HARINAGAR SUGAR MILLS LTD, MUMBAI V. ACIT WD 4(2), MUMBAI

ITA 9037/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9401 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 07-11-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 24-12-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: JAYESH DESAI
• Keywords: Business expenditure; Onus to prove
• Section: 143(3); 37(1); 37

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H MUMBAI . . , / BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER /AND , SHRI RAJENDRA, ACCOUNTANT MEMBER I.TA. NO. 9037/MUM/2010 ASSESSMENT YEAR 2005-06 HARINAGAR SUGAR MILLS LIMITED, WORLD TRADE CENTRE, CENTER NO.1, 10 TH FLOOR, CUFFE PARADE, MUMBAI 400 005. PAN: AAACH 2831 H VS. ACIT WARD 4(2), AAYAKAR BHAVAN, 6 TH FLOOR, MUMBAI-400 020. ( / APPELLANT ) ( ! / RESPONDENT ) ' / APPELLANT BY : SHRI JAYESH DESAI ! # ' /RESPONDENT BY : SHRI RAKESH RANJAN $ # %& / DATE OF HEARING : 07-11-2012 '() # %& / DATE OF PRONOUNCEMENT : 21-11-2012 * / O R D E R PER RAJENDRA, AM THE PRESENT APPEAL IS DIRECTED AGAINST THE ORDER DT . 18-10-2010 OF THE CIT(A)- 11, MUMBAI. FOLLOWING GROUNDS OF APPEAL HAVE BEEN RAISED BY THE APPELLANT. 1A) THE LD. CIT(APPEALS) ERRED IN CONFIRMING DISALL OWANCE OF RS. 13,38,645/- BEING FOREIGN TOUR EXPENSES OF ACCOMPANYING SPOUSE OF THE DIRECTORS OF THE COMPANY PURPORTED TO BE PERSONAL EXPENSES. B) YOUR APPELLANT PRAYS THAT, IN VIEW OF HONBLE IT AT MUMBAI BENCH ORDERS IN APPELLANTS OWN CASE IN ASSESSMENT YEARS 1991-92 TO 1996-97 AND OTHER YEARS, THE ASSESSING OFFICER MAY BE DIRECTED TO DELETE THE SAI D ADDITION. 2. THE ASSESSEE-COMPANY, ENGAGED IN THE MANUFACTURING OF SUGAR AND BISCUITS, FILED ITS RETURN OF INCOME ON 26.08.2006 DECLARING INCOME OF RS. 3.84 CRORES UNDER I.TA. NO. 9037/MUM/2010 HARINAGAR SUGAR MILLS LTD. 2 THE NORMAL COMPUTATION OF INCOME. ASSESSMENT WAS F INALISED ON 01.12.2007 U/S. 143(3) OF THE INCOME TAX ACT,1961(ACT) BY THE ASSES SING OFFICER (AO) DETERMINING TOTAL INCOME AT RS. 4.07 CRORES UNDER THE NORMAL CO MPUTATION. DURING THE ASSESSMENT PROCEEDINGS, AO FOUND THAT WIVES OF THE DIRECTORS H AD UNDERTAKEN VISIT TO FOREIGN COUNTRIES. THE DETAILS OF JOURNEYS UNDERTAKEN WERE TABULATED BY THE AO AS UNDER: S.N. NAME OF THE PERSON PLACE FARE, VISA & AIRPORT CHARGS OTHER EXPENSES TOTAL (RS) 1. SMT. NEETA V. PITTIE NOT FILED 4,19,078/- 4,66,185/- 8,85,263 2. SMT. D.M. PITTIE 50,019/- 1,73,250/- 2,23,269 3. SMT. S.M. PITTIE 1,24,503/- 1,05,610/- 2,30,113 TOTAL: 5,93,600/- 7,45,045/- 13,38,645/- AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, AO HELD THAT ASSESSEE HAD NOT HIGHLIGHTED ANY BUSINESS NECESSITY OR EXIGENCY BASE D ON WHICH IT WAS NECESSARY FOR THE SPOUSES OF THE DIRECTORS TO UNDERTAKE THE JOURN EY IN THE BUSINESS INTEREST OF THE ASSESSEE-COMPANY, THAT SUCH EXPENSES WERE NOTHING B UT PERSONAL EXPENSES. THESE EXPENSES COULD NOT BE TURNED TO HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. RELYING UPON THE ORDER OF THE GUJARAT HIGH COURT IN THE CASE OF SHAHIBAG ENTREPRENEURS (P)LTD.,(1995 TAX LR 133), H E HELD THAT EXPENDITURE INCURRED ON FOREIGN TOUR OF WIFE OF DIRECTOR WAS NOT ALLOWAB LE. FINALLY, HE DISALLOWED THE EXPENDITURE AMOUNTING TO RS. 13.38 LAKHS AND ADDED BACK TO THE INCOME OF THE ASSESSEE. 2.1. ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPEL LATE AUTHORITY (FAA), WHO CALLED FOR A REMAND REPORT FROM THE AO. AFTER CONSI DERING THE SUBMISSIONS OF THE ASSESSEE AND THE REMAND REPORT, HE HELD THAT THE IS SUE OF TRAVELLING EXPENSES OF THE WIVES OF THE DIRECTORS OF THE COMPANY HAS TO BE DEC IDED ON THE FACTS OF THE CASE, THAT IN THE CASE UNDER CONSIDERATION THE APPELLANT-COMPA NY HAD NOT BEEN ABLE TO ESTABLISH THAT ANY BUSINESS WAS CONDUCTED BY THE COMPANY, SPO USES OF THE DIRECTORS DURING THEIR FOREIGN TOURS, THAT EXPENSES INCURRED ON THE FOREIGN TOUR BY THE COMPANY, SPOUSES WERE PERSONAL EXPENSES AND NOT THE BUSINESS EXPENSES. FINALLY, HE HELD THAT EXPENSES HAD NOT BEEN INCURRED WHOLLY AND EXCLUSIVE LY FOR THE PURPOSE OF THE BUSINESS OF THE APPELLANT-COMPANY. HE UPHELD THE ADDITION M ADE BY THE AO. 3. BEFORE US, AUTHORISED REPRESENTATIVE (AR) SUBMITTED THAT SAME ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE BY THE ITAT VIDE ITS ORDER DT. 30-03-2007 FOR THE AYS 1991-92 TO 1996-97, THAT APPEALS OF THE DEPART MENT (AY 1997-98 TO AY 2000- 01AND AY 2003-04) WERE DISMISSED BY THE TRIBUNAL IN WHICH ISSUE OF FOREIGN TOUR OF THE WIVES OF THE DIRECTORS WAS AGITATED BEFORE IT. HE RELIED UPON THE CASE OF ALFA LAVAL (I) LTD., (282 ITR445), ZUARI FINANCE LTD.(27 1 ITR 538). HE ALSO RELIED UPON THE CASES OF HINDUSTAN LEVER LTD., (ITA NO. 4628/ M UM/2003 DTD.08-02-2012), J.K. INDUSTRIES LTD.,(ITA NO. 624 OF 2004) MERCEDES BENZ INDIA PVT. LTD.,(WP NO. 1614 OF 2010) AND J.K.T. FABRICS PVT. LTD., [4 SOT 84 ( MUM)]. HE SUBMITTED THAT SPOUSES OF THE DIRECTORS HAD ACCOMPANIED THEM IN THE INTERE ST OF BUSINESS OF COMPANY, THAT VISIT OF DIRECTORS INVOLVED SEVERAL SOCIAL ENGAGEME NTS, THAT BOARD OF DIRECTORS HAD APPROVED THE TOUR OF THE SPOUSES OF THE DIRECTORS, THAT EARLIER YEARS ORDER OF THE TRIBUNAL SHOULD BE FOLLOWED. DEPARTMENTAL REPRESENT ATIVE (DR) SUBMITTED THAT INCURRED EXPENSES WERE NOT FOR THE BUSINESS OF THE COMPANY, THAT EXPENDITURE ON FOREIGN TOUR OF WIVES OF THE DIRECTORS WAS NOT WHOL LY AND EXCLUSIVELY FOR CARRYING OUT I.TA. NO. 9037/MUM/2010 HARINAGAR SUGAR MILLS LTD. 3 THE BUSINESS OF THE ASSESSEE, THAT AO HAD RECORDED THE STATEMENTS OF THE SPOUSES OF THE DIRECTORS, THAT THE WIVES OF THE DIRECTORS WERE NOT AWARE ABOUT THE BUSINESS ACTIVITIES OF THE COMPANY OR TOURS UNDERTAKEN BY THEM, THAT IN EARLIER YEARS FACTS WERE DIFFERENT. HE RELIED UPON THE ORDER OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF BHOR INDUSTRIES PVT. LTD.(284 ITR 319).HE FURTHER ARGUED THAT FACTS OF THE CASE UNDER CONSIDERATION WERE DIFFERENT FORM THE FACTS OF THE CASES RELIED UPON BY THE AR. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED BEFORE US. WHERE SPOUSE OF A DIRECTOR ACCOMPANIES HER/HIM ON A FOREIGN TOUR, SHOULD THE EXPENDITURE INCURRED FOR HIS/HER TRAVEL BE TREATED AS A DEDUCTIBLE BUSINESS EXPENDITURE OR NOT HAS BEEN SUBJECT MATTER OF NUMEROUS DECISION S WITH DIFFERENT CONCLUSIONS MAINLY DEPENDING UPON THE FACTS OF EACH CASE. THE HONBLE KERALA HIGH COURT HAD ALLOWED THE EXPENSES OF THE FOREIGN TOUR OF WIVES O F EXECUTIVES OF THE ASSESEE- COMPANIES IN THE CASES OF ASPINWALL AND CO. LTD. ( 235ITR106) AND APOLLO TYRES LTD.(237ITR706) ON THE FINDING THAT SUCH TRAVEL WAS UNDERTAKEN FOR THE PURPOSE OF BUSINESS. LATER ON THE MATTER WAS CONSIDERED BY TH E FULL BENCH OF THE HONBLE HIGH COURT OF KERALA IN THE CASE OF RAM BAHADUR THAKUR LTD. (261 ITR 390), WHERE THE ENTIRE GAMUT OF CASE LAW WAS REVIEWED AND EXPENDITU RE INCURRED ON FOREIGN TRAVEL WAS DISALLOWED. HONBLE HIGH COURT IN THAT CASE TOOK N OTE OF MANY A DECISIONS DELIVERED BY VARIOUS COURTS. HONBLE BOMBAY HIGH COURT HAS DI SCUSSED THE ISSUE IN THE CASES OF ALFA LAVAL (I.) LTD.(SUPRA) AND BHOR INDUSTRIES LTD.