KANU KRISHNA CORPORATION, MUMBAI V. ADDL CIT RG 13(2), MUMBAI

ITA 9043/MUM/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92291 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-04-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 06-04-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 27-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SACHCHIDANAND DUBE
• Assessee Lawyers: SANJAY R PARIKH
• Keywords: Tax effect

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI . . , . , BEFORE SHRI I.P. BANSAL, JM AND RAJENDRA, AM ./I.T.A. NO.9043/MUM/2010 ( / ASSESSMENT YEAR : 2007-08 KANU KRISHNA CORPORATION, 502/503, GORADIA HOUSE, 5 TH FLOOR, 100/104, KAZI SYED STREET, MUMBAI 400003 / VS. THE ADDL. COMMISSIONER OF INCOME TAX, RANGE 13(2), AAYKAR BHAVAN, MK ROAD, MUMBAI. ./ ./PAN/GIR NO. : AAAFK 1722F ( /APPELLANT ) .. ( / RESPONDENT ) ./I.T.A. NO.213/MUM/2011 ( / ASSESSMENT YEAR : 2007-08 THE DY. COMMISSIONER OF INCOME TAX 13(2), AAYKAR BHAVAN, MK ROAD, MUMBAI 400 020 / VS. KANU KRISHNA CORPORATION, 502/503, GORADIA HOUSE, 5 TH FLOOR, 100/104, KAZI SYED STREET, MUMBAI 400003 ./ ./PAN/GIR NO. : AAAFK 1722F ( /APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY SHRI SANJAY R. PARIKH REVENUE BY SHRI SACHCHIDANAND DUBE ' #$ / DATE OF HEARING : 06/04/2015 ' #$ / DATE OF PRONOUNCEMENT : 06/04/2015 / O R D E R PER I.P.BANSAL, J.M: I.T.A. NO.9043/MUM/2010& ITA NO.213/MUM/2011 2 THESE ARE CROSS APPEALS AND ARE DIRECTED AGAINST O RDER PASSED BY LD. CIT(A)- 24 MUMBAI DATED 29/10/2010 FOR ASSESSMENT YEAR 2007 -08. GROUNDS OF APPEAL READ AS UNDER: GROUNDS OF ASSESSEES APPEAL IN ITA NO.9043/MUM/20 10: ON THE FACTS AND CIRCUMSTANCES OF CASE AND IN LAW: 1. THE LEARNED CIT(A) HAS ERRED IN PRINCIPLE, IS CONFI RMING THE DISALLOWANCE OUT OF FOREIGN TRAVELLING AND FOREIGN COMMISSION. 2. THE LEARNED CIT(A) HAS ERRED IN NOT ALLOWING THE EX PENSES OF FOREIGN TRAVELLING AND FOREIGN COMMISSION IN ITS ENTIRETY. 3. THE APPELLANT PRAYS THAT THE AO BE DIRECTED TO ALLO W THE ABOVE REFERRED EXPENDITURE IN ITS ENTIRETY. GROUNDS OF REVENUES APPEAL IN ITA NO.213/MUM/2011: (I) N THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.9,76,00 0/-. (II) THE LEARNED CIT(A) ERRED IN ALLOWING APPEAL OF THE ASSESSEE BY HOLDING THAT EXPORT INCENTIVE SHOULD BE RECOGNIZED AS INCOME ONLY WHEN EXPORTER APPLIES FOR INCENTIVE/ ON SALE OF DEP B IN THE YEAR OF EXPORT MADE ON WHICH SUCH INCENTIVES ARE RECEIVABLE TO THE ASSESSEE. (III) THE LD. CIT(A) FURTHER FAILED TO APPRECIATE THAT