The ACIT, Circle-2(1)., Guntur v. M/s Bommidala International Pvt Ltd,, Guntur

ITA 561/VIZ/2008 | 2005-2006
Pronouncement Date: 15-03-2010 | Result: Partly Allowed

Appeal Details

RSA Number 56125314 RSA 2008
Assessee PAN AAACB9095P
Bench Visakhapatnam
Appeal Number ITA 561/VIZ/2008
Duration Of Justice 1 year(s) 4 month(s) 8 day(s)
Appellant The ACIT, Circle-2(1)., Guntur
Respondent M/s Bommidala International Pvt Ltd,, Guntur
Appeal Type Income Tax Appeal
Pronouncement Date 15-03-2010
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted DB
Tribunal Order Date 15-03-2010
Assessment Year 2005-2006
Appeal Filed On 06-11-2008
Judgment Text
PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SHRI BR BASKARAN ACCOUNTANT MEMBER ITA NO.561/VIZAG/2008 ASSESSMENT YEAR: 2005-06 ACIT CIRCLE-2(1) GUNTUR VS. BOMMIDALA INTERNATIONAL (P) LTD. GUNTUR (APPELLANT) (RESPONDENT) PAN NO. AAACB 9095 P APPELLANT BY: SHRI G.S.S. GOPINATH DR RESPONDENT BY: SHRI C.V.K. PRASAD ADVOCATE ORDER PER SHRI B R BASKARAN ACCOUNTANT MEMBER : THE APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 14-08-2008 PASSED BY THE LD CIT (A) GUNTUR AND IT RELATES TO T HE ASSESSMENT YEAR 2005-06. 2. THE ADDITION MADE BY THE ASSESSING OFFICER BY DI SALLOWING THE EXPENDITURE INCURRED UNDER THE HEAD FOREIGN TRAVEL AND GIFTS TO FOREIGN BUYERS HAVING BEEN DELETED BY THE LD CIT(A) THE REVENUE IS IN A PPEAL BEFORE US. 3. THE FACTS RELATING TO THE ISSUES ARE STATED IN B RIEF. THE ASSESSEE IS A PRIVATE LIMITED COMPANY AND IS CARRYING ON TOBACCO EXPORT BUSINESS. THE ASSESSEE CLAIMED EXPENDITURE OF RS.37 56 051/- UNDE R THE HEAD FOREIGN TRAVEL EXPENSES AND ALSO A SUM OF RS.11 00 362/- UNDER THE HEAD GIFT TO FOREIGN BUYERS. WITH REGARD TO THE FOREIGN TRAVEL EXPENDITU RE THE AO HAS MADE FOLLOWING OBSERVATIONS:- PAGE 2 OF 7 A) THE ASSESSEE ACHIEVED A TURN OVER OF RS.4.78 CRO RES ON EXPORT OF TOBACCO TO THE COUNTRIES TO WHICH IT UNDERTOOK TRAVEL. HOWE VER MAKING WITHOUT ANY SUCH FOREIGN TRAVEL THE ASSESSEE COULD ACHIEVE A TURN OVER OF RS.3.21 CRORES FROM OTHER COUNTRIES. B) THE ASSESSEE HAD UNDERTAKEN TRAVEL DURING THE PE RIOD IN WHICH TOBACCO CROP SEASON FALLS. ACCORDING TO THE AO THIS IS ODD PERIOD SINCE ANY TRADER WILL BE MORE CAREFUL ON PURCHASES RATHER THAN ON MA RKETING IN THAT PERIOD. C) THE AO MADE REFERENCE TO TWO COMPARABLE CASES AN D NOTICED THAT THEY DID NOT INCUR ANY EXPENDITURE ON FOREIGN TRAVEL. D) THE NET RETURN OF THE ASSESSEE ON ITS T URN