(SUPRA). HONBLE MADRAS HIGH COURT IN THE CASES OF T.S. HAJEE MOOSA & CO (153 IT R 422) AND D.B.MADAN (261 ITR 193) HAVE DISCUSSED THE SAME ISSUE. HONBLE HI GH COURTS OF GUJARAT, GAUHATI AND MADHYA PRADESH HAVE ALSO DECIDED THE QUESTION O F ALLOWABILITY OF EXPENDITURE INCURRED ON THE FOREIGN VISIT OF SPOUSES OF EXECUTI VES/ PARTNERS OF COMPANIES/FIRMS. 4.1. AS PER THE WELL-SETTLED PRINCIPLES OF TAXATION JURI SPRUDENCE WHERE AN ASSESSEE SEEKS TO DEDUCT FROM HIS BUSINESS PROFITS CERTAIN I TEMS, THE ONUS OF PROVING THAT SUCH DEDUCTIONS ARE PERMISSIBLE FALLS ON HIM. THE BURDE N OF PROVING A CLAIM TO ANY ALLOWANCE OR DEDUCTION OR TO ANY EXEMPTION IS ON TH E ASSESSEE ESPECIALLY WHEN THE CLAIMS ARE BASED ON FACTS WHICH ARE WITHIN THE SPEC IAL KNOW-LEDGE OF THE ASSESSEE. EXPENDITURE INCURRED BY AN ASSESSEE ON ACCOUNT OF F OREIGN TOURS OF SPOUSES OF AN EXECUTIVE OF A COMPANY/PARTNER OF A FIRM IS ONE OF SUCH DEDUCTIONS. EXPENDITURE OF THIS NATURE ARE COVERED BY THE PROVISIONS OF SECTIO N 37(1) OF THE ACT. AN ANALYSIS OF SECTION 37(1) OF THE ACT, REVEAL THAT THE FOLLOWING CONDITIONS SHOULD EXIT IN ORDER TO MAKE AN EXPENDITURE ALLOWABLE: I) THE EXPENDITURE SHOULD NOT BE OF THE NATURE DES CRIBED IN SECTIONS 30 TO 36. II) IT SHOULD HAVE BEEN INCURRED IN THE ACCOUNTING YEAR. III) IT SHOULD BE IN RESPECT OF A BUSINESS WHICH WA S CARRIED ON BY THE ASSESSEE AND THE PROFITS OF WHICH ARE TO BE COMPUTED AND ASSESSED AN D SHOULD BE INCURRED AFTER THE BUSINESS IS SET UP. IV) IT SHOULD NOT BE IN THE NATURE OF PERSONAL EXP ENSES OF THE ASSESSEE. V) IT SHOULD NOT BE IN THE NATURE OF CAPITAL EXPEN DITURE. I.TA. NO. 9037/MUM/2010 HARINAGAR SUGAR MILLS LTD. 4 VI) IT SHOULD HAVE BEEN LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF SUCH BUSINESS. WHILE SOME BROAD PRINCIPLES HAVE BEEN INDICATED IN VARIOUS JUDICIAL PRONOUNCEMENTS IN REGARD TO WHAT IS AN ALLOWABLE EXPENDITURE, YET IT IS PRIMARILY A QUESTION OF FACT. BASIC ISSUE TO BE DECIDED IS WHETHER THE EXPENDITUR E IS LAID OUT WHOLLY FOR THE PURPOSE OF THE BUSINESS? 4.2. IT CANNOT BE DISPUTED THAT BEFORE AN ASSESSEE CAN B ECOME ENTITLED TO AN ALLOWANCE UNDER THAT PROVISION, HE MUST SATISFY THE AO OF THE PURPOSE FOR WHICH THE AMOUNT IS SPENT. IT IS TRUE THAT THE TAXING AUTHORI TIES ARE NOT ENTITLED TO GO INTO THE REASONABLENESS OF THE EXPENSES, BUT THEY ARE CERTAI NLY ENTITLED TO BE SATISFIED AS TO THE COMMERCIAL NECESSITY OF EXPENDING THAT AMOUNT. IN MOST CASES, THE QUESTION WILL BE AS TO THE NATURE OF THE RELATION BETWEEN THE EXPEND ITURE AND THE BUSINESS, WHETHER THE BENEFIT IS REMOTE OR NEAR, PROSPECTIVE OR IMMEDIATE , IMAGINARY OR REAL AND SO FORTH. THE CAPACITY IN WHICH THE ASSESSEE SPENDS IS ALSO R ELEVANT. COURT ARE OF THE VIEW THAT IN CASES RELATED WITH EX PENDITURE COVERED BY SECTION 37 OF THE ACT QUESTION TO BE DECIDED ARE WHETHER THE FIND ING OF FACT ARRIVED AT BY THE AO IS PERVERSE OR BASED ON NO MATERIAL AND WHETHER THE AS SESSEE HAS SUCCEEDED IN SATISFYING AS TO THE PURPOSE FOR WHICH THE AMOUNT WAS SPENT AN D THE COMMERCIAL NECESSITY OF EXPENDING IT. BESIDES, IN VIEW OF THE PROVISIONS OF SECTION 40A(2) OF THE ACT, SO FAR AS A COMPANY IS CONCERNED, IT IS OPEN TO THE AO TO GO INTO THE REASONABLENESS OF THE EXPENSES ALSO. THE AO IS ALSO ENTITLED TO BE SATISF IED AS TO THE COMMERCIAL NECESSITY OF SPENDING THAT AMOUNT. IN OTHER WORDS, THERE MUST B E NEXUS BETWEEN THE EXPENDITURE AND THE BUSINESS PURPOSE. 