DR. SURYAKANT NANALAL GANDHI ( INDIVIDUAL), MUMBAI v. ITO WD 11(3)(3), MUMBAI

ITA 6829/MUM/2008 | 2004-2005
Pronouncement Date: 30-11-2011 | Result: Dismissed

Appeal Details

RSA Number 682919914 RSA 2008
Assessee PAN AAFPG7589K
Bench Mumbai
Appeal Number ITA 6829/MUM/2008
Duration Of Justice 2 year(s) 11 month(s) 29 day(s)
Appellant DR. SURYAKANT NANALAL GANDHI ( INDIVIDUAL), MUMBAI
Respondent ITO WD 11(3)(3), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 30-11-2011
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted I
Tribunal Order Date 30-11-2011
Date Of Final Hearing 24-11-2011
Next Hearing Date 24-11-2011
Assessment Year 2004-2005
Appeal Filed On 01-12-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH MUMBAI. BEFORE SHRI B.R.MITTAL JUDICIAL MEMBER AND PRAMOD KUMAR ACCOUNTANT MEMBER I.T.A NO.6829/ MUM/2008 ASSESSMENT YEAR: 2004-05 DR. SURYAKANT NANNALAL GANDHI(IND) .. APPELLANT HARSHADLAL D SANGHVI 546/16 3 RD FLOOR JAME JAMSHED ROAD BHUPENDRA VILLA MATUNGA(CR) MUMBAI-19. PA NO.AAFPG 7589K VS INCOME TAX OFFICER 1(3)(3) .. RESPONDEN T AAYAKAR BHAVAN M.K. ROAD MUMBAI. APPEARANCES: H.D.SANGHVI FOR THE APPELLANT SANJIV DUTT FOR THE RESPONDENT DATE OF HEARING : 24.11.2011 DATE OF PRONOUNCEMENT : 30 -11-2011 O R D E R PER PRAMOD KUMAR: 1. THE SHORT ISSUE THAT WE ARE REQUIRED TO ADJUDICA TE IN THIS APPEAL IS WHETHER OR NOT THE CIT WAS JUSTIFIED IN DIRECTING THE ASSES SING OFFICER TO RE- EXAMINE I.T.A NO.6829/ MUM/2008 ASSESSMENT YEAR: 2004-05 2 ASSESSEES CLAIM OF EXPENSES FOR RS.12 01 113 IN RE SPECT OF FOREIGN TRAVEL EXPENSES INCURRED BY THE RELATIVES IN EXERCISE OF HIS POWE RS U/S.263 OF THE ACT. THE ASSESSMENT YEAR INVOLVED IS 2004-05 AND THE IMPUGNE D ORDER U/S.263 DATED 26.9.2008 IN PASSED IN RESPECT OF ASSESSMENT FRAME D UNDER SECTION 143(3) OF THE INCOME TAX ACT 1961. 2. THE ISSUE LIES IN A NARROW COMPASS OF MATERIAL F ACTS. THE ASSESSEE IS AN ARCHITECT AND ENGINEER. DURING THE COURSE OF ASSESS MENT PROCEEDINGS THE ASSESSING OFFICER DISALLOWED RS.12 73 550 OUT OF FOREIGN TRA VEL EXPENSES (REMITTED) AND RS.49 73 450 OUT OF PROVISION FOR FOREIGN TRAVEL E XPENSES (PROVISION). . FIRSTLY THE AO WAS OF THE VIEW THAT NO SUPPORTING DOCUMENT S OF SUCH TRAVELING TICKETS BANK STATEMENTS OR ANY SUPPORTING DOCUMENTS FOR EXP LORING BUSINESS IN USA WERE SUBMITTED BY THE ASSESSEE IN SUPPORT OF HIS CLAIM. BASED ON THIS REASONING THE ASSESSING OFFICER DISALLOWED RS.12 73 550 IN RESPEC T OF FOREIGN TRAVEL EXPENSES SAID TO HAVE BEEN INCURRED FOR THE ASSESSEE. AS REGARDS THE PROVISION OF RS.49 73 450 IN RESPECT OF FOREIGN TRAVEL BY RELATIVES THE ASSESSI NG OFFICER NOTED THAT THE TRAVEL IS UNDERTAKEN BY THE RELATIVES OF THE ASSESSEE THE AS SESSEE HAS NOT GIVEN SUFFICIENT DETAILS SO AS TO JUSTIFY