M/s Titagarh Wagons Ltd., Kolkata V. ACIT, RG-1, KOLKATA, Kolkata

ITA 751/KOL/2015

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 4819 (ITAT-KOLKATA)
• Duration Of Justice: 4 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2003-2004
• Appeal Filed On: 27-05-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RABIN CHOWDHURY
• Assessee Lawyers: S JHAJHARIA
• Keywords: Business expenditure; Capital expenditure
• Section: 37; 37(1); 153(2A); 143(3); 251; 153

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : KOLKATA [BEFORE HONBLE SHRI S.S. GODARA, JM & SHRI A.L. SAINI , AM ] I .T.A NO. 751 /KOL/201 5 ASSESSMENT YEAR : 2003 - 04 M/S. TITAGARH WAGONS LTD. - VS - D CIT , CIRCLE - 1 , KOLKATA. [PAN: AABCT 1377 P] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI S. JHAJHARIA, AR FOR THE RESPONDENT : SHRI RABIN CHOWDHURY , DR DATE OF HEARING : 24 .0 7 .201 9 DATE OF PRONOUNCEMENT : 09 - 08 - 2019 ORDER SHRI S.S. GODARA, JM : 1. THIS ASSESSEES APPEAL FOR ASSESSMENT YEAR 2003 - 04 ARISES AGAINST THE CIT(A), 23, KOLKATAS ORDER DATED 30 - 03 - 2015 PASSED IN CASE NO. 03/CIT(A) - 23/CIR - 1/LTU/14 - 15/KOL INVOLVING PROCEEDINGS U/S 143(3)/251 OF THE INCOME - TAX ACT, 1961 ( IN SHORT ACT). 2. HEARD BOTH TH E PARTIES. CASE FILE PERUSED. 3. THE ASSESSEE PLEADS ON THE FOLLOWING SUBSTANTIVE (REVISED) GROUNDS IN THE INSTANT APPEAL: - 1. FOR THAT IN VIEW OF THE FACTS & CIRCUMSTANCES, THE LD. CIT(A) ERRED IN NOT QUASHING THE ORDER PASSED U/S 143(3)/251 IN SPITE OF THE FACT THAT SUCH ORDER HAD BECOME TIME BARRED AS PER PROVISIONS OF SEC. 153(2A) AND 2 ITA NO. 751/KOL/2015 A.Y 2003 - 04 M/S. TITAGARH WAGONS LTD. 2 IN VIEW OF THE FACTS AND IN THE CIRCUMSTANCES IT MAY KINDLY BE HELD ACCO RDINGLY, 2. WITHOUT PREJUDICE TO GROUND O. I, CIT(A) ERRED IN NOT APPRECIATING THAT THE IMPUGNED ORDER WAS PASSED BEYOND 'REASONABLE TIME' & HENCE EVEN IT IS PRESUMED THAT THE IMPUGNED ORDER'S IS TO BE CONSIDERED U/S 153(3)(II), THEN ALSO IT IS TIME BARRE D & IS LIABLE TO BE QUASHED. 3. FOR THAT IN VIEW OF THE FACTS & CIRCUMSTANCES, THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO IN DISALLOWING RS. 26,21,130/ - PERTAINING TO FOREIGN TRAVE LLING EXPENSES AND IN VIEW OF THE FACTS & CIRCUMSTANCES IT MA Y BE HELD ACCORDINGLY. 4 . BOTH THE LEARNED REPRESENTATIVES TAKE US THROUGH THE LEARNED CIT(A)S FINDINGS FIRST OF ALL AFFIRMING THE ASSESSING OFFICERS ACTION DISALLOWING ASSESSEES FOREIGN TRAVELLING EXPENSES AMOUNTING TO RS.26,21,130/ - . LOWER APPELLATE DISCUSSED TO THIS EFFECT READS AS UNDER: - 2.0 GROUND NO. 2 FOR THAT IN VIEW OF THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE AO IS WHOLLY UNJUSTIFIED IN NOW ALLOWING THE EXPENDITURE OF RS. 26,21,130/ - INCURRED BY THE PETITIONER COMPANY ON ACCOUNT OF FOREIGN TRAVELLING IGNORING THE SPECIFIC DIRECTIONS OF THE LD.CIT(A) AND THE DETAILS/DOCUMENTS FILED BY YOUR PETITIONER COMPANY IN SUCH RESPECT VIDE ITS LETTER DATED 26.11.2013 AND IN VIEW OF THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE ACTION OF AO IS WHOLLY UNJUSTIFIED, ILLEGAL AND BAD IN LAW AND HE MAY KINDLY BE DIRECTED TO ALLOW SUCH EXPENDITURE CLAIMED. 