Rushil International, Ahmedabad V. The Dy.CIT., Circle-11, Ahmedabad

ITA 810/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5889 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 10-06-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 20-02-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A K KHANDELWAL
• Assessee Lawyers: M K PATEL
• Section: 80HHC; 80HH; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A BEFORE SHRI T.K.SHARMA, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER DATE OF HEARING:10.6.10 DRAFTED ON:10.06.10 ITA NO.810/AHD/2007 ASSESSMENT YEAR : 2003-2004 RUSHIL INTERNATIONAL, 1, KRINKAL APPARTMENT, MAHALXMI SOCIETY, PALDI, AHMEDABAD. VS. D.C.I.T., CIRCLE-11, AHMEDABAD. PAN/GIR NO. : AAEER 3393 M (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI M.K.PATEL, A.R. RESPONDENT BY: SHRI A.K.KHANDELWAL D.R. O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST T HE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-XVII, A HMEDABAD DATED 21.12.2006. 2. GROUND NO.1 OF THE APPEAL OF THE ASSESSEE READS AS UNDER:- 1. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-XVII, ERRED IN EXCLUDING COMMISSION RS.26,55,554/- PAID OUTSIDE INDIA FROM ELIGIBLE TUR NOVER U/S.80HHC. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HELD AS UNDER:- 3. THE FIRST GROUND SAYS THAT THE A SSESSING OFFICER HAD ERRED IN EXCLUDING COMMISSION EXPENSE S OF RS.26,55,554/- FROM ELIGIBLE TURNOVER U/S 80HHC OF THE I.T. ACT. THE ASSESSING OFFICER HAS DISCUSSED THIS ISSUE ON PAGE 4 OF THE ASSESSMENT ORDER. HE HAS MENTIONE D THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESS EE - 2 - HAS EXPORTED TRADING GOODS AMOUNTING TO RS.25.14,87,816/-. THE ASSESSING OFFICER HAS EXCLUD ED COMMISSION EXPENSES OF RS.26,55,554/- FROM EXPORT TURNOVER FOR WORKING OUT DEDUCTION U/S 80HHC. HE HA S MENTIONED THAT COMMISSION IS DIRECTLY CONSIDERED IN EXPORT TURNOVER BUT THE SAME DOES NOT FORM AS PART OF THE EXPORT TURNOVER, HENCE, HE REDUCED IT FROM THE TOTAL TURNOVER FOR WORKING OUT DEDUCTION U/S 80HHC. 3.1. DURING THE COURSE OF APPELLATE PROCEEDINGS THE LEARNED AUTHORISED REPRESENTATIVE ARGUED THAT THE ASSESSING OFFICER HAS ERRED IN REDUCING COMMISSION EXPENSES FROM EXPORT TURNOVER. THE ACTION OF THE ASSESSING OFFICER IS NOT CORRECT IN THE EYES OF LAW . THE APPELLANT HAS CARRIED OUT TOTAL EXPORT THROUGH FORE IGN AGENTS. THESE AGENTS HAD CHARGED COMMISSION FROM 3% TO 4% FOR THE ORDERS OBTAINED AND RAISED THEIR DEBI T NOTES. SAID COMMISSION HAS NOT BEEN PAID IN FOREIGN COUNTRIES BUT THE SAME HAS BEEN PAID FROM INDIA THROUGH THEIR FINANCIER I.E. KARUR VYSYA BANK LTD. THE APPELLANT HAS NEITHER INCLUDED SAID COMMISSION IN T OTAL TURNOVER NOR IN EXPORT TURNOVER. THEREFORE, THE REDUCTION OF COMMISSION FROM TOTAL EXPORT TURNOVER FOR WORKING OUT DEDUCTION U/S 