4.2.1. HOWEVER WIDE THE MEANING OF THE EXPRESSION FOR THE PURPOSE OF THE BUSINESS MAY BE, ITS LIMITS ARE IMPLICIT IN IT. COURTS ARE OF THE VIEW THAT THE PURPOSE MUST BE FOR THE PURPOSES OF THE BUSINESS, THAT IS TO SAY, T HE EXPENDITURE INCURRED MUST BE FOR THE CARRYING ON OF THE BUSINESS AND THE ASSESSEE SH OULD INCUR IT IN HIS CAPACITY AS A PERSON CARRYING ON BUSINESS. THE FIRST ADVERB WHOLL Y REFERS TO THE QUANTUM OF THE EXPENDITURE AND THE TERM EXCLUSIVELY REFERS TO THE MOTIVE, OBJECTIVE AND PURPOSE OF THE EXPENDITURE AND GIVES JURISDICTION TO THE TAXIN G AUTHORITIES TO EXAMINE THESE MATTERS. THE EXPRESSION WHOLLY AND EXCLUSIVELY LAI D OUT FOR THE PURPOSE OF BUSINESS EMPHASIZES THE NEXUS BETWEEN THE TRADE AND THE EXPE NDITURE. THE TRUE TEST OF AN EXPENDITURE LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF TRADE OR BUSINESS IS THAT IT IS INCURRED BY THE ASSESSEE AS INCIDENTAL T O HIS TRADE FOR THE PURPOSE OF KEEPING THE TRADE GOING AND OF MAKING IT PAY AND NOT IN ANY OTHER CAPACITY THAN THAT OF A TRADER. TO ARRIVE AT THE CONCLUSION THAT THE EXPEND ITURE WAS DICTATED SOLELY BY BUSINESS CONSIDERATION ONE HAS TO CONSIDER THE NATURE OF THE BUSINESS, THE WAY IN WHICH IT IS CONDUCTED AND ANY LIKELIHOOD OF THE BUSINESS BEING ADVERSELY AFFECTED OR ITS INTEREST BEING PROMOTED BY THE REFUSAL OR THE INCURRING OF T HE EXPENDITURE AS THE CASE MAY BE. BY USING THE WORDS WHOLLY AND EXCLUSIVELY, THE LEGI SLATURE HAS CAST A DUTY ON THE ASSESSEE TO ESTABLISH THAT THE EXPENDITURE WAS TO E ARN INCOME AND NOT FOR ANY OTHER PURPOSE. THE EFFECT OF THE WORDS, WHOLLY AND EXCLU SIVELY FOR THE PURPOSE CANNOT NOT BE DILUTED. BY USING THREE WORDS, I.E. WHOLLY, EXC LUSIVELY AND PURPOSE THE LEGISLATURE HAD MADE IT MANDATORY TO FIND OUT THE REASON BEHIND THE EXPENDITURE. I.TA. NO. 9037/MUM/2010 HARINAGAR SUGAR MILLS LTD. 5 4.2.2. IN THE CASE UNDER CONSIDERATION THE DISPUTE BETWEEN THE REVENUE AUTHORITIES AND THE APPELLANT-COMPANY IS AS TO WHETHER THE EXPE NDITURE INCURRED BY IT ON THE FOREIGN TOURS OF SPOUSES OF THE DIRECTORS CAN BE SA ID TO HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE OR NOT ? AO AND THE FAA HAVE GIVEN A CATEGORICAL FINDING THAT EXPENDITURE I NCURRED BY THE ASSESSEE-COMPANY WAS NOT FOR CARRYING OUT OF BUSINESS OF THE APPELLA NT.AO HAD RECORDED THE STATEMENTS OF THE WIVES OF THE DIRECTORS AND HAS CLEARLY HELD THAT THEY WERE NOT AWARE ABOUT THE BASIC FACTS OF THE FOREIGN TOUR UNDERTAKEN BY THEM. IN THE EARLIER YEARS AO HAD MADE ADDITIONS WITHOUT MAKING IN DEPTH-INVESTIGATION, WH EREAS IN THE YEAR UNDER CONSIDERATION AO HAS MADE INQUIRY AND THEN ARRIVED AT A DEFINITE CONCLUSION. FAA HAS CONFIRMED THE FACTS FOUND BY THE AO. ASSESSEE HAS NOT PRODUCED ANY EVIDENCE TO SHOW THAT THE EXPENDITURE INCURRED BY IT WAS WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSES. BURDEN OF PROOF REQUIRED THAT ASSESSEE SH OULD HAVE PRODUCED SOME DOCUMENTARY EVIDENCE TO SHOW THAT FOREIGN TRIP OF T HE SPOUSES OF THE DIRECTORS WAS NOT AN EXPENDITURE OF PERSONAL NATURE. INVITATIONS RECEIVED BY THE ASSESSEE OR THE DIRECTORS OF THE COMPANY DO NOT PROVE THAT FOREIGN TOURS OF THE SPOUSES OF THE DIRECTORS HAD ANY RELATION WITH THE BUSINESS OF THE COMPANY. EXPENDITURE INCURRED BY THE APPELLANT FOR SENDING DIRECTORS TO ATTEND MEETI NGS ORGANISED BY INTERNATIONAL SUGAR ORGANIZATION CAN DEFINITELY BE HELD AN EXPEND ITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE BUSINESS. BUT, WITH REG ARD TO FOREIGN TOURS OF WIVES OF THE DIRECTORS THERE IS NO MATERIAL ON THE FILE TO PROVE THAT THEIR TRIPS HAD ANY RELATION WITH THE BUSINESS OF THE COMPANY. IN THESE CIRCUMSTANCE