DCIT, New Delhi v. M/s. Axis & T. Ltd., New Delhi

ITA 211/DEL/2010 | 2002-2003
Pronouncement Date: 29-07-2010 | Result: Partly Allowed

Appeal Details

RSA Number 21120114 RSA 2010
Assessee PAN AAACI2831G
Bench Delhi
Appeal Number ITA 211/DEL/2010
Duration Of Justice 6 month(s) 15 day(s)
Appellant DCIT, New Delhi
Respondent M/s. Axis & T. Ltd., New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 29-07-2010
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 29-07-2010
Date Of Final Hearing 29-07-2010
Next Hearing Date 29-07-2010
Assessment Year 2002-2003
Appeal Filed On 14-01-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `A : NEW DELHI BEFORE SHRI C.L. SETHI JUDICIAL MEMBER AND SHRI K.D. RANJAN ACCOUNTANT MEMBER I.T.A.NOS.211 & 823/DEL/2010 ASSESSMENT YEARS : 2002-03 & 2005-06 DEPUTY COMMISSIONER OF INCOME-TAX M/S. AXIS & T. LTD. CIRCLE 2(1) NEW DELHI. VS. (FORMERLY I.T. & T. L TD.) 325 SOUTH EX PLAZA-II 209 MASJID MOTH NDSE-II NEW DELHI. PAN: AAACI2831G. (APPELLANT) (RESPONDENT) APPELLANT BY : MRS. PRATIMA KAUSHIK SR. DR. RESPONDENT BY : NONE. O R D E R PER C.L. SETHI JUDICIAL MEMBER. THESE ARE TWO APPEALS OF THE REVENUE DIRECTED AGAI NST TWO SEPARATE ORDERS DATED 16.10.2009 AND 16.11.2009 PASSED BY T HE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) PERTAINING TO THE ASSESSMENT YEARS 2002-03 AND 2005-06 RESPECTIVELY. 2. WE SHALL FIRST TAKE THE APPEAL PERTAINING TO THE ASSESSMENT YEAR 2002- 03. THE ONLY GROUND RAISED IN THIS APPEAL IS AS UN DER:- IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD . CIT(A) HAS ERRED IN LAW AND ON FACTS BY DELETING DISALLOWANCE OF RS.29 72 000/- MADE BY THE ASSESSING OFFICER U/S 35 D OF THE 2 ACT ON ACCOUNT OF EXCLUSION OF SHARE PREMIUM BY I GNORING THE FACT THAT THE PROVISIONS OF EXPLANATION (B) OF SECT ION 35D(3) OF THE ACT CLEARLY STATES THAT ONLY `ISSUED SHARE CAPI TAL IS TO BE CONSIDERED AND NOT THE `PREMIUM AMOUNT EARNED ON TH E PUBLIC ISSUE FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 35D OF THE ACT. 3. IN THE YEAR UNDER CONSIDERATION THE ASSESSEE CL AIMED RS.31.67 LAKH AS DEDUCTION UNDER SEC. 35D OF THE ACT BEING 1/5 TH OF 5% OF PUBLIC ISSUE OF 39 10 000 SHARES OF RS.5/- EACH AT A PREMIUM OF RS. 76/-. DURING THE ASSESSMENT PROCEEDINGS THE AO ASKED THE ASSESSEE TO EXPLAIN WHY DEDUCTION SHOULD NOT BE RESTRICTED TO RS.1.95 LAKHS BEING WOR KED OUT AFTER EXCLUDING THE PREMIUM AMOUNT REALIZED ON SHARES. IN REPLY T HE ASSESSEE SUBMITTED THAT THE ASSESSEE CAME OUT WITH PUBLIC ISSUE OF ITS SHARES IN ASSESSMENT YEAR 2001-02 