (A) OF SUB - S. (2) OF S. 40A OF THE INCOME - TAX PROVIDES THAT WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT HAS BEEN OR IS TO BE MADE TO ANY PERSON REFERRED TO IN CI. (B) OF THE SUB - SECTION AND THE A 0 IS OF THE OPINION THAT SUCH EXPENDITURE IS EXCESSIVE OR UNRE ASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE OR THE LEGITIMATE NEEDS OF THE BUSINESS OR PROFESSION OF THE ASSESSEE OR THE BENEFIT DERIVED BY OR ACCRUING TO HIM THEREFROM, SO MUCH OF THE EXPENDITURE AS IS SO CONSIDERED BY HIM TO BE EXCESSIVE OR UNREASONABLE SHALL NOT BE ALLOWED AS A DEDUCTION. CLAUSE (B) OF SUB - S. (2) OF S. 40A OF THE INCOME - TAX MENTIONS THE CLASS OF PERSONS IN RESPECT OF WHOM CI. (A) IS ATTRACTED. LEARNED COUNSEL FOR THE RESPONDENT SUBMITS THAT MIS DEMPO MINING CORPORATION (P) LTD., (HEREINAFTER REFERRED TO AS THE SUBSIDIARY COMPANY) FROM WHICH THE ASSESSEE PURCHASED THE IRON ORE IS NOT ON E OF THE PERSONS MENTIONED IN CL . (B) OF SUB - S. (2) OF S. 40A AND, THEREFORE, SUB - S . 2(A) WAS NOT ATTRACTED. IN THE ALTERNATIVE HE SUBMITTED THAT THE FINDING RECORDED BY THE CIT(A) AS WELL AS THE TRIBUNAL THAT THE ASSESSEE HAD PAID A LITTLE HIGHER THAN THE USUAL RATE TAKING INTO CONSIDERATION THE FACT THAT THE ASSESSEE WAS ASSURED A HUGE QUANTITY OF SUPPLY, AS WELL AS THE QUALITY OF SUPPLY THAT IT CANNOT BE SAID THAT THE RATE WAS UNJUSTIFIED, WAS A FINDING OF FACT. IN THE ABSENCE OF ANY PERVERSITY, THE FINDING OF FACT RECORDED BY THE CIT(A) AND CONFIRMED BY THE TRIBUNAL CANNOT BE INTERFER ED WITH IN AN APPEAL UNDER S. 260A OF THE ACT. HE FURTHER SUBMITTED THAT BOTH THE ASSESSEE, AS WELL AS THE SUBSIDIARY WERE REGISTERED COMPANIES UNDER THE COMPANIES ACT, 1956 LIABLE TO PAY THE INCOME - TAX AT THE SAME RATE. THEREFORE, THERE WAS NO QUESTION OF DIVERSION OF ANY FUNDS. HE INVITED OUR ATTENTION TO THE CBDT CIRCULAR NO. 6 - P DT. 6TH JULY, 1968, WHICH STATES THAT NO DISALLOWANCE IS TO BE MADE UNDER S. 40A(2) IN RESPECT OF THE PAYMENTS MADE TO THE RELATIVES AND SISTER CONCERNS WHERE THERE IS NO ATTEMP T TO EVADE TAX. HE SUBMITTED THAT THE CIT(A) AS WELL AS THE TRIBUNAL HAVE ALSO RECORDED A FINDING OF FACT THAT THERE WAS NO ATTEMPT OF EVASION OF TAX AND, THEREFORE, IN VIEW OF THE CBDT CIRCULAR DT. 6TH JULY, 1968, S. 40A(2) WAS NOT ATTRACTED AND ITA NO. 7119/2011 7 SHOULD NO T HAVE BEEN APPLIED BY THE AO. THE CIRCULAR IS BINDING ON THE DEPARTMENT AND ON THIS GROUND ALSO THE APPEAL SHOULD BE DISMISSED. 2.6 FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT, WE ARE OF THE VIEW THAT IF THE ASSESSEE IS ABLE TO EST ABLISH THAT THE RECIPIENT OF INTEREST ARE PAYING TAX AT THE HIGHEST RATE ON THE INCOME AND AT LEAST ON THE INCOME TO THE EXTENT OF INTEREST RECEIVED, THEN NO DISALLOWANCE IS CALLED FOR UNDER SECTION 40A(2) FOR WANT OF MOTIVE OF EVASION OF TAX. ACCORDINGLY, ON PRINCIPLE, WE ACCEPT THE CONTENTION OF THE LEARNED AR, HOWEVER, THE ASSESSING OFFICER IS DIRECTED TO VERIFY THE RATE OF TAX AT WHICH THE RECIPIENT OF INTEREST HAVE PAID TAX A ND IF THE RATE OF TAX PAID BY THE RECIPIENT IS EQUIVALENT TO THE RATE OF TAX P AID BY THE ASSESSEE, THE ASSESSEES CLAIM SHOULD BE ALLOWED. 