2.1 GROUND NO. 2 IS AGAINST THE ACTION OF THE AO IN DISALLOWING RS.26,21,130/ - OUT OF FOREIGN TRAVELLING EXPENSE, BY WRONGLY, ARBITRARILY AND I LLEGALLY AND NOT PLACING ANY COGNIZANCE TO THE DETAILS / RECORDS MADE AVAILABLE TO HIM. 2.2 THE RELEVANT PORTION OF THE ORDER GIVING EFFECT TO CIT(A)'S ORDER IS AS BELOW: - 'DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. DISALLOWED THE TRAVELLING EXPENSES OF RS. 26,21,1301 - WHICH IS INCURRED FOR THE MANAGING DIRECTOR'S VISIT TO USA. THE LD. CIT(A) - I DIRECTED TO EXAMINE IT IN THE LIGHT OF PRESCRIBED ASPECTS - I) ANY DOCUMENTARY EVIDENCES RELATING TO INVITATION RECEIVED FOR VISITING THE FOREIGN COUN TRY. II) THE PURPOSE OF SUCH VISIT AND ITS NEXUS WITH THE BUSINESS OF THE ASSESSEE, III) DETAILS OF THE EXPENDITURE LIKE TRAVELING COST, HOTEL COST AND OTHER 3 ITA NO. 751/KOL/2015 A.Y 2003 - 04 M/S. TITAGARH WAGONS LTD. 3 EXPENSES, IV) DETAILS OF COUNTRIES VISITED AND WHETHER SUCH VISIT WAS DULY AUTHORIZED BY THE BOARD OF DIRECTORS OF THE COMPANY, V) WHETHER THE MD VISITED ALONE OR WITH HIS WIFE AND ON SATISFYING HIMSELF THESE PARAMETERS, THE FOREIGN TRAVEL EXPENSES WILL BE ALLOWED TO THE APPELLANT. ON THE DATE OF HEARING, THE A/R OF THE ASSESSEE COULD NOT PRODUCE ANY E VIDENCES/DOCUMENTS AS PRESCRIBED BY THE LD. CIT(A). THE A/R OF THE ASSESSEE WAS GIVEN FURTHER OPPORTUNITY TILL 03/12/2013 TO FURNISH THE REQUISITE DETAILS. HOWEVER, NO SUCH DETAILS WERE FILED/PRODUCED ON THAT DATE. HENCE, NO EFFECT TO THE DISALLOWANCE OF R S. 26,21,130/ - ON ACCOUNT OF TRAVELLING EXPENSES IS GIVEN' 2.3 THE A/R OF THE ASSESSEE HAS SUBMITTED WRITTEN SUBMISSION AS UNDER. - 'NOW, COMING TO THE MERITS OF THE CASE, THE DIRECTION OF THE CIT(A) IN THE ORDER DATED 6 TH SEPTEMBER, 2006, WHILE SETTING ASIDE THE ISSUE OF ALLOWABILITY OF FOREIGN TRAVEL IS REPRODUCED BELOW - '...4. GROUND NO. 3 REFERS TO DISALLOWANCE OF RS. 26,21,1301 - UNDER THE HEAD TRAVELLING EXPENSES'. THE AO HAS MENTIONED IN THE ASSESSMENT ORDER THAT OUT OF TOTAL TRAVELLING EXPENSES OF RS. 38,44,5051 - , SUM OF RS. 26,21,1301 - RELATES TO THE MANAGING DIRECTOR'S VISIT TO USA TO EXPLORE THE BUSINESS OPPORTUNITY OF FOREIGN TYRES AND BUSINESS COLLABORATION. ALTHOUGH HE HAS ACCEPTED THAT THE EXPENDITURE MIGH T HAVE BEEN INCURRED TO EXPLORE BUSINESS POSSIBILITY IN THE FOREIGN COUNTRY, THIS EXPENDITURE MAY BE TREATED AS PRELIMINARY EXPENSES OF THE BUSINESS. 