WHEREIN TOTAL 39 10 000 SHARES OF RS.5/- EA CH WERE OFFERED FOR SUBSCRIPTION ON A PRICE OF RS.81/- AND A TOTAL COS T AMORTIZED OVER A PERIOD OF 5 YEARS. IT WAS FURTHER EXPLAINED THAT AS PER SEC. 35D OF THE ACT THE ASSESSEE CLAIMED 1/5 TH OF 5% OF CAPITAL EMPLOYED ON COST OF THE PROJECT WHICHEVER IS HIGHER. IT WAS THUS EXPLAINED THAT THE ASSESSEE CL AIMED DEDUCTION TO THE EXTENT OF 5% ON TOTAL CAPITAL OF RS.34 39 54 150/- AS ON 31.3.2001 AND SUBMITTED THAT SAID PREMIUM IS TO BE TREATED AS ISS UED SHARE CAPITAL AND AS PER EXPLANATION (B) TO SECTION 35D(3) SHARE PREMIU M ACCOUNT WAS A PART OF ISSUED SHARE CAPITAL. HOWEVER THE EXPLANATION WAS NOT ACCEPTED BY THE AO 3 AND HE ALLOWED THE DEDUCTION U/S 35D ONLY TO THE EX TENT OF RS.1.95 LAKH AS AGAINST RS.31.67 LAKH AND DISALLOWED THE BALANCE AM OUNT OF RS.29 72 000/-. ON AN APPEAL THE LEARNED CIT(A) DELETED THE ADDITI ON BY FOLLOWING THE DECISION OF INCOME-TAX APPELLATE TRIBUNAL AHMEDABA D BENCH IN THE CASE OF JCIT VS. SIRHIND STEEL LTD. REPORTED IN 97 ITD 502 (AHD.) = (2005) 279 ITR (AT) 128 (AHD.). THE DECISION OF THE LEARNED CIT(A ) ON THIS ISSUE RUNS AS UNDER:- I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT THE FINDINGS OF THE AO AND THE FACTS ON RECORD. THE HO NBLE ITAT IN THE CASE OF JOINT CIT SPL. RANGE VII VS. SIRHIN D STEEL LIMITED 97 ITD 502(AHD.) HAS HELD AS UNDER:- THE AMOUNT OUTSTANDING ON ACCOUNT OF SHARE PREMIUM HAS TO BE TREATED AS ISSUED SHARE CAPITAL. A PERUSAL OF SECTION 78 OF THE COMPANIES ACT 1956 WILL REVEAL THAT ANY SHARE PREMIUM COLLECTED BY A COMPANY SHALL BE TREATED AS IF THE SAME IS PAID UP SHARE CAPITAL OF THE COMPANY AND IT IS ALSO REQUIRED TO BE RETAINED IN A SEPARATE ACCOUNT. THE SAID AMOUNT CANNOT BE UTILIZED FOR ANY PURPOSE OTHER THAN THE ONE SPECIFIED IN SECTION 78(2). IF AMOUNT LYING IN SEPARATE ACCOUNT IS USED FOR ANY OTHER PURPOSES IT WOULD TANTAMOUNT TO REDUCTION IN SHARE CAPITAL WHICH WILL ATTRACT THE PROVISIONS OF SECTIONS 100 TO 105 OF THE COMPANIES ACT. (PARA 7). THE EFFECT OF SECTION 78 IS TO CREATE A NEW CLASS OF CAPITAL OF A COMPANY WHICH IS NOT DISTRIBUTABLE AS INCOME ANY MORE THAN ANY OTHER CAPITAL ASSET. ON A WINDING UP THE SURPLUS MONIES IN THE SHARE PREMIUM ACCOUNT WILL BE RETURNED TO THE SHAREHOLDERS AS CAPITAL AND SO LONG AS THE COMPANY IS A GOING CONCERN THE SAME MONIES CAN NEVER BE RETURNED TO 4 THE SHAREHOLDERS EXCEPT THROUGH THE MEDIUM OF REDUCTION PETITION OR IN OTHER WORDS EXCEPT UNDER EXACTLY THE SAME CONDITIONS AS THOSE UNDER WHICH ANY OTHER CAPITAL ASSET CAN AREACH THE