S, WE DO NOT WANT TO DISTURB THE ORDER PASSED BY THE AO AND CONFIRMED BY THE FAA. I N OUR OPINION, ORDER OF THE FAA DOES NOT SUFFER FROM ANY LEGAL OR FACTUAL INFIRMITY . AS THE FACTS AND CIRCUMSTANCES OF THE CASE UNDER CONSIDERATION ARE DIFFERENT FROM THE FACTS OF THE EARLIER AYS., SO, IN OUR OPINION CASES OF EARLIER YEARS ARE OF NO HELP TO TH E ASSESSEE. IT IS A WELL SETTLED PRINCIPLE OF TAXATION LAW THAT RESJUDICATA DOES NOT APPLY IN TAX MATTERS-ESPECIALLY WHEN THE FACTS OF TWO AYS. ARE NOT SIMILAR. IN EAR LIER YEARS IN ABSENCE OF SCRUTINY AND RECORDING OF STATEMENTS OF SPOUSES OF THE DIRECTORS , IF A PARTICULAR CONCLUSION WAS DRAWN THEN IT WOULD NOT MEAN THAT SAME WOULD BE APP LICABLE IN DIFFERENT SET OF FACTS ALSO. EVERY ASSESSMENT YEAR IS A SEPARATE UNIT AND FACTS GO ON CHANGING, SO, IN CHANGED CIRCUMSTANCES DIFFERENT CONCLUSIONS HAVE TO BE ARRI VED AT. IN OUR OPINION PRESENT CASE FALLS IN THAT CATEGORY. 4.3. NOW WE WOULD LIKE TO DISCUSS THE CASES RELIED UPON BY THE AR AND THE DR. ALFA LAVAL (I) LTD., (SUPRA) AND ZUARI FINANCE LTD. (SUPRA) ARE THE MATTERS THAT WERE DECIDED BY THE HONBLE JURISDICTIONAL HIGH COURT. IN THE CASE OF ALFA LAVEL EXPENDITURE AMOUNTING TO RS. 44,966 WAS INCURRED BY THE ASSESSEE-COMPANY ON A FOREIGN TRIP OF THE WIFE, WHO HAD ACCOMPANIED HER H USBAND, THE PRESIDENT OF THE ASSESSEE-COMPANY, WHO WAS INVITED TO ATTEND AN ADVA NCED MANAGEMENT PROGRAMME AT HARWARD ALONG WITH HIS WIFE. IN THAT CASE FAA HA D RECORDED A CATEGORICAL FINDING OF FACT THAT THE SAID EXPENSES WERE INCURRED FOR TH E PURPOSES OF THE BUSINESS OF THE ASSESSEE. THAT FINDING OF THE FACT WAS AFFIRMED BY THE TRIBUNAL. DECIDING THE APPEAL FILED BY THE DEPARTMENT HONBLE HIGH COURT HELD AS UNDER : CONSIDERING THE CONCURRENT FINDING OF FACT RECORDE D BY BOTH THE AUTHORITIES BELOW, IN OUR VIEW, THE EXPENDITURE WOULD BE ALLOWABLE AS DEDUCTI ON WHILE COMPUTING THE PROFITS AND GAINS OF THE BUSINESS. BEFORE CONCLUDING, WE WISH TO CLA RIFY THAT THE CASE NEEDS TO BE DECIDED ON ITS OWN FACTS PRIMARILY CONSIDERING THE BUSINESS EXPEDI ENCY. THAT, PER SE, THE EXPENSES INCURRED BY THE ASSESSEE ON THE FOREIGN TRIP OF THE WIFE MAY NOT ALWAYS BE ALLOWABLE AS DEDUCTION IN COMPUTING THE PROFITS AND GAINS OF THE BUSINESS UNL ESS IT IS CONNECTED WITH THE BUSINESS OF THE I.TA. NO. 9037/MUM/2010 HARINAGAR SUGAR MILLS LTD. 6 ASSESSEE. WE ARE, THEREFORE, CONFINING OUR JUDGMEN T TO THE FACTS OF THIS CASE WHICH WE HAVE DECIDED IN THE LIGHT OF THE CONCURRENT FINDINGS OF FACT RECORDED BY BOTH THE AUTHORITIES BELOW. FROM THE ABOVE IT IS CLEAR THAT MATTER WAS DECIDED IN THE LIGHT OF THE CONCURRENT FINDINGS OF FACT RECORDED BY THE AUTHORITIES BELOW AND THAT JUDGMENT WAS CONFINED TO THE FACTS OF THE CASE. IN THE CASE UNDER CONSIDER ATION BOTH THE AUTHORITIES HAVE CLEARLY MENTIONED THAT THE FOREIGN TOURS OF THE WIVES OF TH E DIRECTORS WERE NOT FOR BUSINESS PURPOSES. WE HAVE NOT COME ACROSS ANY MATERIAL THA T COULD PROVE THAT CLAIM MADE BY THE ASSESSEE WAS SUPPORTED BY ANY EVIDENCE. 