The Asstt. Commissioner of Income-tax, Amritsar. v. M/s. Kandhari Beverages P. Ltd,, Amritsar.

ITA 340/ASR/2011 | 2007-2008
Pronouncement Date: 29-03-2012 | Result: Dismissed

Appeal Details

RSA Number 34020914 RSA 2011
Assessee PAN AAACK6337K
Bench Amritsar
Appeal Number ITA 340/ASR/2011
Duration Of Justice 9 month(s) 27 day(s)
Appellant The Asstt. Commissioner of Income-tax, Amritsar.
Respondent M/s. Kandhari Beverages P. Ltd,, Amritsar.
Appeal Type Income Tax Appeal
Pronouncement Date 29-03-2012
Appeal Filed By Department
Order Result Dismissed
Bench Allotted DB
Tribunal Order Date 29-03-2012
Date Of Final Hearing 28-03-2012
Next Hearing Date 28-03-2012
Assessment Year 2007-2008
Appeal Filed On 02-06-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. H.S. SIDHU JUDICIAL MEMBER AND SH. B.P.JAIN ACCOUNTANT MEMBER I.T.A. NOS. 406 340 & 402(ASR)/2011 ASSESSMENT YEARS:2006-07 2007-08 & 2008-09 PAN:AAACK6337K THE ASSTT. COMMR. OF INCOME-TAX VS. M/S. KANDHARI BEVERAGES PVT. LTD. CIRCLE-V AMRITSAR. LAWRENCE ROAD AMRITSAR. (APPELLANT) (RESPONDENT) APPELLANT BY: SH. AMRIK CHAND DR RESPONDENT BY:SH. P.N. ARORA ADV. DATE OF HEARING : 28/03/2012 DATE OF PRONOUNCEMENT: 29/03/2012 ORDER PERBENCH; THESE THREE APPEALS OF THE REVENUE ARISE FROM THRE E DIFFERENT ORDERS OF THE CIT(A) AMRITSAR DATED 27.04.2011 02.02.20 11 AND 27.04.2011 FOR THE ASSESSMENT YEARS 2006 07 2007 08 & 2008-09 RES PECTIVELY. THE ISSUES IN ALL THE APPEALS ARE IDENTICAL AND THEREFORE ALL THE APPEALS ARE BEING DECIDED BY THIS CONSOLIDATED ORDER. 2. THE REVENUE FOR THE ASSESSMENT YEAR 2006-07 HAS RAISED FOLLOWING GROUNDS OF APPEAL: ITA NOS. 406 340 & 403(ASR)/2011 2 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) AMRITSAR HAS ERRED IN DELETING THE ADDITION OF RS.10 00 000/- MADE B THE A.O. ON ACCOUNT OF EXCESS CLAIM OF FOREIGN TRAVELING EXPENSES INCURRED BY THE ASSESSEE IN RESPECT OF FOREIGN VISITS IN THE ABSENCE OF COMPLETE DETAILS/P URPOSE OF FOREIGN TOUR(S) AND TRAVELING EXPENSES. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) AMRITSAR HAS NOT APPRECIATED THE FACTS THAT EVERY ASSESSMENT YEAR IS INDEPENDENT ASSESSMENT. THE LD. CIT(A) AMRITSAR HAS ALSO FAILED TO CONSIDER THE RELEVANT M ATERIAL WHILE DELETING THE ADDITION. HENCE DELETION OF ADDITION ON THE SAME POINT BY FOLLOWING THE ORDER OF HONBLE ITAT FOR TH E A.Y. 2005-06 IN THE INSTANT CASE IS NOT ACCEPTABLE. 3. THE REVENUE IN THE ASSESSMENT YEAR 2007-08 HAS R AISED THE FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD. CIT(A) AMRITSAR HAS ERRED IN DELETING THE ADDITION OF RS.3 25 32 570/- MADE BY THE AO ON ACCOUNT OF EXCES S CLAIM OF MANAGERIAL COMMISSION. THE LD. CIT(A) HAS FAILED TO APPRECIATE THAT THE M ANAGERIAL COMMISSION TO THE TUNE OF RS.4 40 53 350/- WAS CLAI MED BY THE MANAGING DIRECTOR BY DEVIATING FROM THE PAST ESTABL ISHED PRACTICE OF ALLOWING MANAGERIAL COMMISSION @ 10% OF NET PROFIT WHICH IS WORKED OUT AFTER DEDUCTING THE DEPR ECIATION. THE AO HAS ALLOWED EXPENSES OF MANAGERIAL COMMISSION TO THE TUNE OF RS.1 25 20 780/- @ 10% ON NET PROFIT OF RS.12 52 02 795/- WHICH WAS WORKED OUT AFTER EXCLUDING PROFIT ON SALE OF FIXED ASSETS AND PROFIT ON SALE OF SHARES TOTALING RS.2 0 2 31 965/- OUT OF THE NET PROFIT OF RS.14 54 34 760/- AS PER THE R ETURN OF INCOME. HENCE PRINCIPAL OF CONSISTENCY ALSO APPLIE S IN THE CASE OF THE ASSESSEE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD. CIT(A) AMRITSAR HAS ERRED IN DELETING THE ADDITION OF RS.7 35 795/- MADE BY THE AO ON ACCOUNT OF EXCESS CLAIM OF ITA NOS. 406 340 & 403(ASR)/2011 3 FOREIGN TRAVEL EXPENSES INCURRED BY ONE OF THE DIRE CTORS VIZ SH. JASPAL SINGH KANDHARI IN RESPECT OF TEN