4.1 THE LD. A/R, ON THE OTHER HAND, HAS MADE A DETAILED SUBMISSION IN HIS WRITTEN BRIEF BY STATING THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF RAILWAY WAGONS, STEEL BRIDGE AND OTHER ACCESSORIES. THE MD OF THE COMPANY VISITED USA TO EXPLORE EXPORT POSSIBILITY OF THIS PRODUCT. SUBSEQUENT TO SUCH VISIT THE APPELLANT COMPANY RECEIVED SEVERAL ENQUIRIES FROM USA REGARDING THE PRODUCT IN WHICH THE COMPANY WAS DEALING. AS THE EXPENSES RELATING TO EXPLORING EXPORT OPPORTUNITIES OF THE COMPANY'S PRODUCTS TO USA, SUCH EXPENSE WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND SHOULD HAVE BE EN ALLOWED BY THE A O . IN SUPPORT OF THE ARGUMENT HE HAS RELIED ON A SET OF DECISIONS OF VARIOUS HIGH COURTS. 4.2 AFTER CAREFULLY EXAMINING THE RIVAL SUBMISSION, MY OBSERVATIONS ARE AS FOLLOW. FOREIGN TRAVELLING EXPENSES INCURRED BY THE MD OF THE APPELLA NT COMPANY CAN BE ALLOWED ONLY U/S 37(1) OF THE IT ACT. THE 4 ITA NO. 751/KOL/2015 A.Y 2003 - 04 M/S. TITAGARH WAGONS LTD. 4 CONDITIONS STIPULATED HEREIN ARE THAT IT MUST BE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. IN THIS REGARD THE CASE LAWS RELIED ON BY THE LD. A/R SUGGEST THAT IT IS NOT LEFT TO THE ITO TO DECIDE WHEN AND HOW MUCH THE ASSESSEE CAN SPEND ON THIS ACCOUNT. WHAT THE ITO SHOULD EXAMINE IS WHETHER THE EXPENSES CLAIMED ARE ACTUALLY INCURRED OR NOT. WHETHER THE EXPENDITURE INCURRED IS WHOLLY AND EXCLUSIVELY RELATED TO THE NATURE OF BUSINE SS ACTIVITY CARRIED ON BY THE ASSESSEE. IN THIS CASE WHAT THE AO SHOULD HAVE EXAMINED IS (I) ANY DOCUMENTARY EVIDENCES RELATING TO INVITATION RECEIVED FOR VISITING THE FOREIGN COUNTRY. (II) THE PURPOSE OF SUCH VISIT AND ITS NEXUS WITH THE BUSINESS OF THE ASSESSEE (III) DETAILS OF THE EXPENDITURE LIKE TRAVELING COST AND OTHER EXPENSES. (IV) DETAILS OF COUNTRIES VISITED AND WHETHER SUCH VISIT WAS DULY AUTHORIZED BY THE BOARD OF DIRECTORS O(THE COMPANY , (V) WHETHER THE MD VISITED ALONE OR WITH HIS WIFE. TH IS IS IMPORTANT BECAUSE THE WIFE ACCOMPANYING THE MD ON FOREIGN VISIT HAS NOT BEEN JUDICIALLY HELD AS RELATING TO BUSINESS OF THE ASSESS. THE AO IS ACCORDINGLY DIRECTED TO EXAMINE ALL THESE ASPECTS AND ON SATISFYING HIMSELF THESE PARAMETERS, THE FOREIGN T RAVEL EXPENSE WILL BE ALLOWED TO THE APPELLANT ' THE APPELLANT, VIDE ITS LETTER DATED 26.11.2013 HAD EXPLAINED THE AO ABOUT THE NATURE OF SUCH EXPENSES AND ALSO AS TO HOW, THE SAME WILL BE ALLOWABLE AS BUSINESS EXPENDITURE, WHICH THE AO HAS NOT PLACED AN Y COGNIZANCE, TO. 2.4 FOR THE SAKE OF CONVENIENCE., THE FOLLOWING SUBMISSION IS PREFERRED BEFORE THE LEARNED CIT(A) - AS WILL APPEAR FROM THE ASSESSMENT ORDER THE AO HAS DISALLOWED SUCH EXPENDITURE ON THE ALLEGED GROUND THAT NO DETAILS WERE FURNISHED BE FORE HIM. THE AO HAS MADE SUCH DISALLOWANCE OUT OF CONFUSION ONLY AND WITHOUT PROPERLY APPRECIATION THE FACTS IN THIS