THE AFORESAID CLAIM OF EXP ENSES THAT THERE IS NO AGREEMENT BETWEEN THE ASSESSEE AND THESE PERSONS WITH REGARD TO THE SERVICES RENDERED BY THESE PERSONS AND THAT THE ASSESSEE HAS NOT BEEN A BLE TO ESTABLISH THE NEXUS OF VISITS TO INDIA BY THESE PERSONS TO THE BUSINESS OF THE ASSESSEE. THE ASSESSING OFFICER FURTHER NOTED THAT MERELY BECAUSE THE VISIT IS SAID TO BE OFFICIAL THE VISITS CANNOT BE TREATED AS BUSINESS PURPOSES. IT WAS ALSO NOTED THAT ON PERUSAL OF PASSPORT OF THESE PERSONS IT IS NOTICED THAT THESE PERSONS ARE VISITING INDIA SEVERAL TIMES EVERY YEAR IN A ROUTINE MANNER AND THAT NO SU PPORTING DOCUMENTS SUCH AS BILLS/VOUCHERS ARE PRODUCED IN CONNECTION WITH THE SAME. IT WAS ALSO NOTED THAT WHILE THE ASSESSEE WAS FOLLOWING CASH SYSTEM OF ACC OUNTING IN EARLIER YEARS THE ASSESSEE HAS SWITCHED OVER TO MERCANTILE SYSTEM OF ACCOUNTING IN THE CURRENT YEAR AND THUS EVEN THE ASSESSEE HAS NOT MADE PAYMENTS THE ASSESSEE IS CLAMING THE EXPENDITURE IN CONNECTION WITH THE SAME. THE ASSESS ING OFFICER WAS OF THE VIEW THAT I.T.A NO.6829/ MUM/2008 ASSESSMENT YEAR: 2004-05 3 THE SWITCH OVER TO MERCANTILE METHOD HAS NOT BEEN B ONAFIDE AND IT IS WITH A VIEW TO SAVE ON TAXES. IT WAS IN THIS BACKGROUND THAT THE ASSESSING OFFICER PROCEEDED TO DISALLOW RS.49 73 450. AGGRIEVED INTER ALIA BY TH ESE TWO DISALLOWANCES MADE BY THE ASSESSING OFFICER THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS. 3. HOWEVER THERE WAS ONE MORE HEAD OF TRAVELING E XPENSES I.E. FOREIGN TRAVEL BY RELATIVES AMOUNTING TO RS.12 01 113 IN RESPECT O F WHICH THE AO DID NOT MAKE ANY OBSERVATIONS AT ALL. IT IS THIS CLAIM FOR DEDUCT ION WHICH IS SUBJECT MATTER OF REVISION PROCEEDINGS BEFORE US. 4. SUBSEQUENTLY THE COMMISSIONER HAD AN OCCASION T O PERUSE THE CASE RECORDS AND HE OPINED THAT NOT DISALLOWING THE CLAIM OF RS. 12 01 113 IN RESPECT OF FOREIGN TRAVEL BY RELATIVES/DAUGHTERS RENDERED THE ORDER E RRONEOUS AND PREJUDICIAL INASMUCH AS WHILE PROVISION FOR SIMILAR TRAVELING E XPENSES WAS DISALLOWED BY THE AO ON THE GROUND THAT EXPENSES ARE NOT GENUINE AND VERIFIABLE AS ALSO ON THE GROUND THAT THE ASSESSEE HAS CHANGED HIS METHOD OF ACCOUN TING FROM CASH TO MERCANTILE SYSTEM OF ACCOUNTING THE AO DID NOT EXAMINE THE EX PENSES INCURRED AND PAID IN RESPECT OF FOREIGN TRAVEL BY THE SAME RELATIVES. A SHOW CAUSE NOTICE U/S.263 WAS ACCORDINGLY ISSUED TO THE ASSESSEE. IN RESPONSE TO SHOW CAUSE NOTICE IT WAS SUBMITTED BY THE ASSESSEE THAT THESE PERSONS WERE P ROFESSIONALLY QUALIFIED AND THE EXPENSES WERE INCURRED ON FOREIGN TRAVEL TO INDIA I N RESPECT OF BONAFIDE BUSINESS PURPOSES. IT WAS ALSO POINTED OUT THAT AS THESE PE RSONS ARE HIGHLY QUALIFIED AND PROFESSIONALLY EXPERIENCED IN THE FIELD AND THAT WH EN INHOUSE TALENT WAS AVAILABLE THERE WAS