FOREIGN VIS ITS TO DIFFERENT COUNTRIES. THE LD. CIT(A) HAS FAILED TO APPRECIATE THAT PURPO SE AND DETAILS OF TOUR AND EXPENSES WERE NOT FURNISHED AND IN THE ABSENCE OF THE SAME THE FOREIGN TRAVEL EXPENSES TO THE EXTENT OF RS.7 35 795/- WERE DISALLOWED BY TREATING THE SAME AS NON- BUSINESS EXPENSES BY THE A.O. 4. THE REVENUE IN THE ASSESSMENT YEAR 2008-09 HAS R AISED FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) AMRITSAR HAS ERRED IN DELETING THE ADDITION OF RS.1 65 29 275/- MADE BY THE AO ON ACCOUNT OF EXCES S CLAIM OF MANAGERIAL COMMISSION. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD. CIT(A) AMRITSAR HAS ERRED IN DELETING ADDITION OF RS.13 07 897/- MADE BY THE AO ON ACCOUNT OF EXCESS CLAIM OF FOREIGN TRAVEL EXPENSES INCURRED BY ONE OF THE DIRE CTORS VIZ. JASPAL SINGH KANDHARI IN RESPECT OF FOREIGN VISITS TO DIFFERENT COUNTRIES. 3. THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITIO N OF RS. 25 LAC MADE BY THE A.O. ON ACCOUNT OF DISALLOWANCE OUT OF ITS TOTAL CLAIM OF RS.15 53 68 416/- UNDER THE HEAD ADVERTISE MENT AND SALES PROMOTION EXPENSES. 5. FIRST OF ALL WE TAKE UP APPEAL OF THE REVENUE IN ITA NO.406(ASR)/2011 FOR THE A.Y. 2006-07. THE FACTS AS PER AOS ORDER A RE REPRODUCED AS UNDER: VIDE ORDER SHEET ENTRY DATED 8.12.2008 THE ASSESS EE WAS ASKED TO DETAILS OF THESE FOREIGN TRAVELING EXPENSES AND JUS TIFY THE SAME. IT WAS OBSERVED THAT AN AMOUNT OF RS.27 85 480/- WAS DEBIT ED UNDER THE SUB- HEAD OF FOREIGN TRAVELLING EXPENSES OUT OF THIS R S.14 14 153/- WERE DEBITED FOR FOREIGN TOUR OF THE DIRECTOR AND RS.13 71 327/- FOR FOREIGN ITA NOS. 406 340 & 403(ASR)/2011 4 TOUR OF OTHERS. IT IS SUBMITTED THAT THE VISITS BY THE DIRECTORS AND OTHERS ARE FOR THE PURPOSES OF BUSINESS INCLUDING THE WAYS TO UNDERSTAND NEW CONCEPTS AND EXPLORE OPPORTUNITIES FOR EXPANDING BU SINESS. COMPLETE DETAILS OF THE EXPENSES INCURRED DURING THE VISITS TO VARIOUS COUNTRIES HAVE NOT BEEN FILED. FURTHER NO COMPLETE CORRESPOND ENCE WITH REFERENCES TO THE PARTIES TO WHOM THE ASSESSEE HAS VISITED OR CONTRACTED DURING THE FOREIGN TOUR HAS BEEN FURNISH ED. FURTHER POSSIBILITY OF NON-BUSINESS EXPENDITURE ON STAY FO ODING ENTERTAINMENT ETC. CAN NOT BE RULED OUT. IN VIEW OF THESE FACTS AND CONSIDERING THE NATURE OF THE EXPENDITURE AN AMOUN T OF RS.10 00 000/- IS DISALLOWED OUT OF FOREIGN EXPENSE S AND ADDED BACK TO THE INCOME OF THE ASSESSEE. 6. THE LD. CIT(A) VIDE PARA 6.3 OF HIS ORDER DELET ED THE DISALLOWANCE SINCE THE AO HAS NOT POINTED OUT ANY SPECIFIC DEFEC T AND BY FOLLOWING THE DECISION OF THE ITAT AMRITSAR BENCH DATED 03.03.2 009 FOR THE ASSESSMENT YEAR 2005-06 ON IDENTICAL ISSUE. 7. THE LD. DR SH. AMRIK CHAND ARGUED THAT THE ASSE SSEE DID NOT FURNISH ANY DOCUMENTARY EVIDENCE TO SHOW THAT DURING FREQUE NT VISITS OF THE MANAGING DIRECTOR OF THE ASSESSEE-COMPANY THERE W AS ANY BUSINESS EXIGENCY. THE EXPENSES CLAIMED ARE QUITE HEAVY AND ASSESSEE FAILED TO DISCHARGE THE ONUS TO PROVE THAT THE EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. HE FURTHER ARGUED AS REGARDS THE DECISION OF ITAT AMRITSAR BENCH FOR THE ASSESSMEN T YEAR 2005-06 DATED 03.03.2009 THE FACTS ARE DIFFERENT AND SINCE THER E WAS NO NEXUS BETWEEN THE EXPENDITURE AND PURPOSE OF BUSINESS AND THEREFORE SUCH EXPENSE SHOULD NOT ITA NOS. 406 340 & 403(ASR)/2011 5 BE ALLOWED. IN THE PRESENT CASE THE ASSESSE HAS NO T FILED ANY DOCUMENTARY EVIDENCE WITH REGARD TO THE PURPOSE OF THE BUSINESS AND THEREFORE THE LD. DR PRAYED TO REVERSE THE DECISION OF THE CIT(A). 