3. GROUND NO.2 RAISED BY THE ASSESSEE IS WITH REGARD TO DISALLOWANCE OF FOREIGN TRAVEL EXPENSES. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE INCURRED EXPENSES FOR TRAVEL AND STAY IN SINGAPORE OF RS. 3,83,574 / - . ON VERIFICATION OF DETAILS FILED IT WAS FOUND THAT THE EXPENSES DEBITED PERTAIN TO TRAVEL OF SHRI B. TAHILIANI AND MRS. PADMA TAHILIANI AND MR. ASHISH TAHILIANI, MRS. DIVYA A. TAHILIANI AND TWO CHILDREN. ON THE QUERY THE ASSESSEE SUBMITT ED THAT THE EXPENSES ARE INCURRED FOR ATTENDING BUSINESS DISCUSSION ORGANIZED S.K.F. SOUTH EAST ASIA & PACIFIC PTE LTD., SINGAPORE. THE ASSES SI NG OFFICER NOTED T HAT THE WIFE AND CHILDREN HAVE NOT BEEN INVITED FOR DISCUSSION BY S.K.F. AND ONLY TWO PARTNERS HAVE BEEN OFFICIALLY INVITED FOR BUSINESS DISCUSSION . ITA NO. 7119/2011 8 A CCORDINGLY THE ASSESSING OFFICER ALLOWED THE PROPORTIONATE EXPENSES INCURRED PERTAINING TO THE PARTNERS AND THE EXPENSES OF RS .2,55,71 6/ - WAS DISALLOWED. ON APPEAL, THE CIT(A) DID NOT AGREE WITH THE C ONTENTION OF THE ASSESSEE AND UPHELD THE VIEW OF THE ASSESSING OFFICER. 3.1 BEFORE US, LEARNED AR OF THE ASSESSEE HAS SUBMITTED THAT TRAVEL TO SINGAPORE WAS TO ATTEND THE CONFERENCE ORGANIZED BY S.K.F. SOUTH EAST ASIA & PACIFIC PTE LTD, FROM WHICH THE AS SESSEE BUYING BEARING FOR TRADING PURPOSE. THE ASSESSEES SENIOR PARTNER VISITED WITH WIFE AND TWO SONS, WHEREAS OTHER PERSONS ARE PARTNERS OF THE FIRM. LEARNED AR SUBMITTED THAT THE DISALLOWANCE MADE BY ASSESSING OFFICER AN CONFIRMED BY THE CIT(A), IS UNR EASONABLE AND UNJUSTIFIED. HE FURTHER CONTENDED THAT THE SENIOR PARTNER OF THE FIRM IS SUFFERING FROM HEART AILMENT AND , THUS, R EQUIRES CONSTANT CARE AND ATTENDANCE OF THE WIFE, THEREFORE, WIFE OF THE PARTNER ACCO MP A NIED HIM TO SINGAPORE. SINCE THE CHILDRE N CANNOT BE LEFT BEHIND, THEREFORE, TWO CHILDREN WERE ALSO ACCOMPANIED. LEARNED AR HAS SUBMITTED THE DETAILS OF EXPENDITURE WITH RESPECT TO THE FOREIGN TRAVEL TO SINGAPORE AND SUBMITTED THAT EVEN IF ANY DISALLOWANCE IS MADE WITH RESPECT TO WIFE AND CHILDRE N, THE SAME SHOULD BE THE A CTUALLY EXPEND I TURE INCURRED FOR THEIR TRAVEL. 