LEADING LINE MERCHAND TRADERS PVT LTD

IN THE HIGH COURT OF DELHI AT NEW DELHI . . . ITA 74/2012 . . . LEADING LINE MERCHAND TRADERS . PVT LTD ..... Appellant . Through Mr. Prakash Chand Yadav, Adv. . . . versus . . . CIT ..... Respondent . Through Mr. Kiran Babu, sr. standing counsel . . . CORAM: . HON'BLE MR. JUSTICE SANJIV KHANNA . HON'BLE MR. JUSTICE R.V.EASWAR . . . O R D E R . 08.02.2012 . . . CM 1505/2012 . Exemption allowed subject to all just exceptions. . Application is disposed of. . CM 1504/2012 . . . This is an application for condonation of delay in filing of the appeal. For the reasons stated in the application the delay is condoned. . Application is disposed of. . . . ITA 74/2012 . . . The appellant, Leading Line Merchant Traders (P) Ltd., supplies wood pulp in the form of subabul and eucalyptus plant. . 2. It is submitted that the entire supply by the appellant is to Ballarpur Industries Ltd. . 3. In the return for the assessment year 2007-08, the assessee had claimed expenses of Rs.4,66,466/- as allowable under Section 37 of the Income Tax Act, 1961 (?Act?, for short) on account of foreign travel undertaken by the Directors of Ballarpur Industries Ltd. The Assessing Officer asked for justification why the expenditure incurred should be allowed under Section 37 of the Act. It may be noticed here that the total profit and gains from business as declared by the appellant- assessee was Rs.4,24,670/-. . 4. Before the Assessing Officer, the appellant submitted as under: . ?The assessee is carrying business of supply of raw plants used and in the manufacturing of paper industries. The assesses is making its entire supply to M/s. Ballapur Industries Ltd. The foreign travel expenses relate to foreign travel conducted by certain executives of Ballarpur Industries Limited (Bilt) to discuss the supply of these materials. The assessee company has already filed a copy of bills of the travel agent. The payment was made by account payee cheque and a copy of bank statement has also been filed. We have been informed that executive of the company (Bilt) who was looking after the above dealings, left the said company . more than one year back and the documents relevant to details of the business negotiated during that visit is not traceable. It is common business practice to arrange such meetings and the assessee company therefore arranged the tickets for the officials of bilt to discuss the business transaction relating to them.? . The Assessing Officer observed that the assessee had not put forward any evidence to show that the expenditure incurred on foreign travel of Directors of Ballarpur Industries Ltd. had anything to do with the business activity undertaken by the appellant. It was an expenditure of personal nature and not in nature of business. . 5. The CIT (Appeals) confirmed the said addition and has recorded as under : . ?5.2 I have carefully considered the submissions made on behalf of the appellant, the findings of the Assessing Officer in the assessment order and the facts on record. The findings of the A.O. are that the assessee has failed to furnish details of foreign travel expenses and satisfactory explanation in regard to the above expenses from the point of commercial expediency. The appellant has also not been able to explain during the appellate proceedings also as to how and why the foreign travel expenses were helpful in promoting its business. The appellant had no furnished any report as to the achievements and accomplishments in foreign countries as a result of the tours undertaken by them and the benefit that the business of the company acquired there from. The appellant had not led any evidence that visit of the Director of M/s Ballarpur Industries Ltd. Was necessary to facilitate negotiations with foreign parties. There was no evidence of any negotiations which may have taken place. There was also no evidence that the Director had special aptitude with regard to business of the assessee nor there was any evidence to show that he was representative of the assessee. In order to claim a deduction on account of expenditure for purposes of business the on us (sic) lies on the assessee to prove that the expenditure was incurred for the purposes of business and was not of a capital nature. Merely because a businessman goes out to the foreign country does not necessarily lead to the conclusion that the expenditure was of a revenue nature. In order that an expenditure should qualify for deduction as contemplated by section 37(1), one of the requirements of the provision is that the expenditure must have been laid out wholly and exclusively for the purpose of the business. It cannot be disputed that before an assessee can become entitled to an allowance under that provision, he must satisfy the Assessing Officer of the purpose for which the amount is spent. It is true that the taxing authorities are not entitled to go into the reasonableness of the expenses, but they are certainly entitled to be satisfied as to the commercial necessity of expending that amount. The question will always be as to the nature of the relation between the expenditure and he business, whether the benefit is remote or near, prospective or immediate, imaginary or real and so forth. The capacity in which the assessee spends will also be relevant. In the instant case, the assessee did not furnish any material to the Assessing Officer to arrive at the conclusion favouring the assessee. The A.O. therefore, exercised his judgment and discretion which cannot be said to the . arbitrary or unreasonable. In view of the aforesaid, I have no hesitation in holding that the action of the A.O. in disallowing Rs.4,66,466/- out of the foreign travel expenses is justified. As a result, the addition of Rs.4,66,46/- made out of foreign travel expenses is confirmed and of appeal No.2 is dismissed.? . . . 6. On further appeal, the Income Tax Appellate Tribunal has confirmed the said addition approving the findings recorded by the CIT(Appeals). . 7. Ld. counsel for the appellant submits that the order passed by the tribunal is perverse. He submits that the assessee had filed before the Assessing Officer details of payment and copy of bills/invoices issued by the travel agent. It is not possible to accept the contention of the appellant. Mere payment to the travel agent does not establish that the expenditure in question was incurred wholly and exclusively for the purpose of business. The findings of the CIT(Appeals) are elaborate and specific. The three authorities have given concurrent findings that the appellant-assessee was not able to justify or show that the expenditure was incurred for business purpose. . 8. The appellant-assessee failed and did not produce evidence that the expenditure on foreign trips of a third person i.e. Directors of Ballarpur Industries Ltd. was incurred as incidental to their trade, for the purpose of keeping the trade going on and making it pay and not in any other capacity than that of a trader. [CIT Vs. Delhi Sale Deposit Co. Ltd. (1982) 133 ITR 756 (SC)] . 9. No substantial question of law arises in the present appeal. Appeal is dismissed. No costs. . . . SANJIV KHANNA, J . . . . . . . R.V.EASWAR, J . FEBRUARY 08, 2012 . vld . . . . . . . $ 22 to 25 . . .