8. THE LD. COUNSEL FOR THE ASSESSEE SH. P.N. ARORA ADV. ARGUED THAT THE ASSESSEE HAS FILED ALL THE DETAILS OF EXPENSES WHI CH ARE AVAILABLE AT PAGES 5 TO 57 OF THE PAPER BOOK BEFORE THE AUTHORITIES BEL OW. AS PER CHART AVAILABLE AT PB-3 THE ASSESSEE HAD BEEN ALLOWED SUCH EXPENDI TURE U/S 143(3) OF THE ACT FOR THE ASSESSMENT YEARS 2002-03 2003-04 & 20 04-05 ON IDENTICAL FACTS. THE ASSESSEE HAS SUBMITTED DETAILS ALONG WIT H THE PURPOSE OF FOREIGN VISIT I.E. PURCHASE OF MACHINERY INCLUDING SPARES A ND RAW-MATERIALS AND THE DETAILS ARE AVAILABLE AT PB-3. AS REGARDS THE DECIS ION OF THE ITAT AMRITSAR BENCH DATED 03.03.2009 FOR THE ASSESSMENT YEAR 200 5-06 (SUPRA) AVAILABLE AT PB 28 TO 35 THE DEPARTMENT HAS NOT PREFERRED FU RTHER APPEAL BEFORE THE HONBLE HIGH COURT. THE FACTS IN THE PRESENT CASE A RE IDENTICAL TO THE FACTS FOR THE ASSESSMENT YEAR 2005-06. THE LD. COUNSEL MR. ARORA INVITED OUR ATTENTION TO THIS EFFECT TO THE ORDER OF THE TRIBUN AL AT PAGE 34 WHICH ARE THE FINDINGS OF THE TRIBUNAL FOR THE SAID YEAR. THE LD. COUNSEL HEAVILY RELIED UPON THE DECISION OF THE CIT(A). ITA NOS. 406 340 & 403(ASR)/2011 6 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THE ASSESSEE HAD FILED THE DETAILS OF EACH AND EVER Y EXPENSE WHICH ARE AVAILABLE AT PAGE 5 TO 67 OF THE PAPER BOOK. ON IDE NTICAL FACTS THE EXPENDITURE HAS BEEN ALLOWED BY THE DEPARTMENT DURI NG THE YEAR ASSESSMENT YEARS 2002-03 2003-04 & 2004-05. DURING THE ASSESS MENT YEAR 2005-06 THE ITAT AMRITSAR BENCH HAS ALLOWED SUCH EXPENDITU RE ON IDENTICAL FACTS IN ASSESSEES OWN CASE. MOREOVER WHEN THE ASSESSEE HA D FILED ALL THE DETAILS AND A.O. HAS NOT POINTED OUT ANY SPECIFIC DEFECT IN ANY OF THE EXPENDITURE THAT THE SAID EXPENDITURE IS OF CAPITAL IN NATURE O R FOR NON-BUSINESS PURPOSES THEN NO ADDITION IS CALLED FOR BY THE AO. IN THE CI RCUMSTANCES AND FACTS OF THE CASE THE AO IS NOT JUSTIFIED IN MAKING SUCH AD DITION. THEREFORE WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) WHO HA S RIGHTLY DELETED THE ADDITION MADE BY THE A.O. THUS BOTH THE GROUNDS O F THE REVENUE ARE DISMISSED. 10. NOW WE TAKE UP APPEAL OF THE REVENUE IN ITA NO .340(ASR)/2011 FOR THE ASSESSMENT YEAR 2007-08. THE BRIEF FACTS IN GRO UND NO.1 AS APPEARING IN AOS ORDER ARE REPRODUCED AS UNDER: 4. AS PER DETAILED FILED BY THE ASSESSEE THE WORKI NG DIRECTOR OF THE COMPANY IS GETTING 10% OF THE PROFIT AS MANAGERIAL EXPENSES UP TILL LAST YEAR WHILE WORKING OUT THE PROFIT FOR THE ALLO WABILITY OF MANAGERIAL COMMISSION THE DEPRECIATION WAS DEDUCTED TO ARRIVE AT THE NET INCOME. HOWEVER THIS YEAR ASSESSEE HAS DEVIATE D FROM THE PAST HISTORY AND HE HAS NOT DEDUCTED DEPRECIATION FOR CA LCULATING THE NET ITA NOS. 406 340 & 403(ASR)/2011 7 PROFIT FOR THE PURPOSES OF ALLOWABILITY OF MANAGERI AL COMMISSION. WHEN THE ASSESSEE WAS ASKED TO SHOW THAT WHY NOT MA NAGERIAL COMMISSION BE ALLOWED AS PER PAST PRACTICE. HE REPL IED AS UNDER: REGARDING YOUR QUERY ABOUT MANAGERIAL COMMISSION I T IS SUBMITTED THAT THE NECESSARY DETAILS OF COMPUTATIO N OF MANAGERIAL COMMISSION HAS ALREADY BEEN FILED VIDE O UR LETTER DATED 25.11.2009 AT PARA 2. THE MANAGERIAL COMMISSI ON HAS BEEN PAID @ 10% OF THE NET PROFIT AS COMPUTED U/S 3 49 OF THE COMPANIES ACT AND IS ON THE SAME BASIS AS IN EARLIE R YEARS. THE COMUTATION OF MANAGERIAL COMMISSION FOR ASSESSMENT YEAR 2006-07 IS ALSO ATTACHED HEREWITH FOR YOUR READY RE FERENCE FOR COMPUTATION OF PAYMENT OF MANAGERIAL COMMISSION @ 1 0%. THE RELEVANT PORTION OF COMPUTATION OF PROFIT U/S 3 49 OF THE COMPANIES ACT FOR COMPUTING PROFIT FOR THE MANAGER IAL COMMISSION IS ATTACHED HEREWITH. FROM THE SAID SECT ION IT IS QUITE CLEAR THAT THE MANAGERIAL COMMISSION OF CURRE NT YEAR HAS BEEN PROPERLY COMPUTED AND CLAIMED WHEREAS IN EARL IER YEARS THERE WAS A MISTAKE OF DEDUCTING DEPRECIATION WHICH IS NOT TO BE DEDUCTED FOR THE PURPOSES OF CALCULATION OF MANA GERIAL COMMISSION AS PROVIDED IN SECTION 349 OF THE COMPAN IES ACT. IN SUPPORT OF OUR CLAIM OF MANAGERIAL COMMISSION WHICH IS ON THE SAME BASIS AS IN THE PAST AND ACCEPTED BY THE INCOM E TAX AUTHORITIES IS ALSO SUPPORTED BY COPY OF RESOLUTION FOR THE ABOVE AS WELL AS C.A. CERTIFICATE CONFIRMING THE SAID AMO UNT OF CLAIM. IN THESE CIRCUMSTANCES IT IS REQUESTED THAT THE MA NAGERIAL COMMISSION CLAIMED AS EXPENSES MAY PLEASE BE ALLOWE D IN FULL AND NO ADVERSE INFERENCE BE DRAWN ON THIS ACCOUNT. 