SHAREHOLDERS HAND. THE HONBLE ITAT THEREFORE HELD THAT THE ISSUED SH ARE CAPITAL OF THE ASSESSEE CAN ONLY BE CONSIDERED TO B E SHARE CAPITAL PLUS AMOUNT OUTSTANDING AS SHARE PREMIUM AM OUNT. HENCE THE DEPARTMENT IS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE LEARNED DR. NONE FOR THE ASSE SSEE WAS PRESENT. THE NOTICE OF HEARING WAS SENT TO THE ASSESSEE THRO UGH DEPARTMENT. THE DEPARTMENTAL AUTHORITIES I.E. DY. COMMISSIONER OF I NCOME-TAX CIRCLE 2(1) ROOM NO.398D CR BUILDING NEW DELHI HAS REPORTED THAT THE NOTICE OF HEARING FIXING THE DATE OF HEARING ON 29.07.2010 HA D BEEN SERVED UPON THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE COMPANY. HOWEVER NONE FOR THE ASSESSEE WAS PRESENT WHEN THE MATTER WAS CALLED ON FOR HEARING NOR DID ANY APPLICATION FOR ADJOURNMENT FILED. WE THEREFORE P ROCEEDED TO HEAR THE LEARNED DR AND ACCORDINGLY SHE WAS HEARD. 5. THE LEARNED DR SUBMITTED THAT THE ISSUE INVOLVED IN THIS APPEAL IS NOW FULLY COVERED IN FAVOUR OF THE REVENUE BY THE DECIS ION OF HONBLE JURISDICTIONAL HIGH COURT OF DELHI IN THE CASE OF B ERGER PAINTS INDIA VS. CIT 292 ITR 658 (DEL.). SHE SUBMITTED THAT IN THE LIGH T OF THE DECISION OF HIGH 5 COURT THE DECISION OF TRIBUNAL RELIED UPON BY THE LEARNED CIT(A) WOULD NOT BE APPLICABLE. 6. SECTION 35D OF THE INCOME-TAX ACT REGULATES AMO RTIZATION OF CERTAIN PRELIMINARY EXPENSES. THE PROVISION INTER ALIA S AYS THAT IF AN ASSESSEE BEING AN INDIAN COMPANY OR A PERSON (OTHER THAN A C OMPANY) WHO IS RESIDENT IN INDIA INCURS AFTER MARCH 31 1970 ANY EXPENDITURE SPECIFIED IN SUB-SECTION (2) BEFORE THE COMMENCEMENT OF HIS BUS INESS OR AFTER THE COMMENCEMENT OF HIS BUSINESS IN CONNECTION WITH TH E EXTENSION OF HIS INDUSTRIAL UNDERTAKING OR IN CONNECTION WITH THE SE TTING UP OF A NEW INDUSTRIAL UNIT THE ASSESSEE SHALL IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF SECTION 35D BE ALLOWED A DEDUCTION O F AN AMOUNT EQUAL TO 1/10 TH OF SUCH EXPENDITURE FOR EACH OF THE TEN SUCCESSIVE PREVIOUS YEARS BEGINNING WITH THE PREVIOUS YEAR IN WHICH THE BUSIN ESS COMMENCES OR AS THE CASE MAY BE THE PREVIOUS YEAR IN WHICH THE EXTENSI ON OF THE INDUSTRIAL UNDERTAKING IS COMPLETED OR THE NEW INDUSTRIAL UNIT COMMENCES PRODUCTION OR OPERATION. 6.1 HOWEVER WHERE AN ASSESSEE INCURS AFTER THE 31 ST DAY OF MARCH 1998 ANY EXPENDITURE SPECIFIED IN SUB-SECTION (2) THE P ROVISION OF SUB-SECTION (1) OF SECTION 35D SHALL HAVE EFFECT AS IF FOR THE WORD S AN AMOUNT EQUAL TO ONE- TENTH OF SUCH EXPENDITURE FOR EACH OF THE TEN SUCCE SSIVE PREVIOUS YEARS THE 6 WORDS AN AMOUNT EQUAL TO ONE-FIFTH OF SUCH EXPENDI TURE FOR EACH OF THE FIVE SUCCESSIVE PREVIOUS YEARS HAD BEEN SUBSTITUTED. 