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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI VIKAS AWASTHY & SHRI AMARJIT SINGH
Date of Hearing 21.12.2023 Date of Pronouncement 28.12.2023 आदेश / O R D E R Per Amarjit Singh (AM): Both these appeals filed by the assessee for assessment years 2016-17 & 2017-18 are directed against the different order of CIT(A) NFAC. Since, common issue on identical facts are involved in these appeals filed by the assessee, therefore, for the sake of convenience both these appeals are adjudicated together by taking as a lead case and its finding will be applied mutatis mutandis to the other appeal. “1:0 Re.: Ad-hoc disallowance of 10% of the travelling expenses u/s. 37(1) of the Income-tax Act, 1961: 1.1 The Commissioner of Income Tax (Appeals) has erred in upholding the disallowance of travelling expenses to the extent of 10% expense P a g e | 2 & 3064/Mum/2023 Liebherr India Pvt. Ltd. Vs. The ACIT,Circle 15(2)(1) incurred by the Appellant, (10% of Rs.6,68,38,963/-being Rs.66,83,896/-) during the year under consideration. 1:2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject the travelling expenses were incurred by it wholly and exclusively for the purposes of its business and hence no disallowance in respect thereof is called for and the stand taken by the Assessing Officer is misconceived, incorrect and illegal and the Commissioner of Income-tax (Appeals) ought to have held as such 1:3 The Appellant submits that the Assessing Officer be directed to allow the deduction as claimed by the Appellant and to re-compute its total income and tax thereon accordingly. 2:0 Re: Treating the interest earned on term deposits as Income from Other Sources: 2:1 The Commissioner of Income Tax (Appeals) has erred in confirming the action of the of the Assessing Officer by treating interest income of Rs 5,00,62,080/- earned on term deposits as income from other sources as against income from business and profession. 2:2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject the said interest income has been earned in the normal course of its business and the stand taken by the Assessing Officer in this regard is misconceived, incorrect and illegal and the Commissioner of Income-tax (Appeals) ought to have held as such. 2:3 The Appellant submits that the Assessing Officer be directed to treat the said interest Income as income from business or profession.”
2. Fact in brief is that return of income declaring total income of Rs.10,64,85,653/- was filed on 01.04.2016. The case was subject to scrutiny assessment and notice u/s 143(2) of the Act was issued on 10.08.2017. The assessee company is engaged in the business of sale and servicing of equipment, sale and supply of spare parts, providing consultancy, supervisory, erection, installation or commissioning, services, repairs and after sale services, sale representation. During the course of assessment the assessing officer noticed that assessee has debited an amount of Rs.668,38,963/- under the head travelling expenses. During the course of assessment the AO asked the assessee vide notice dated 12.12.2019 to provide the various details of travelling and conveyance expenses i.e name of expenses, place of travelling TDS, purpose of travelling and mode of payment etc. In response the assessee P a g e | 3 & 3064/Mum/2023 Liebherr India Pvt. Ltd. Vs. The ACIT,Circle 15(2)(1) has submitted the details vide letter dated 16.12.2019 along with sample copies of bills/vouchers etc. On perusal of the expenses the assessing officer observed that many of these expenses were incurred in cash and some of the expenses were claimed on the basis of selfmade vouchers. The assessing officer also observed that it was not clearly established that the expenses were fully and wholly incurred for the purpose of business of the assessee. Consequently, in accordance with earlier year the AO has disallowed 25% of travelling expenses to the amount of Rs.167,09,741/- and added to the total income of the assessee.
Further at the time of assessment proceedings the assessing officer noticed that assessee has shown interest earned on term deposit to the amount of Rs.500,62,080/- during the year under consideration and same was shown under the head income from business and profession. However, the AO has considered the same as income from other sources as against the income from business and profession shown by the assessee.