4.2. I HAVE CONSIDERED THE REPLY OF THE ASSESSEE AS PER DETAIL FILED BY THE ASSESSEE SH. JASPAL SINGH KANDHARI HAS BEEN ALL OWED MANAGERIAL COMMISSION TO THE TUNE OF RS.4 40 53 350/-. THERE A PPEARS TO BE NO JUSTIFICATION TO DEVIATE FROM THE PAST ESTABLISHED PRACTICE OF ALLOWING MANAGERIAL COMMISSION TO THE MANAGING DIRECTOR @ 10 % ON NET PROFIT WHICH IS WORKED OUT AFTER DEDUCTING THE DEPR ECIATION. ASSESSEE HAS NOT BROUGHT ANY FRESH MATERIAL ON RECORD WHICH NECESSITATED THE ALLOWING OF COMMISSION AT AN INCOME WORKED UNDER TH E COMPANY ACT. MOREOVER THE ASSESSEES CONTENTION THAT PROFIT FOR THE PURPOSES OF MANAGERIAL COMMISSION HAS BEEN COMPUTED AS PER PROV ISIONS OF SECTION 349 OF THE COMPANY ACT IS APPLICABLE IN THI S CASE IS NOT CORRECT. ITA NOS. 406 340 & 403(ASR)/2011 8 THE PROVISIONS OF SECTION 349 ARE APPLICABLE ONLY I N PUBLIC LIMITED COMPANY WHEREAS ASSESSEE IS A PRIVATE LIMITED COMPA NY. SO TAKING INTO CONSIDERATION ALL FACTS OF THE CASE PAST HIST ORY AND TO MAINTAIN THE CONSISTENCY THE MANAGERIAL COMMISSION IS ALLOWED ON NET PROFIT WHICH IS WORKED OUT AS UNDER: NET PROFIT AS PER RETURN RS.14 54 34 760/- LESS: PROFIT OF SALE OF FIXED ASSETS RS.88 63 745 /- LESS: PROFIT ON SALE OF SHARE RS.1 13 68 220/- 2 0 2 31 965/- NET PROFIT RS. 12 52 02 795/- MANAGERIAL COMMISSION @ 10% RS. 1 25 20 780/- THUS THE EXCESS COMMISSION CLAIM RS.4 40 53 350 /- (-) RS.1 25 20 780/- RS.3 15 32 570/- 4.3. THEREFORE THE EXCESS MANAGERIAL COMMISSION CL AIMED IN THE P&L ACCOUNT TO THE TUNE OF RS.3 15 32 570/- IS DISA LLOWED AND ADDED TO THE RETURNED INCOME OF THE ASSESSEE. THE PENALTY PROCEEDING U/S 271(1)(C) READ WITH EXPLANATION 1 OF THE I.T.ACT IS BEING INITIATED SEPARATELY FOR FURNISHING INACCURATE PARTICULARS OF INCOME. 10.1. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSI ONS OF THE ASSESSEE VIDE PARA 6.3.2. AND 6.3.3 ALLOWED THE CLAIM OF THE ASSE SSEE THAT MANAGERIAL COMMISSION SHOULD BE ALLOWED ON NET PROFIT AS PER P ROFIT & LOSS ACCOUNT BEFORE DEDUCTING DEPRECIATION & MANAGERIAL COMMISSI ON AND NOT ON THE INCOME COMPUTED IN THE RETURN OF INCOME. THE AO WAS DIRECTED ACCORDINGLY. 10.2. THE LD. DR APPEARED FOR THE REVENUE RELIED UP ON THE ORDER OF THE ASSESSING OFFICER. 10.3. THE LD. COUNSEL FOR THE ASSESSEE MR. P.N. AR ORA ADV. ARGUED THAT THE AO WHILE COMPUTING MANAGERIAL COMMISSION HAS TAKEN INCOME AS PER RETURN ITA NOS. 406 340 & 403(ASR)/2011 9 OF INCOME WHEREAS THE SAME SHOULD HAVE BEEN TAKEN P ROFIT AS PER PROFIT AND LOSS ACCOUNT. THE RELEVANT CALCULATION AND COMPUTAT ION AS PER ASSESSEE IS APPEARING AT PB-20 WHEREAS THE CALCULATION BY THE A O IS APPEARING AT PAGE 4 OF THE ASSESSMENT ORDER. AS PER PB-20 THE ASSESSEE HAD ADDED BACK RS.12 26 72 857/- OUT OF THE PROFITS AS PER PROFIT & LOSS ACCOUNT AFTER THE ADJUSTMENTS ON PROFIT ON SALE OF FIXED ASSETS AND P ROFIT ON SALE SHARES.. THE LD. COUNSEL FOR THE ASSESSEE INVITED OUR ATTENTION TO COMPUTATION PROVISION OF COMPANIES ACT WITH REFERENCE TO SECTION 349 AVAI LABLE AT PB 80 & 81 WHERE THE MANAGERIAL REMUNERATION IS TO BE COMPUTED BY STARTING FROM PROFIT BEFORE TAX AS PER PROFIT & LOSS ACCOUNT IN