6.2 SUB-SECTION (2) ENUMERATES THE EXPENDITURE REGA RDING WHICH SUCH AMORTIZATION CAN BE CLAIMED WHILE SUB-SECTION (3) L IMITS THE AGGREGATE AMOUNT OF EXPENDITURE FOR PURPOSES OF COMPUTING THE DEDUCTION ALLOWABLE UNDER SUB-SECTION (1) TO SECTION 35D. SUB-SECTION (3) IS EXTRACTED TO THE EXTENT THE SAME IS RELEVANT FOR OUR PURPOSES: WHERE THE AGGREGATE AMOUNT OF THE EXPENDITURE REFE RRED TO IN SUB-SECTION (2) EXCEEDS AN AMOUNT CALCULATED AT TWO AND ONE- HALF PER CENT (A) OF THE COST OF THE PROJECT OR (B) WHERE THE ASSESSEE IS AN INDIAN COMPANY AT THE OPT ION OF THE COMPANY OF THE CAPITAL EMPLOYED IN THE BUSINES S OF THE COMPANY THE EXCESS SHALL BE IGNORED FOR THE PURPOSE O F COMPUTING THE DEDUCTION ALLOWABLE UNDER SUB-SECTION (1): PROVIDED THAT WHERE THE AGGREGATE AMOUNT OF EXPENDITURE REFERRED TO IN SUB-SECTION (2) IS INCUR RED AFTE RTHE 31 ST DAY OF MARCH 1998 THE PROVISIONS OF THIS SUB-SEC TION SHALL HAVE EFFECT AS IF FOR THE WORDS `TWO AND ON-HALF PE R CENT. THE WORDS `FIVE PER CENT. HAD BEEN SUBSTITUTED. 6.3 A CAREFUL READING OF THE ABOVE WOULD SHOW THAT IN THE CASE OF AN INDIAN COMPANY THE AGGREGATE AMOUNT OF EXPENDITURE INCURRED AFTER THE 31 ST DAY OF MARCH 1998 ALLOWABLE UNDER SUB-SECTION (1) OF SECTION 35D CANNOT EXCEED 5 PER CENT OF THE CAPITAL EMPLOYED IN THE BU SINESS OF THE COMPANY. THE CRUCIAL QUESTION THEREFORE IS AS TO WHAT IS M EANT BY CAPITAL EMPLOYED IN 7 THE BUSINESS OF THE COMPANY. THE EXPRESSION CAPIT AL EMPLOYED IN THE BUSINESS OF THE COMPANY HAS BEEN GIVEN A CLEAR AND EXHAUSTIVE DEFINITION IN THE EXPLANATION TO SUB-SECTION (3) OF SECTION 35D. IT READS: (B) `CAPITAL EMPLOYED IN THE BUSINESS OF THE COMPA NY MEANS (I) IN A CASE REFERRED TO IN CLAUSE (I) OF SUB-SECTION (1) THE AGGREGATE OF THE ISSUED SHARE CAPITAL DEBENTURES A ND LONG-TERM BORROWINGS AS ON THE LAST DAY OF THE PREV IOUS YEAR IN WHICH THE BUSINESS OF THE COMPANY COMMENCES ; (II) IN A CASE REFERRED TO IN CLAUSE (II) OF SUB-SECTION (1) THE AGGREGATE OF THE ISSUED SHARE CAPITAL DEBENTURES A ND LONG-TERM BORROWINGS AS ON THE LAST DAY OF THE PREV IOUS YEAR IN WHICH THE EXTENSION OF THE INDUSTRIAL UNDER TAKING IS COMPLETED OR AS THE CASE MAY BE THE NEW INDUST RIAL UNIT COMMENCES PRODUCTION OR OPERATION IN SO FAR A S SUCH CAPITAL DEBENTURES AND LONG-TERM BORROWINGS H AVE BEEN ISSUED OR OBTAINED IN CONNECTION WITH THE EXTE NSION OF INDUSTRIAL UNDERTAKING OR THE SETTING UP OF THE NEW INDUSTRIAL UNIT OF THE COMPANY. 