80HHC IS NOT CORRECT AND DESERVED TO BE EXCLUDED. IN SUPPORT OF HIS CONTENTI ON, THE LEARNED AUTHORISED REPRESENTATIVE PRODUCED COPI ES OF THE DEBIT NOTES ISSUED BY THE AGENTS AS WELL AS STATEMENT OF BANK ACCOUNT TO PROVE THAT COMMISSION HAS BEEN PAID FROM INDIA AND NOT IN FOREIGN COUNTRI ES. IN VIEW OF THESE FACTS, THE LEARNED AUTHORISED REPRESENTATIVE PLEADED THAT THE COMMISSION EXPENSES EXCLUDED FROM EXPORT TURNOVER MAY BE REMOVED. 3.2. I HAVE CAREFULLY CONSIDERED THE CONTENTION OF THE LEARNED AUTHORISED REPRESENTATIVE. I HAVE GONE THRO UGH THE ASSESSMENT ORDER. IT IS A FACT THAT THE APPELLA NT HAS EXPORTED TRADING GOODS DURING THE YEAR UNDER CONSIDERATION AND ACCORDINGLY THE APPELLANT IS ENTI TLED FOR DEDUCTION U/S 80HHC FOR PROFIT EARNED FROM EXPO RT OF TRADING GOODS. DEDUCTION U/S 80HHC IS TO BE WORK ED OUT AS PER CLAUSE (B) OF SUB SECTION 3 OF SECTION 8 0HHC WHICH SAYS THAT WHERE THE EXPORT OUT OF INDIA IS OF TRADING GOODS, THE PROFITS DERIVED FROM SUCH EXPORT S SHALL BE THE EXPORT TURNOVER IN RESPECT OF SUCH TRA DING GOODS AS REDUCED BY THE DIRECT COST AND INDIRECT CO ST - 3 - ATTRIBUTABLE TO SUCH EXPORT. THE ASSESSING OFFICER HAS REDUCED THE COMMISSION EXPENSES OF RS.26,55,554/- FROM EXPORT TURNOVER ON THE GROUND THAT THE COMMISSION DOES NOT FORM PART OF EXPORT TURNOVER. T HE REASON GIVEN BY THE ASSESSING OFFICER IS NOT CORREC T IN THE EYES OF LAW. FOR WORKING OUT DEDUCTION U/S 80HH C FOR TRADING GOODS, ONLY THE DIRECT COST AND INDIREC T COST ARE TO BE REDUCED FROM THE TOTAL EXPORT TURNOVER. EXPORT TURNOVER MEANS THE SALE PROCEEDS RECEIVED IN OR BROUGHT INTO INDIA BY THE APPELLANT IN CONVERTIBLE FOREIGN EXCHANGE. THE APPELLANT HAS SHOWN TOTAL EXP ORT TURNOVER OF RS.24,16,64,589/- WHICH HAS BEEN CERTIF IED BY THE AUDITOR AS REALISED IN CONVERTIBLE FOREIGN EXCHANGE DURING THE YEAR UNDER CONSIDERATION. FOR WORKING OUT THE PROFIT ELIGIBLE FOR DEDUCTION U/S 8 0HHC, THE DIRECT COST AND INDIRECT COST ARE TO BE REDUCED FROM TOTAL EXPORT TURNOVER. THE AUDITOR HAS SHOWN DIRECT COST OF EXPORT GOODS AT RS.20,22,82,383/- AND INDIRECT C OST OF RS.89,02,791/-. THE COMMISSION EXPENSES OF RS.26,55,554/- IS A PART OF INDIRECT COST BUT IT IS NOT VERIFIABLE FROM THE INDIRECT COST GIVEN BY THE AUDI TOR THAT WHETHER THE SAID COMMISSION EXPENSES ARE INCLUDED IN INDIRECT COST OR NOT. THE ASSESSING OFF ICER IS DIRECTED TO VERIFY THIS FACT AND IF COMMISSION EXPE NSES ARE INCLUDED IN INDIRECT COST, THEN THE REDUCTION M ADE BY THE ASSESSING OFFICER FOR WORKING OUT DEDUCTION U/S 80HHC MAY BE DELETED. IF IT IS NOT INCLUDED IN INDI RECT COST, THEN SAME MAY BE TREATED AS FORMING PART OF INDIRECT COST AND REQUIRED TO BE REDUCED FROM THE EXPORT TURNOVER FOR WORKING OUT DEDUCTION U/S 8OHHC . THUS THIS GROUND IS DISPOSED OFF AS ABOVE. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSEE IS INTER ALIA ENGAGED IN THE BUSINESS OF EXPORT OF TRA DING GOODS. THE ISSUE RELATES TO THE COMPUTATION OF EXPORT PROFIT F OR ALLOWING DEDUCTION UNDER SECTION 80HHC. THE LEARNED COMMISS IONER OF INCOME TAX(APPEALS) HAS HELD AS UNDER:- 3.2. I HAVE CAREFULLY CONSIDERED THE CONTENTION OF THE LEARNED AUTHORISED REPRESENTATIVE. I HAVE GONE THRO UGH THE ASSESSMENT ORDER. IT IS A FACT THAT THE APPELLA NT HAS EXPORTED TRADING GOODS DURING THE YEAR UNDER - 4 - CONSIDERATION AND ACCORDINGLY THE APPELLANT IS ENTI TLED FOR DEDUCTION U/S 80HHC FOR PROFIT EARNED FROM EXPO RT OF TRADING GOODS. DEDUCTION U/S 80HHC IS TO BE WORK ED OUT AS PER CLAUSE (B) OF SUB SECTION 3 OF SECTION 8 0HHC WHICH SAYS THAT WHERE THE EXPORT OUT OF INDIA IS OF TRADING GOODS, THE PROFITS DERIVED FROM SUCH EXPORT S SHALL BE THE EXPORT TURNOVER IN RESPECT OF SUCH TRA DING GOODS AS REDUCED BY THE DIRECT COST AND INDIRECT CO ST ATTRIBUTABLE TO SUCH EXPORT. THE ASSESSING OFFICER HAS REDUCED THE COMMISSION EXPENSES OF RS.26,55,554/- FROM EXPORT TURNOVER ON THE GROUND THAT THE COMMISSION DOES NOT FORM PART OF EXPORT TURNOVER. T HE REASON GIVEN BY THE ASSESSING OFFICER IS NOT CORREC T IN THE EYES OF LAW. FOR WORKING OUT DEDUCTION U/S 80HH C FOR TRADING GOODS, ONLY THE DIRECT COST AND INDIREC T COST ARE TO BE REDUCED FROM THE TOTAL EXPORT TURNOVER. EXPORT TURNOVER MEANS THE SALE PROCEEDS RECEIVED IN OR BROUGHT INTO INDIA BY THE APPELLANT IN CONVERTIBLE FOREIGN EXCHANGE. THE APPELLANT HAS SHOWN TOTAL EXP ORT TURNOVER OF RS.24,16,64,589/- WHICH HAS BEEN CERTIF IED BY THE AUDITOR AS REALISED IN CONVERTIBLE FOREIGN EXCHANGE DURING THE YEAR UNDER CONSIDERATION. FOR WORKING OUT THE PROFIT ELIGIBLE FOR DEDUCTION U/S 8 0HHC, THE DIRECT COST AND INDIRECT COST ARE TO BE REDUCED FROM TOTAL EXPORT TURNOVER. THE AUDITOR HAS SHOWN DIRECT COST OF EXPORT GOODS AT RS.20,22,82,383/- AND INDIRECT C OST OF RS.89,02,791/-. THE COMMISSION EXPENSES OF RS.26,55,554/- IS A PART OF INDIRECT COST BUT IT IS NOT VERIFIABLE FROM THE INDIRECT COST GIVEN BY THE AUDI TOR THAT WHETHER THE SAID COMMISSION EXPENSES ARE INCLUDED IN INDIRECT COST OR NOT. THE ASSESSING OFF ICER IS DIRECTED TO VERIFY THIS FACT AND IF COMMISSION EXPE NSES ARE INCLUDED IN INDIRECT COST, THEN THE REDUCTION M ADE BY THE ASSESSING OFFICER FOR WORKING OUT DEDUCTION U/S 80HHC MAY BE DELETED. IF IT IS NOT INCLUDED IN INDI RECT COST, THEN SAME MAY BE TREATED AS FORMING PART OF INDIRECT COST AND REQUIRED TO BE REDUCED FROM THE EXPORT TURNOVER FOR WORKING OUT DEDUCTION U/S 8OHHC . THUS THIS GROUND IS DISPOSED OFF AS ABOVE. 5. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASS ESSEE COULD NOT POINT OUT ANY SPECIFIC ERROR IN THE ORDER OF TH E LEARNED COMMISSIONER OF INCOME TAX(APPEALS). IT IS NOT THE CASE OF THE ASSESSEE THAT COMMISSION PAYMENT IN QUESTION DOES N OT RELATE TO - 5 - EXPORT OF TRADING GOODS BY THE ASSESSEE . THUS, IN OUR CONSIDERED VIEW, LEARNED COMMISSIONER OF INCOME TAX(APPEALS) W AS JUSTIFIED IN DIRECTING THE LEARNED ASSESSING OFFICER TO VERIF Y WHETHER THE ABOVE CLAIM EXPENDITURE WAS INCLUDED IN INDIRECT OR DIRECT EXPENSES WHILE COMPUTING PROFIT DERIVED FROM EXPORT OF TRADI NG GOODS. THEREFORE, WE DO NOT FIND ANY GOOD REASON TO INTERF ERE WITH THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APP EALS) WHICH IS CONFIRMED AND THE GROUND OF APPEAL OF THE ASSES SEE IS DISMISSED. 6. GROUND NO.2 OF THE APPEAL OF THE ASSESSEE READS AS UNDER:- 2. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN NOT CONSIDERING RS.33,18,497/- B EING VALUED OF DFRC LICENSES AS INCENTIVE ELIGIBLE FOR DEDUCTION U/S.80HHC. 7. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HELD AS UNDER:- 4. THE SECOND GROUND SAYS THAT THE ASSESSING OFFIC ER HAD ERRED IN NOT CONSIDERING RS.33,18,497/- BEING V ALUE OF DFRC LICENSE AS INCENTIVE ELIGIBLE FOR DEDUCTION U/S 80HHC. THE APPELLANT HAS CLAIMED 90% OF DFRC LICENS E RECEIPTS AS ELIGIBLE FOR DEDUCTION U/S 80HHC BUT TH E ASSESSING OFFICER HAS DISALLOWED THE SAME ON THE GROUND THAT THE TURNOVER OF THE ASSESSEE EXCEEDS RS .10 CRORES AND THE ASSESSEE HAS NOT PROVED THE CONDITIO N SPECIFIED IN SECOND PROVISO WHICH WAS INSERTED BY AMENDMENT ACT, 2005 AND FAILED TO FURNISH THE DETAI LS OF ALTERNATE CLAIM. THUS, IN ABSENCE OF ANY MATERIA L EVIDENCE IN RESPECT OF ENTITLEMENT OF DUTY DRAW BAC K, THE ASSESSEE'S CLAIM OF DEDUCTION U/S 80HHC WITH REFERENCE TO DFRC LICENSE WAS NOT ADMISSIBLE AND ACCORDINGLY HE DISALLOWED THE SAME. 4.1. DURING THE COURSE OF APPELLATE PROCEEDINGS THE LEARNED AUTHORISED REPRESENTATIVE FILED A WRITTEN SUBMISSION IN WHICH IT IS CONTENDED THAT AMENDMENT TO WITHDRAW THE BENEFITS AND INCENTIVES OFFERED AND ALREADY ACCEPTED BY THE ASSESSEE, WITH RETROSPECTIV E - 6 - EFFECT, IS ILLEGAL AS IT HAS EFFECT TO RECOVER THE AMOUNT AND IT HAS FINANCIAL EFFECT DUE TO AMENDMENT. THIS AMENDMENT WAS HIGHLY CONTROVERSIAL AND REPETITIVE NOTIFICATIONS WERE ISSUED BY CBDT TO KEEP IN ABEYAN CE ALL PROCEEDINGS RELATED TO SECTION 80HHC. LATER ON THIS CONTROVERSY WAS SOLVED BY A NOVEL CONCEPT IN HISTOR Y OF LAW THAT THIS BENEFIT IS ELIGIBLE FOR ASSESSEE HAVI NG TURNOVER BELOW RS.10 CRORES. THIS AMENDMENT IS CHALLENGED IN HON'BLE HIGH COURT OF GUJARAT AND A S TAY WAS ALSO GRANTED FOR ALL PROCEEDINGS FOR ADDITION U NDER THIS AMENDED PROVISION BUT UNFORTUNATELY THIS STAY IS VACATED DUE TO TECHNICAL FAILURE. FOR THIS REJECTIO N, WE HAVE TO STATE THAT IT IS NOT LOGICAL THAT THE ONE P ROVISION IS GOOD FOR ASSESSEE HAVING TURNOVER BELOW. RS.10 CRORES AND THE SAME PROVISION IS BAD FOR ASSESSEE HAVING TURNOVER ABOVE RS.10 CRORES. CONSIDERING THE ABOVE SUBMISSION, THE LEARNED AUTHORISED