CASE. AS HAS ALREADY BEEN SUBMITTED YOUR PETITIONER WAS ENGAGED IN THE BUSINESS OF MANUFACTURING OF RAILWAY WAGONS, STEEL BRIDGE AND OTHE R ACCESSORIES ITEMS AND YOUR PETITIONER VISITED USA TO EXPLORE EXPORT OPPORTUNITY OF SUCH PRODUCTS IN WHICH IT WAS ALREADY DEALING. THE MANAGING DIRECTOR, ON HIS SUCH VISIT TO USA GOT THE COMPANY REGISTERED WITH UNITED NATION PROCUREMENT DIVISION AT NEW YO RK AND SUBMITTED BROUCHERS ETC. OF THE PRODUCTS OF THE COMPANY. SUBSEQUENT TO SUCH VISIT YOUR PETITIONER COMPANY RECEIVED SEVERAL ENQUIRIES FROM USA REGARDING THE PRODUCTS IN WHICH THE COMPANY WAS DEALING. A COPY OF SUCH REGISTRATION WITH UNITED NATION PRO CUREMENT DIVISION AND DETAILS OF SUBSEQUENT ENQUIRY RECEI P TS ARE ENCLOSED. IT WILL BE APPRECIATED BY YOUR HONOUR THAT EXPLORING OF EXPORT 5 ITA NO. 751/KOL/2015 A.Y 2003 - 04 M/S. TITAGARH WAGONS LTD. 5 OPPORTUNITY TO INCREASE THE TURNOVER IS A PART OF THE EXISTING BUSINES S ONLY AND AS STATED ABOVE SUCH FOREIGN TRAVELLI NG HAD BEEN INCURRED AS BUSINESS NECESSITY AN D FOR THE PURPOSES OF BUSINESS DEVELOPMENT, IMPROVEMENT, EXPAND THE EXISTING BUSINESS. IN THIS CONNECTION THIS IS TO SUBMIT THAT GOVERNMENT OF INDIA HAVING OPENED THE TRADE & ECONOMIC ACTIVITIES TO OPEN SKY AND HAVING OPENED UP EXPORTS IN VIEW OF THE TRADING WITH WORLD TRADE ORGANIZATIONS SUCH VISIT OF THE MANAGING DIRECTOR, OF THE APPELLANT COMPANY AFFORDED ONE OF THE BEST OPPORTUNITY TO MEET DIFFERENT BUSINESS PEOPLE AND DIFFERENT TRADE ORGANI ZATIONS IN USA TO PROMOTE THE EXISTING BUSINESS OF THE APPELLANT COMPANY. IN THIS CONNECTION THIS IS TO SUBMIT AS STATED ABOVE THAT IT IS NOT THE CASE OF THE AO THAT SUCH EXPENDITURE HAD NOT BEEN INCURRED AND OR THAT SUCH EXPENDITURE WAS PERSONAL IN NAT URE OR THAT IT WAS OF CAPITAL IN NATURE BECAUSE EVEN OTHERWISE ALSO AS WILL APPEAR FROM THE AUDITORS REPORT NO PERSONAL EXPENSES OR CAPITAL EXPENDITURE HAD BEEN DEBITED IN THE PROFIT & LOSS ACCOUNT AND SUCH EXPENDITURE WAS FULLY ALLOWABLE U/S 37 OF THE I T ACT AS EXPENDITURE FOR BUSINESS NECESSITY AND LOR FOR THE PURPOSES OF BUSINESS AND LOR TO DEVELOP AND PROMOTE THE EXISTING BUSINESS. 2.5 DECISION: THE CIT (APPEALS) HAD DIRECTED THE AO TO VERIFY AND EXAMINE SPECIFIC POINT IN RESPECT OF FOREIGN TRAVE LLING EXPENSES AS REPRODUCED IN PARA ABOVE. THE AO HAD GIVEN OPPORTUNITY TO THE APPELLANT TO FURNISH THE REQUISITE DETAILS WHICH WAS NOT FURNISHED BY THE APPELLANT. THE APPELLANT HAS SIMPLY STATED THAT FOREIGN TRAVELLING WAS UNDERTAKEN TO EXPLORE EXPORT OPPORTUNITY OF PRODUCTS IT HAS BEEN DEALING WITH. THE APPELLANT SUBMITTED THAT IT HAD GOT REGISTERED WITH UNITED NATIONS PROCUREMENT DIVISION AND IT HAD RECEIVED SEVERAL ENQUIRIES. THE AO HAD NOT ACCEPTED THE CLAIM OF THE APPELLANT IN ABSENCE OF COMPLIANC E OF SPECIFIC QUERIES AND DIRECTIONS GIVEN BY THE CIT(A) FOR VERIFICATION & EXAMINATION OF THE CLAIM OF THE APPELLANT. THOUGH THE APPELLANT HAS ALSO RELIED UPON VARIOUS CASE LAWS BUT FAILED TO COMPLY WITH THE DIRECTIONS OF CIT(A) FOR GETTING ITS SPECIFIC ISSUES EXAMINED AND VERIFIED. THE DISALLOWANCE BY THE AO IS THUS UPHELD. 