The assessee filed the appeal before the ld. CIT(A). In respect of claim of travelling and conveyance expenses the ld. CIT(A) has restriced the disallowance to 10% of such expenses claimed by the assessee after following the decision of ITAT, Mumbai for various assessment year from assessment year 2010-11 to 2014-15 in the assessee’s own case.
Regarding claiming interest income under the head income from business and profession the ld. CIT(A) held that assesse has not proved with evidence that making investment in term deposit is an essential condition for carrying on business of the assessee, therefore, the ground of appeal of the assessee was dismissed and action of the AO for treating the same as income from other sources was upheld.
P a g e | 4 & 3064/Mum/2023 Liebherr India Pvt. Ltd. Vs. The ACIT,Circle 15(2)(1) 5. During the course of appellate proceedings before us the ld. Counsel submitted that assesse company was engaged in the business of sale and servicing of equipment, therefore, such services often require cite visits for servicing the equipment, installation of the equipment etc. for which the assessee had incurred travelling and conveyance expenses and same was incurred for the purpose of the business of the assesse. The ld. Counsel filed paper book comprising copy of detail of submission made before the lower authorities and copies of sample bill and voucher in respect of travelling expenses incurred by the assessee. He referred the different pages of the paper book showing the nature of expenses incurred by the assessee and submitted that only the small amount of payment was made in cash and sample bills and vouchers was produced before the lower authorities. The ld. Counsel further submitted that in compare to earlier years this year the assessee has made systematic submission in respect of the claim of travelling expenses which are fully incurred for the purpose of business. The ld. Counsel also submitted that the interest earned by the assessee from term deposit has been rightly shown by the assessee under the head business and profession.
On the other hand, the ld. D.R contended that similar issue on identical fact has been constantly adjudicated by the ITAT in the case of the assessee for various assessment year. He submitted that like earlier years because of nature of expenses and selfmade vouchers the claim of such expenses are not fully verifiable. Regarding claim of the assessee for treating the interest earned on term deposit as income under the head business and profession the ld. D.R submitted that assessee could not establish that how the same has been earned from the business and submitted that ld. CIT(A) has rightly held that same as income earned under the head income from other sources.
P a g e | 5 & 3064/Mum/2023 Liebherr India Pvt. Ltd. Vs. The ACIT,Circle 15(2)(1) 7. Heard both the sides and perused the material on record. During the course of assessment the assessing officer disallowed 25% of the travelling expenses of Rs.668,38,963/- stating that it could not be verified and established that all the expenses claimed under the travelling expenses have been incurred wholly and exclusively for the purpose of business of the assessee. The ld. CIT(A) considered that similar issue on identical facts has been considered by the ITAT in the case of the assessee itself from assessment year 2010-11 to 2014-15 and consistently restricted disallowance pertaining to travelling and conveyance expenses to 10% of the amount debited to profit and loss account. After perusal of material on record, we find that the in assessment year 2009-10 the ITAT held that even the issue was subject to remand proceedings before the AO for verification of the claim of travelling and conveyance expenses after referring the bills and vouchers furnished by the assessee. However, after taking into consideration the nature of expenses and rleelvnat material the ITAT has arrived at the conclusion that expenses were not fully verificable therefore disallowance was restricted to 10% of travelling conveyance expenses. Even after assessment year 2009-10 the claim of the assessee based on similar facts and issue have been subject matter before the ITAT for the assessment year 2010-11 to 2014-15 and in all these years the ITAT has consistently followed the decision of restricting such disallowance to the extent of 10% of disallowance of such expenses after taking into consideration the material fact that these expenses were not fully verifiable. The relevant extract of the operating part of the decision of ITAT vide ITA No. 3496/Mum/2017 dated 24.12.2019 for A.Y. 2009- 10 and for AY. 2012-13 vide ITA No. 2169/Mum/2017 dated 28.06.2022 elaborated in the findings of the ld. CIT(A) is reproduced as under: “7.7 I have given my thoughtful consideration to the submissions made by the assessee and examined the same in the light of factual matrix of the case P a g e | 6 & 3064/Mum/2023 Liebherr India Pvt. Ltd. Vs. The ACIT,Circle 15(2)(1) and decision of Hon'ble ITAT Mumbai in the assessee's own case for earlier AYs (supra). 