AS SOON AS EXPORT IS MADE A PRODUCT ON WHICH EXPORT INCENTIVE IS RECEIVA BLE, THEN THE ASSESSEE BECOME ENTITLED TO RECEIVE THE EXPORT INCE NTIVE ON ACCRUAL BASIS AS THE ASSESSEE HAS BEEN FOLLOWING MERCANTILE SYSTEM OF ACCOUNT. (IV) THE LD. CIT(A) ERRED IN RELYING UPON THE CASE INVOL VING ADVANCE LICENCE WHILE THE CASE OF THE ASSESSEE IS THAT OF D EPB/VKYU (2) THE APPELLANT PRAYS THAT THE ORDER OF LD. CIT(A ) ON THE ABOVE GROUND(S) BE SET ASIDE AND THAT OF THE ASSESSMENT OFFICER BE RESTORE. 2. THE SOLE ISSUE RAISED BY THE ASSESSEE IN ITS APP EAL IS WITH REGARD TO DISALLOWANCE MADE ON ACCOUNT OF FOREIGN TRAVELLING AND FOREIGN COMMISSION. THIS I.T.A. NO.9043/MUM/2010& ITA NO.213/MUM/2011 3 ISSUE HAS BEEN DISCUSSED BY THE AO IN PARA-5 OF THE ASSESSMENT ORDER AND FOR THE SAKE OF CONVENIENCE THE SAME IS REPRODUCED BELOW. FOREIGN COMMISSION: ASSESSEE HAS PAID FOREIGN COMM ISSION OF RS.44,12,163/- RANGING FROM 3% TO 10% OF INVOICE VA LUE. IN ADDITION, HE HAS CLAIMED FOREIGN TRAVELLING EXPENSES OF RS.7,69,559/ -. AUTHORIZED REPRESENTATIVE HAS JUSTIFIED THE PAYMENT OF FOREIGN COMMISSION ON THE GROUND THAT (VIDE ORDER SHEET ENTRY DATED 25/08/200 7) IT IS LESS THAN 12.5% MAXIMUM ALLOWED BY THE RBI AND THAT DEBIT NOTE TO P ARTY AND APPLICATION TO BANKER TO TRANSFER MONEY THROUGH TT WAS SUFFICIENT COMPLIANCE. I AM NOT CONVINCED THAT AMOUNT OF COMMISSION AND TRAVELLING DO NOT INVOLVE EXPENSE OF PERSONAL NATURE AND HENCE 20% OF SAME ARE DISALL OWED AND ADDED TO THE DECLARED INCOME: FOREIGN COMMISSION : RS.44,12,163/- FOREIGN TRAVELLING : RS. 7,69,559/- RS. 51,81,722/- DISALLOWANCE @20% : RS.10,36,300/- 3. BEFORE LD. CIT(A), IT WAS PLEADED THAT FOREIGN COMMISSION IS PAID TO FOREIGN AGENTS AND THE ASSESSEE HAS NO INFRASTRUCTU RE TO MAKE EXPORT IN ABOUT FIFTY COUNTRIES. THERE IS NO SALE REPRESENTATIVE OR SALE S OFFICE AND THAT IS WHY THE ASSESSEE HAS TO RELY ON THE AGENTS TO GET THE BUSIN ESS, FOR WHICH THE ABOVE COMMISSION HAS BEEN PAID DEPENDING ON THE DIFFEREN T CIRCUMSTANCES. IT WAS SUBMITTED THAT RBIS PERMISSION IS NEEDED TO MAKE SUCH PAYMENTS AND LIMIT IS PRESCRIBED BY RBI @ 12.5% ON PAYMENT OF COMMISSION. THE ASSESSEE DID NOT PAY COMMISSION EXCEEDING 10% AND AVERAGE OF THE COMMISS ION PAID BY THE ASSESSEE COMES TO 1.6% ONLY. EVEN THE COMMISSION PAYMENTS IN THE YEAR UNDER CONSIDERATION IS LOWER TO THE EARLIER YEARS AND TH ERE IS NO PERSONAL ELEMENT INVOLVED IN THE PAYMENT OF COMMISSION. 