Sports & Leisure Apparel Ltd.,, New Delhi v. ACIT, New Delhi

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `G: NEW DELHI BEFORE SHRI C.L.SETHI JM & SHRI SHAMIM YAHYA AM I.T. A. NO.569/DEL OF 2010 ASSESSMENT YEAR: 2006-07 SPORTS & LEISURE APPAREL LTD. ASSTT. COMMR. OF I NCOME-TAX 825 QUTAB INSTITUTIONAL AREA VS CIRCLE 9(1) NEW DELHI. APPELLANT RESPONDENT APPELLANT BY: S/SH. M.P. RASTOGI & P.N. SHASTRY RESPONDENT BY: SHRI KISHORE B. ORDER PER C.L. SETHI JM: THE ASSESSEE IS IN APPEAL AGAINST THE ORDER DATED 1 9.10.2009 PASSED BY THE LEARNED CIT(A) PERTAINING TO ASSTT. YEAR 2006-0 7 BY TAKING A GROUND THAT CIT(A) HAS ERRED IN DELETING ONLY RS.4 50 000/- OUT OF TOTAL FOREIGN TRAVELING EXPENSES OF RS.7 90 472/- AND THUS THEREBY IN SUST AINING THE DISALLOWANCE OF FOREIGN TRAVELING EXPENSES TO THE EXTENT OF RS.3 40 472/-. 2. WE HAVE HEARD BOTH THE PARTIES AND HAVE CAREFULL Y GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. 2 3. THE TOTAL EXPENDITURE OF RS.7 90 472/- INCURRED BY THE ASSESSEE TOWARDS THE FOREIGN TRAVELING HAS BEEN DISALLOWED B Y THE AO BY OBSERVING AND HOLDING AS UNDER: IT HAS BEEN SEEN FROM THE DETAILS OF EXPENSES OF FOREIGN TRAVELING THAT AN AMOUNT OF RS.7 90 472/- PERTAINS TO SHRI AMIT JUDGE AND SHRI VIKAS GUPTA DIRECTORS OF THE COMPANY. HOWEVER THE AR FAILED TO SUBSTANTIATE THE REASON FOR THEIR TRAVEL AND BENEFIT ACCRUED TO THE BUSINESS. JUST BECAUSE THEY ARE THE DIRECTORS OF THE COMPANY AND ASSESSEE COMPANY IS HAVING FOREIGN BUSINESS SHALL NOT AUTOMATICALLY ENTITLE THE ASSESSEE COMPANY FOR CLAIM OF EXPENSES FOR FOREIGN TRAVEL. THE COMPANY HAS TO PROVE BEYOND DOUBT THAT THE EXPENSE IS WHOLLY FOR THE PURPOSE OF BUSINESS. AUTHORIZED REPRESENTATIVE WAS ASKED TO SUBSTANTIATE THE CLAIM BUT HE SIMPLY FILED THE DETAILS OF EXPENSES AND THEREAFTER REMAINED ABSENT WITHOUT ANY REASONS. THEREFORE UNDER THE CIRCUMSTANCES THE EXPENSE ON FOREIGN TRAVELING MADE BY BOTH THE DIRECTORS AMOUNTING TO RS.7 90 472/- IS DISALLOWED. I AM SATISFIED THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF ITS INCOME TO THE EXTENT OF RS.7 90 472/- AND THUS LIABLE FOR LEVY OF PENALTY U/S 271(1)(C ) OF THE I.T. ACT 1961 PROCEEDINGS FOR WHICH ARE INITIATED SEPARATELY. 