7.8 At the outset, it is an admitted fact that, during the course of assessment proceedings, the assessee could not furnish supporting documentary evidence in the form of bills and vouchers in respect of the entire amount of expenses claimed under the head travelling and conveyance of Rs.6,68,38,693/-. This fact is clearly highlighted by the AO as well as accepted by the assessee in its written submissions filed during the course of appellate proceedings. However, the only grievance of the assessee is that the AO has not pointed out any specific instance of expenses involving personal element but resorted to disallowance of 25% of such expenses on ad hoc basis. 7.9 Be that as it may, as explained in the preceding paragraphs, similar addition was made by the AO/Revenue in the assessee's own case in earlier AYs towards ad hoc disallowance of travelling and conveyance expenses at varying percentages. Further, the assessee carried the matter in appeal before the Hon'ble ITAT Mumbai and the Hon'ble ITAT, vide order in ITA No.3496/Mum/2017 dated 24.12.2019 for the AY 2009-10, has discussed the issue at length and, after having considered the remand report submitted by the AO before the CIT(A) and the decision of CIT(A) thereof to restrict the disallowance to 30% as against 40% made by the AO, observed that some of the expenses claimed by the assessee are not fully verifiable and, therefore, certain ad hoc disallowance is warranted. While doing so, however, the Hon'ble ITAT opined that disallowance of 30% of expenses would be on the higher side keeping in view the status of the company. Accordingly, the Hon'ble ITAT has held that disallowance of 10% of total travelling and conveyance expenses would meet the ends of the justice considering the peculiar facts and circumstances of the case. The relevant portion of the decision is reproduced below for ready reference. “4.1. We have heard rival submissions and perused the materials available on record. We find that the assessee had incurred total travelling and conveyance expenses of Rs. 1,80,49,723/- during the year under consideration. The assessee was asked by the Id. AO to produce supporting evidences in respect of travelling and conveyance expenses above Rs.1,00,000/- The Id AO observed that despite several opportunities provided to the assessee, the assessee failed to produce supporting evidences and accordingly proceeded to disallow 40% of the total travelling and conveyance expenditure on an ad hoc basis amounting to Rs. 72,19.889/ in the assessment. We find that the Id. C/T(A) had observed that assessee had submitted the copies of vouchers and invoices or travelling and conveyance expenses before him and the same were duly subjected to remand proceedings and duly verified by the Id AO. Before the id AO also, further details were submitted by the assessee. These facts are recorded by the Id CIT(A) in page 18 para 2.4.15 of his order. We find that assessee had incurred these travelling and conveyance expenses in respect of site visits of its personnel, trainings, meetings and other official visits for which detailed break-up were filed along with written submissions We find that the id. AO in the remand report had P a g e | 7 & 3064/Mum/2023 Liebherr India Pvt. Ltd. Vs. The ACIT,Circle 15(2)(1) observed that certain details furnished by the assessee contain the provision for expenses which are contingent in nature and hence, not allowable as deduction, certain expenses are reflected as receivable and later transferred to expenses by the assessee by way of journal entry in the books of accounts, in the opinion of the id AO, these expenses are not fully verifiable and assessee could not substantiate the veracity of the same. Accordingly, the id. CIT(A) observed that the entire travelling and conveyance expenses could not be fully verifiable at the end of the Id. AO and restricted the disallowance to 30% of total travelling and conveyance expenses and reduced the disallowance to Rs 54,14,917/- as against Rs. 72. 