5 . LEARNED COUNSEL REPRESENTING THE ASSESSEE VEHEMENTLY CONTENDS DURING THE COURSE OF HEARING THAT BOTH THE LOWER AUTHORITIES HAVE ERRED IN LAW AND ON FACTS IN 6 ITA NO. 751/KOL/2015 A.Y 2003 - 04 M/S. TITAGARH WAGONS LTD. 6 DISALLOWING ASSESSEES FOREIGN TR A VEL EXPENDITURE. NECESSARY REFERENCE IS MADE , TO A SSESSEES DETAILED PAPER BOOK RUNNING INTO 78 PAGES COMPRISING OF RELEVANT DETAILS FILED BEFORE THE LOWER AUTHORITIES . 6 . THE REVENUES CASE ON THE OTHER HAND IS THAT THE ASSESSEE COULD NOT PROVE THE RELEVANT BUSINESS EXPEDIENCY WITH REGARD TO ITS FOREIGN TRAVEL EXPENDITURE. THEREFORE, THE ASSESSING OFFICER AS WELL AS THE LEARNED CIT(A) HAVE RIGHTLY DISALLOWED THE CLAIM IN ISSUE . WE FIND NO MERIT IN EITHER PARTIES SUBMISSION IN EN TIRETY. CASE FILE SUGGESTS THAT THIS ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF RAILWAY WAGONS, STEEL BRIDGE AND OTHER ACCESSORIES . AND AND ALSO THAT ITS MANAGIN G DIRECTOR (M.D) HAD TO TRAVEL ABROAD TO USA FOR THE PURPOSE OF REGISTRATION WITH UNITED NATION PROCUREMENT DIVISION AT NEW YORK. THE SAME SUFFICIENTLY INDICATES IN PRINCIPLE THAT THE ASSESSEE HAD INDEED BORNE THE IMPUGNED FOREIGN EXPENDITURE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ITS BUSINESS. THE FACT ALSO REMAINS IT HAS NOT FILED ALL THE CORRESPONDING DETAILS OF THE RELEVANT HEADS RIGHT FROM ASSESSMENT TILL DATE. WE THEREFORE DEEM IT APPROPRIATE IN THESE FACTS AND CIRCUMSTANCES THAT LUMP SUM DISALLOWANCE AS @ 10% I.E. RS.2,62,113/ - OUT OF RS.26,21,130/ - WOULD MEET THE ENDS OF JUSTICE. THE ASSESSEE GETS PART RELIEF IN FOREGOING TERMS. NECESSARY COMPUTATION TO FOLLOW AS PER LAW. 7 LEARNED COUNSEL STATES AT THE BAR THEREAFTER ASSESSEE NO MORE WISHE S TO PRESS FORMER TWO SUBSTANTIVE GROUND S (SUPRA) . THUS, THESE GROUNDS ARE DISMISSED AS NO T PRESSED. 8 . THIS ASSESSEES APPEAL IS PARTLY ALLOWED IN ABOVE TERMS. ORDER PRONOUNCED IN THE COURT ON 09 - 0 8 - 2019 SD/ - SD/ - [ ARJUN LAL SAINI ] [ S.S.GODARA ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 09 - 0 8 - 2019 **PRADIP, SR. PS 7 ITA NO. 751/KOL/2015 A.Y 2003 - 04 M/S. TITAGARH WAGONS LTD. 7 C OPY OF THE ORDER FORWARDED TO: 1 . APPELLANT/ASSESSEE: M/S. TITAGARH WAGONS LIMITED C/O SALAPURIA JAJODIA & CO. 7, C.R AVENUE, KOLKATA - 72. 2. RESPONDENT/DEPARTMENT: THE D CIT, CIRCLE - 1 , AAYKAR BHAWAN, P - 7 CHOWRINGHEE SQ., KOLKATA - 700 069. 3..C.I.T (A) . - 4. C.I.T. - KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER ASSISTANT REGISTRAR H.O.O/D.D.O KOLKATA