6.4 THE ABOVE CLEARLY SHOWS THAT IN THE CASE OF ANY SPECIFIED EXPENDITURE IS INCURRED BEFORE THE COMMENCEMENT OF THE BUSINESS OF THE COMPANY THE CAPITAL EMPLOYED IN THE BUSINESS OF THE COMPANY WOU LD BE THE AGGREGATE OF THREE COMPONENTS NAMELY SHARE CAPITAL DEBENTURES AND LONG-TERM BORROWINGS AS ON THE LAST DAY OF THE PREVIOUS YEAR IN WHICH THE BUSINESS OF THE COMPANY COMMENCES AND IN THE CASE OF WHERE SPE CIFIED EXPENDITURE IS INCURRED AFTER THE COMMENCEMENT OF HIS BUSINESS IN CONNECTION WITH THE EXTENSION OF HIS INDUSTRIAL UNDERTAKING OR IN CONNE CTION WITH HIS SETTING UP OF 8 A NEW INDUSTRIAL UNIT THE CAPITAL EMPLOYED IN THE BUSINESS OF THE COMPANY SHALL BE THE AGGREGATE OF THE 3 COMPONENTS NAMELY SHARE CAPITAL DEBENTURES AND LONG-TERM BORROWINGS AS ON THE LAST DAY OF THE PREVIOUS YEAR IN WHICH THE EXTENSION OF THE INDUSTRIAL UNDERTAKIN G IS COMPLETED OR AS THE CASE MAY BE THE NEW INDUSTRIAL UNIT COMMENCES PROD UCTION OR OPERATION IN SO FAR AS SUCH CAPITAL DEBENTURES AND LONG-TERM BO RROWINGS HAVE BEEN ISSUED OR OBTAINED IN CONNECTION WITH THE INDUSTRIA L UNDERTAKING OR SETTING UP OF THE NEW INDUSTRIAL UNIT. 6.4 THE TERM LONG TERM BORROWINGS HAS BEEN DEFINE D IN CLAUSE (C) TO THE EXPLANATION TO SUB-SECTION (3) OF SECTION 35D OF TH E ACT WHICH READS AS UNDER:- (C ) LONG-TERM BORROWINGS MEANS (I) ANY MONEYS BORROWED BY THE COMPANY FROM GOVERNMENT OR THE INDUSTRIAL FINANCE CORPORATION OF INDIA OR T HE INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF IND IA OR ANY OTHER FINANCIAL INSTITUTION [WHICH IS ELIGIBLE FOR DEDUCTION UNDER CLAUSE (VIII) OF SUB-SECTION (1) OF SECTION 36] OR ANY BANKING INSTITUTION (NOT BEING A FINANCI AL INSTITUTION REFERRED TO ABOVE) OR IN THE PRESENT ASSESSEES CASE IT IS NOBODYS CASE THAT THE PREMIUM COLLECTED BY THE ASSESSEE COMPANY ON THE ISSUE OF SHARES IS A LONG-TERM BORROWING WITHIN THE MEANING OF CLAUSE (C) TO THE EXPLANATION EITHER ON FACT OR BY A FICTION OF LAW. IT IS ALSO NOT THE CASE OF THE ASS ESSEE THAT THE PREMIUM 9 COLLECTED BY THE ASSESSEE COMPANY ON THE ISSUE OF S HARES IS IN ANY WHERE NEAR OR AKIN TO THE DEBENTURES. THE ASSESSEE HAS M ADE OUT A CASE ONLY THAT PREMIUM COLLECTED BY THE ASSESSEE COMPANY ON THE IS SUE OF SHARES IS A PART OF SHARE CAPITAL ISSUED AND IN SUPPORT THEREOF THE Y RELIED UPON THE DECISION OF ITAT AHMEDABAD BENCH IN THE CASE OF SIRHIND STE EL LTD. (SUPRA). IN OTHER WORDS WHAT WAS REVIEWED BY THE ASSESSEE BEFO RE THE AUTHORITIES BELOW WAS THAT THE PREMIUM COLLECTED BY THE COMPANY ON TH E ISSUE OF SHARES WAS A PART OF THE SHARE CAPITAL AND IS THEREFORE TO BE R ECKONED AS CAPITAL EMPLOYED IN THE BUSINESS OF THE COMPANY. 