C I T vs. M/S PORRITTS & SPENCER A LTD.

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ITA/220/2007HC Punjab & HaryanaPHHC01072903200730 July 2009Author: MR. JUSTICE ADARSH KUMAR GOEL,MRS JUSTICE DAYA CHAUDHARY5 pages
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What did the High Court hold?

The High Court held that questions (i), (iii), and (iv) were questions of fact and not substantial questions of law, and thus the Tribunal's findings on these issues were not liable to be interfered with. The finding that the wife accompanied her husband partly for business and partly for personal purposes, leading to 50% allowance of expenses, was upheld. The deletion of disallowances on commission and personal use of car was also affirmed based on previous High Court decisions. However, regarding question (ii), the Court found a conflict between the finding and the operative part of the Tribunal's order, indicating perversity. Therefore, the appeal was partly allowed. The Tribunal's finding that 50% of the wife's expenses were allowable was maintained. However, the Tribunal's order to the extent it confirmed the CIT(A)'s order on that aspect (implying full deletion of disallowance) was set aside, acknowledging the need for modification based on the 50% allowance.

What were the facts?

The Revenue, Commissioner of Income Tax, Faridabad, appealed under Section 260-A of the Income Tax Act, 1961, against an order dated August 31, 2006, passed by the Income Tax Appellate Tribunal (ITAT), Delhi Bench 'A', for Assessment Year 1996-97. The appeal challenged the ITAT's deletion of disallowances made by the Assessing Officer (AO). The AO had disallowed foreign tour expenses of the Managing Director's wife, commission paid to the Managing Director and executives, and expenses attributable to the personal use of a car. The Commissioner of Income Tax (Appeals) [CIT(A)] had deleted the disallowances related to commission and car use, and allowed the foreign tour expenses of the wife. The ITAT, however, allowed the foreign tour expenses of the wife only to the extent of 50%.

What were the issues?

The High Court had to decide the following substantial questions of law: 1. Whether the ITAT was right in dismissing the Revenue's appeal and deleting the disallowance of foreign tour expenses of the Managing Director's wife, for which no evidence was furnished to prove the nexus with business activities? 2. Without prejudice to question (i), whether the ITAT was right in deleting the entire disallowance when it itself stated that 50% of the wife's travelling expenditure should be allowed? 3. Whether the ITAT was right in confirming the CIT(A)'s order deleting the disallowance of Rs.5,91,952/- on account of commission paid to the Managing Director and Executives? 4. Whether the ITAT was right in confirming the CIT(A)'s order deleting the disallowance of Rs.4,80,191/- on account of personal use of a car? Assessee's contentions: Questions (iii) and (iv) were covered in favour of the assessee by previous High Court orders in similar appeals. Question (i) was a question of fact, and the finding that the wife accompanied her husband partly for business and partly for personal purposes, leading to 50% allowance, was consistent with High Court precedents (CIT v. Appollo Tyres and CIT v. Indian Products Limited). Regarding question (ii), the assessee argued there was an error in the Tribunal's order as it should have partly modified the CIT(A)'s order if only 50% was allowed. Revenue's contentions: The revenue did not seek any question on perversity of the Tribunal's finding. No specific arguments were recorded for the revenue on other points.

Which sections of the Income-tax Act were involved?

Section 260-A

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH.

Date of decision: 30.7.2009 Commissioner of Income Tax, Faridabad -----Appellant Vs. M/s Porrits & Spencers (Asia) Limited, Faridabad. -----Respondent CORAM:- HON'BLE MR JUSTICE ADARSH KUMAR GOEL HON'BLE MRS. JUSTICE DAYA CHAUDHARY Present:- Mr. Rajesh Katoch, Standing Counsel for the revenue. Mr. Santosh Aggarwal and Mr. A.C.Jain, Advocates for the respondent-assessee. Adarsh Kumar Goel,J.

1.

This appeal has been preferred by the revenue under section 260-A of the Income Tax Act, 1961 (in short, ‘the Act’) against the order dated 31.8.2006 passed by the Income Tax Appellate Tribunal, Delhi Bench ‘A’ New Delhi in ITA No.3432/DEL/01, for the assessment year 1996-97, proposing to raise following substantial questions of law:- “i) On the facts and circumstances of the case, whether the Hon’ble ITAT is right in dismissing

the appeal of Revenue thereby deleting the disallowance made by the Assessing Officer regarding foreign tour expenses of Mrs. Tapedar w/o Shri K.C.Tapedar (MD), for which no evidence was furnished by the assessee to prove the nexus with the business activities? ii) Without prejudice to ground No.(i) above, whether the Hon’ble ITAT was right in deleting the entire disallowance, whereby the Hon’ble ITAT has itself stated in the present order that the expenditure pertaining to travelling of wife was to be allowed to the extent of 50%?” iii) Whether on the facts and circumstances of the case, the Hon’ble ITAT was right in confirming the order of the learned CIT(A), in which the disallowance of Rs.5,91,952/- made by the Assessing Officer on account of commission paid to Managing Director and the Executives was deleted? iv) Whether on the facts and circumstances of the case, the Hon’ble ITAT was right in confirming the order of the learned CIT(A) in which the disallowance of Rs.4,80,191/- made by the Assessing Officer on account of personal use of Car, was deleted?”

2.

The Assessing Officer disallowed foreign tour expenses of wife of the Managing Director. The CIT(A) allowed the same but the Tribunal allowed the same to the extent of 50%. The Assessing Officer also disallowed the commission paid to the Managing Director and other executives. However, the CIT(A) and the Tribunal allowed the same. The Assessing Officer disallowed amount attributable to personal use of the car but the CIT(A) held that expenditure was not attributable to personal use.

3.

Even though, notice has not been issued, Shri Santosh Aggarwal, representing the assessee has put in appearance and argued the matter. He points out that Question Nos.(iii) and (iv) are covered in favour of the assessee by orders of this Court dated 5.3.2009 in ITA No.38 of 2008 (Commissioner of Income Tax, Faridabad v. M/s Porrits & Spencer (Asia) Limited, Faridabad) and ITA No.540 of 2006 (Commissioner of Income tax, Faridabad v. M/s Porrits & Spencer (Asia) Limited, Faridabad), in the case of the assessee, while Question No.(i) is a question of fact. It has been found that wife of the Managing Director had accompanied her husband partly for business purpose and for partly for personal purposes and in view of that finding, expenses to the extent of 50% have been allowed, which is consistent with the view taken by the Kerala High Court in CIT v. Appollo Tyres, (1999) 237 ITR 706 and Calcutta High Court in CIT v. Indian Products Limited, (1994) 207 ITR

647.

However, as regards Question No.(ii), learned counsel for the assessee submits that there is an error in the order of the Tribunal in as much as if 50% expenditure of the wife was allowed, the order of the CIT(A) was required to be partly modified. The revenue has not sought any question on perversity of the finding of the Tribunal. This submission could not be rebutted on behalf of the revenue.

5.

We are of the view that Question No.(i), (iii) and (iv) are questions of fact and are not substantial questions of law. The findings of the Tribunal on those issues are not liable to be interfered with. However, Question No.(ii) relates to perversity, there being conflict in the finding and operative part of the order of the Tribunal.

6.

Accordingly, this appeal is partly allowed with regard to question No.(ii) and while the finding of the Tribunal that 50% of expenses of the wife are allowable, will stand, the order of the Tribunal to the extent it holds that the order of the CIT (A) was confirmed on that aspect, is set aside. (Adarsh Kumar Goel) Judge July 30, 2009 (Daya Chaudhary) ‘gs’ Judge 5

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