19,889/- made by the Id. AO We find that the assessee had filed detailed bills and vouchers in the form of additional evidences before the Id CIT(A) comprising of pages 3- 739 of the paper book which were also filed before us. These details were subject to verification by the Id AO in the remand proceedings and in the remand report, the Id AO had held that some of the expenses are not fully verifiable. We find in these circumstances, some adhoc disallowance of expenses need to be made However, the disallowance 30% would be on the hi ether side given the status of the company and the behavior of the assessee Hence, we hold that disallowance on an adhoc basis at 10% of total travelling and conveyance expenses would meet the ends of justice in the peculiar facts and circumstances of the instant case. Accordingly, the around No.3 raised by the assessee is partly allowed (Emphasis Supplied)" 7.10 Further, the above decision was followed by the co-ordinate bernches of Hon'ble ITAT Mumbai for other AYs i.e., AY 2010-11, 2011-12, 2013-14 and 2014-15 and AY 2012-13. To be precise, vide ITA No.2169/Mum/2017 dated 28.06.2022 for the AY 2012-13, the Hon'ble ITAT has reiterated its own decision rendered while disposing of the assessee' s appeal for the AY 2009-10 (supra) and restricted the ad hoc disallowance of travelling and conveyance expenses to 10%. The relevant portion of the decision is reproduced below for ready reference. "Ground No. 2 to 2.4 15. The relevant facts are that during the relevant previous year Appellant claimed deduction of INR 4,38,55,340/- as travelling and conveyance expenses During the assessment proceedings, the Assessing Officer issued show cause notice to the Appellant requiring the Appellant explain why 40% of such expenses should not be disallowed in view of similar disallowance made in the preceding assessment years. The reply filed by the Appellant in response to the aforesaid show cause notice was not to the satisfaction of the Assessing Officer and therefore, in the Draft Assessment Order, dated 23.03.2016, the Assessing Officer disallowed INR 1,75,42,136/-, being 40% of total travelling and conveyance of INR 4,38,55,340/-, debited to the Profit & Loss account, on the ground that the Appellant had failed to furnish details of travelling expenses to establish that the same we e incurred wholly and inclusively for the purpose of business of the Appellant. The Appellant filed objections P a g e | 8 & 3064/Mum/2023 Liebherr India Pvt. Ltd. Vs. The ACIT,Circle 15(2)(1) before DRP against the aforesaid proposed addition, and filed additional evidence on 26 09 2016 to support the claim of deduction of travelling and conveyance expenses. However, the DRP rejected the objections on the ground that the Appellant had produced sample Copland therefore has failed to discharge the onus upon he Appellant to furnish entire evidence. Accordingly, addition of INR 1,75,42,136/- was made by the Assessing Officer in the Final Assessment Order, dated 30.01.2017.
Being aggrieved, the Appellant is before us in appeal on this issue. We note that this is a recurring issue. While deciding identical issue in the case of the Appellant for the Assessment Years 2010-11 (ITA No. 4213/Mum/2017), 2011-12 (ITA No. 3497/Mum/2017), 2013-14 (ITA No. 1856/Mum/2018) and 2014-15 (ITA No 1857/Mum/2018) by way of common order dated 22.05.2020, the Tribunal restricted the disallowance pertaining to travelling and conveyance expenses to 10% of the amount debited to Profit & Loss account by following the decision of the Tribunal in the case of the Appellant for the Assessment Year 2009- 10 (ITA No. 3496/Mum/2017), dated 24.12 2019. The relevant extract of the aforesaid decision read as under. "4.1. We have heard rival submissions and perused the materials available on record. We find that the assessee had incurred total travelling and conveyance expenses of Rs. 1,80,49,723/- during the year under consideration. The assessee was asked by the Id. AO to produce supporting evidences in respect of travelling and conveyance expenses above Rs. 1,00,000/-. The Id AO observed that despite several opportunities provided to the assessee, the assessee failed to produce supporting evidences and accordingly proceeded to disallow 40% of the total travelling and conveyance