WHICH THE DEPRECIATION HAS PROVIDED IN THE BOOKS IS REQUIRED TO BE ADDED. HE F URTHER INVITED OUR ATTENTION AT PB-81 THAT THE DEPRECIATION AS PROVIDE D IN THE BOOKS OF ACCOUNT WHICH IS CREDITED IN THE PROFIT & LOSS ACCOUNT FOR ARRIVING AT THE PROFIT FOR TAX HAS TO BE DEDUCTED ONLY IF CREDITED TO THE PROFIT & LOSS ACCOUNT. THE SAID DEPRECIATIONS HAS NOT BEEN CREDITED AND THEREFORE THE SAME CANNOT BE REDUCED. MR. P.N. ARORA INVITED OUR ATTENTION TO C IRCULAR OF BOARD BEARING NO.6P(LXXVI-66) OF 1968 DATED 6 TH JULY 1968 WHERE IT HAS BEEN MENTIONED THAT WHERE THE SCALE OF REMUNERATION OF A DIRECTOR OF A COMPANY HAD BEEN APPROVED BY THE COMPANY LAW ADMINISTRATION THERE WAS NO QUESTION OF DISALLOWANCE OF ANY PART THEREOF IN THE INCOME-TAX ASSESSMENT OF ITA NOS. 406 340 & 403(ASR)/2011 10 THE COMPANY ON THE GROUND THAT THE REMUNERATION WAS UNREASONABLE OR EXCESSIVE. THEREFORE MR. P.N. ARORA ADVOCATE PRA YED TO CONFIRM THE DECISION OF THE LD. CIT(A). 10.4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED THE FACTS OF THE CASE. AS PER COMPUTATION PROVISION OF SECTION 349 OF THE COMPANIES ACT 1956 THE COMPUTATION OF MANAGERIAL COMMISSION/REMUNERATI ON HAS TO BE DONE AS PER PROFIT BEFORE TAX AS PER PROFIT & LOSS ACCOUNT AND DEPRECIATION THERE FROM HAS TO BE ADDED BACK. THE ASSESSEE HAS DONE THE SAM E AS IS EVIDENT FROM PB- 20. IF ANY MISTAKE HAS BEEN DONE IN EARLIER YEARS THE SAME IS NOT REQUIRED TO BE REPEATED IS ESTABLISHED LAW. THEREFORE IN VIEW OF THE FACTS ON RECORD AND COMPUTATION PROVISION OF SECTION 349 OF THE COMPANI ES ACT 1956 AND IN THE ABSENCE OF ANY MATERIAL CONTRARY ON RECORD WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A). THUS GROUND NO.1 OF THE REVENUE IS DISMISSED. 11. AS REGARDS GROUND NO2 THE BRIEF FACTS AS APPEA RING FROM AOS ORDER ARE REPRODUCED AS UNDER: 3. ASSESEE HAS CLAIMED FOREIGN EXPENSES TO THE TUNE OF RS. 22 06 193/- IT INCLUDE FOREIGN TOUR EXPENSES BY DI RECTOR RS. 15 29 093/- AND FOREIGN TOUR EXPENSES OTHER RS. 6 0 77 099/-. AS PER DETAILS THE DIRECTOR OF THE COMPANY SH. JASPAL SING H KANDHARI HAS BEEN 10 FOREIGN VISITS TO DIFFERENT COUNTRIES WHETH ER AS OTHER HAS MADE THREE VISIT ASSESSEE WAS ASKED TO GIVE JUSTIFICATI ON OF THESE HUGE EXPENSES VIZ-A-VIZ BUSINESS EXPEDIENCY TO THIS ASSE SSEE REPLIED AS UNDER :- ITA NOS. 406 340 & 403(ASR)/2011 11 DETAILS OF FOREIGN TRAVEL EXPENSES INCURRED BY TH E ASSESSEE COMPANY IS ATTACHED HEREWITH IN THE STATEMENT MAKED (3). THE VISITS IN FOREIGN COUNTRY BY DIRECTOR AND OTHER ARE FOR THE PURPOSE OF BUSINESS INCLUDING THE WAY TO UNDERSTAND S NEW CONCEPT AND EXPLORE OPPORTUNITIES FOR EXPANDING BUS INESS HORIZON AND EXPLORE OPPORTUNITY. THE COMPANY HAS P URCHASED IMPORTED MACHINERY FROM FOREIGN COUNTRIES IN SUBSEQ UENT YEARS AND IS ALSO ACTIVELY CONSIDERING THE IMPORT O F CERTAIN NEW MACHINERY FROM MALASIA. THE MANAGING DIRECTOR OF S . JASPAL SINGH KANDHARI ALONGWITH HIGH OFFICIAL OF THE COMP ANY HAS VISITED VARIOUS COUNTRIES FOR STUDY OF MARKET FOR T HE PURPOSE OF BUSINESS EXPANSION. ALL THESE EXPENSES HAVE BEN IN CURRED TO PROMOTE THE BUSINESS ACTIVITIES/NEW CONCEPTS AND EXPLORING/EXPANDING BUSINESS HORIZON OF THE COMPANY SO ALL THESE EXPENSES MAY PLEASE BE ALLOWED. 