DCIT CIR 13(3), MUMBAI V. POONAM ASHOK GUPTA, MUMBAI

ITA 933/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48868 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 05-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 05-02-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S S RANA
• Keywords: Commercial expediency; Revenue expenditure
• Section: 143(3); 37(1); 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C MUMBAI BEFORE SHRI BEFORE SHRI BEFORE SHRI BEFORE SHRI J. SUDHAKAR REDDY J. SUDHAKAR REDDY J. SUDHAKAR REDDY J. SUDHAKAR REDDY (AM) AND (AM) AND (AM) AND (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) SMT. ASHA VIJAYARAGHAVAN (JM) SMT. ASHA VIJAYARAGHAVAN (JM) SMT. ASHA VIJAYARAGHAVAN (JM) ITA NO. 933/MUM/2010 ASSESSMENT YEAR- 2006-07 THE DCIT, CIR 13(3), AAYAKAR BHAVAN, MUMBAI-400 020 VS. POONAM ASHOK GUPTA, SHAMNI K. CHAMBERS, 3, BROACH STREET, MUMBAI-400 009 PAN-AABPG 4732E (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI S.S. RANA RESPONDENT BY: MS. USHA DALAL O R D E R O R D E R O R D E R O R D E R PER ASHA VIJAYARAGHAVAN (JM) PER ASHA VIJAYARAGHAVAN (JM) PER ASHA VIJAYARAGHAVAN (JM) PER ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AGAI NST THE ORDER DATED 30.11.2009 PASSED BY THE LD. CIT(A)-24 FO R THE ASSESSMENT YEAR 2006-07. 2. THE FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE I S THE PROPRIETOR OF THE CONCERN KNOWN AS M/S. USHA EXPORTS. THE DCIT-13(3) MUMBAI PASSED ORDER U/S. 143(3) OF THE ACT DT. 23.12.2 008. WHILE COMPLETING THE ASSESSMENT THE ASSESSING OFFICER MADE CERTA IN DISALLOWANCES OF EXPENSES. 3. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE THE L D. CIT(A). 4. THE FIRST GROUND RAISED BY THE REVENUE IS MISCONCEIV ED, HENCE DISMISSED AS INFRUCTUOUS. ITA NO.933/M/2010 2 5. THE SECOND GROUND RAISED BY THE REVENUE READS AS FOL LOWS: (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED RESTRICTING THE DISALLOW ANCE OF `. 1,56,365/- AS AGAINST THE ADDITION OF `. 6,25,462/ - MADE BY AO ON ACCOUNT OF TRAVELLING EXPENSES. (II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN NOT APPRECIATING TH E FACT THAT LD. CIT(A) HAS CONFIRMED THE ADDITION IN ASSESSEE S OWN CASE FOR A.Y. 2005-06 VIDE ORDER NO. CIT(A)XIII/ ACIT- 13(3)/469/07-08 DT. 9.6.2008. 6. THE AO HELD AS FOLLOWS: THE ASSESSEE, HOWEVER, FAILED TO GIVE JUSTIFICATION AS T O HOW SUCH EXPENSES ARE RELATABLE TO THE BUSINESS OF THE ASSESSEE CONCERN AND INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. LOOKING AT THE NATURE OF EXPENSES, I FEEL THE ASSESSEE HAS NO JUSTIFICATION FOR SUCH EXPENSES AS INCURRED FOR THE PURPOSE OF BUSINESS. RELIANCE MAY BE MADE ON THE FOLLOWING DECISIONS WHERE IN IT IS HELD THAT TO BE AN ALLOWABLE EXPENDITURE, IT I S TO BE PROVED THAT THE EXPENDITURE HAS BEEN INCURRED WHOLLY & EXCLUSIVELY FOR THE PURPOSE OF BUSINESS CARRIED ON BY T HE ASSESSEE DURING THE RELEVANT PREVIOUS YEAR. CIT