3.2 ON THE OTHER HAND, LEARNED DR HAS SUBMITTED THAT THE FAMILY MEMBERS OF THE PARTNERS EXPENSES CANNOT BE CONSIDERED AS BUSINESS EXPENDITURE OF THE ASSESSEE. HE HAS RELIED UPON T HE ORDERS OF THE AUTHORITIES BELOW. ITA NO. 7119/2011 9 3.3 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CAREFULLY GONE THROUGH THE RELEVANT MATERIAL ON RECORD. THOUGH THE FOREIGN TRAVEL UNDERTAKEN BY THE PARTNERS OF THE ASSESSEE - FIRM ALONG WITH THE FAMILY MEMBERS AT THE TI ME WHEN A CONFERENCE/SEMINAR CONVEYED BY THE S.K.F. SOUTH EAST ASIA & PACIFIC PTE LTD., SINGAPORE, WITH WHOM THE ASSESSEE IS HAVING BUSINESS RELATION, HOWEVER, THE VISITS OF THE ENTIRE FAMILY OF THE PARTNERS OF THE ASSESSEE FIRM CANNOT BE TREATED AS BUSINE SS VISIT. WHEN THE PARTNERS OF THE FIRM ARE FAMILY MEMBERS ONLY T HEN TO THE EXTENT OF THE EXPENDITURE ON FOREIGN VISITS OF THE PARTNERS CAN BE CONSIDERED AS EXPENDITURE LAID OUT FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE . THUS, THE EXPENDITURE INCURRED IN RESPECT OF THE FOREIGN TRAVEL OF THE FAMILY MEMBERS, WHO ARE NOT PARTNERS OF THE ASSESSEE FIRM, CANNOT BE ALLOWED AS BUSINESS EXPENDITURE. THOUGH, THE ASSESSEE HAS CONTENDED THAT DUE TO THE AILMENT OF THE SENIOR PARTNER, THE WIFE S COMPAN Y WAS REQUIRED, H OWEVER, NOTHING HAS BEEN BROUGHT BEFORE US TO SUBSTANTIATE THIS CONTENTION. MOREOVER, WHEN THE OTHER PARTNERS ARE FAMILY MEMBERS THEN IN THE ABSENCE OF ANY MATERIAL IN SUPPORT OF THE CONTENTION, WE DO NOT FIND ANY SUBSTANCE IN THE CONTENTION OF THE ASSESSE E. THE ASSESSING OFFICER HAS DISALLOWED THE EXPENDITURE FOR PROPORTIONATE TO THE NUMBERS OF PERSON VISITED WITHOUT CONSIDERING THE ACTUAL EXPENDITURE INCURRED ON EACH AND EVERY MEMBER. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO DISALLOW THE ACTUAL EXP ENDITURE INCURRED ON THE FOREIGN TRAVEL WITH RESPECT TO THE NON - PARTNER . ITA NO. 7119/2011 10 4 . GROUND NO.3 IS WITH REGARD TO DISALLOWANCE OF MOTOR CAR EXPENSES. THE ASSESSING OFFICER HAS DISALLOWED 20% OF EXPENDITURE OF MOTOR CAR BEING ATTRIBUTABLE TO THE PERSONAL USE BY THE PARTNERS OBSERVING THAT THE ASSESSEE ITSELF DISALLOWED THE DEPRECIATION AND ACKNOWLEDGED PERSONAL USE. 4.1 ON APPEAL, THE CIT(A) HAS RESTRICTED THE DISALLOWANCE OF 10% BY TAKING INTO ACCOUNT THE FBT PAID FOR THE SAME. 4.2 BEFORE US, LEARNED AR OF T HE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE HAS PAID FBT IN RESPECT OF CAR USE THEN NO DISALLOWANCE IS CALLED FOR ON THIS ACCOUNT. HE HAS RELIED UPON THE ORDER DATED 6 - 9 - 2011 OF THE COORDINATE BENCH OF THIS TRIBUNAL PASSED IN THE CASE OF HANSRAJ MATHURADA S VS. ITO, IN ITA NO.23971MUM/2010 , AND SUBMITTED THAT A SIMILAR ISSUE HAS BEEN CONSIDERED BY THIS TRIBUNAL IN FAVOUR OF THE ASSESSEE. ON THE OTHER HAND, LEARNED DR RELIED UPON THE ORDER OF THE CIT(A). 4.3 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CAR EFULLY GONE THROUGH THE RELEVANT MATERIAL ON RECORD. THE CIT(A) HAS TAKEN NOTE OF THE FBT PAID BY THE ASSESSEE AND ACCORDINGLY REDUCED THE DISALLOWANCE FROM 20% TO 10% IN PARA 4, WHICH IS AS UNDER : - THE A. O . HAS DISALLOWED 20% OF EXPENDITURE OF MOTOR CA R BEING ATTRIBUTABLE TO THE PERSON USE BY THE PARTNERS OBSERVING THAT THE ASSESSEE ITSELF DISALLOWED THE DEPRECIATION AND ACKNOWLEDGED PERSONAL USE. BEFORE ME IT WAS SUBMITTED THAT THE DISALLOWANCE IS HIGHLY UN - REASONABLE, ONCE FBT HAS BEEN PAID FOR THE SA ME. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, THE DISALLOWANCE IS RESTRICTED TO 10% OF THE EXPENSE. ITA NO. 7119/2011 11 4.4 WHEN THE PAYMENT OF FBT IS NOT DISPUTED THEN THE ORDER OF COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF HANSRAJ MATHURADAS (SUPRA) , IS A PPLICABLE WHEREIN IN PARA 17, THIS TRIBUNAL HAS CONSIDERED AND ADJUDICATED AN IDENTICAL ISSUE AS UNDER : - 17. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. THE LEARNED COUNSEL FOR THE ASSESSEE HAS TAKEN US THROUGH THE CBDTCIRCULARNO.8/2005 DATED 29 - 08 - 2005 GIVING EXPLANATORY NOTES ON THE PROVISIONS RELATING TO FRINGE BENEFIT TAX AS INTRODUCED BY THE FINANCE ACT, 2005 AND INVITED OUR ATTENTION TO THE RELEVANT PORTION THEREOF TO EXPLAIN THE OBJECT BEHIND LEVY ING FRINGE BENEFIT TAX. AS INDICATED IN THE SAID CIRCULAR, THE FRINGE BENEFIT TAX HAS BEEN INTRODUCED AS A SURROGATE TAX ON EMPLOYER WITH THE OBJECTS OF RESOLVING THE PROBLEMS IN TAXING SOME PERQUISITES/FRINGE BENEFITS IN THE HANDS OF THE EMPLOYEES IN TERM S OF SECTION 17. FURTHER, AS EXPLAINED IN PARA 3.2 OF THE CIRCULAR, THE SCOPE OF THE TERM FRINGE BENEFITS PROVIDED IS DEFINED IN SECTION II5WB(1) TO MEAN ANY CONSIDERATION FOR EMPLOYMENT PROVIDED BY WAY OF ANY PRIVILEGE, SERVICE FACILITY OR AMENITY, DIRE CTLY OR INDIRECTLY, PROVIDED BY AN EMPLOYER, WHETHER BY WAY OF REIMBURSEMENT OR OTHE R WISE, TO HIS EMPLOYEES. MOREOVER, AS CLARIFIED IN THE SAID CIRCULAR WHILE ANSWERING FREQUENTLY ASKED QUESTION NO.15, FRINGE BENEFIT IS DEEMED TO HAVE BEEN PROVIDED IF THE EMPLOYER HAS INCURRED EXPENSES FOR ANY OF THE PURPOSES REFERRED TO IN THE RELEVANT PROVISIONS AND THERE IS NO REQUIREMENT TO SEGREGATE SUCH EXPENSES BETWEEN THOSE INCURRED FOR OFFICIAL PURPOSES AND PERSONAL PURPOSES. IT WAS FURTHER CLARIFIED WHILE ANSWERIN G QUESTION NO.81 THAT WHEN EXPENDITURE ON RUNNING AND MAINTENANCE OF MOTOR CARS IS LIABLE TO FRINGE BENEFIT TAX, THE EMPLOYEES WILL NOT BE LIABLE TO INCOME TAX ON THE PERQUISITE VALUE OF MOTOR CAR PROVIDED BY THE EMPLOYER. AS RIGHTLY CONTENDED BY THE LEARN ED COUNSEL FOR THE ASSESSEE, CIRCULAR NO.8/2005 DATED 29 - 08 - 2005 ISSUED BY THE BOARD EXPLAINING THE PROVISIONS RELATING TO FRINGE BENEFIT TAX THUS MAKES IT CLEAR THAT FRINGE BENEFIT TAX IS LEVIED ON THE EXPENSES INCURRED BY THE EMPLOYER IRRESPECTIVE OF WHE THER THE SAME ARE INCURRED FOR OFFICIAL OR PERSONAL PURPOSES. IN OUR OPINION, ONCE FRINGE BENEFIT TAX IS LEVIED ON SUCH EXPENSES AS HAS BEEN DONE IN THE PRESENT CASE, IT FOLLOWS THAT THE SAME ARE TREATED AS FRINGE BENEFITS PROVIDED BY THE ASSESSEE AS EMPLO YER TO ITS EMPLOYEES AND THE SAME HAVE TO BE