3.2 I HAVE CAREFULLY CONSIDERED THE REPLY OF THE AS SESSE AS PER REPLY OF THE ASSESSEE IN THE COMING YEARS ASSESSEE HAS PU RCHASED CERTAIN MACHINERY FROM MALASIA . BUT VARIOUS VISITS REVEAL THAT MOST OF THESE VISITS ARE TO OTHER THAN MALASIA. ASSESSEE HAS NOT FILED ANY DOCUMENTARY EVIDENCE WHICH SHOWS THAT DURING THESE FREQUENT VISITS THE MANAGING DIRECTOR OF THE COMPANY HAS ENTERED IN TO AN AGREEMENT WITH THE FOREIGN PARTIES FOR THE PURPOSE OF BUSINES S EXPLANATION. THE CLAIM OF WHOLE OF THE FOREIGN EXPENSES AS A BUSINES S EXPENSES ARE NOT JUSTIFIED ESPECIALLY IT IS COMMON PRACTICE THAT IN FOREIGN VISITS THE ELEMENT OF PLEASURE IS ALSO INVOLVED. SO TAKING IN TO VIEW THE FACTS OF THE CASE 1/3 RD OF THESE EXPENSES I.E. RS. 7 35 798/- IS DISALLOWE D AND ADDED TO THE RETURN INCOME OF THE ASSESSEE. THE PE NALTY PROCEEDING U/S. 271 (1) ( C ) READ WITH EXPLANATION 1 OF THE I T ACT IS BEING INITIATED SEPARATELY FOR FURNISHING INACCURATE PART ICULARS OF INCOME. 11.1. THE LD. CIT(A) DELETED THE DISALLOWANCE VIDE PARA 6.2 OF HIS ORDER FOR THE REASON THAT THE ASSESSEE HAD SUBMITTED ALL THE DETAILS OF FOREIGN EXPENSES AND IN THE ABSENCE OF ANY PARTICULAR ITEM OF SUCH EXPENSES ITA NOS. 406 340 & 403(ASR)/2011 12 ATTRIBUTED TO NON-BUSINESS PURPOSE AND IN VIEW OF THE DECISION OF ITAT AMRITSAR BENCH DATED 03.03.2009 (SUPRA) FOR THE AS SESSMENT YEAR 2005-06. 11.2. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THE FACTS IN THE PRESENT CASE ARE IDENTICAL TO THE FACTS OF THE CASE IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2006-07 AS DISCUSSED HEREINABOVE. THEREFORE FOLLOWING OUR DECISION IN T HE SAID ASSESSMENT YEAR I.E. 2006-07 HEREINABOVE THAT THE ASSESSEE HAS NOT POINTED OUT ANY SPECIFIC DEFECT THAT THE EXPENSES INCURRED ARE OF CAPITAL IN NATURE OR FOR ANY NON- BUSINESS PURPOSES THE AO IS NOT PERMITTED TO MAKE ANY ADDITION ON THIS ACCOUNT. IN VIEW OF THE ABOVE DISCUSSION WE DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF THE LD. CIT(A) WHO HAS RIGHTLY DELETED THE ADDITION. THUS GROUND NO.2 OF THE REVENUE IS DISMISSED. 12. NOW WE TAKE UP APPEAL OF THE REVENUE IN ITA NO .403(ASR)/2011 FOR THE ASSESSMENT YEAR 2008-09. 12.1 IN GROUND NO.1 THE BRIEF FACTS ARE IDENTICAL TO T HE FACTS AS IN THE ASSESSMENT YEAR 2007-08 IN ASSESSEES OWN CASE AS REPRODUCED HEREINABOVE. THE AO MADE DISALLOWANCE OF MANAGERIAL COMMISSION O F RS.1 65 29 275/- ITA NOS. 406 340 & 403(ASR)/2011 13 WHICH WAS DELETED BY THE LD. CIT(A) ON IDENTICAL DE CISION IN THE ASSESSMENT YEAR 2007-08. 12.2. WE HAVE HEARD THE RIVAL CONTENTIONS AND PER USED THE FACTS OF THE CASE. SINCE THE FACTS IN THE PRESENT CASE ARE IDENT ICAL TO THE FACTS IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2007-08 MENTIONED HEREINABOVE AND FOLLOWING OUR DECISION IN THE SAID APPEAL OF THE RE VENUE FOR THE ASSESSMENT YEAR 2007-08 BEING ON IDENTICAL FACTS WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) WHO HAS RIGHTLY DELETED THE ADDITIO N MADE BY THE A.O. ACCORDINGLY GROUND NO.1 OF THE REVENUE IS DISMISS ED. 13. AS REGARDS GROUND NO2 THE BRIEF FACTS IN THE P RESENT GROUND ARE THAT THE AO HAS MADE A DISALLOWANCE OF FOREIGN EXPENSES AMOUNTING TO RS.13 07 897/- ON IDENTICAL FACTS AS IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2007-08 WHICH WAS DELETED BY THE L D. CIT(A). 13.1. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE FACTS OF THE CASE. WE FIND THAT FACTS IN THE PRESENT CASE ARE IDENTICA L TO THE FACTS IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2007-08 AS DISCUSS ED HEREINABOVE. THEREFORE FOLLOWING OUR OWN ORDER IN ASSESSEES OW N CASE FOR THE ASSESSMENT YEAR 2007-08 HEREINABOVE WE FIND NO IN FIRMITY IN THE ORDER OF ITA NOS. 406 340 & 403(ASR)/2011 14 THE LD. CIT(A) WHO HAS RIGHTLY DELETED THE DISALLO WANCE MADE BY THE A.O. THIS GROUND NO.2 OF THE APPEAL OF REVENUE IS DISMIS SED. 14. AS REGARDS GROUND NO.3 THE BRIEF FACTS AS PER AOS ORDER ARE AS UNDER: DURING THE EXAMINATION OF ADVISEMENT & SALE PROMOT ION EXPENSES AMOUNTING TO RS.15 53 68 416/- IT IS SEEN THAT SOM E OF THE EXPENSES ARE IN THE NATURE OF DONATION. AIR TICKET VISA EXP ENSES