4.3.1. IN THE CASE OF ZUARI INDUSTRIES HONBLE BOMBAY HIGH COURT FOUND THAT COMPANY HAD INCURRED EXPENDITURE ON FOREIGN TOUR OF THE WIFE OF THE VICE-CHAIRMAN OF THE COMPANY.AO CALLED UPON THE ASSESSEE-COMPANY T O EXPLAIN AND FURNISH EVIDENCE AS TO HOW THE FOREIGN TRAVEL EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS OF THE COMPANY. THE ASSESSEE DID NOT FILE ANY EXPLANATION OR EVIDENCE IN RESPONSE TO THE SAID LETTER. AS NO EVIDENCE WAS ADD UCED BEFORE HIM, SO THE AO REJECTED THE CLAIM FOR FOREIGN TRAVEL EXPENSES AND THE FINDING WAS CONFIRMED BY THE FAA. TRIBUNAL SET ASIDE THE FINDINGS OF THE AO AND THE FAA. IN PARAGRAPH NO. 42 OF ITS ORDER, TRIBUNAL OBSERVED THAT THE MERE FACT THA T NO TANGIBLE BUSINESS CAME OUT OF THE FOREIGN VISITS WAS NOT A GROUND FOR DISALLOWING THE FOREIGN TRAVEL EXPENDITURE, BECAUSE IT IS POSSIBLE THAT IN THE FIRST MEETING ON LY BUSINESS DISCUSSIONS WOULD TAKE PLACE AND NOTHING TANGIBLE MIGHT COME OUT. HONBLE HIGH COURT HELD THAT THE SAID REASONING WAS CORRECT. WITH REGARD TO THE SPECIFI C CONTENTION WAS RAISED BEFORE THE TRIBUNAL: THAT THE FOREIGN TRAVEL EXPENDITURE ON TR AVEL OF MRS. S. P. HEDE, THE WIFE OF THE VICE-CHAIRMAN, WAS NOT FOR THE PURPOSE OF BUSIN ESS, AS SHE WAS NEITHER A DIRECTOR, NOR CONCERNED WITH THE COMPANY; HONBLE HIGH COURT HELD THAT THE TRIBUNAL HAD NOT RECORDED ANY FINDING OF FACT WHETHER MRS. S. P. HED E WAS REQUIRED TO TRAVEL FOR THE BUSINESS OF THE COMPANY, THAT THE TRIBUNAL HAD NOT CONSIDERED ANY EVIDENCE FOR ALLOWING THE FOREIGN TRAVEL EXPENDITURE SPECIALLY O F MRS. S. P. HEDE, THE WIFE OF THE VICE-CHAIRMAN OF THE ASSESSEE, THAT FINDING WAS THU S NOT BASED ON APPRECIATION OF EVIDENCE AND THAT THE WELL-REASONED FINDINGS OF THE AO AND THE COMMISSIONER (APPEALS) WERE SET ASIDE WITHOUT ANY DISCUSSION AND ON NO EVIDENCE. THUS,THE CASE OF ZUARI INDUSTRIES DOES NOT HELP THE ASSESSEE IN ANY MANNER. IN THE CASE OF ZUARI INDUSTRIES HONBLE COURT HAS EMPAHSISED THE PRINCIP LE THAT ONUS OF PROVING THE FACT OF INCURRING OF EXPENDITURE ON FOREIGN TRAVEL OF WIFE OF AN EXECUTIVE IS ON ASSESSEE AND ASSESSEE HAS ALSO TO PROVE THAT SUCH EXPENDITURE WA S INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. WE FIND THAT IN THE C ASE UNDER CONSIDERATION ASSESSEE HAS FAILED ON BOTH THE COUNTS. AFTER CONSIDERING THE F ACTS OF THE CASES-OF HINDUSTAN LEVER LTD., (ITA NO. 4628/ MUM/2003 DTD.08-02-2012),J.K. INDUSTRIES LTD., (ITA NO. 624 OF 2004) MERCEDES BENZ INDIA PVT. LTD., (WP NO. 161 4 OF 2010) AND J.K.T. FABRICS PVT. LTD., [4 SOT 84 (MUM)]-RELIED UPON BY THE AR W E ARE OF THE OPINION THAT THEY ARE NOT APPLICABLE TO THE FACTS OF THE CASE UNDER C ONSIDERATION. AS FAR AS ORDERS FOR THE EARLIER AYS. DELIVERED BY THE TRIBUNAL ARE CONCERNE D WE ARE OF THE OPINION THAT IN THOSE YEARS NO INVESTIGATION WAS MADE BY THE AO ABO UT THE FOREIGN TOURS OF THE WIVES OF THE DIRECTORS. WE HAVE ALSO PERUSED THE ORDER D ELIVERED BY THE BOMBAY TRIBUNAL IN THE CASE OF GLAXO LABORATORIES (INDIA) LTD (18IT D226) THAT WAS RELIED UPON BY THE AR OF THE ASSESSEE. WE FIND THAT IN THAT CASE CHAI RMAN AND CHIEF EXECUTIVE OF 'GLAXO HOLDINGS' HAD EXTENDED INVITATION TO THE DIRECTOR A ND HIS WIFE OF GLAXO LABORATORIES (INDIA) LTD. THUS, THE FACTS OF THE CASE UNDER CON SIDERATION ARE CLEARLY DISTINGUISHABLE FROM THE CASE OF GLAXO. SECONLDY,THE DECISION OF B HOR INDUSTRIES(SUPRA) WAS NOT AVAILABLE AT THE TIME OF DECISION OF GLAXO. EVEN I N THE CASE OF ZUARI INDUSTRIES(SUPRA) I.TA. NO. 9037/MUM/2010 HARINAGAR SUGAR MILLS LTD. 7 HONBLE JURISDICTIONAL HIGH COURT HAS HELD THAT PE R SE, THE EXPENSES INCURRED BY THE ASSESSEE ON THE FOREIGN TRIP OF THE WIFE MAY NOT AL WAYS BE ALLOWABLE AS DEDUCTION IN COMPUTING THE PROFITS AND GAINS OF THE BUSINESS UNL ESS IT IS CONNECTED WITH THE BUSINESS OF THE ASSESSEE. PRIMARY CONDITION FOR AL LOWING THE EXPENDITURE U/S.37 OF THE ACT ON FOREIGN TOURS OF SPOUSE OF A DIRECTOR IS ITS CONNECTION WITH THE BUSINESS OF THE ASSESSEE-COMPANY. UNTIL AND UNLESS SAME IS PRO VED BY THE ASSESSEE WITH SOME PROOF SAME IS NOT ALLOWABLE IN LIGHT OF RECENT JUDG MENTS OF THE HONBLE BOMBAY HIGH COURT.IN THE CASE UNDER CONSIDERATION ASSESSEE HAS NOT PRODUCED ANY EVIDENCE WITH REGARD TO BUSINESS OF THE ASSESSEE AND THE EXPENDIT URE INCURRED ON FOREIGN TOURS OF WIVES OF THE DIRECTORS.NEITHER BEFORE THE AO AND FA A NOR BEFORE US ASSESSEE- COMPANY HAS DISCHARGED HIS BURDEN OF PROOF. 