M/S GNA AXLES LTD,JALANDHAR vs. THE ASSTT. COMMISSIONER OF INCOME-TAX, CIRCLE-1, JALANDHAR

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ITA 532/ASR/2017Status: DisposedITAT Amritsar23 March 2018AY 2011-125 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal acknowledged that while the AO had allowed a portion of such expenses in a subsequent year, the principle of consistency or estoppel did not strictly apply. However, considering a potential business purpose and subsequent joining of the business by sons, the disallowance was restricted to 40% of the impugned expenditure.

What were the facts?

The Assessing Officer disallowed expenses claimed under TA & Conveyance, stating they were for foreign travels of family members and not genuine business expenses. The CIT(A) upheld this disallowance, finding the expenses were not wholly and exclusively for business purposes and no business benefit was derived.

What were the issues?

Whether foreign travel expenses of directors' family members are deductible as business expenditure. Whether the principle of consistency applies to disallowances in subsequent assessment years.

Which sections of the Income-tax Act were involved?

Section 37(1)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR

Before: SH. SANJAY ARORA & SH. N.K.CHOUDHRY

Hearing: 12.03.2018Pronounced: 23.03.2018

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR BEFORE SH. SANJAY ARORA, ACCOUNTANT MEMBER AND SH. N.K.CHOUDHRY, JUDICIAL MEMBER ITA Nos.532(Asr)/2017 Assessment Years:2011-12

M/s. GNA Axles Ltd. Vs. Asst. CIT 1-C, Chhoti Baradari Central Circle-1, Garha Road, Jalandhar Jalandhar PAN:AAACG8506C (Appellant) (Respondent) ITA Nos.533, 534 & 535(Asr)/2017 Assessment Years:2010-11, 2011-12 & 2012-13

M/s. GNA Duraparts Ltd. Vs. Asst. CIT 1-C, Chhoti Baradari Central Circle-1, Garha Road, Jalandhar Jalandhar

PAN:AAACG4932G (Appellant) (Respondent) Appellant by: Sh. Gunjeet Singh Syal (Ld. Adv.) Respondent by: Rajeev Gubgotra (Ld. DR)

Date of hearing: 12.03.2018 Date of pronouncement: 23.03.2018 ORDER PER BENCH All the aforesaid four appeals filed by the Assessees are against the orders dated 11.05.2017 & 12.05.2017 relating to Assessment Years: 2011-12 & 2010-11 to 2012-13, respectively passed by the ld. CIT(A)-5, Ludhiana.

2.

As the issues involved in all the appeals are similar, therefore, are being disposed of by this consolidated order for the sake of convenience and brevity. The facts and grounds of ITA

ITA Nos.532 to 535/Asr/2017 2 (A.Ys.2011-12 & 2010-11 to 2012-13) M/s GNA Axles Ltd. & GNA Duraparts Ltd. vs. ACIT

No.532(Asr)/2017 have been taken into consideration for adjudication and the result of the same should also be applicable to the other three appeals.

“1. That on facts and circumstances of the case, the Ld. CIT (A)-5, Ludhiana has erred in upholding the addition under head TA & Conveyance. 2. That the written submissions of the appellant should have been considered in proper context. 3. That it is wrong to hold that no benefit was derived by the assessee company from visits of family. 4. That the order is against law and facts of the case. 5. That the appellant pray to add or amend any grounds of appeal or at the time of hearing.” 3. Solitary controversy in the appeals under consideration relates to disallowances under the head of T.A. & Conveyance. The Assessing Officer while framing the assessment order, disallowed an amount of Rs.4,59,184/- (which was claimed by the assessee in lieu of expenditure under the head of TA & Conveyance) , on the ground that the expenses related to the foreign travels of the family members alleged to have been borne by the assessee company and claimed as expenses can not be considered genuine, because foreign visit of the family members are the private visits which have been impliedly sponsored by the company and expenses are debited quite knowingly that these are not business related expenses and which are not liable to be allowed as deduction and moreover the assessee has not furnished any evidence/details of involvement of the family members in the alleged business meetings nor any detail of such meetings has been furnished.

4.

On appeal, the Ld. CIT(A) while upholding the disallowances, in addition to observation of Assessing officer, also observed that the assessee has not been able to show that the claimed expenses were wholly and exclusively for the purposes of the business of the assessee

ITA Nos.532 to 535/Asr/2017 3 (A.Ys.2011-12 & 2010-11 to 2012-13) M/s GNA Axles Ltd. & GNA Duraparts Ltd. vs. ACIT

company and even the assessee has not been able to show the benefit derived by the business from the visits of the family members and reciprocation of hospitality is not found a good argument for allowing the expenses as deduction in computing business income.

5.

On feeling aggrieved against the order passed by the Ld. CIT(A), the assessee preferred the instant appeals before us and in respect of its case submitted that The only point of dispute is regarding disallowance of Foreign Travelling Expenses under the head TA & conveyance of the wife/s and son/s of the directors of the Assessee Company. It is submitted that the AO in the assessee’s own case for AY 2014-15 has restricted the disallowance to 20% of the total expenditure and it is settled principle that where there are no variation in facts or where all relevant facts have been considered by the Revenue, then according to “Principles of Consistency “and“ Doctrine of estoppels”, the Revenue is debarred from taking a contrary view. The Ld. A R also relied upon many judgments which are part of record. The Ld. A R further submitted that in the present case there are no changes in relevant facts during the years under consideration and AY 2014-15. Foreign Travelling Expenses of the wife/s and sons/s of the directors has been made in AY 2014-15 and this fact has been duly accepted by the Revenue. Therefore, the Revenue is precluding from taking a contrary view on same facts by disallowing the entire foreign travelling expenses of the wives of the directors. In addition to the aforesaid submissions, the assessee has also filed details of the foreign travel expenses.

\6. We have gone through with the facts and circumstances of the case and also rival submissions of the parties, although the Assessing Officer in the Assessee’s case itself for Asst. Year 2014-15 allowed the said expenses, however, subjected to restriction of disallowances to 20% of total expenditure but in our considered view that it cannot be

ITA Nos.532 to 535/Asr/2017 4 (A.Ys.2011-12 & 2010-11 to 2012-13) M/s GNA Axles Ltd. & GNA Duraparts Ltd. vs. ACIT

construed as estoppels and subjected to consistency because that consideration before the AO was only Asst. Year: 2014-15. That is, the Revenue has already taken a definite and, in-as-much as it extends to three years in succession, a firm view in the matter, and it is rather for the subsequent year/s (A.Y.2014-15) that the doctrine (of consistency) may have application. Needless to add, the matter is factual, and the principle of res judicata is not applicable to the proceedings under the Act (Income Tax Act, 1961). As stated, the question is principally of fact; the law obliging the assessee to show that an expenditure, claimed as a business expenses, has been incurred wholly or exclusively for the business purpose/s (sec.37(1)). It is again trite that word ‘wholly’ in s. 37(1) refers to quantum and ‘exclusively’ to the purpose. Both the conditions remain unsatisfied in the present case. The nexus with business has to be clear and straightforward, and not remote or vague, as would appeal to a man of business, i.e., motivated and guided solely by business consideration. The same cannot be said in the present case/s. The accompaniment of wife/s appears to be purely for social purpose, as clearly her interaction is restricted to social platforms. As regards son/s, he is an outsider to the business, at least for the relevant years. In fact, for the later year (A.Y.2014-15), the ld. AR clarified that the son/s had joined business, and which may perhaps led to the acceptance of the assessee’s claim for that year (at 80%). The nexus of the impugned expenditure with the business for the years under reference is tenuous and, in the least, not total. In other words, the expenditure bears a significant component of personal (non-business) element. As the assessee may stand to derive some business benefit from such social intercourse and, further considering that the son/s has joined business subsequently, indicating a business purpose as well, we consider it proper to restrict the disallowance to 40% of the impugned expenditure, i.e. qua TA and conveyance. We decide accordingly.

ITA Nos.532 to 535/Asr/2017 5 (A.Ys.2011-12 & 2010-11 to 2012-13) M/s GNA Axles Ltd. & GNA Duraparts Ltd. vs. ACIT

7.

Now, we take up appeals of the assessee in ITA Nos.533, 534 & 535(Asr)/2017, for Asst. Years: 2010-11, 2011-12 & 2012-13, where the assessees have raised similar grounds as taken in ITA No.532(Asr)/2017, for Asst. Year:2011-12. Since the grounds raised in ITA No.532(Asr)/2017 are stands adjudicated and the findings given therein shall apply mutatis mutandis to these appeals also. Accordingly, these appeals are also partly allowed.

8.

In the result, all the said appeals filed by the assessees are partly allowed. Order pronounced in the open Court on 23.03.2018.

Sd/- Sd/- (SANJAY ARORA) (N.K.CHOUDHRY) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated:23.03.2018 /PK/ Ps. Copy of the order forwarded to: (1) M/s GNA Axles Ltd. & M/s GNA Duraparts Ltd., Jalandhar. (2) The ACIT, Central Circle-1, Jalandhar (3) The CIT(A)-5, Ludhiana (4) The CIT concerned. (5) The SR DR, I.T.A.T., Amritsar

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