3.1 SO FAR AS IT RELATES TO EXPENSES ON FOREIGN TRA VEL IT WAS SUBMITTED THAT THE SAME RELATES TO TRAVEL TO MALAYSIA, SINGAPORE AND S OUTH AMERICA, WHERE THE ASSESSEE MADE THE TRANSACTIONS IN THE COURSE OF BUS INESS AND TRAVELLING IS DONE BY THE PARTNERS OF THE FIRM, THEREFORE, THE SAME DESER VES TO BE ALLOWED IN FULL. I.T.A. NO.9043/MUM/2010& ITA NO.213/MUM/2011 4 3.2 CONSIDERING THE AFOREMENTIONED SUBMISSIONS, LD. CIT(A) HAS REDUCED THE DISALLOWANCE FROM 20% TO 5% WITH THE FOLLOWING OBSE RVATIONS: 3.2 CONSIDERING THE SUBMISSIONS OF THE LD. COUNSEL AND LOOKING INTO THE TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE AND THE DETAILS BROUGHT ON RECORD THE DISALLOWANCE IS EXCESSIVE AND IS REDUCED TO 5% ONLY. ACCORDINGLY, THE APPELLANT GETS RELIEF AND THIS GRO UND OF APPEAL IS PARTLY ALLOWED. 4. THE ASSESSEE IS AGGRIEVED BY AFOREMENTIONED ORDE R OF LD. CIT(A) AND HAS FILED AFOREMENTIONED GROUNDS. 5. IT WAS SUBMITTED BY LD. AR THAT AO DID NOT POINT OUT ANY DISCREPANCY IN THE CLAIM OF THE ASSESSEE SO FAR AS IT RELATES TO COMM ISSION PAID TO THE FOREIGN PARTIES WHICH IS REGULAR FEATURE OF THE ASSESSEES BUSINESS . THERE WAS NO ELEMENT OF PERSONAL NATURE IN THE PAYMENT ON FOREIGN COMMISSIO N AND THE REASON FOR PAYMENT OF THE SAME WAS DESCRIBED BEFORE AO AS WELL AS LD. CIT(A). NONE OF THE PAYMENT MADE BY THE ASSESSEE EXCEEDED THE LIMIT PRESCRIBED BY RBI AND THE PAYMENTS MADE BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION WER E LOWER THAN THE SIMILAR PAYMENTS MADE IN THE EARLIER YEARS. THUS, IT WAS S UBMITTED THAT NO DISALLOWANCE WAS CALLED FOR IN RESPECT OF FOREIGN COMMISSION PA YMENT. 5.1 ON THE OTHER PART OF THE DISALLOWANCE I.E. FORE IGN TRAVEL EXPENSES IT WAS SUBMITTED BY LD. AR THAT ASSESSEE HAS PAID INFRINGE BENEFIT ON THE ENTIRE AMOUNT OF RS.7,69,559/- INCURRED ON THE TOUR AND TRAVEL EXPE NSES OF THE PARTNERS. COPY OF FRINGE BENEFIT RETURN HAS BEEN FILED AT PAGE 15 TO 16 OF THE PAPER BOOK, WHERE SUCH EXPENDITURE HAS BEEN INCLUDED IN THE FRINGE BENEFI T TAXABLE RETURN. ON THESE FACTS RELYING UPON THE DECISION OF MUMBAI TRIBUNAL IN T HE CASE JKH EXPORT VS. ACIT, ITA NO.137/MUM/12 VIDE ORDER DATED 31/01/2013, WHER EIN IT HAS BEEN HELD THAT WHEN FOREIGN TRAVEL EXPENSES WERE TREATED AS FRINGE BENEFITS PROVIDED BY THE ASSESSEE AS EMPLOYER, THEN NO DISALLOWANCE ON ADHO C BASIS COULD BE MADE, IT WAS PLEADED THAT NO DISALLOWANCE WAS CALLED FOR. I.T.A. NO.9043/MUM/2010& ITA NO.213/MUM/2011 5 6. LD. DR RELIED UPON THE ORDER PASSED BY LD. CIT(A ). 7. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENT IONS HAVE CAREFULLY BEEN CONSIDERED. SO FAR AS IT RELATES TO DISALLOWANCE O N ACCOUNT OF FOREIGN COMMISSION, IT IS NOT A CASE OF REVENUE THAT ANY PART THEREOF W AS NON-GENUINE OR WAS NOT SUPPORTED BY THE EVIDENCE REQUIRED TO ALLOW THE SAM E. THE DISALLOWANCE HAS BEEN MADE ONLY ON ACCOUNT OF PERSONAL ELEMENT WHICH HAS NOT BEEN DEMONSTRATED BY THE REVENUE. THEREFORE, TO THE EXTENT IT RELATES TO FO REIGN COMMISSION, WE ARE OF THE OPINION THAT NO DISALLOWANCE WAS CALLED FOR AND THE SAME IS REQUIRED TO BE DELETED. 8. SO FAR AS IT RELATES TO FOREIGN TRAVEL EXPENSES , THE SAME HAS BEEN MADE PART OF FRINGE BENEFITS RETURNED. RESPECTFULLY FOLLOWING T HE AFOREMENTIONED DECISION OF THE TRIBUNAL, WE ARE OF THE OPINION THAT NO DISALLOWANC E WAS CALLED FOR ON THIS ACCOUNT ALSO. 8.1 IN VIEW OF ABOVE DISCUSSION, WE HOLD THAT LD. C IT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE @5% OF BOTH THE ABOVE I TEMS. THE SAME IS DELETED. 9. SO FAR AS IT RELATES TO DEPARTMENTAL APPEAL, LD. AR HAS PRODUCED THE TAX EFFECT CALCULATION AS UNDER: ADDITION DISPUTED BY REVENUE : 976000 TAX ON RS.9,76,000/- @ 30% : 2,92,800 ADD: SURCHARGE @ 10% : 29280 TAX AND SURCHARGE ON DISPUTED ADDITIONS : 322080 ADD: EDUCATION CESS @ 2% 6442 328522 ======= 9.1 RELYING UPON THE FOLLOWING DECISIONS IT WAS SUB MITTED BY LD. AR THAT ACCORDING TO THESE DECISIONS THE FRESH LIMIT ON TAX EFFECT AS LAID DOWN BY INSTRUCTION NO. 5/2014 (F.NO.279/MISC.142/2007-ITJ(PT)] DATED 10/07 /2014 WOULD BE APPLICABLE TO OLD APPEALS ALSO. I.T.A. NO.9043/MUM/2010& ITA NO.213/MUM/2011 6 A) CIT V. VITESSEE TRADING LTD. (2011) 331 ITR 433( BOM) B) CIT V. PITHWA ENGG. WORKS (2005) 276 ITR 519 (BO M) C) CIT V.ZOEB Y TOPIWALA (2006) 284 ITR 379 (BOM) THUS, IT WAS PLEADED BY LD. AR THAT DEPARTMENTAL A PPEAL SHOULD BE DISMISSED ON ACCOUNT OF LOW TAX EFFECT. 10. AFTER HEARING BOTH THE PARTIES, AS TAX EFFEC T IS LESS THAN RS.4.00 LACS, WE DISMISS THE DEPARTMENTAL APPEAL ON ACCOUNT OF LOW T AX EFFECT. 11. IN THE RESULT, DEPARTMENTAL APPEAL IS DISMISS ED. 12. TO SUM UP THE APPEAL FILED BY THE ASSESSEE IS A LLOWED AND THAT OF REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 06/04/2015 . ' * +, 06/04/2015 ' SD/- SD/- (RAJENDRA) . . (I.P.BANSAL) /ACCOUNTANT MEMBER /JUDICIAL MEMBER MUMBAI; + DATED 06/04/2015 !'# $#! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. /# ( ) / THE CIT(A)- 4. /# / CIT 5. 01 #23 , $ 23 , / DR, ITAT, MUMBAI 6. 4 / GUARD FILE. / BY ORDER, 0# # //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI . . .VM , SR. PS