VS IND. MOLASSE CO. P. LTD. (1970) 78 ITR 474, 479 (SC) J.K. COTTON MANUF. LTD. VS CIT 101 ITR 271 232-2 (SC ) JASOON J. DAVID & CO. PVT. LTD. VS CIT 118 ITR 261 27 3(SC) CIT VS BALLARPUR INDUS. LTD. 817 ITR 822 (BOM) CIT VS MALAYALAM PLANETS LTD 53 ITR 140 (SC) THE ASSESSEE ALSO FAILED TO PROVE EVEN PRIMA FACIE THAT THE EXPENDITURE HAS BEEN INCURRED ON THE GROUND OF COMMERCIAL EXPEDIENCY AND IN ORDER TO FACILITATE TH E CARRYING ON OF THE BUSINESS. THE ASSESSEE HAS NOT PLACED BEFORE ME ALL THE MATERIAL FACTS TO EXAMINE AND TO A RRIVE AT A PROPER DECISION AS TO WHETHER THE EXPENDITURE WAS NECESSITATE OR JUSTIFIED BY THE COMMERCIAL EXPEDIENCY. IT IS NOT ESTABLISHED BY THE ASSESSEE THAT THE EXPENDITURE IS INCIDENTAL TO THE BUSINESS AND FOR THE PURPOSE OF CARRY ING ITA NO.933/M/2010 3 ON OF THE BUSINESS. FOR ALLOWABILITY OF EXPENDITURE U /S. 37(1) THERE MUST BE A NEXUS BETWEEN THE EXPENDITURE A ND BUSINESS OF THE ASSESSEE. THE ASSESSEE HAS NOT PROVED THIS NEXUS EVEN PRIMA FACIE. KEEPING IN MIND THE ABOVE LEGAL POSITION, IT IS NOTED THAT THE ASSESSEE IS CARRYING OUT BUSINESS AS COMMISSION AGENT AND DURING THE RELEVANT PREVIOUS YEAR THE ASSESSEE HAS RECEIVED TOTAL GROSS COMMISSION OF `. 85,94,401/- A S CAN BE SEEN FROM THE DETAILS OF COMMISSION RECEIVED, SUBMITTED BY THE ASSESSEE THAT DURING THE RELEVANT P.Y. THE ASSESSEE HAS RECEIVED COMMISSION ONLY FROM TWO PARTIES VIZ., M/S. LLOYD STEEL INDUS. LTD., WARDHA OF `. 53,57,645/- AND FROM M/S. JSW STEEL LTD. OF `. 32,36 ,756/-. SINCE THE ASSESSEE IS RECEIVING ITS INCOME FROM PERSONS IN INDIA IT IS NOT KNOWN AS TO HOW FOREIGN TRAVEL EXPENSE S CAN BE JUSTIFIED AS INCURRED FOR THE PURPOSES OF BUSINESS. FURTHER, AS CAN BE SEEN FROM THE ABOVE STATEMENT, THE EXPENSE HAS BEEN INCURRED BY MR. ASHOK GUPTA AND MS. RUCHIKA GUPTA WHO ARE NOT RELATED WITH THE ASSESSEES BUSINESS ACTIVITY. THEREFORE THE TRAVELLING EXPENSES INCLUDING FOREIGN TRAVEL EXPENSES IN RESPECT OF THESE PERSONS CANNOT BE SAID TO HAVE BEEN INCURRED WHOLLY AN D EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. I, THEREFORE, HAVE NO HESITATION OF WHATSOEVER NATURE TO DISALLOW THE ASSESSEES CLAIM OF DEDUCTION ON THIS ACCOUNT. HOWEVER, EXPENSES INCURRED BY THE ASSESSEE ON MUMBAI AMRITSAR TOUR ARE NOT CONSIDERED FOR DISALLOWANCE. BALANCE AM OUNT OF `. 6,25,462/- IS DISALLOWED AS INCURRED OTHER THAN FOR BUSINESS PURPOSES ESPECIALLY HAVING REGARDS TO PHRASEOLOGY USED IN SEC. 37(1) OF THE I.T. ACT. 7. BEFORE THE LD. CIT(A) THE LD. COUNSEL HAS VEHEMENT LY ARGUED THAT THE DETAILED STATEMENT OF TRAVELLING EXPENSES WAS FILED DURING THE COURSE OF THE ASSESSMENT AND SUPPORTING VOUCHERS WERE PROD UCED BEFORE THE AO AND THE AO HAD NOT ASKED FOR ANY FURTH ER DETAILS. 