4. ON AN APPEAL CIT(A) DELETED THE ADDITION TO THE EXTENT OF RS.4 50 000/- ONLY AND THUS SUSTAINED THE ADDITION TO THE EXTENT OF RS 3 90 472/-. THE CIT(A)S FINDING AND OBSERVATIO NS IN THIS REGARD ARE AS UNDER: 3 DURING THE COURSE OF APPELLATE PROCEEDINGS COMPLET E DETAILS REGARDING PURPOSE PROOF NO. OF DAYS AND EXPENSES UNDER VARIOUS HEADS WAS SOUGHT. THE FOLLOWING DETAILS WE RE SUBMITTED. FOREIGN TRAVELING DURING THE FY 2005-06 1. VIKAS GUPTA MD FRANCE UK JUNE 9.6.05 16.6.05 7 2. VIKAS GUPTA MD FRANCE UK DEC.9.6.0516.6.05 7 3. VIKAS GUPTA MD HONG KONG MARCH 9.6.0516.6.05 7 4. MR. AMIT JUDGE CHAIRMAN FRANCE JUNE 9.6.05-16.6 .05 7 APART FROM THESE DETAILS AND BREAK UP OF EXPENDITUR E FOR FARE LODGING OTHER EXPENSES AND CONVEYANCE WAS GIVEN. PHOTOCOPIES OF INVITATION FOR TALK WITH PARTNERS OF COMPANY/FARE WERE PRODUCED COPY OF THESE CORRESPONDENCES HAVE BE EN PLACED ON RECORD. THOUGH IT HAS BEEN ESTABLISHED BY THE A SSESSEE THAT THE TRAVEL WAS UNDERTAKEN FOR MEETING/TRADE FAIR H OWEVER THE NUMBER OF DAYS FOR STAY IN VARIOUS HOTELS IS MUCH M ORE THAN MENTIONED FOR MEETING/INVITATION. THE EXPENSES CLA IMED ALSO INCLUDE EXPENSES OF LODGING OTHER EXPENSES CONVEY ANCE ETC. OBVIOUSLY PERSONAL EXPENSES LIKE FOOD CONVEYANCE HA VE ALSO BEEN DEBITED TO THE SAID EXPENSES. ALSO AS DISCUSS ED EARLIER THE NUMBER OF DAYS OF FOREIGN TRAVEL IS MORE AND CERTAI N PERSONAL EXPENDITURE BEING DEBITED TO THE SAID ACCOUNT CANNO T BE RULED OUT. HENCE THE DISALLOWANCE MADE BY THE AO IS RES TRICTED TO RS.4 50 000/- INSTEAD OF RS.7 90 472/- THIS DISALLO WANCE IS BEING MADE DUE TO PERSONAL NATURE OF THE EXPENDITUR E INCURRED BY THE MD/CHAIRMAN AND THE LONGER DURATION OF STAY THEN IS SUGGESTED BY THE CORRESPONDENCE SUBMITTED. 5. FROM THE DETAILS FILED BY THE ASSESSEE IT IS RE VEALED THAT ASSESSEES MANAGING DIRECTOR AND CHAIRMAN HAD UNDERTAKEN FOREI GN JOURNEY TO FRANCE UK HONG KONG IN THE MONTH OF JUNE 2005 DECEMBER 2005 AND MARCH 2006. THE NUMBER OF DAYS OF JOURNEY HAS ALSO BEEN GIVEN. THE ASSESSEE GAVE THE DETAILS AND BREAK UP OF EXPENDITURE FOR FR EIGHT LODGING AND OTHER 4 EXPENSES. PHOTOCOPIES FOR INVITATIONS FOR TALK WIT H PARTNERS OF THE ASSESSEE COMPANY OR TO ATTEND FAIR WERE ALSO PRODUCED. THE CIT(A) HAS ACCEPTED THE POSITION THAT THE TRAVELING WAS UNDERTAKEN FOR ATTE NDING MEETINGS AND TRADE FAIR BUT THE CIT(A) HAS OBSERVED THAT THE NUMBER OF DAYS FOR STAY IN VARIOUS HOTELS IS MUCH MORE THAN REQUIRED FOR ATTENDING THE MEETING. HOWEVER CIT(A) HAS NOT POINTED OUT ANY ITEM ON THE BASIS OF WHICH IT COULD BE SAID THAT STAY IN HOTEL AT THE TIME THE ASSESSEES MANAG ING DIRECTOR AND CHAIRMAN VISITED THE FOREIGN COUNTRY WAS NOT FOR THE PURPOSE OF ASSESSEES BUSINESS. THE AO HAS ALSO NOT POINTED OUT ANY ITEM FROM THE D ETAILS FILED BY THE ASSESSEE WHICH COULD SHOW THAT THE