4.3.2. IN THE CASE OF BHOR INDUSTRIES, RELIED UPON BY THE DR, HONBLE JURISDICTIONAL HIGH COURT HAS CONSIDERED THE RATIO PROPOUNDED IN T HE DECISION OF ALFA LAVEL INDIA. IN BHOR INDUSTRIES QUESTION BEFORE THE HONBLE COUR T WAS WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS RIG HT IN LAW IN ALLOWING THE ASSESSEES CLAIM IN RESPECT OF FOREIGN TRAVEL EXPENSES OF SMT. L. R. PATEL, WHO ACCOMPANIED HER HUSBAND SHRI R.M.PATEL, THE DIRECTOR OF THE ASSESSE E-COMPANY ?QUESTION WAS ANSWERED BY THE HONBLE HIGH COURT AS UNDER : HAVING HEARD THE RIVAL PARTIES, IT IS NOT IN DISPU TE THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS RECORDED A CATEGORICAL FINDING THAT T HE EXPENDITURE ON THE TRAVEL OF MRS. PATEL WAS NOT FOR THE BUSINESS PURPOSES. THE TRIBUNAL CO ULD NOT HAVE REVERSED ITS FINDING WITHOUT HOLDING THAT THE FINDING TO BE ERRONEOUS WITH FURTH ER FINDING THAT THE EXPENDITURE ON FOREIGN TOUR OF MRS. PATEL WAS INCURRED FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE-COMPANY. IT IS NO DOUBT TRUE THAT THIS COURT HAS ALLOWED SIM ILAR TYPE OF EXPENDITURE IN THE CASE OF ALFA LAVAL (I.) LTD. [2006] 282 ITR 445 (BOM).HOWEVER, I N THAT CASE, THE TRIBUNAL HAD RECORDED A CLEAR CUT FINDING OF FACT THAT THE EXPENDITURE INCU RRED ON THE FOREIGN TOUR OF THE WIFE OF THE PRESIDENT OF THE ASSESSEE-COMPANY WAS FOR THE PURPO SES OF BUSINESS. IN VIEW OF THIS CATEGORICAL FINDING OF FACT RECORDED BY THE AUTHORI TIES BELOW,THIS COURT HAD TREATED THE EXPENDITURE ON FOREIGN TRAVEL OF THE WIFE OF THE CO MPANYS PRESIDENT AS OF REVENUE NATURE. IN THE CASE ON HAND, THERE IS CATEGORICAL ADVERSE FIND ING RECORDED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) THAT NO BUSINESS PURPOSE WAS I NVOLVED IN THE FOREIGN TOUR OF MRS. PATEL. CONSEQUENTLY, THE EXPENDITURE INCURRED WAS RIGHTLY DISALLOWED, IN TOTO, BY THE COMMISSIONER OF INCOME-TAX (APPEALS).THE FINDING OF FACT RECORDE D BY THE COMMISSIONER OF INCOME-TAX (APPEALS) WAS NEVER SET ASIDE BY THE TRIBUNAL. IF F OREIGN TOUR WAS NOT FOR THE PURPOSES OF BUSINESS, THEN IT CANNOT BE AN ALLOWABLE EXPENDITUR E.IN THE ABOVE VIEW OF THE MATTER, THE ABOVE QUESTION REFERRED IS ANSWERED IN THE NEGATIVE , I.E., IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. 4.3.3. WE HAVE ALSO GONE THROUGH THE PRINCIPLES ENUMERATED IN THE DECISIONS OF VITHAL OVERSEAS (334ITR229) D.B. MADAN (261ITR193) AND T. S. HAJEE MOOSA (153ITR422) SHAHIBAG ENTREPRENEURS PVT. LTD(215ITR8 10),BOMBAY MINERAL SUPPLY CO. PVT. LTD. (153ITR437)TO ARRIVE AT A LOGICAL CON CLUSION ABOUT ALLOWABILITY OF EXPENDITURE OF FOREIGN TOURS OF SPOUSES/RELATIVES O F DIRECTORS/PARTNERS OF THE COMPANIES/FIRMS. BUT, FOR DECIDING THE PRESENT APP EAL WE ARE CONSIDERING THE FACTS OF THE CASE UNDER CONSIDERATION ONLY. BECAUSE, AS STA TED EARLIER, WE ARE OF THE OPINION THAT WHETHER THE EXPENDITURE IS ALLOWABLE OR NOT DE PENDS UPON THE FACTS OF EACH CASE. BUT, BASIC PRINCIPLE REMAINS SAME I.E.IT IS ONLY AF TER SATISFYING THE CONDITION THAT THE FOREIGN TOUR IS UNDERTAKEN NOT FOR PERSONAL PURPOS E, BUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS, THE EXPENDITURE CAN BE ALLOWED. IN OTHER WORDS WHENEVER SPOUSE/SON OF A DIRECTOR/PARTNER UNDERTAKES A FOREI GN TOUR ALONG WITH THE I.TA. NO. 9037/MUM/2010 HARINAGAR SUGAR MILLS LTD. 8 DIRECTOR/FATHER, IT CANNOT BE PRESUMED THAT THE EXP ENDITURE ON THE SPOUSE/SON OF THE DIRECTOR/PARTNER IS INCURRED WHOLLY AND EXCLUSIVEL Y FOR THE PURPOSE OF THE BUSINESS. 4.3.4. HERE, IT WOULD BE APPROPRIATE TO REPRODUCE A PARAGR APH FORM THE DECISION DELIVERED BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF BOMBAY MINERAL SUPPLY CO. PVT. LTD. (SUPRA) THAT LAYS DOWN A GENERAL PRIN CIPLE WITH REGARD TO FOREIGN TOURS OF SPOUSES OF DIRECTORS IN FOLLOWING WORDS: WE ARE SURE THAT TAX COLLECTORS DO NOT WANT TO DIS COURAGE BUSINESS EXECUTIVES AND MANAGING DIRECTORS FROM UNDERTAKING FOREIGN TOURS FOR BUSINE SS PURPOSES NOR TO DEPRIVE THEM OF THE COMPANY OF THEIR WIVES IN SUCH TOURS, BUT FOR THAT WE DO NOT THINK THAT, IN LAW, IT WOULD BE PERMISSIBLE FOR THE INCOME-TAX OFFICER TO ALLOW THE EXPENSES INCURRED FOR RENDERING SUCH COMPANY, HOWEVER NECESSARY AND ENJOYABLE IT MAY BE FROM THE POINT OF VIEW OF THE PERSONAL NEEDS OF THOSE EXECUTIVES. 5. AFTER CONSIDERING THE FACTS OF THE CASE, WE ARE OF THE VIEW THAT THE EXPENSES INCURRED BY THE ASSESSEE ON THE FOREIGN TOUR OF SPO USES OF THE DIRECTORS WERE WHOLLY GRATUITOUS AND FOR A PURPOSE OUTSIDE THE COURSE OF ITS BUSINESS. AS THE INCURRED EXPENDITURE WAS FOR EXTRA-COMMERCIAL REASONS, SO, SAME IS NOT DEDUCTIBLE UNDER SECTION 37(1) OF THE ACT. SECONDLY SANCTION OF FORE IGN EXCHANGE BY THE RESERVE BANK AUTHORITIES IS OF NO HELP TO DECIDE THE QUESTION OF FOREIGN TOURS UNDERTAKEN BY THE SPOUSES OF THE DIRECTORS OF A APPELLANT-COMPANY. IN OUR OPINION AT BEST THE FACT OF SANCTION OF FOREIGN EXCHANGE BY THE RESERVE BANK AU THORITIES MAY INDICATE THAT THE ASSESSEE HAS MADE OUT A CASE BEFORE THEM FOR SANCTI ONING THE REQUISITE EXCHANGE FOR THE FOREIGN TOUR OF SPOUSES OF THE DIRECTORS. HOWE VER, THAT WOULD NOT INDICATE THAT THE RESERVE BANK AUTHORITIES HAD, IN ANY MANNER, DECIDE D THE QUESTION AS TO WHETHER THE VISIT OF SPOUSES IS WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE. TO LOOK IN TO THE ISSUE OF INCURRING OF AN EXPENDIT URE WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS IS OUTSIDE THE PURVIEW AND PO WERS OF THE RBI. TAXABILITY OR OTHERWISE OF AN ITEM OF EXPENDITURE IS SOLE DOMAIN OF THE AO. 5.1. AS, THERE IS NOTHING ON THE RECORD TO INDICATE THAT THE EXPENDITURE IN QUESTION WAS INCURRED BY THE ASSESSEE-COMPANY IN ORDER TO FA CILITATE THE CARRYING ON OF THE BUSINESS DIRECTLY OR INDIRECTLY AND, THEREFORE, IN OUR OPINION, THE AO AND THE FAA WERE RIGHT IN NOT ALLOWING THE CLAIM ADVANCED BY TH E ASSESSEE UNDER SECTION 37 OF THE ACT. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, A SUM OF RS. 13.38 LAKHS INCURRED BY THE APPELLANT COMPANY ON THE FOREIGN TO URS OF SPOUSES OF THE DIRECTORS HAS RIGHTLY BEEN DISALLOWED BY THE REVENUE AUTHORIT IES. HENCE, THIS GROUND IS DECIDED AGAINST THE ASSESSEE. APPEAL FILED BY THE ASSESSEE STANDS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST NOVEMBER, 2012. SD/- SD/- ( . . / I.P. BANSAL ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI, +$ DATE: 21 ST NOVEMBER, 2012 I.TA. NO. 9037/MUM/2010 HARINAGAR SUGAR MILLS LTD. 9 TNMM * * * * # ## # %, %, %, %, -,)% -,)% -,)% -,)% / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. THE CONCERNED CIT (A) 4. THE CONCERNED CIT 5. DR H BENCH, ITAT, MUMBAI 6. GUARD FILE !,% % //TRUE COPY// *$ *$ *$ *$ / BY ORDER, . .. . / / / / / DY./ASSTT. REGISTRAR , / ITAT, MUMBAI