REPRESENTATIVE REQUESTED TO ALLOW PROFIT ON SALE OF LICENSE AS ELIGIBLE FOR CALCULATING DEDUCTION U/S 8 0HHC. 4.2 I HAVE CAREFULLY CONSIDERED THE CONTENTION OF T HE LEARNED AUTHORISED REPRESENTATIVE BUT IN VIEW OF TH E AMENDED PROVISION OF SECTION 80HHC, THE CONTENTION OF THE LEARNED AUTHORISED REPRESENTATIVE IS NOT FOUND CORRECT. THE TURNOVER OF THE APPELLANT EXCEEDS RS.1 0 CRORES AND THE THIRD PROVISO GIVEN UNDER SUB SECTIO N 3 OF SECTION 80HHC HAS BEEN INSERTED BY THE TAXATION LAWS (AMENDMENT ACT, 2005) W.E.F. 01.04.1998. THE APPELLANT HAS NOT PRODUCED ANY DOCUMENTARY EVIDENCE TO PROVE THAT WHETHER IT HAD CHOSEN THE DUTY DRAW B ACK SCHEME OR DUTY FREE REPLENISHMENT SCHEME. IN ABSENC E OF SUCH PRIMARY REQUIREMENT, THE ASSESSING OFFICER HAS CORRECTLY DISALLOWED THE CLAIM OF DEDUCTION U/S 80H HC FOR PROFIT ON SALE OF DFRC LICENSE U/S 80HHC OF THE I.T. ACT. I DO NOT FIND ANY INFIRMITY IN THE ACTION OF T HE ASSESSING OFFICER, ACCORDINGLY THE DISALLOWANCE MAD E IS HEREBY CONFIRMED. 8. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASS ESSEE SUBMITTED THAT IN VIEW OF THE DECISION OF THE SPECI AL BENCH OF THE TRIBUNAL IN THE CASE OF TOPMAN EXPORTS VS. ITO (200 9) 125 TTJ (MUMBAI) (SB) 289, THE MATTER SHOULD BE RESTORED BA CK TO THE FILE - 7 - OF THE LEARNED ASSESSING OFFICER TO ALLOW DEDUCTION UNDER SECTION 80HHC ON PROFIT FROM SALE OF DRFC. 9. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORT ED THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD. THE CLAIM OF DISALLO WANCE UNDER SECTION 80HHC IN RESPECT OF INCOME FROM DRFC OF RS. 33,18,497/-, WAS DENIED BY THE LOWER AUTHORITIES TO THE ASSESSEE ON THE GROUND THAT THE ADDITIONAL CONDITIONS ENVISAGED IN THE THI RD PROVISO TO SECTION 80HHC(3) WAS NOT SATISFIED IN THE INSTANT C ASE. 11. THE LEARNED AUTHORISED REPRESENTATIVE OF THE A SSESSEE BEFORE US, SUBMITTED THAT THE ISSUE IS TO BE DECIDE D IN ACCORDANCE WITH THE DECISION OF THE MUMBAI SPECIAL BENCH OF TH E TRIBUNAL IN THE CASE OF TOPMAN EXPORTS (SUPRA). 12. WE FIND THAT IN THE CASE OF TOPMAN EXPORTS (SU PRA) IT WAS HELD THAT INCOME BY WAY OF RECEIPT OF DRFC AND INCOME BY WAY OF PROFIT ON SALE OF DRFC ARE TWO DISTINCT AND SEPA RATE INCOME. WHILE INCOME IN RESPECT OF DRFC IS THE FACE VALUE O F THE DRFC AND THE SAME IS COVERED BY CLAUSE (IIIB) OF SECTION 28 WHEREAS PROFIT ON SALE OF DRFC IS ONLY THE ELEMENT OF PROFIT I.E. SAL E PRICE MINUS FACE VALUE OF DRFC AND THE SAME IS COVERED BY CLAUSE (II ID) OF SECTION 28 OF THE ACT. ON A READING OF THIRD PROVISO TO SUB-S ECTION (3) OF SECTION 80HHC, IT IS OBSERVED THAT THE ADDITIONAL C ONDITION ENVISAGED THEREIN GOVERNS THE INCOME COVERED BY CLA USE (IIID) OF SECTION 28 AND DO NOT EFFECT THE INCOME COVERED BY CLAUSE (IIIB) OF SECTION 28. IT IS ALSO OBSERVED THAT NO MATERIAL C OULD BE BROUGHT BEFORE US