OVER DURING THE YEAR UNDER CONSIDERATION WORKED OUT AT 3.431%. ACCORDINGLY T HE AO WORKED OUT THE PROFIT EARNED ON THE TURN OVER OF RS.4.78 CRORES (I.E. TUR NOVER RELATING TO THE COUNTRIES TO WHICH THE ASSESSEE HAD TRAVELED) AT RS.16.42 LAK HS. HOWEVER THE ASSESSEE HAD SPENT A SUM OF RS.37.56 LAKHS TOWARDS TRAVELLIN G EXPENDITURE. ON MAKING SUCH AN ANALYSIS THE AO CAME TO THE CONCLUSION THA T THERE IS NO BUSINESS EXPEDIENCY IN INCURRING THE TRAVELLING EXPENDITURE OF RS.37.56 LAKHS TO EARN A NET PROFIT OF RS.16.42 LAKHS. ACCORDINGLY THE AO DISALLOWED THE EXPENDITURE RELAT ING TO THE FOREIGN TRAVEL. 4. WITH REGARD TO THE EXPENDITURE ON GIFT ARTICLES PRESENTED TO THE FOREIGN BUYERS THE AO OBSERVED THE FOLLOWING: I) THOUGH THE ASSESSEE PRODUCED COPIES OF BILLS FOR PURCHASE OF GIFT ARTICLES THE ASSESSEE COULD NOT FURNISH THE DETAIL S OF RECEIVERS OF THESE GIFT ARTICLES THEIR IDENTITY COMPANIES THEY ARE REPRES ENTING AND THEIR DESIGNATION IN THOSE COMPANIES. II) THE ASSESSEE COULD NOT LINK UP THE BUSINESS TRANSACTIONS WITH DIFFERENT COMPANIES WITH THE GIFT ARTICLES DISTRIBUTED BY IT. III) THE AO REFERRED TO THE ACCOUNTS OF TWO COMP ARABLE CASES AND NOTICED THAT THOSE TWO COMPANIES DID NOT INCUR ANY EXPENDIT URE ON GIFT ARTICLES. ACCORDINGLY THE AO CAME TO THE CONCLUSION THAT THE EXPENDITURE CLAIMED ON GIFT TO FOREIGN BUYERS DOES NOT APPEAR TO BE EXPEDIENT T O ITS BUSINESS ACTIVITIES. THE AO ALSO OPINED THAT THE ASSESSEE HAS FAILED TO PROV E THAT THE COMPANY HAS DERIVED SOME BENEFITS FROM THESE GIFTS. ACCORDINGL Y HE ADDED A SUM OF PAGE 3 OF 7 RS.11 00 362/- TO THE TOTAL INCOME OF THE ASSESSEE. BOTH THESE ADDITIONS WERE DELETED BY THE LD CIT (A). HENCE THE REVENUE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFU LLY PERUSED THE RECORD. WITH REGARD TO THE FOREIGN TRAVEL EXPENDITURE THE L D CIT (A) HAS NOTICED THAT THE EXPENDITURE HAS NOT BEEN HELD AS CAPITAL IN NATURE OR INCURRED ON PERSONAL ACCOUNT. FURTHER THERE IS NO FINDING IN THE ORDER O F THE AO THAT THE FOREIGN TRIPS WERE UNDERTAKEN FOR ANYTHING OTHER THAN THE BUSINES S OF THE ASSESSEE. BY ANALYZING VARIOUS CASE LAW THE LD CIT(A) HAS CAME TO THE CONCLUSION THAT THE ASSESSEE IS NOT STRICTLY REQUIRED TO PRODUCE ANY EV IDENCE THAT THE FOREIGN TRAVEL HAS RESULTED IN A DIRECT INCREASE IN ITS TURN OVER OR ITS PROFITS. THE LD CIT (A) ALSO OBSERVED THAT ALLOWABILITY OF THE EXPENDITURE IN TH E NATURE OF FOREIGN TRAVEL CANNOT BE DECIDED ON THE BASIS OF COMPARATIVE