FOR MANAGING DIRECTORS TOUR PACKAGE AS ON 31.03.2008 AMOUNTS TO RS.1059729/-.IN RESPECT OF THESE EXPENSES THE ASSESSEE WAS ASKED T O GIVE JUSTIFICATION FOR CLAIMING OF SUCH HUGE EXPENSES: IN RESPONSE TO THE ASSESSEE RELIED ON 23.12.2010 AS UNDER: THE COPIES OF BILLS FOR EXPENSES INCURRED UNDER TH E HEAD ADVERTISEMENT EXPENSES ARE ATTACHED HEREWITH. ALL T HE EXPENSES DEBITED UNDER THE HEAD ADVERTISEMENT AND SALE PROMO TION ARE OF REVENUE NATURE EXCEPT THE COST OF SALE GENERATING ASSETS OF RS.2 62 706 83/- BEING THE COST OF FRIGES ETC. DEBI TED AND CLUBBED UNDER THE HEAD ADVERTISEMENT AND SALE PROMO TION. THEN AGAIN THE ASSESSEE GIVEN THE JUSTIFICATION VID E DATED 27.12.2010 WHICH IS REPRODUCED AS UNDER:- REGARDING YOUR OBSERVATION ABOUT EXPENSES DEBITED UNDER THE HEAD ADVERTISEMENT AND SALE PROMOTION EXPENSES WE WISH TO SUBMIT THAT MOST OF THESE EXPENSES ARE IN THE NATURE OF A DVERTISEMENT EXPENSES AND NOT AS DONATION AS IS EVIDENT FROM THE COPY OF VOUCHERS/BILLS AND ANNEXURE ENCLOSED HEREWITH FOR Y OUR READY REFERENCE. THE ASSESSEE REPLIED FOR GIVING THE JUSTIFICATION A S UNDER ON THE SAME DAY WHICH REPRODUCED AS UNDER REGARDING YOUR OBSE RVATION ABOUT INCREASE IN EXPENSES UNDER THE HEAD ADVERTISEMENT A ND SALES PROMOTION EXPENSES AND FURTHER ASKED US WHY 10% OF EXPENSES BE NOT DISALLOWED IN THIS CONNECTION WE WISH TO SUBM IT THAT THE ASSESSEE COMPANY HAS INCURRED EXPENSES UNDER THE HEAD ADVERT ISEMENT AND ITA NOS. 406 340 & 403(ASR)/2011 15 SALES PROMOTION EXPENSES AMOUNTING TO RS.155368416/ - DURING THE YEAR UNDER CONSIDERATION AS AGAINST EXPENSES OF RS. 121715054/- IN THE IMMEDIATE PRECEDING PREVIOUS YEAR I.E. A.Y. 2007-0 8. BOTH THE ABOVE FIGURES INCLUDED THE COST OF SALE GENERATING ASSETS IS BEING DISALLOWED BY THE DEPTT. BY HOLDING THAT THESE ARE OF CAPITAL NATURE. IF BOTH THE FIGURES ARE EXCLUDED FROM THE ABOVE EXPENSES THEN T HE NET EXPENSES ON ACCOUNT OF ADVERTISEMENT AND SALES PROMOTION EXP ENSES COMES TO RS.132697734/-(155368416-22670683) IN ASS. YEAR 200 8-09 AND SIMILARLY RS.115192076/- (121715054-6522978) IN RES PECT OF A.Y. 2007-08. THUS THE NET INCREASE IN THE EXPENSES UND ER THE ABOVE HEAD IS RS.17505658/- WHICH IS 15.20% OF THE EXPENSES OF LAST YEAR. CORRESPONDINGLY THE SALE OF THE COMPANY HAS INCREAS ED TO RS.2172466664/- DURING A.Y. 2008-09 AS AGAINST SALE OF RS.1816806468/- IN A.Y. 2007-08. THUS THERE IS INCR EASE IN SALES AMOUNTING TO RS.3557/- LACS WHICH IS 19.58% OF THE SALES OF LAST YEAR. THUS THE INCREASE IN EXPENSES UNDER THE HEAD ADVER TISEMENT AND SALES PROMOTION EXPENSES IS IN ACCORDANCE WITH THE INCREA SE IN VOLUME OF BUSINESS OF THE COMPANY. THE COPIES OF BILLS AS WEL L AS THE DETAILS OF EXPENSES HAVE ALREADY BEEN FILED WITH YOUR OFFICE D URING THE COURSE OF ASSESSMENT PROCEEDING. ALL THE EXPENSES DEBITED IN PROFIT & LOSS ACCOUNT ARE OF REVENUE NATURE EXCEPT COST OF SALE O F GENERATING ASSETS AND IT IS THERE REQUESTED THAT ALL THESE EXPENSES MAY PLEASE BE ALLOWED IN FULL AND NO DISALLOWANCE BE MADE OUT OF THESE EX PENSES. FROM THE EXPLANATION AS GIVEN ABOVE BY THE ASSESSE E CONSIDERED THAT THE ASSESSEE HAS PAID NUMEROUS DONATIONS TO VA RIOUS PARTIES/ASSOCIATIONS WHICH ARE AS UNDER: OCT.22 JV 2848 DONATION TO CHD GYMNASTIC ASSOCIATION RS.2 00 000/- THE ASSESSEE HAS FURNISHED THE RECEIPT ACKNOWLEDGE BY THE GYMNASTIC FEDERATION. THE PRESIDENT OF THE SAID ASSOCIATION IS S. JASPAL SINGH KANDHARI WHO IS MD OF THE ASSESSEE CO. BUT NO EVIDENCE REGARDING DISPLAY OF HOARDINGS & BANNERS HAS BEEN FURNISHED WHEREAS ONLY VOUCHERS OF RS.2 00 000/- FILED BY THE ASSESSEE CO. PARTICULARLY MENTIONED DONATION WHICH ITA NOS. 406 340 & 403(ASR)/2011 16 CLEARLY SHOW THAT