The ACIT, Circle-5,, Ahmedabad v. Rampion Eytech Pvt. Ltd.,, Ahmedabad

ITA.961-979-07 A.Y.03-04 1 IN THE INCOME_TAX APPELLATE TRIBUNAL B BENCH AHMEDABAD BEFORE SHRI T.K. SHARMA AND SHRI D.C. AGRAWAL. ITA. NO. 961 /AHD/2007 (BY ASSESSEE) ITA. NO./979/AHD/2007 (BY DEPARTMENT) (ASSESSMENT YEAR:2003-04 ) RAMPION EYETECH PVT.LTD. KAILASH COMPLEX NEW SHARDA MANDIR ROAD PALDI AHMEDABAD. VS ASSTT.COMMISSIONER OF INCOME TAX CIRCLE-5 C.U.SHAH BUILDING ASHRAM ROAD AHMEDABAD. (APPELLANT) (RESPONDENT) PAN: AABCR 0341 M ASSESSEE BY : SHRI S.N. DIVATIA ADVOCATE. REVENUE BY : SHRI. S.C. TIWARI SR.D.R. ( (( ( )/ )/)/ )/ ORDER PER: SHRI D.C. AGRAWAL. THESE ARE THE TWO CROSS APPEALS ONE FILED BY THE ASSESSEE AND THE OTHER FILED BY THE REVENUE AGAINST THE ORDER OF THE LD. C.I.T.(A) DATED 22-12-2006. IN ITS APPEAL ASSESSEE HAS RAISED FOLL OWING GROUNDS :- 1. THE LD. C.I.T.(A) ERRED IN LAW AND ON FACTS IN CON FIRMING DISALLOWANCE OF RS.22 500/- ACTUALLY PAID BY THE APPELL ANT TO THE GROUP GRATUITY FUND APPLICATION FOR THE APPRO VAL FOR WHICH WAS MADE LONG BACK AND WHICH WAS PENDING DISPOSAL ITA.961-979-07 A.Y.03-04 2 BEFORE COMMISSIONER OF INCOME TAX. IT IS SUBMITTED THAT IT BE SO HELD NOW AND DISALLOWANCE CONFIRMED BE DELETED. 2. THE LD. C.I.T.(A) ERRED IN LAW AND ON FACTS IN CON FIRMING THE DISALLOWANCE OF DISCOUNT GRANTED TO OPHTHALMOLOGIST DOCTORS FOR A SUM OF RS.7 84 758/- IN SPITE OF THE FACT T HAT ALL THE RELEVANT DETAILS WERE SUBMITTED BY THE APPEL LANT. IT IS SUBMITTED THAT IT BE SO HELD NOW AND DISCOUNT GIVEN B E ALLOWED AS DEDUCTION U/S. 37 OF THE ACT. 3. THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRM ING DISALLOWANCE OF 50% OF THE FOREIGN TRAVELING EXPENSES O F RS.20 13 965/- I.E. RS.10 06 983/- INCURRED BY THE APPELLANT FOR ITS BUSINESS PURPOSES. YOUR APPELLANT SUBMI TS THAT ENTIRE EXPENDITURE ON FOREIGN TRAVELING EXPENS ES HAVING BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS BE ALLOWED U/S. 37 OF THE ACT. 4. THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRM ING DISALLOWANCE OF RS.4 73 425/- OUT OF INTEREST PAID BY T HE APPELLANT ON BORROWED FUNDS ON THE GROUND THAT APPEL LANT HAS NOT PROVED ITS BUSINESS CONSIDERATION WHILE ADVANCING AMOUNT TO ITS ASSOCIATE CONCERN M/S. RAJESH MALLEABLES LTD. YOUR APPELLANT SUBMITS THAT THE ENTIRE INTEREST O N BORROWED CAPITAL BE ALLOWED U/S. 36(1)(III) AS IT IS USED FOR THE PURPOSE OF THE BUSINESS. IT IS SUBMITTED THAT IT BE SO HELD NOW. 2. WHEREAS THE REVENUE HAS RAISED FOLLOWING GROUNDS :- 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DE LETING THE ADDITION MADE OF RS.25 12 041/- ON ACCOUNT OF DISALLOWANCE OF BAD DEBTS WRITTEN OFF. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD . CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 3. IT IS THEREFORE PRAYED THAT THE ORDER OF THE LD . CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. ITA.961-979-07 A.Y.03-04 3 3. THE FACTS OF THE CASE ARE THAT ASSESSEE IS IN THE BUSINE SS OF TRADING IN OPHTHALMOLOGIC PRODUCTS. IN DEPARTMENTAL A PPEAL THE ISSUE WAS ABOUT BAD DEBTS. SIMILAR ISSUE HAD COME UP BEFORE T HE TRIBUNAL FOR THE ASSESSMENT YEAR 2002-03 IN ITA NO.272/AHD/2006. THE ISSUE WAS RESTORED TO THE FILE OF THE A.O. TO FIND OUT WHET HER AMOUNT WRITTEN OFF IS ACTUALLY BAD DEBT OR DISCOUNT. SINCE THE NATURE O F THE CLAIM IS THE SAME AS IN THE ASSESSMENT YEAR 2002-03 WE RESTORE THE MAT TER TO THE FILE OF THE C.I.T.(A) TO DECIDE THE ISSUE AFTER GIVING CLEAR FINDING AS TO THE NATURE OF THE CLAIM AND THEREAFTER DECIDE THE ISSU E ACCORDING TO LAW AFTER GIVING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND ALSO KEEPING IN VIEW HIS DECISION FOR THE ASSESSMENT YEAR 2002 -03. AS A RESULT THE APPEAL FILED BY THE REVENUE IS ALLOWED BUT FOR STATISTICAL PURPOSES. 4. IN ASSESSEES APPEAL FIRST ISSUE IS ABOUT CONFIRMATION O F DISALLOWANCE OUT OF GRATUITY FUNDS. THE A.O. NOTED FRO M THE COMMENTS OF THE AUDITOR IN THE AUDIT REPORT U/S. 44AB OF THE I.T. ACT THAT PAYMENT HAS BEEN MADE TO UNAPPROVED GRATUITY FUND ON 19-6-2003. HE ACCORDINGLY DISALLOWED THE CLAIM. 5. THE LD. C.I.T.(A) CONFIRMED THE ADDITIONS FOR THE SEVERAL REASONS. 6. WE HAVE HEARD THE PARTIES. PROVISION OR PAYMENTS TOWARDS UNAPPROVED GRATUITY FUNDS ARE NOT ADMISSIBLE DEDUCTION . WE HAVE SUPPORTED OUR VIEW BY THE DECISION OF HONBLE M.P. HIGH COURT IN THE CASE OF CIT VS. PERFECT POTTERY CO. LTD. (1989) 175 IT R-562. THIS GROUND IS THEREFORE REJECTED. ITA.961-979-07 A.Y.03-04 4 7. SECOND ISSUE IS REGARDING PAYMENT MADE TO OPHTHALMOL OGIST DOCTORS AS DISCOUNT. THE A.O. NOTED THAT IN THE PREVIOUS YEAR CLAIM WAS ONLY OF RS.7 324/- WHEREAS THIS YEAR IT HAS BEEN INCR EASED TO RS.7 84 758/-. THE A.O. REQUIRED THE ASSESSEE TO GIVE TH E LIST OF PARTIES TO WHOM SUCH DISCOUNTS WERE GIVEN AND THE BASIS F OR DISCOUNT BUT THE ASSESSEE FAILED TO SUBMIT THE RELEVANT DETAILS. SINCE THE CLAIM WAS NOT SUBSTANTIATED THE A.O. DISALLOWED THE SAME. 8. THE LD. C.I.T.(A) CONFIRMED THE ADDITION FOR THE SIMILAR REASONS. EVEN THOUGH THE ASSESSEE SUBMITTED THE LIST OF PERSONS DUR ING THE APPELLATE PROCEEDINGS BUT LD. C.I.T.(A) HELD THAT MER ELY FROM THE LIST IT CANNOT BE SAID THAT SUCH DISCOUNTS WERE GIVEN TO THE SAID P ERSONS. BEFORE US THE LD. A.R. SUBMITTED THAT THE CLAIM WAS FO R BUSINESS PURPOSES TO INCREASE THE SALES OF ITS PRODUCTS. THE DISCOUNTS WERE GIVEN TO THE DOCTORS WHO HAD PRESCRIBED THE PRODUCTS MAD E BY THE COMPANY. THE LD. D.R. ON THE HAND RELIED ON THE OR DERS OF AUTHORITIES BELOW. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED TH E MATERIAL ON RECORD. IN OUR CONSIDERED VIEW A.O. SHOULD HAVE GIVEN A FINDING WHETHER PAYMENTS WERE MADE FOR BUSINESS PURPOSES AND WHE THER PAYMENTS ARE GENUINE. IT IS BECAUSE FROM THE MATERIAL A VAILABLE ON RECORD IT CANNOT BE VERIFIED EITHER WAY. AS A RESULT T HIS GROUND OF THE ASSESSEE IS ALLOWED BUT FOR STATISTICAL PURPOSES. 10. GROUND NO.3 RELATES TO DISALLOWANCE OF 50% OF FORE IGN TRAVEL EXPENSES. THE ASSESSEE CLAIMED EXPENDITURE OF RS.20 13 965 /- ON FOREIGN TRAVEL OF DIRECTORS AND OTHER PERSONS. THE A.O. DISALLOWED THE ITA.961-979-07 A.Y.03-04 5 ENTIRE CLAIM ON THE GROUND THAT ASSESSEE FAILED TO PROD UCE THE PARTIES AND FAILED TO SHOW THAT IT WAS INCURRED FOR BUSINESS PUR POSES. 11. THE LD. CIT (A) RESTRICTED THE ADDITION TO 50% TR EATING THE SAME AS FOR THE BUSINESS PURPOSES. 12. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED T HE MATERIAL ON RECORDS. THERE IS NO CASE FOR INTERFERENCE IN THE ORDER G IVEN BY THE LD. C.I.T.(A). THE REASONS RELIED FOR THE CLAIM OF THE EXP ENDITURE IS THE BUSINESS PURPOSE. AS THERE IS NO MATERIAL ON RECORD TO SHOW THAT ASSESSEE HAS INCURRED EXPENSES FOR BUSINESS PURPOSES THE LD. C.I.T.(A) WAS JUSTIFIED IN CONFIRMING THE PART OF THE ADDITION. THIS GROUND OF THE ASSESSEE IS REJECTED. 13. GROUND NO.4 RELATES TO DISALLOWANCE OF RS. 4 73 425 /- OUT OF INTEREST PAYMENTS ON THE GROUND THAT ASSESSEE HAS NOT PROV ED THE BUSINESS CONSIDERATION WHILE ADVANCING THE AMOUNT TO ITS ASSOCIATE CONCERN M/S. RAJESH MELLABLES LTD. THE LD. A.R. SUBMITTE D THAT ASSESSEE ADVANCED A SUM OF RS.2 CRORES AS INTEREST FREE ADVAN CES ON VARIOUS DATES TO ITS ASSOCIATE CONCERN WITH A VIEW TO BAIL IT OUT FROM PURVIEW OF BIFR. THE ASSESSEE IS PROMOTER OF RAJESH MELLA BLES LTD. AND HAS TO BE PROVIDE FUNDS TO BALL IT OUT FOR SECURING ITS OWN FUNDS. THE LD. A.R. REFERRED TO THE DECISION OF HONBLE SUPRE ME COURT IN S.A. BUILDERS VS. C.I.T. 288 ITR-1. 14. THE LD. D.R. RELIED ON THE ORDER OF C.I.T.(A). 15. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THE INTEREST PAYMENT TO SISTER ITA.961-979-07 A.Y.03-04 6 CONCERN TO BAIL IT OUT FROM POOR FINANCIAL POSITION WO ULD BE A COMMERCIAL CONSIDERATION PARTICULARLY IN A CASE WHEN THE S ISTER CONCERN IS PROMOTED BY THE ASSESSEE COMPANY AND ITS OWN FUNDS ARE L OCKED IN THE SISTER CONCERN. IT IS IN THE BUSINESS INTEREST OF THE ASSESSEE TO SUPPORT THE SISTER CONCERN IN ORDER TO PROTECT ITS OWN BUSINESS INTEREST AND BUSINESS CAPITAL INVESTED IN IT. ACCORDINGLY FOLLOW ING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF S.A.BUILDERS (S UPRA) WE ALLOW THE CLAIM OF THE ASSESSEE. THIS GROUND OF THE ASSESSEE IS AL LOWED. 16. AS A RESULT APPEAL BY THE ASSESSEE IS PARTLY ALLOWED F OR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 30 /04 /2010. SD/- SD/- (T.K. SHAMRA) (D. C. AGRAWAL) ACCOUNTANT MEMBER. JUDICIAL MEM BER. AHMEDABAD. DATED: 30 /04 /2010. S.A.PATKI. COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNED. 5. THE DR. ITAT AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT AHMEDABAD. ITA.961-979-07 A.Y.03-04 7 ITA.961-979-07 A.Y.03-04 8