6.5 THIS ASPECT OF THE MATTER AS TO WHETHER THE PRE MIUM COLLECTED BY THE COMPANY ON THE ISSUE OF SHARES IS A PART OF THE SHA RE CAPITAL AND IS THEREFORE TO BE RECKONED AS CAPITAL EMPLOYED IN THE BUSINESS OF THE COMPANY HAS BEEN CONSIDERED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF BERGER PAINTS INDIA (SUPRA) WHERE THE HONBLE DELHI HIGH C OURT AFTER ANALYZING THE PROVISIONS OF SEC. 35D HAS HELD THAT THE EXPLANATI ON TO SECTION 35D OF THE ACT DOES NOT INCLUDE THE RESERVE AND SURPLUS OF THE COMPANY AS A PART OF THE CAPITAL EMPLOYED IN THE BUSINESS OF THE COMPANY. TH EY HELD THAT THEY DID NOT FIND ANY MERIT IN THE CONTENTION OF THE ASSESSEE TH AT THE PREMIUM COLLECTED ON ISSUE OF SHARES IS A PART OF SHARE CAPITAL AND IS THEREFORE TO BE RECKONED AS CAPITAL EMPLOYED IN THE BUSINESS OF THE COMPANY. THE HONBLE HIGH 10 COURT FURTHER OBSERVED THAT IF THE INTENTION WAS TH AT ANY AMOUNT OTHER THAN THE SHARE CAPITAL DEBENTURES AND LONG-TERM BORROWI NGS OF THE COMPANY OUGHT TO BE TREATED AS PART OF THE CAPITAL EMPLOYED IN THE BUSINESS OF THE COMPANY PARLIAMENT WOULD HAVE SUITABLY PROVIDED FO R THE SAME AND SO LONG AS THAT HAS NOT BEEN DONE AND SO LONG AS THE CAPITA L EMPLOYED IN THE BUSINESS OF THE COMPANY IS RESTRICTED TO THE ISSUED SHARE CA PITAL DEBENTURES AND LONG- TERM BORROWINGS THERE WAS NO ROOM FOR HOLDING THAT THE PREMIUM IF ANY COLLECTED BY THE COMPANY ON THE ISSUE OF ITS SHARE CAPITAL WOULD ALSO CONSTITUTE A PART OF THE CAPITAL EMPLOYED IN THE BU SINESS OF THE COMPANY FOR THE PURPOSES OF DEDUCTION UNDER SECTION 35D OF THE ACT. 6.6 IN THE LIGHT OF THE AFORESAID BINDING DECISION OF HONBLE HIGH COURT OF DELHI IN THE CASE OF BERGER PAINTS INDIA (SUPRA) W E THEREFORE UPHOLD THE ASSESSING OFFICERS ORDER IN EXCLUDING THE PREMIUM COLLECTED BY THE ASSESSEE ON THE ISSUE OF ITS SHARE CAPITAL FOR THE PURPOSE OF DETERMINING THE AMOUNT OF CAPITAL EMPLOYED IN THE BUSINESS OF THE C OMPANY WHILE COMPUTING DEDUCTION UNDER SEC. 35D(3) OF THE ACT. THE ORDER OF THE CIT(A) IS THUS SET ASIDE AND THAT OF THE ASSESSING OFFICER IS RESTORED . IN OTHER WORDS THIS ISSUE RAISED BY THE REVENUE IS DECIDED IN FAVOUR OF THE R EVENUE AND AGAINST THE ASSESSEE. 