THE ASSESSEE CO. MADE THE PAYMENT AS DONATION TO THE GYMNASTIC FEDERATION. MAR.20 JV 4470 CH.896221 15/3 KARLA GYMNASTIC RS.50 000/- THE ASSESSEE CO PRODUCED ONLY VOUCHERS BUT NO AUTHENTIC EVIDENCE HAS BEEN PRODUCED WHICH CLEARLY SHOWS THAT THE ASSESSEE CO. MADE THE DONATION TO THE SAID ASSOCIATION. MAR 31 JV 4606 CH.896227 29/3 GYMNASTIC FEDERATION RS.6 00 000/- ONLY VOUCHER & RECEIPT F RS.6 00 000/- PAID TO GYMNASTIC FEDERATION PRODUCED BUT NO AUTHENTIC EVIDENCE PRODUCED FOR SUPPORT OF ASSESSES CLAIM THAT THE PAYMENT MADE FOR DISPLAY OF BANNERS & HOARDING. THE PRESIDENT OF THE SAID FEDERATION IS ALSO S. JASPAL SINGH KANDHARI WHO IS MD OF THE ASSESSEE CO. WITHOUT AUTHENTIC EVIDENCE PAYMENT MADE CLEARLY SHOWS THAT THE ASSESSEE CO. MADE THE PAYMENT AS DONATION TO THE GYMNASTIC FEDERATIN. MAR 31 JV 5513 TOUR PACKAGE BBN 2008/1 11/1 RS.10 59 729/- TOUR PACKAGE FOR MEETING OF EMPLOYEES IN MALAYSIA WHICH IS NOT RELATED TO BUSINESS EXPENSES. NO EVIDENCE HAS BEEN PRODUCED ONLY VOUCHER HAS BEEN PRODUCED. IT IS OBSERVED THAT THIS IS A LEISURE TRIP. IN THIS REGARD THE ASSESSEE CO. HAS NOT GIVEN ANY AUTHENTIC EVIDENCE DURING THE ASSESSMENT PROCEEDINGS. SOME OTHER EXPEN SES LIE AS MENTIONED ABOVE ARE ALSO NOT COVERED UNDER THE ADVE RTISEMENT AND SALE PROMOTION EXPENSES. BURDEN ON ASSESSEE TO PROVE THAT EXPENSES WERE LAID OUT WHOLLY AND EXCLUSIVELY FOR PURPOSES OF BUSINESS AS LAID OUT IN THESE CASE LAWS: ITA NOS. 406 340 & 403(ASR)/2011 17 GOODLAS NEROLAC PAINTS LTD. VS. CIT (BOM) 137 ITR 5 8 AND ANDREW YULE & CO. VS CIT (CAL) 49 ITR 57. NEXUS TO BUSINESS TO BE PROVED BY ASSESSEE CONTRI BUTION TO BASKET BALL ASSOCIATION NOON MEAL CENTERS DISALLOWED TA MIL NADU MINERALS LTD. VS. JCIT (ITAT CHENNAI) 95 ITD 294 AND DONATION TO POLITICAL PARTY ABSENCE OF LINK B ETWEEN DONATION &BUSINESS OF ASSESSEE NO DEDUCTIBLE DELHI CLOTH & GENERAL MILLS CO. LTD. VS. ADDL. CIT (DEL) 160 ITR857 ETC. SO TAKING INTO VIEW THE FACTS OF THE CASE AND CASE LAWS AFTER CONSIDERING HUGE EXPENSE CLAIMED BY THE CO. I DISA LLOWED OF RS.25 00 000/- AND ADDED BACK TO THE RETURNED INCOM E OF THE ASSESSEE. THE PENALTY PROCEEDING U/S 271(1)(C) READ WITH EXPL ANATION 1 OF THE INCOME-TAX ACT IS BEING INITIATED SEPARATELY FOR F URNISHING INACCURATE PARTICULARS OF INCOME. 14.1 THE LD. CIT(A) DELETED THE DISALLOWANCE FOR TH E REASON THAT THE AO HAS FAILED TO NEGATE THE INCURRING OF ADVERTISEMENT EXPENSES AND PROCURING CONFIRMATIONS OF SUCH PARTIES AND BRINGING ADVERSE MATERIAL ON RECORD AGAINST THE ASSESSEE. 15. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THE ASSESSEE HAD FURNISHED DETAILS WHICH ARE AVAIL ABLE AT PB 17-36 AND ALL THE DETAILS NOT ONLY WERE SUBMITTED BUT WERE DULY EXPLAINED VIDE DIFFERENT LETTERS AVAILABLE AT PB- 4 5 9 TO 12 13 T 14 15 T O 16. NO SPECIFIC DEFECT IN THE SAID EXPENDITURE OR IN THE EXPLANATION HAS BEEN POINTED OUT. THEREFORE IN THE CIRCUMSTANCES AND FACTS OF THE CASE THE AO CAN NOT MAKE ANY AD-HOC ADDITION BASED ON SURMISES AND CONJECTURES AND AS S UCH WE DO NOT FIND ANY ITA NOS. 406 340 & 403(ASR)/2011 18 INFIRMITY IN THE ORDER OF THE LD. CIT(A). THUS GRO UND NO.3 OF THE REVENUE IS DISMISSED. 16. IN THE RESULT THE APPEALS OF THE REVENUE IN I TA NOS.406(ASR)/2011 340(ASR)/2011 & 403(ASR)2011 ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29TH MARCH 2012. SD/- SD/- (H.S. SIDHU) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 29TH MARCH 2012 /SKR/ COPY OF THE ORDER IS FORWARDED TO : 1. THE ASSESSEE: M/S. KHANDARI BEVERAGE P.LTD. AMRITSA R. 2. THE ACIT CIR.V AMRITSAR. 3. THE CIT(A) ASR. 4. THE CIT ASR. 5. THE SR DR ITAT ASR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH : AMRITSAR.