EXPENDITURE INCU RRED BY THE ASSESSEE WERE NOT RELATED TO ASSESSEE COMPANY BUT WERE PERSO NAL EXPENDITURE OF THE PERSON CONCERNED WHO UNDERTAKEN THE FOREIGN JOURNE Y. IN THESE CIRCUMSTANCES THE PART DISALLOWANCE OF RS.3 90 472 /- SUSTAINED BY THE CIT(A) IS NOT WARRANTED. IN THIS CONNECTION THE L EARNED COUNSEL FOR THE ASSESSEE HAS PLACED RELIANCE UPON THE FOLLOWING TWO DECISIONS OF THE HONBLE SUPREME COURT WHICH ARE AS UNDER: 1. CIT VS WALCHAND & CO. P. LTD. 65 ITR 381 2. J.K. WOOLLEN MANUFACTURES VS CIT 72 ITR 612. IN THE CASE OF J.K. WOOLLEN MANUFACTURES VS CIT(SUP RA) WHERE THE PRINCIPLE LAID DOWN BY THIS COURT IN CIT VS. WALCHAND & CO. P . LTD. (SUPRA) HAS BEEN APPLIED AND THEN THE HONBLE SUPREME COURT HAS TAKE N A VIEW THAT IN 5 APPLYING THE TEST OF COMMERCIAL EXPEDIENCY TO DETER MINE WHETHER AN EXPENDITURE WAS WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF ASSESSEES BUSINESS REASONABLENESS OF THE EXPENDIT URE HAS TO BE JUDGED FROM THE POINT OF VIEW OF THE BUSINESSMAN AND NOT OF THE INCOME-TAX DEPARTMENT. IT IS OF COURSE OPEN TO THE APPELLATE TRIBUNAL TO COME TO A CONCLUSION EITHER THAT THE ALLEGED PAYMENT IS NOT REAL OR THAT IT IS NOT INCURRED BY THE ASSESSEE IN THE CHARACTER OF A TRADER OR IT IS NOT LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE AND THEN TO DI SALLOW IT. IT IS NOT THE FUNCTION OF THE TRIBUNAL TO DETERMINE THE REMUNERAT ION WHICH IN THEIR VIEW SHOULD BE PAID TO AN EMPLOYEE OF THE ASSESSEE. APP LYING THE SAID PRINCIPLES TO THE PRESENT CASE WE FIND THAT THE CIT(A) HAS NO T BROUGHT ANY MATERIAL ON RECORD TO PROVE AND ESTABLISH THAT THE FOREIGN TRAV ELING EXPENSES INCURRED BY THE ASSESSEE HAS NOT BEEN INCURRED IN THE CHARACTER OF A TRADER OR IT IS NOT LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ASSES SEES BUSINESS. IT IS ALSO NOT THE CASE OF THE DEPARTMENT THAT THE JOURNEY UND ERTAKEN BY THE CONCERNED PERSONS WERE NOT RELATED TO THE BUSINESS ACTIVITY O F THE ASSESSEE COMPANY. 6. IN THE LIGHT OF THE DISCUSSIONS MADE ABOVE WE THEREFORE DELETE THE ADDITION OF RS.3 40 472/- SUSTAINED BY THE CIT(A) A ND DIRECT THE AO TO MODIFY THE ASSESSMENT ORDER ACCORDINGLY. 7. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. 6 THIS DECISION WAS PRONOUNCED IN THE OPEN COURT ON 5 TH APRIL 2010 IMMEDIATELY AFTER THE HEARING WAS OVER. (SHAMIM YAHYA) (C.L. SETHI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 5 TH APRIL 2010 VIJAY COPY TO: 1. APPELLANT. 2. RESPONDENT. 3. CIT 4. CIT(A)-XII NEW DELHI 5. DR ASSISTANT REGISTRAR