BY THE ASSESSEE TO SHOW THAT IT SATISFIED THE CONDITIONS - 8 - ENUMERATED IN THE THIRD PROVISO TO SECTION 80HHC (3 ) OF THE ACT. ON THE ABOVE CIRCUMSTANCES, IN OUR CONSIDERED VIEW, THE LOWER AUTHORITIES WERE JUSTIFIED IN DENYING THE CLAIM IN RESPECT OF PROFIT ON SALE OF DRFC COVERED BY CLAUSE (IIID) OF SECTION 28 OF THE ACT. BUT IN THE INSTANT CASE, FROM THE MATERIALS AVAILABLE ON R ECORD, IT IS NOT CLEAR WHETHER THE WHOLE AMOUNT OF RS.33,18,497/- IS COVERED BY CLAUSE (IIID) OF SECTION 28 OR IT ALSO INCLUDES THE AMOUNT WHICH IS COVERED BY CLAUSE (IIIB) OF SECTION 28 ALSO. IN THE CIRCUMSTANCES, IN OUR CONSIDERED OPINION, IT SHALL BE IN THE INTEREST OF THE JUSTICE TO RESTORE THE ISSUE BACK TO THE FILE OF THE LEARNED A SSESSING OFFICER FOR PROPER VERIFICATION AND THEREAFTER, ADJUDICATE THE ISSUE AFRESH IN LIGHT OF THE OBSERVATIONS MADE HEREINABOVE AFTER AL LOWING SUFFICIENT OPPORTUNITY OF HEARING TO THE ASSESSEE. WE ORDER AC CORDINGLY. THUS, THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 13. GROUND NO.3 OF THE APPEAL OF THE ASSESSEE READS AS UNDER:- 3. THAT THE LEARNED C.I.T. ERRED IN DISALLOWING RS .40875/- OUT OF SALES PROMOTION EXPENSE. 14. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HELD AS UNDER:- 5. THE NEXT GROUND RELATES TO DISALLOWANCE OF RS.40,875/- OUT OF SALES PROMOTION EXPENSES. THE ASSESSING OFFICER HAS DISCUSSED THIS ISSUE ON PAGE 5 OF THE ASSESSMENT ORDER. HE HAS MENTIONED THAT THE ASSESSEE HAS CLAIMED SALES PROMOTION EXPENSES OF RS.77,939/-. ON SCRUTINY OF DETAILS OF SALES PROMOT ION EXPENSES, HE OBSERVED THAT THE ASSESSEE HAS PAID RS.40,875/- FOR BHAGWATI BANQUETS AND HOTELS FOR DINNER CHARGES. THE ASSESSEE ALSO FURNISHED COPIES OF THE BILLS WHICH SHOW THAT THERE WERE 175 PERSONS WH O HAVE TAKEN PART IN THE PARTY WHICH WAS EXCLUSIVELY FOR PERSONAL PURPOSE AND NOT FOR BUSINESS PURPOSE. - 9 - THEREFORE, THE ASSESSING OFFICER DISALLOWED RS.40,8 75/- TREATING IT AS NOT INCURRED FOR BUSINESS PURPOSES. 5.1 DURING THE COURSE OF APPELLATE PROCEEDINGS THE LEARNED AUTHORISED REPRESENTATIVE ARGUED THAT THE ASSESSING OFFICER HAS FAILED TO APPRECIATE THE FACT S OF THE CASE. THE APPELLANT IS ENGAGED IN EXPORT OF LAMINATED SHEETS AND DURING THE YEAR UNDER CONSIDERATION THEY HAD STARTED TO IMPORT AND MARKET ING WOODEN FLOORING IN INDIA. FOR THIS PURPOSE, THEY ORGANISED A MEET OF PROSPECTIVE TRADERS AT THE HOTE L GRAND BHAGWATI AND PAID RS.40,875/-. THIS HOTEL IS FAMOUS FOR ARRANGING BUSINESS CONFERENCES AND SEMINAR. THUS, THE EXPENDITURE INCURRED IS WHOLLY A ND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE ASSESS ING OFFICER HAS DISALLOWED THIS EXPENDITURE WITHOUT ANY FINDING, PURELY ON SURMISES AND CONJECTURE. THE REA SON FOR HIS ASSUMPTION IS ONLY DUE TO THE PLACE WHERE PERSONAL PARTY CAN BE ARRANGED ALSO BUT NOT ON ANY FACT OR FINDING. IN THE CIRCUMSTANCES THE LEARNED AUTHOR ISED REPRESENTATIVE REQUESTED TO ALLOW THIS GROUND OF AP PEAL AS THE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY FOR T HE PURPOSE OF BUSINESS. 