CASES SINCE EACH BUSINESS HOUSE MAY HAVE DIFFERENT STYLE OF RUNNING ITS BUSINESS. T HUS ON A CAREFUL READING OF THE ORDER OF THE LD CIT (A) WE NOTICE THAT THE LD CIT (A) WAS CONVINCED THAT THERE WAS BUSINESS EXPEDIENCY IN INCURRING FOREIGN TRAVEL EXPENDITURE. BEFORE THE AO ALSO THE ASSESSEE EXPLAINED THE OBJECTIVE OF FOREIG N TRAVEL AS UNDER: THE ASSESSEE REGULARLY EXPORTS ITS TOBACCO PRODUCT S TO RUSSIA USA LATVIA DENMARK ETC. AND THE ASSESSEE IS REQUI RED TO VISIT THE SAID COUNTRIES REGULARLY I) TO NEGOTIATE AND FINALISE THE PRICES OF THE PRODUCT S QUANTITIES TO BE SOLD AND OTHER TERMS OF THE CONTRA CT. II) TO FIND OUT THEIR REQUIREMENTS OF COMING CROPS III) TO INTERACT WITH THE MANAGEMENT AND THEIR STAFF TO STUDY THEIR PREVAILING PRODUCTION AND SELLING SITUATION IV) TO EXPLAIN ABOUT THE INDIAN TOBACCO CROP/MARKET SITUATION OF THE COMING CROPS AND V) TO SEARCH FOR OTHER POSSIBLE AVENUES AND NEW CUSTOMERS. 5.1 THOUGH THE AO HAS OBSERVED THAT THE EXPLANATION FURNISHED BY THE ASSESSEE IS QUITE GENERAL AND ROUTINE THE VERY FAC T THAT THE MANAGING DIRECTOR PAGE 4 OF 7 AND CHIEF EXECUTIVE OFFICER OF THE ASSESSEE COMPANY HAD UNDERTAKEN TOURS TO COUNTRIES TO WHICH IT EXPORTS ITS PRODUCTS WOULD SU GGEST THAT THERE WAS SOME BUSINESS CONNECTION IN UNDERTAKING THE SAID TOURS. AS OBSERVED BY THE LD CIT (A) THE AO HAS NOT FOUND THE IMPUGNED FOREIGN TRAV EL EXPENDITURE TO BE IN THE NATURE OF CAPITAL EXPENDITURE NOR WAS IT FOUND TO H AVE BEEN INCURRED FOR PERSONAL PURPOSES. THE OBSERVATIONS OF THE AO THAT THE OTHER TRADERS IN THE SIMILAR LINE OF BUSINESS HAVE NOT UNDERTAKEN FOREIGN TOURS ARE INAP PROPRIATE AS EACH BUSINESS MAN MAY HAVE DIFFERENT WAY OF DOING BUSINESS AND HE NCE THE NECESSITY OF UNDERTAKING SUCH TOURS SHOULD BE VIEWED FROM THE PO INT OF VIEW OF THE CONCERNED BUSINESS MAN. SIMILARLY THE FACT THAT THE MD AND CE O HAS VISITED THE FOREIGN COUNTRIES DURING TOBACCO CROP SEASON ALSO MAY NOT B E RELEVANT AS IT IS THE RESPONSIBILITY OF THE BUSINESS MAN TO PROPERLY REGU LATE HIS BUSINESS ACTIVITIES. HENCE IN OUR OPINION WE DO NOT FIND ANY NECESSITY TO MAKE DISALLOWANCE OF THE FOREIGN TOUR EXPENSES FOR THE REASONS STATED ABOVE. ACCORDINGLY WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF THE LD CIT (A) IN DELETING THE ADDITION MADE ON ACCOUNT OF FOREIGN TRAVEL EXPENDITURE. 