APPROPRIATELY ALLOWED AS EXPENSES INCURRED WHOLLY AND EXCLUSIVELY INCURRED BY THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS. IN THAT VIEW OF THE MATTER, WE DELETE THE DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE LEARNED CIT(APPEALS0 OUT OF CONVEYANCE AND TELEPHONE EXPENSES AND ALLOWED GROUND NO.4 & 5 OF THE ASSESSEES APPEAL. ITA NO. 7119/2011 12 4.5 FOLLOWING THE ORDER OF THE COORDINATE BENCH, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND ACCORDINGLY DELETE THE DISALLOWA NCE OF 10% CONFIRMED BY THE CIT(A) ON MOTOR CAR EXPENSES. 5. THE ASSESSEE HAS RAISED GROUND NO.4 REGARDING DISALLOWANCE OF DEDUCTION UNDER SECTION 80G ON THE DONATION OF RS . 6,50 0 / - AND DEBITED THE SAME TO THE PROFIT AND LOSS ACCOUNT. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS NOT ADDED BACK THE DONATION AMOUNT IN THE STATEMENT OF INCOME. ACCORDIN GLY, THE ASSESSING OFFICER HAS ADDED THE SAID AMOUNT TO THE TOTAL INCOME OF THE ASSESSEE. 5.1 ON APPEAL, THE ASSESSEE HAS CLAIMED THAT THE ASSESSEE IS ENTI TLE D FOR DEDUCTION UNDER SECTION 8 0 G @50%. THE CIT(A) DID NOT ENTERTAIN THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE HAS NOT CLAIMED IT BEFORE THE ASSESSING OFFICER IN THE STATEMENT OF INCOME. 5.2 BEFORE US, LEARNED AR OF THE ASSESSEE HAS SU BMITTED THAT THE ASSESSEE HAS PRODUCED THE PAYMENT RECEIPT WHICH CLEARLY SHOWS THAT THE DONATION IS ELIGIBLE UNDER SECTION 80G, THEREFORE, THE CIT(A) OUGHT TO HAVE ALLOWED THE CLAIM OF THE ASSESSEE. ON THE OTHER HAND, LEARNED DR HAS RELIED UPON THE ORDER O F THE CIT(A) AND SUBMITTED THAT WHEN THE ASSESSEE HAS NOT CLAIMED THE DEDUCTION IN THE RETURN OF INCOME, THEN IT CANNOT CLAIM AT THIS STAGE. 5.3 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CAREFULLY GONE THROUGH THE RELEVANT MATERIAL ON RECORD, IT IS NO T A CASE OF FRESH CLAIM ITA NO. 7119/2011 13 MADE BY THE ASSESSEE BUT THE ENTIRE AMOUNT WAS DEBITED TO THE PROFIT AND LOSS ACCOUNT WHICH WAS ADDED BACK BY THE ASSESSING OFFICER, THEREFORE, IF THE ASSESSEE IS ENTITLED FOR ANY DEDUCTION UNDER THE PROVISION OF STATUTE, THE SAME S HOULD HAVE BEEN CONSIDERED BY THE AUTHORITIES BELOW. SINCE THE CLAIM HAS NOT BEEN EXAMINED/VERIFIED BY THE AUTHORITIES BELOW, THEREFORE, WE SET ASIDE THIS ISSUE TO THE RECORD OF THE ASSESSING OFFICER TO CONSIDER AND DECIDE THE CLAIM OF THE ASSESSEE AFTER V ERIFICATION OF THE RELEVANT FACTS AND RECORDS. 6 . IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 10 TH DAY OF OCTOBER , 2012. 10 TH OCTOBER, 2012 SD/ - SD/ - ( ) (RAJENDRA SINGH) ( ) (VIJAY PAL RAO) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 10 TH OCTOBER , 2012. P KM , SR. PS COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) - X, MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// / BY ORDER, ( DY./ASSTT. REGISTRAR) / ITAT, MUMBAI