5.2 I HAVE CAREFULLY CONSIDERED THE CONTENTION OF T HE LEARNED AUTHORISED REPRESENTATIVE BUT THE SAME HAS NOT BEEN FOUND CONVINCING IN ABSENCE OF ANY DOCUMENTARY EVIDENCE. ON ONE HAND THE APPELLANT HAS CONTENDED TO HAVE ORGANISED A MEET OF PROSPECTIVE TRADERS IN THE HOTEL OF GRAND BHAGWATI AND ON THE O THER HAND IT WAS UNABLE TO PRODUCE ANY DOCUMENTARY EVIDENCE TO PROVE THAT THE SAID PARTY WAS ORGANISED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES. THUS IN ABSENCE OF ANY DOCUMENTARY EVIDENCE, I DECLINED TO INTERFERE IN THE ACTION OF THE ASSESSING OFFICER, H ENCE THIS GROUND OF APPEAL IS REJECTED. 15. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE , THE ASSESSEE CLAIMED SALES PROMOTION EXPENSES OF RS.77,939/-. TH E LEARNED ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS PA ID RS.40,875/- TO BHAGWATI BANQUETS AND HOTEL FOR DINNER CHARGES. THE LEARNED - 10 - ASSESSING OFFICER WAS OF THE VIEW THAT THE EXPENSES INCURRED WERE PERSONAL IN NATURE AND THEREFORE, DISALLOWED DEDUCT ION FOR RS.40,875/-. IN APPEAL THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) CONFIRMED THE ACTION OF THE LEARNED AS SESSING OFFICER OBSERVING THAT IN ABSENCE OF ANY DOCUMENTARY EVIDEN CE TO SHOW THAT THE EXPENSES WERE INCURRED WHOLLY AND EXCLUSIV ELY FOR THE PURPOSES OF THE BUSINESS, THE EXPLANATION OF THE AS SESSEE CANNOT BE ACCEPTED. BEFORE US, THE LEARNED AUTHORISED RE PRESENTATIVE OF THE ASSESSEE DID NOT MAKE ANY SUBMISSION ON THIS GR OUND OF APPEAL AND THEREFORE, THIS GROUND OF APPEAL OF THE ASSESSE E IS DISMISSED FOR WANT OF PROSECUTION. 16. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED AS ABOVE. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 18 TH DAY OF JUNE, 2010. SD/- SD/- ( T.K. SHARMA ) ( N .S. SAINI ) JUDICIAL MEMBER ACCOUNTAN T MEMBER AHMEDABAD; ON THIS 18 TH DAY OF JUNE, 2010 PARAS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-XVII, AHMEDABAD. 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD - 11 - DATE INITIALS 1. DRAFT DICTATED ON 11.06.2010 --------------- ---- 2. DRAFT PLACED BEFORE AUTHORITY 14.06.2010 ----- -------------- 3. DRAFT PROPOSED & PLACED 14.06.2010 ---------- --------- JM BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED 14.06.2010 ----------- -------- JM BY SECOND MEMBER 5. APPROVED DRAFT COMES TO P.S 15.06.2010 -------- ------------ 6. KEPT FOR PRONOUNCEMENT ON 18.06.2010 --------- ----------- 7. FILE SENT TO THE BENCH CLERK 18.06.2010 ------ -------------- 8. DATE ON WHICH FILE GOES TO THE ------------- - ------------------- 9. DATE OF DISPATCH OF ORDER ------------- ------ ---------------