6 THE NEXT ISSUE RELATES TO THE EXPENDITURE INCURRE D ON GIFT ARTICLES TO FOREIGN BUYERS AS PER PAGE (1) OF THE PAPER BOOK FI LED BY THE ASSESSEE THE MD & CEO HAS UNDERTAKEN THE FOREIGN TOUR ON THE FOLLOWIN G DATES: A) 18-4-2004 TO 21-4-2004 - RUSSIA B) 28-8-2004 TO 9-9-2004 - EUROPE C) 15-11-2004 TO 19-11-2004 - RUSSIA THE ASSESSEE HAS FURNISHED THE DETAILS OF GIFT ARTI CLES IN PAGE NO.2 AS UNDER: PAGE 5 OF 7 DETAILS OF PRESENTATIONS TO FOREIGN BUYERS: GOLD ARTICLES DATE NAME OF THE SELL ER AMOUNT NAME OF THE ITEM GIFT TO WHOM ISSUED 17 - 4 - 2004 INTER GOLD GEMS (P) LTD HYDERABAD 42 108.00 98 560.00 140 668.00 CHAIN NECKLACE EAR RING & PENDANT MS.IRINA MS.GULYA & MR.FURNZE OF NEVO TOBACCO 24 - 06 - 2004 SUGAL & DAMANI JEWELLERS CHENNAI 2 14 400.00 GOLD DIAMOND STUDDED PENDANT MR.SVICHENKO OF NEVO TOBACCO 13 - 11 - 2004 MANGATRAI JEWELLERS HYDERABAD 87 500.00 LOCKET SET MR.AMARESH OF MATOOCO TOBACCO MR.RAM DANGE & MR.OLEG OF HITECH AVIONICS 20 - 11 - 2004 KALYAN JEWELLERS GUNTUR 21 000.00 N ECKLACE SET MR.BRAIN J.RUXTON OF EURO LEAF TOBACCO 30 - 11 - 2004 SREE SOBHANA JEWELLERS GUNTUR 13 700.00 GOLD ITEM MR. DENIS TURNER OF TTS INTERNATIONAL 10 - 12 - 2004 SREE SOBHANA JEWELLERS GUNTUR 37 000.00 GOLD ITEMS MR.OLGA SLUCHENKOVA OF NEVO TOBACCO 09 - 0 2 - 2005 SUGAL & DAMANI JEWELLERS CHENNAI 2 64 398.00 DIAMOND STUDDED & GOLD PENDANT MR.JOHN RYAN OF DIMON INTERNATIONAL 7 78 666.00 OTHER ARTICLES 17 - 4 - 2004 HIDESIGN BOUTIQUE HYDERABAD INDIA 4 795.00 LEATHER GOODS MS. IRINA MS.GULYA AND MR.FRUNZE OF NEVO TOBACCO 17 - 5 - 2004 AJANTA ARTS & CRAFTS 11 000.00 ARTS & CRAFTS MR. GEROGIO D. ANGLO OF EURO LEAF 22 - 5 - 2004 COTTAGE INDUSTRIES EXPOSITION LTD. CHENNAI 11 000.00 FINE WOOL STOLES MR.A.J.HYWOOD DIMON INTERNATIONAL 21 - 08 - 2004 KALANJALI HYDERABAD 69 972.00 ARTS & CRAFTS MR.WRONOWSKI MS.ANN MUSCHE MS.ANNALIESDUVAL OF TTS INTERNATIONAL 30 - 08 - 2004 MAHAVEERA MARKETING 15 000.00 SILVER GANESH ETC MR.WRONOWSKI MS.ANN MUSCHE MS.ANNALIESDUVAL OF TTS INTERNATIONAL 27 - 11 - 2004 NIKE CHENNAI 17 485.00 LEATHER ITEMS MR.A.J.HYWOOD DIMON INTERNATIONAL 27 - 11 - 2004 FLORSHEIM CHENNAI 4 295.00 LEATHER ITEMS MR.A.J.HYWOOD DIMON INTERNATIONAL OTHER SMALL MISCELLANEOUS ARTICLES 1 88 149.92 11 00 362.92 PAGE 6 OF 7 ON A CAREFUL ANALYSIS OF THE DETAILS OF PRESENTATIO N OF ARTICLES CLAIMED TO HAVE BEEN GIVEN TO THE FOREIGN BUYERS WE NOTICE THAT TH ERE IS MIS-MATCH OF DATES OF PURCHASE OF GOLD ARTICLES AND DATES OF ACTUAL TRAVE L TO FOREIGN COUNTRIES. THOUGH THE ASSESSEE HAS GIVEN THE NAMES OF PERSONS TO WHOM GIFT ARTICLES WERE GIVEN YET THE ASSESSEE IS NOT IN A POSITION TO FURNISH AN Y PROOF TO PROVE THAT THESE GIFT ARTICLES WERE ACTUALLY HANDED OVER TO THE CONCERNED PERSONS. IT IS NOT THE CASE OF THE ASSESSEE THAT THESE GIFT ARTICLES WERE HANDE D OVER TO THE FOREIGN BUYERS DURING THEIR VISIT IN INDIA. 