8. THE LD. CIT(A) HELD AS FOLLOWS: I HAVE EXAMINED THE DETAILED STATEMENT OF TRAVELLIN G EXPENSES WHICH BROADLY REFER TO FOREIGN TRAVELLING EX PENSES OF MISS RUCHIKA GUPTA FOR HER TWO TRIPS TO LONDON AND ON TRIP IN DUBAI AND FOREIGN TRAVELLING REXPENSES OF MRS. POONAM GUPTA FOR ITA NO.933/M/2010 4 HER LONDON TOUR. THE APPELLANT HAS STATED THAT THE CORRESPONDENCE EXCHANGED BETWEEN THE APPELLANT AND T HE FOREIGN PARTIES CLEARLY ESTABLISHES THE BUSINESS CONNECTIO N OF PARTIES IN FOREIGN COUNTRIES. THE SIMILAR ISSUE HAD ARISEN FOR CONSIDERATION OF ITAT F OR THE A.Y. 2005-06. THE HONBLE MEMBERS OF ITAT C B ENCH VIDE THEIR ORDER DT. 31 ST AUG. 2009, HAVE REFERRED BACK THIS MATTER TO THE AO ON THE GROUND THAT THE APPELLANT HAD FAILED TO ESTABLISH THAT THE EXPENDITURE INCURRED WAS WHOLLY AND EXCLUSIV ELY IN THE INTEREST OF THE BUSINESS. HOWEVER, CONSIDERING THE COPIES OF CORRESPONDENCE THAT EXIST, I AM INCLINED TO HOLD THAT THE TRAVELLING EXP ENSES HAVE TO BE ALLOWED TO THE EXTENT THEY ARE FOR THE PURPOSE OF THE BUSINESS. HOWEVER, THE ELEMENT OF PERSONAL EXPENSES CANN OT BE RULED OUT AND I HEREBY DIRECT THE AO TO RESTRICT THE DISALLOWANCE OF TRAVELLING EXPENSES TO 25% OF THE AMOUNT I.E. `. 1,56,365/-. 9. THE ASSESSEE HAS FILED THE DETAILS OF THE FOREIGN TRAV EL EXPENSES OF MISS RUCHIKA GUPTA AND MRS. POONAM GUPTA. FURTHER FROM THE CORRESPONDENCE ALSO IT IS CLEAR THAT THE PARTIES HAVE BUSINESS TRANSACTIONS IN THE FOREIGN COUNTRIES. HOWEVER AS HELD BY LD. CIT(A), CERTAIN ELEMENT OF PERSONAL EXPENSES WOULD HAVE BEEN I NCURRED HENCE WE CONFIRM THE ORDER OF THE LD. CIT(A) IN RESTRICTIN G THE DISALLOWANCE OF TRAVELLING EXPENSES TO 25% OF RS. 1,56,365/-. 10. THE THIRD GROUND RAISED BY THE REVENUE READS AS FO LLOWS: (I)ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION O F `. 22,705/- ON ACCOUNT OF PROFESSIONAL FEE PAID. (II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN NOT APPRECIATING THE FAC T THAT BENEFIT DERIVED ON PAYMENT IS OF ENDURING NATURE. ITA NO.933/M/2010 5 11. THE AO DISALLOWED PROFESSIONAL FEES OF `. 22,705/- PAID TO M/S. A.V. SHETTY & ASSOCIATES ON THE GROUND THAT THE NATURE OF EXPENSES IS OF CAPITAL NATURE AND IS NOT RELATABLE TO THE BUSINESS OF THE ASSESSEE. 12. BEFORE THE LD. CIT(A), THE AR SUBMITTED AS FOLLOW S: THE AR HAS PRODUCED THE COPY OF M/S. A.V. SHETTY & ASSOCIATES AND FROM THE SAME, IT IS NOTICED THAT THE CHARGES ARE FOR VALUATION OF PROPERTY AT NAPEANSEA RO AD AND BUNGALOW AT KHANDALA. THE LD. COUNSEL ALSO PRODU CED THE LOAN SANCTION LETTER OF ICICI WHICH INDICATES THA T THE PROPERTY AT NAPEANSEA ROAD IS SUBJECT MATTER OF SECURI TY TO THE SAID BANK. THIS BEING THE CASE, THE LD. COUNSEL HAS PLEADED THAT THE CHARGES IN RESPECT OF PROPERTY AT NAPEANSEA ROAD IS FULLY ALLOWABLE AND IS OF REVENUE NATURE. 13. THE LD. CIT(A) HELD AS FOLLOWS: I HAVE CONSIDERED THE SUBMISSIONS OF THE LD. COUNSEL AND IT IS SEEN THAT THEY ARE OF REVENUE NATURE AND ALLOWA BLE. I DIRECT THE AO TO ALLOW LEGAL AND PROFESSIONAL FEES OF `. 23,870/- AND ACCORDINGLY THE ADDITION IS DELETED. 14. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. WE FI ND THAT IT IS A LEGITIMATE EXPENDITURE WHICH HAS BEEN PAID TO M/S. A .V. SHETTY & ASSOCIATES FOR THE VALUATION OF THE PROPERTY AT NAPEAN SEA ROAD AND BUNGALOW AT KHANDAKLA. THE ASSESSEE HAS TO GET THE LEGA L OPINION WITH REFERENCE TO THE PROPERTIEIS FROM M/S. A.V. SHETTY & ASSOCIATES, IN ORDER TO COMPLY WITH THE REQUIREMENTS OF BANK. THE LOAN WOULD BE SANCTIONED BY ICICI BANK ONLY AFTER VERIFYING THE TI TLE OF THE PROPERTY PLEDGED AS SECURITY AND HENCE THE PAYMENT TOWARDS LE GAL AND PROFESSIONAL FEES IS FOR THE PURPOSE OF BUSINESS AND ALLOWA BLE REVENUE EXPENDITURE. HENCE WE ALLOW THE EXPENDITURE TOWARDS LEGAL AND PROFESSIONAL FEES. ITA NO.933/M/2010 6 15. THE LAST GROUND RAISED BY THE REVENUE READS AS FOL LOWS: (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE OF `. 1,50,000/- OUT OF PAYMENT MADE AGAINST THE CREDIT CARD. II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT PAYMENT MADE ARE NOT RELATING TO THE ASSESSEES BUSINESS. 16. THE AO HELD THAT THE DISALLOWANCE OF `. 1,50,000 /- OUT OF PAYMENT MADE AGAINST THE CREDIT CARD WAS MADE ON THE BASIS THAT THE PAYMENT OF INTEREST IS OF PENAL NATURE. 17. BEFORE THE LD. CIT(A), THE LD. AR HAS POINTED OU T THAT THE ASSESSEE HAS PAID INTEREST ON VARIOUS LOANS AVAILED BY THE ASSESSEE AND AMOUNT PAID AGAINST CREDIT CARDS IS NOT OF PENAL NATURE ONLY INTEREST PAID ON LATE PAYMENT WHICH IS COMPENSATORY IN NATURE AND NOT PENAL AND THEREFORE ALLOWABLE. 18. THE LD. CIT(A) HELD AS FOLLOWS: I HAVE CONSIDERED THE SUBMISSIONS OF THE LD. COUNSEL AND SINCE THE ABOVE PAYMENT OF INTEREST ON LATE PAYMENTS I S COMPENSATORY IN NATURE AND NOT PENAL, THE SAME IS ALL OWED AND THE DISALLOWANCE IS DELETED. 19. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. THE P AYMENT OF `. 1,50,000/- AGAINST CREDIT CARD IS ALLOWABLE AS WHENEVE R THE CREDIT CARD IS USED, THE PERSON USING THE SAME DOES NOT MAKE PAYMENT TO THE BANK IMMEDIATELY BUT ONLY AFTER SOME TIME OR IN THE END OF THE MONTH AND IN THE INTERIM PERIOD, INTEREST IS CHARGED ON THE AMOUNTS DUE. THIS INTEREST IS NOT PENAL IN NATURE BUT PART OF THE CREDI T CARD TRANSACTION ITA NO.933/M/2010 7 AND TOWARDS DELAY IN PAYMENT. IT IS ONLY ADDITIONAL INTEREST CHARGED FOR DELAY IN PAYMENT AS PER THE SCHEME OF CREDIT CARD SYSTEM. HENCE WE CONFIRM THE ORDER OF THE LD. CIT(A) AND ALLOW CR EDIT CARD EXPENSES. 20. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 25 TH DAY OF MAY, 2011 SD/- SD/- (J. SUDHAKAR REDDY) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEM BER MUMBAI, DATED 25 TH MAY , 2011 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR C BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NO.933/M/2010 8 DATE INITIALS 1 DRAFT DICTATED ON: 22 .05.2011 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 23 .05.2011 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK: DATE ON WHICH FILE GOES TO AR _________ ______ 10. DATE OF DISPATCH OF ORDER: _________ ______