11 7. NOW WE SHALL COME TO THE APPEAL PERTAINING TO TH E ASSESSMENT YEAR 2005-06. THE FIRST GROUND RAISED IN THIS YEAR IS I DENTICAL TO THAT OF THE ABOVE GROUND RAISED IN ASSESSMENT YEAR 2002-03 BEING RELA TED TO THE ISSUE AS TO WHETHER THE SHARE PREMIUM COLLECTED BY THE ASSESSEE ON THE ISSUE OF ITS SHARE CAPITAL WOULD CONSTITUTE A PART OF THE CAPITAL EMPL OYED IN THE BUSINESS OF THE COMPANY FOR THE PURPOSE OF SECTION 35D OF THE ACT. RESPECTFULLY FOLLOWING OUR DECISION GIVEN IN THE ASSESSMENT YEAR 2002-03 WE DECIDE THIS ISSUE IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. CO NSEQUENTLY THE ORDER OF THE AO ON THIS MATTER IS RESTORED AND THAT OF THE L EARNED CIT(A) IS SET ASIDE. THEREFORE THE DISALLOWANCE OF CLAIM UNDER SEC. 35D MADE BY THE AO BY EXCLUDING THE SHARE PREMIUM FROM THE CAPITAL EMPLOY ED IN THE BUSINESS OF THE COMPANY IS JUSTIFIED. 8. GROUND NO.2 IS DIRECTED AGAINST THE CIT(A)S ORD ER IN DELETING THE DISALLOWANCE OF RS.2 95 616/- ON ACCOUNT OF FOREIGN TRAVELLING EXPENSES. IT HAS BEEN STATED BY THE AO THAT THE ASSESSEE COMPANY INCURRED EXPENDITURE OF RS.14 78 078/- ON FOREIGN TRAVELLING. THE ASSESSEE COMPANY WAS ASKED TO GIVE PROOF OF THE BUSINESS PURPOSE FOR WHICH THE FO REIGN TRAVELLING WAS UNDERTAKEN. THE ASSESSEE HAD FILED DETAILS OF EXPE NSES ON THE FOREIGN TRAVELLING. HOWEVER THE AO STATED THAT THE ASSESS EE HAS FAILED TO FILE EVIDENCES ABOUT THE BUSINESS PURPOSES FOR WHICH THE FOREIGN TRAVELLING WAS 12 UNDERTAKEN. HE THEREFORE DISALLOWED 20% OF THE TO TAL EXPENSES WHICH WAS WORKED OUT TO RS.2 95 616/-. 9. ON AN APPEAL THE LEARNED CIT(A) DELETED THE ADD ITION MERELY BY JUST OBSERVING THAT THE AO HAS MADE THE DISALLOWANCE PUR ELY ON AD HOC BASIS WITHOUT REALIZING THE FACT THAT THE DIRECTOR AND EM PLOYEES HAD TO TRAVEL UK AND USA AS THEY WERE EARNING THEIR INCOME IN THESE COUNTRIES AND WITHOUT CITING ANY INSTANCE WHEREIN PERSONAL ELEMENT WAS IN VOLVED. HENCE THE DEPARTMENT IS IN APPEAL BEFORE US. 10. WE HAVE HEARD THE LEARNED DR AND PERUSED THE MA TERIAL ON RECORD. WE HAVE ALSO GONE THROUGH THE DETAILS OF FOREIGN TR AVELLING EXPENSES PLACED IN THE PAPER BOOK FILED BY THE ASSESSEE. FROM THE DETAILS IT APPEARS TO US THAT THE ASSESSEE HAD INCURRED SUM OF RS.14 78 078/- TOW ARDS FOREIGN TRAVELLING AS WELL AS DOMESTIC TRAVELLING EXPENSES. THE TOTAL EXPENSES OF RS.14 78 078/- INCLUDES EXPENSES ON DOMESTIC TRAVEL LING AMOUNTING TO RS.95 076/- AND THE BALANCE AMOUNT OF RS.13 83 002/ - IS TOWARDS THE FOREIGN TRAVELLING UNDERTAKEN BY THE ASSESSEES EMPLOYEE AN D DIRECTOR. THEREFORE THE AMOUNT INCURRED ON FOREIGN TRAVELING EXPENSES I S ONLY OF RS.13 83 002/- AND NOT RS.14 78 078/- AS STATED BY THE AO. WE HAV E GONE THROUGH THE DETAILS OF FOREIGN TRAVELLING AND FOUND THAT THE AS SESSEES EMPLOYEES HAD UNDERTAKEN JOURNEY TO USA