6.1 THE HONBLE JURISDICTIONAL ANDHRA PRADESH H IGH COURT IN THE CASE OF CIT VS. TRANSPORT CORPORATION OF INDIA LTD. REPORTED I N 256 ITR 701 HAS HELD THAT THE MERE PAYMENT OF EXPENDITURE BY ITSELF WOULD NOT ENTITLE THE ASSESSEE TO DEDUCTION OF EXPENDITURE UNLESS THE SAME WAS PROVED TO BE PAID FOR COMMERCIAL CONSIDERATIONS. THE BURDEN OF PROOF IS ALWAYS ON TH E ASSESSEE. IT IS FOR THE TAX PAYER TO ESTABLISH BY EVIDENCE THAT A PARTICULAR AL LOWANCE IS JUSTIFIED. IT IS NOT FOR THE INCOME TAX OFFICER TO INDEPENDENTLY COLLECT EVI DENCE AND PROVE THAT THE DEDUCTION CLAIMED BY THE ASSESSEE IS BASELESS. 6.2 THE EXECUTIVES OF THE ASSESSEE COMPANY HAVE UNDERTAKEN THE LAST FOREIGN TOUR BETWEEN 15-11-2004 AND 19-11-2004 WHEREAS THE ASSESSEE HAS BEEN PURCHASING THE GIFT ARTICLES EVEN AFTER THAT DATE. AS STATED EARLIER THERE IS MISMATCH BETWEEN THE DATES OF PURCHASE OF GIFT ARTI CLES PARTICULARLY GOLD ARTICLES AND THE DATES OF FOREIGN TRAVEL. THE GIFT ARTICLES IN THE NATURE OF HANDICRAFTS ITEMS ARE NORMALLY GIVEN AS PRESENTATION ITEMS AND HENCE PURCHASE OF SUCH ITEMS ARE UNDERSTANDABLE WHILE THE NECESSITY OF PU RCHASING GOLD JEWELLERY IS VERY DIFFICULT TO ACCEPT PARTICULARLY IN VIEW OF T HE MISMATCH IN THE DATES AS STATED EARLIER. IN THESE CIRCUMSTANCES WE ARE OF THE VIEW THAT THE ASSESSEE HAS NOT FULLY DISCHARGED THE BURDEN OF PROOF PLACED UPON IT AND HENCE IN OUR OPINION PAGE 7 OF 7 SOME DISALLOWANCE IS CALLED FOR ON THIS EXPENDITURE . ON A CAREFUL ANALYSIS OF THE DATES OF PURCHASE OF ARTICLES THE NATURE OF THE IT EMS PURCHASED AND THE DATES OF TRAVEL WE ARE OF THE VIEW THAT A ROUND SUM DISALLO WANCE OF RS.8.00 LAKHS OUT OF THE TOTAL EXPENDITURE OF RS.11 00 362/- WOULD MEET THE ENDS OF JUSTICE AND WE ORDER ACCORDINGLY. ACCORDINGLY THE ORDER OF THE LD CIT (A) IS REVERSED TO THAT EXTENT 7. IN THE RESULT THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 15.3.2010. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM DATE: 15 TH MARCH 2010. COPY TO 1 THE ACIT CIRCLE - 2(1) GUNTUR 2 M/S BOMMIDALA INTERNATIONAL (P) LTD. D.NO.4-4-120 5 TH LINE CHANDRAMOULI NAGAR GUNTUR 3 THE CIT(A) GUNTUR 4 THE CIT GUNTUR 5 THE DR ITAT VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM