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Income Tax Appellate Tribunal, MUMBAI BENCH “C”, MUMBAI
Before: Shri R.C. Sharma (AM) & Shri Pawan Singh (JM)
Appellant by Shri Rakesh Joshi AR Respondent by Shri S Abi Rama Kartikeyan Sr DR Date of hearing 05-09-2019 Date of pronouncement 16-10-2019 O R D E R Per Pawan Singh, JM : 1. These appeals filed by the assessee are directed against the separate orders of CIT(A)-8, Mumbai both dated 04th September, 2017 for the assessment years 2013-14 & 2014-15. In both the appeals the assessee has raised identical grounds of appeal except variation of figures; hence, both the appeals were clubbed, heard together and are decided by consolidated order. With the consent of the parties, the appeal for AY 2013-14 is treated as lead case. The assessee has raised the following common effective ground of appeal:- “1) On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in confirming the action of Learned Assessing Officer in disallowing the foreign travelling expenses on the alleged plea
ITA 7429-30/Mum/2017 Omega Realtech Ltd that the same was not incurred for business purpose, without considering the facts and circumstances of the case.”
The brief facts of the case taken from are that the assessee is in the business of real estate and properties redevelopment of Slum Rehabilitation Authority (SRA) project. The assessee filed its return of income on 29-09-2013 declaring total income at Rs. 1,02,06,069/-. The assessing officer, in his scrutiny assessment made u/s 143(3) on 23-03-2016, computed total income at Rs.2,00,35,007/- and book profit u/s 115JB at Rs.95,36,526/-. The assessing officer besides other additions made disallowance of foreign travel expenses of Rs.27,06,407/-. Aggrieved, assessee filed appeal before CIT(A) against all the additions / disallowances. The Ld. CIT(A) confirmed disallowance of foreign travel expenses. Further aggrieved, the assessee has filed the present appeal before this Tribunal.
We have heard the submissions of the ld authorised representative (AR) for the assessee and the ld. departmental representative (DR) for the revenue. The ld. AR of the assessee submitted that the foreign travel expenses have been incurred wholly and exclusively for business purpose. Merely because in the said foreign travel, no business could be transacted or the foreign travel did not result in any bagging of contract,
ITA 7429-30/Mum/2017 Omega Realtech Ltd it cannot be said the said expense was not for business purpose. The sole intention was to expand and gradually grow business out of its present boundaries. In support of his submissions the Ld.AR placed his reliance on the following case laws
(a) CIT vs Nuchem (2012) 208 Taxman 250 (Mag.)(P&H)(HC) (b) J. Tools & Castingsw (P.) Ltd Vs ACIT (2012) 139 ITD 414 (Asr- Trib) (c ) CIT vs Superior Crafts (2013) 353 ITR 101 / 82 DTR 209 (Del). 4. The ld. AR submits that in CIT Vs Superior Craft (supra) Tribunal sustained the disallowance of 20% of the expenditure claimed, which was upheld by Hon’ble Delhi High Court, when full details and evidence were not available to quantify the expenditure. The Ld.AR submitted that in the instant case full details of the expenditure are available; therefore, the entire expenditure claimed has to be allowed as business expenditure. In this connection, he submitted the following details, which is placed on record:- date particulars amount 7-5-12 GREATER BOMBAY CO-OP BANK 1,08,600 PAID TO WEIZMANN FOREX L TD FOR AKASH SETHI FOR USA VISIT GREATER BOMBAY CO-OP BANK PAID TO WEIZMANN FOREX 7-5-12 1,08,600 LTD FOR GAURAV SETHI FOR USA VISIT 7-5-12 CASH PAID TO WEIZMANN FOREX L TD 462 31-5-12 AEB (3769 / 82008) PAID FOR VISIT TO URBANA & CHICAGO 1,15,536 FOR GAURAV SETHI 25-6-12 HSBC (4617/82008) PAID FOR VISIT OF RK SETHI FOR NEW 10,925 YORK 28-06- AEB (3769/82008) FOR VISIT TO NEW YORK & BROOKLYN 1,49,100 2012 BY AKASH SETHI GREATER BOMBAY CO-OP BANK PAID TO WEIZMANN FOREX L 5-7-12 2,23,112 TD FOR RK SETHI & VARSHA SETHI FOR THAILAND VISIT 6-7-12 GREATER BOMBAY CO-OP BANK PAID TO WEIZMANN FOREX L 55,994