AND ON THAT ACCOUNT A SUM OF RS.4 58 488.19 13 WAS INCURRED. THE BALANCE SUM OF RS.9 24 514.40 WA S INCURRED TOWARDS FOREIGN TRAVELLING UNDERTAKEN BY ONE SHRI ROHITASAV A CHAND TO VIENNA/PRAGUE/COPENHAGEN AND LONDON. THE EXPENSES AGAINST THE JOURNEY MADE TO VIENNA/ PRAGUE/ COPENHAGEN WERE CLAIMED AT RS.3 29 150.40. THE LEARNED CIT(A) HAS DELETED THE ADDITION BY OBSERVIN G THAT THE ASSESSEES EMPLOYEE AND DIRECTOR HAD TO VISIT UK AND USA AS TH EY WERE EARNING THEIR INCOME IN THESE COUNTRIES. HOWEVER FROM THE EXPLA NATION OF THE ASSESSEE IT IS SEEN THAT THE ASSESSEE HAS CLAIMED THAT THE VISI T TO VIENNA/ PRAGUE/ COPENHAGEN WAS TO MEET PROSPECTIVE CUSTOMERS FOR OB TAINING BUSINESS. IT IS CLEAR THAT VISIT TO THESE PLACES WAS NOT WITH REGAR D TO THE INCOME EARNED BY THE ASSESSEE. THE ASSESSEE HAS NOT GIVEN THE DETAI LS OF THE PROSPECTIVE CUSTOMERS WHO WERE CONTACTED BY THE ASSESSEES CHAI RMAN AND MANAGING DIRECTOR SHRI ROHITASAVA CHAND. THEREFORE THE ASS ESSEE HAS NOT BEEN ABLE TO ESTABLISH THAT THE VISIT OF SHRI ROHITASAVA CHAN D TO VIENNA/ PRAGUE/ COPENHAGEN WAS FOR THE PURPOSE OF ASSESSEES BUSINE SS. NO SUCH DETAILS HAVE BEEN FURNISHED. THE TOTAL AMOUNT SPENT ON JOU RNEY UNDERTAKEN TO VIENNA/PRAGUE/COPENHAGEN IS OF RS.23 29 150/- OUT O F WHICH A SUM OF RS.48 369/- WAS INCURRED TOWARDS AIR-TICKET AND SUM OF RS.2 72 500/- WAS INCURRED TOWARDS FOREIGN EXCHANGE. THE ASSESSEE HA S NOT GIVEN THE DETAILS OF EXPENSES INCURRED OUT OF FOREIGN EXCHANGE AMOUNTING TO RS.2 72 500/-. 14 THEREFORE THE DISALLOWANCE MADE BY THE AO TO CERTA IN EXTENT IS JUSTIFIED. AFTER CONSIDERING THE TOTALITY OF THE FACTS AND CIR CUMSTANCES OF THE CASE WE THEREFORE DISALLOW THE SUM OF RS.1 50 000/- OUT OF THE TOTAL EXPENSES OF RS.3 29 150.40 CLAIMED TO HAVE BEEN INCURRED TOWARD S FOREIGN TRAVELLING TO VIENNA/ PRAGUE/ COPENHAGEN INASMUCH AS THE ASSESSEE HAS FAILED TO ESTABLISH THAT THE JOURNEY TO THESE PLACES WERE EXCLUSIVELY F OR THE PURPOSE OF BUSINESS. THEREFORE WE SUSTAIN THE ADDITION OF RS.1 50 000/- ON THIS ACCOUNT. THE AO SHALL MODIFY THE ASSESSMENT ORDER ACCORDINGLY. 11. IN THE RESULT THE APPEAL FILED BY THE REVENUE FOR THE ASSESSMENT YEAR 2002-03 IS ALLOWED AND THAT FOR THE ASSESSMENT YEAR 2005-06 IS PARTLY ALLOWED. 12. THIS DECISION IS PRONOUNCED IN THE OPEN COURT I MMEDIATELY AFTER THE HEARING WAS OVER ON 29 TH JULY 2010. SD/- SD/- (K.D. RANJAN) (C.L. SETHI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 29 TH JULY 2010. COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR BY ORDER *MG DEPUTY REGISTRAR ITAT.