expenditure on an ad hoc basis amounting to Rs. 72,19.889/ in the assessment We find that the Id C/T(A) had observed that assessee had submitted the copies of vouchers and invoices or travelling and conveyance expenses before him and the same were duly subjected to remand proceedings and duly verified by the Id AO. Before the Id. AO also, further details were submitted by the assessee. These facts are recorded by the Id. CIT(A) in page 18 para 2.4.15 of his order. We find that assessee had incurred these travelling and conveyance expenses in respect of site visits of its personnel, trainings, meetings and other official visits for which detailed break-up were filed along with written submissions. We find that the id. AO in the remand report had observed that certain details furnished by the assessee contain the provision for expenses which are contingent in nature and hence, not allowable as deduction, certain expenses are reflected as receivable and later transferred to expenses by the assessee by way of journal entry in the books of accounts, in the opinion of the id AO, these expenses are not fully venfiable and assessee could not substantiate the veracity of the same. Accordingly, the id CIT(A) observed that the entire travelling and conveyance expenses could not be fully verifiable at the end of the Id. AO and restricted the disallowance to 30% of total travelling and conveyance expenses and reduced the disallowance to Rs 54, 14,917/- as against Rs 72,19,889/- made by the Id AO We find that the assessee had filed detailed bills and vouchers in the form P a g e | 9 & 3064/Mum/2023 Liebherr India Pvt. Ltd. Vs. The ACIT,Circle 15(2)(1) of additional evidences before the Id CIT(A) comprising of pages 3- 739 of the paper book which were also filed before us These details were subject to verification by the Id AO in the remand proceedings and in the remand report, the id. AO had held that some of the expenses are not fully verifiable. We find in these circumstances, some adhoc disallowance of expenses need to be made. However, the disallowance @30% would be on the hi ether side given the status of the company and the behavior of the assossee Hence, we hold that disallowance on an adhoc basis at 10% o total travelling and conveyance expenses would meet the ends of justice in the peculiar facts and circumstances of the instant case. Accordingly, the around No 3 raised by the assessee is partly allowed. (Emphasis Supplied) 17. We note that during the assessment proceedings for relevant assessment year disallowance of 100% of travelling and conveyance expenses has been made in identical facts and circumstances In appeal for the earlier years such disallowance has been restricted to 10% of the travelling and conveyance expenses by the Tribunal. Respectfully following the aforesaid decision of the Tribunal in the case of the Appellant, we restrict the disallowance of travelling and conveyance expenses to 10% of the amount debited to Profit & Loss account during the relevant previous year. Accordingly, Ground No. 2. to 2.4 are partly allowed." (emphasis supplied) 7.11 In view of the above, respectfully following the decision of the Hon'ble ITAT Mumbai in the assessee's own case for earlier AYs, more specifically for AY 2009-10, and keeping in view the doctrine of judicial precedence, I hereby direct the AO to restrict the ad hoc disallowance of travelling and conveyance expenses to 10% of Rs.6,68,38,963/- in place of 25%, which worked out to Rs.66,83,896/- instead of Rs.1,67,09,741/- disallowed by the AO in the impugned assessment order. Accordingly, the assessee would get relief of Rs.1,00,25,845/- (1,67,09,741 66,83,896). Thus, the ground of appeal
raised by the assessee on this issue is partly allowed.”
8. After perusal of the decision of ITAT as referred above and decision of ITAT for other assessment years, we find that no case is made out by the ld. Counsel for the assessee that facts in the case of the assessee is different from the facts in the case of the assessee adjudicated by the ITAT in the earlier years. It is evident from the decision of ITAT that even the matter was subject to verification by the AO in the remand proceedings however, because of nature of expenses such expenses were not fully verifiable. Therefore, there is nothing before us on hand to differ from the issue raised in the cases cited supra so as to take a different view of this issue. Therefore, since, the issue on hand being