NO REASON TO DISALLOW THE EXPENDITURE MER ELY BECAUSE THEY ARE RELATIVES. THE CIT WAS NOT IMPRESSED WITH THESE SUBMISSIONS AN D HE WAS OF THE VIEW THAT THE ASSESSEE HAS NOT BEEN ABLE TO ESTABLISH THE FACT OF INCURRING THE EXPENDITURE OF RS.12 01 113 IN RELATION TO FOREIGN TRAVEL EXPENSES BY RELATIVES THAT HAD DIRECT NEXUS WITH THE BUSINESS PURPOSES AND AS SUCH THE EXPENDIT URE SHOULD HAVE BEEN ALLOWED. IN THE VIEW OF THE CIT THE AO CLEARLY IGNORED THIS ASPECT WHILE FRAMING THE I.T.A NO.6829/ MUM/2008 ASSESSMENT YEAR: 2004-05 4 ASSESSMENT. ACCORDINGLY THE ASSESSMENT ORDER PASS ED BY THE AO WAS RESTORED TO THE AO ON THE LIMITED ISSUE OF CONSIDERING THE FORE IGN TRAVEL EXPENSES OF RS.12 01 113 BY RELATIVES OF THE ASSESSEE WITH THE DIRECTION TO READJUDICATE THE MATTER AFRESH AFTER GIVING PROPER OPPORTUNITY OF BE ING HEARD TO THE ASSESSEE. 3. WE HAVE HEARD THE RIVAL CONTENTIONS PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CASE AS ALSO THE A PPLICABLE LEGAL POSITION. 4. THE MAIN THRUST OF LEARNED COUNSELS SUBMISSIONS BEFORE US IS THAT THE EXPENDITURE OF RS.12 01 113 INCURRED BY THE ASSESSE E ON FOREIGN TRAVEL OF HIS FOUR DAUGHTERS WHO ARE SAID TO BE PROFESSIONALLY QUALIF IED WHO VISITED INDIA IN CONNECTION WITH ASSESSEES BUSINESS WORK THAT THIS TRAVEL WAS IN CONNECTION WITH LEGITIMATE BUSINESS INTEREST OF THE ASSESSEE THAT THESE PERSONS ARE HIGHLY QUALIFIED IN THE FIELD AND THAT ALL THE RELEVANT DETAILS WER E DULY FILED BEFORE THE ASSESSING OFFICER. IT IS SUBMITTED THAT SINCE THE AO HAS ALL OWED THE EXPENDITURE AFTER CONSIDERING THE DETAILS FILED BY THE ASSESSEE THE CIT CANNOT INVOKE REVISION POWERS IN RESPECT OF THE SAME. OUR ATTENTION IS INVITED T O THE SUBMISSIONS FILED BEFORE THE AO AS ALSO THE DETAILS OF PROFESSIONALLY QUALIFICAT ION ETC OF THE RELATIVES WHO HAPPENS TO BE DAUGHTERS OF THE ASSESSEE. LEARNED C OUNSEL HAS TAKEN LABORIOUSLY TAKEN US THROUGH VOLUMINOUS COMPILATION OF PAPERS AS ALSO THROUGH CIT(A)S ORDER DEALING WITH MERITS OF TRAVELLING EXPENSES DISALLOW ANCE MADE DURING THE ASSESSMENT PROCEEDINGS TO CONTEND THAT NO FINDINGS ARE GIVEN AGAINST THE ASSESSEE ON SERVICES NOT HAVING BEEN RENDERED AND NEXUS WITH ASSESSEES BUSINESS. IT IS CONTENDED THAT THE OBSERVATIONS MADE BY THE CIT(A) SHOW THAT IF TH E EXPENSE WAS CLAIMED ON ACTUAL BASIS RATHER THAN ON THE PROVISION BASIS THE SAME WOULD HAVE BEEN ALLOWED. 5. WE ARE HOWEVER UNABLE TO SEE ANY MERITS IN TH IS LINE OF ARGUMENTS. MERELY BECAUSE THE PERSON IS PROFESSIONALLY QUALIFIED BY I TSELF DOES NOT ESTABLISH OR PROVE THAT HE HAS RENDERED ANY PROFESSIONAL SERVICES TO T HE ASSESSEE. WE HAVE ALSO NOTED THAT IN THE PRESENT CASE THE AO HAS HIMSELF DISALL OWED FOREIGN TRAVEL EXPENSES IN I.T.A NO.6829/ MUM/2008 ASSESSMENT YEAR: 2004-05 5 RESPECT OF THE EXPENDITURE ON SIMILAR TRIP NOT ONLY ON THE GROUND THAT THE ASSESSEE SWITCHED OVER TO MERCANTILE SYSTEM OF ACCOUNTING BU T ALSO ON THE GROUND THAT EXPENDITURE WAS INCURRED ON THE RELATIVES WITHOUT A NY EVIDENCES OF SUCH RELATIVES HAVING BEEN RENDERED THE SERVICES IN FURTHERANCE OF ASSESSEES LEGITIMATE BUSINESS INTEREST AND ALSO IN THE ABSENCE OF NECESSARY DOCUM ENTS AND EVIDENCE TO SUBSTANTIATE THE SAME. NO DOUBT THESE OBSERVATIONS ARE MADE IN RESPECT OF ADMISSIBILITY OF DEDUCTION FOR PROVISION OF FOREIGN TRAVEL EXPENSES BY THE RELATIVES BUT THESE OBSERVATIONS ARE MADE ALSO ON THE MERITS OF INADMISSIBILITY ON MERITS AS WELL. ONCE THE ASSESSING OFFICER TAKES THE STAND T HAT THE PROVISION FOR FOREIGN TRAVEL EXPENSES CANNOT BE ALLOWED INTER ALIA BECAUSE THE TRAVEL BY RELATIVES CANNOT BE TREATED FOR THE PURPOSES OF BUSINESS OF THE ASSE SSEE THERE CANNOT BE ANY GOOD REASONS TO ALLOW THE CLAIM FOR DEDUCTION ON ACTUAL BASIS WITHOUT DEALING WITH THE MERITS OF SUCH EXPENSES WITHOUT CONDUCTING ANY ENQ UIRIES. AS LEARNED COMMISSIONER HAS RIGHTLY OBSERVED ONCE THE AO HAS TAKEN A STAND IN RESPECT OF PROVISION FOR FOREIGN TRAVEL OF EXPENSES BY THE REL ATIVES I.E. THE TRAVELLING IN RESPECT OF WHICH EXPENSES ARE INCURRED IS NOT FOR LEGITIMAT E BUSINESS EXPENSES IT IS ONLY COROLLARY THERETO THAT THE CLAIM OF EXPENDITURE FOR THE SAME NATURE OF EXPENSES ON PAYMENT BASIS HAS TO BE DISALLOWED OR AT LEAST EXA MINED FROM THE SAME POINT OF VIEW. IT CANNOT BE OPEN TO THE ASSESSING OFFICER T O BLOW HOT AND COLD AT THE SAME TIME. ONCE THE AO TAKES THE STAND THAT THE EXPENDI TURE IN RESPECT OF TRAVELING EXPENSES OF THESE PERSONS ARE TO BE DISALLOWED ON THE GROUND THAT THE EXPENSES ARE NOT INCURRED FOR THE BUSINESS OF THE ASSESSEE AND THE EXPENSES ARE PERSONAL EXPENSES FOR TRAVELING OF THE ASSESSEES RELATIVES IT COULD NOT HAVE BEEN INDEED OPEN TO THE ASSESSING OFFICER TO ALLOW THE SIMILAR EXPEN SES ON THE GROUND I NTER ALIA BY SIMPLY TAKING THE SUBMISSIONS ON RECORD AND NOT DEA LING WITH THE MERITS. HE OUGHT TO HAVE AT LEAST DEALT WITH THE MERITS OF THE ISSUE AND EXAMINED IF DIFFERENT CONSIDERATIONS MUST APPLY HERE. THERE WAS THUS CLE AR INCONGRUITY IN THE APPROACH OF THE ASSESSING OFFICER AND THIS INTRICACY IS INDE ED ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE INASMUCH AS THE VERY REASON S FOR WHICH THE FOREIGN TRAVEL EXPENSES HAS BEEN DISALLOWED HAVING NOT BEEN TAKEN INTO ACCOUNT FOR THE PURPOSES I.T.A NO.6829/ MUM/2008 ASSESSMENT YEAR: 2004-05 6 OF EXAMINING THE ACTUAL EXPENDITURE OF SUCH TRAVEL. AS A MATTER OF FACT AS EVIDENT FROM THE ASSESSMENT ORDER THERE IS NO DISCUSSION W HATSOEVER WITH REGARD TO THE ADMISSIBILITY OF EXPENDITURE ACTUALLY INCURRED AND PAID ON FOREIGN TRAVEL OF THE RELATIVES. IT IS WELL SETTLED IN LAW THAT THE COMM ISSIONER CAN REGARD THE ORDER AS ERRONEOUS ON THE GROUND THAT IN THE CIRCUMSTANCES O F THE CASE THE ASSESSING OFFICER SHOULD HAVE MADE FURTHER INQUIRIES BEFORE ACCEPTING THE STATEMENTS MADE BY THE ASSESSEE IN HIS RETURN. THE AO CANNOT REMAIN PASSI VE IN THE FACE OF A RETURN WHICH IS APPARENTLY IN ORDER BUT CALLS FOR FURTHER INQUIRY. IT IS HIS DUTY TO ASCERTAIN THE TRUTH OF THE FACTS STATED IN THE RETURN WHEN THE CIRCUMST ANCES OF THE CASE ARE SUCH AS TO PROVOKE AN INQUIRY. THE ORDER BECOMES ERRONEOUS BEC AUSE SUCH AN INQUIRY HAS NOT BEEN MADE AND NOT BECAUSE THERE IS ANYTHING WRONG W ITH THE ORDER IF ALL THE FACTS STATED THEREIN ARE ASSUMED TO BE CORRECT. IT HAS BE EN SOLD HELD BY HONBLE DELHI HIGH COURT IN THE CASE OF GEE VEE ENTERPRISES V. ADDITIONAL COMMISSIONER OF INCOME-TAX 99 ITR 375(DEL) . UNDOUBTEDLY IN THE PRESENT CASE THE AO WAS AWAR E THAT AS EVIDENT FROM HIS OBSERVATION IN THE CONTEX T OF ADMISSIBILITY OF FOREIGN TRAVEL EXPENSES THAT THE RELATED PERSONS WHOSE TRAVELING EXPENSES HAVING BEEN BOOKED IN FOREIGN TRAVEL EXPENSES ARE RELATIVES OF THE ASSESS EE THESE PERSONS HAVING NOT BEEN EMPLOYED BY THE ASSESSEE NOR ANY CONTRACT FOR RENDE RING THE SERVICES AND THAT THE COMPLETE DETAILS OF EXPENSES ARE NOT ON RECORD. UN DER THESE CIRCUMSTANCES THE AO SHOULD INDEED HAVE EXAMINED THE CLAIM OF DEDUCTION OF RS.12 01 113 INCURRING OF THESE EXPENSES ON MERITS. THERE IS NO DISCUSSION W HATSOEVER ABOUT ADMISSIBILITY OF THIS CLAIM OF DEDUCTION IN THE ORDER. 6. THEREFORE THE CIT WAS INDEED JUSTIFIED IN INVOK ING HIS REVISIONARY POWERS U/S.263 AND THEREBY ASKING THE AO TO REEXAMINE THE ADMISSIBILITY OF THE SAID EXPENSES ON MERITS. WHATEVER THE ASSESSEE MAY HAVE TO SAY ON MERITS AGAINST THE NON ADMISSIBILITY OF THIS CLAIM HE CAN CERTAINLY P UT UP THE SAME IN THE REVISION ORDER EFFECT PROCEEDINGS BUT GIVEN THE FACTS OF THIS CA SE THERE IS NO REASON TO QUASH THE REVISION ORDER ITSELF. THE COMMISSIONER WAS RIGHT I N TAKING NOTE OF INCONGRUITY IN THE APPROACH OF THE ASSESSING OFFICER AND SUBJECTIN G THE ORDER TO THE REVISION I.T.A NO.6829/ MUM/2008 ASSESSMENT YEAR: 2004-05 7 PROCEEDINGS ON ACCOUNT OF THE ORDER BEING ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE FOR THAT REASON. IN THIS VIEW OF T HE MATTER WE SEE NO MERITS IN THE GRIEVANCE OF THE ASSESSEE AND DISMISS THE SAME. 7. IN THE RESULT APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 30 TH NOVEMBER 2011 SD/- (B.R.MITTAL) JUDICIAL MEMBER SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER MUMBAI DATED 30 TH NOVEMBER 2011 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX II MUMBAI 4. DEPARTMENTAL REPRESENTATIVE BENCH I MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR ITAT MUMBAI