ITA 7429-30/Mum/2017 Omega Realtech Ltd
TD FOR VARSHA SETHI FOR THAILAND VISIT 13-8-12 GREATER BOMBAY CO-OP BANK PAID TO AKBAR TRAVELS 1,65,173 OF INDIA PVT LTD FOR RK SETHI & AKASH SETHI FOR BANGKOK VISIT 29-9-12 AEB (3769/82008) AMOUNT PAYABLE TO AEB CARD OF 92,258 GAURAV SETHI AS PER STATEMENT ATTACHED FOR NEW YORK VISIT 8-10-12 GREATER BOMBAY CO-OP BANK PAID TO WEIZMANN FOREX L 2,06,702 TD FOR PURCHASE OF FOREIGN CURRENCY FOR BANGKOK VISIT 5-11-12 GREATER BOMBAY CO-OP BANK PAID TO WEIZMANN FOREX L 82,222 TD FOR PURCHASE OF FOREIGN CURRENCY FOR BANGKOK VISIT 5-11-12 GREATER BOMBAY CO-OP BANK PAID TO AKBAR TRAVELS 1,69,778 OF INDIA PVT LTD FOR VISIT TO ISTANBUL FOR RK SETHI & VARSHA SETHI 29-11-12 GREATER BOMBAY CO-OP BANK PAID TO AKBAR TRAVELS 1,24,934 CORPORATE DIVISION FOR VISIT TO BANGKOK FOR KC SETHI, KAMALADEVI SETHI, GAURAV SETHI & NEHA SETHI 23.11.12 CITI BANK (43896/3322) FOR VISIT TO BALENGIAGA FOR RK 99,359 SETHI 23.11.12 GREATER BOMBAY CO-OP BANK PAID TO AKBAR TRAVELS 2,848 CORPORATE DIVISION FOR VISIT TO BANGKOK FOR KC SETHI, KAMALADEVI SETHI, GAURAV SETHI & NEHA SETHI FOR FOREIGN TRANSIT INSURANCE 28.11.12 AEB (3769/82008) AMOUNT PAYABLE TO AMERICAN 3,13,083 EXPRESS CARD FOR NEWYORK VISIT OF RK SETHI, K.C.SETHI & GAURAV SETHI AS PER STATEMENT ATTACHED. 05.1.13 AEB (3769/82008) AMOUNT PAYABLE TO AEB CARD FOR 74,366 NEW YORK VISIT OF AKASH SETHI & RK SETHI AS PER BILL ATTACHED 7-1-13 GREATER BOMBAY CO-OP BANK PAID TO AKBAR TRAVELS 74,366 CORPORATE DIVISION FOR NEW YORK VISIT OF AKASH SETHI & RK SETHI AS PER BILL ATTACHED 8-2-13 GREATER BOMBAY CO-OP BANK PAID TO KRISIA HOLIDAYS 36,081 & HOTELS WORLDWIDE VISIT TO BHOLIDAY INN SILOM BANGKOK BY VARSHA SETHI 9-2-13 GREATER BOMBAY CO-OP BANK PAID TO WEIZMANN FOREX L 4,05,637 TD FOR PURCHASE OFFOREIGN EXCHANGE FOR BANGKOK VISIT 6-3-13 AXIS BANK (4718/55769) EXPENSES INCURRED IN 5,794 BANGKOK VISIT 7-3-13 GREATER BOMBAY CO-OP BANK PAID TO AKBAR TRAVELS 63,867 CORPORATE DIVISION FOR NEHA SETHI VARSHA SETHI & ONE PERSON FOR VISIT TO BANGKOK 13-3-13 AEB (3769 / 82008) AMOUNT PAYABLE TO AEB CARD FOR 43,833 NEW YORK VISIT OF GAURAV SETHI AS PER STATEMENT ATTACHED
ITA 7429-30/Mum/2017 Omega Realtech Ltd 14.3.13 GREATER BOMBAY CO-OP BANK EXPENSES AT NEW YORK & 94,887 BANGKOK VISIT 20-3-13 CITI BANK (5498 / 4571) AMOUNT PAYABLE TO CITI BANK 4,791 CREDIT CARD OF GAURAV SETHI AS PER STATEMENT ATTACHED. FOR PURCHASE OF US DOLLAR 30-3-13 AEB (3769/82008) EXPENSES INCURRED IN NEW YORK VISIT 3,598 TOTAL 27,06,407
The Ld.AR, therefore, submitted that the expenses as claimed may be allowed in full as the same has been expended in connection with carrying out business. The Ld.AR also relied upon the decision in the case of Scindia Investments (P) Ltd vs ACIT [2010] 40 SOT 239 (MUM) and submitted that in this case, the Tribunal held that the basis given by the Ld.CIT(A) to dispute or doubt the allowability of foreign travel expenditure was not correct and mer3ely because there was no business activity of the assessee company in foreign countries, it cannot be said that the foreign travel expenses were to be straightaway disallowed and the Assessing Officer was wrong in making the said disallowance of expenditure. The Ld.AR submitted that the ratio of this decision is squarely applicable to the case of the assessee.
The Ld. DR for the revenue, on the other hand, relied upon the orders of authorities below. 7. We have considered the rival submissions of the parties and perused the material placed before us. We notice from the order of assessing officer that he has not discussed the issue in detail. He simply 5
ITA 7429-30/Mum/2017 Omega Realtech Ltd disallowed the expenditure on the reason that business expenses have no basis. The Ld. CIT (A) confirmed the action of the AO. Before us the ld. AR for the assessee has furnished the details of the expenses, which we have recorded above. Keeping in view of the details and nature of expenses, we are in agreement with the submissions of the ld AR for the assessee that merely no business could be transacted or the travel could not result any contract, it cannot be said that the expenses were not for the business. We have noted that the expenses were filed before the lower authorities, though the same was not considered by them, therefore, considering the nature of the expenses, we deem it appropriate to restrict the same to the extent of 25% of such expenses claimed by the assessee.
The Hon’ble Delhi High Court in CIT Vs Superior Crafts (supra) while deciding the similar question of law held as under; 10. The next question relates to disallowance/addition of Rs. 25,80,879/- made by the Assessing Officer on account of travelling expenses incurred by Deven Chachra, who is related to the partners of the firm. Learned counsel for the Revenue has submitted that the order of the tribunal is perverse and merits interference in view of the findings recorded by the Assessing Officer, which were confirmed by the CIT (Appeals). The Assessing Officer while making the said addition has observed that Deven Chachra was paid salary of Rs. 1,14,000/- per annum but this was not paid pursuant to specific employer- employee relationship. The exact findings recorded by the Assessing Officer read:- "Upon the comments as made in other para's and findings given by the special auditor that the salary to Mr. Deven Chachra was only an entry and not paid in pursuance to the specific employer-employee 6 ITA 7429-30/Mum/2017 Omega Realtech Ltd relationship. At this stage it will not be out of place to reliance on sub-para k below, his salary is only Rs. 1,14,000/- per annum and his expenditure on the mobile phone has been considered above of Rs. 2,19,430/- and the same has been disallowed. Again no evidence has been placed on record to substantiate the visits of Deven for the purposes of business of the firm. The assessee is only attempting to cover up the personal expenditure as business without substantiation. In view of any evidence the entire expenditure of Tour & Travelling of Deven of Rs. 25,80,879/- is disallowed."
The tribunal by the impugned order has held that Deven Chachra was an employee. He is having degree of Bachelor of Science and Economics, with specialization in marketing from Pennsylvania University, Wharton School of Business. He was CEO of the firm since 1994. We may note that statement of Deven Chachra was recorded in the assessment year 2003-04 but an ad hoc amount of Rs. 5 lacs was disallowed from the overseas travel expenses on his travel, on ground of personal expenses. The Revenue has not challenged and has accepted the finding of the tribunal that Deven Chachra was an employee of the respondent assessee and on the salary paid to him. But, the challenge is to the foreign travel expenses of Rs. 25,80,879/-, on the ground that these were not incurred for the purpose of business. The Assessing Officer had disallowed the entire expenditure of Rs. 25,80,879/- The tribunal while partly deleting the disallowance held that the expenses were incurred for purpose of business under Section 37 and observed as under:- "8.4 We have perused the records and carefully gone through the submissions made by both the parties. The dispute raised in this ground is regarding disallowance of travelling expenses of Shri Deven Chachra in India and abroad amounting to Rs. 2580579/-. The case of the assessee is that Shri Deven Chachra was an employee who had undertaken the travels for negotiation with foreign buyers, negotiation of disputed issues and settlement of rates and approval of samples etc. The assessee had filed copies of e- mails to substantiate the claim that the expenditure had been incurred for the purpose of business. It has also been submitted that the expenditure under this head had been allowed in the earlier year and in the succeeding year in scrutiny assessments, as was clear from the chart placed at page 1265 of Paper Book-IX. The case of the revenue is that, it was not established that Shri Deven Chachra was an employee and the expenditure had been incurred for the purpose of business. The e- mails produced by the assessee had originated from India, which can be sent from sitting in a room in India and these did not contain details of business activities. We have considered the matter 7
ITA 7429-30/Mum/2017 Omega Realtech Ltd carefully. Out of total tour and travel expenses on account of Mr. Deven Chachra amounting to Rs. 2580879/-, a sum of Rs. 2493842/- is on foreign travelling. For claiming any expenditure as deduction, burden is on the assessee to prove that the expenditure has been incurred wholly and exclusively for the purpose of business. From e- mails, it cannot be established that the entire expenditure had been incurred for the purpose of business. The only details given by the assessee at page 43 of paper book-V were the place of visit, purchases of foreign exchange and the money spent. Merely because the person had travelled abroad and the money on foreign travel had been actually spent, cannot establish that the expenditure was incurred wholly and exclusively for the purpose of business. Even if the foreign travel had been made for the purpose of business, the personal expenses or expenses unrelated to the business trip cannot be allowed. No details were given as to how the money was spent or whether there was any invitation from the buyers for discussing any business matter. However, we can also not overlook the fact that substantial expenditure on tour and travel of Shri Deven Chachra have been incurred and allowed by the revenue in the earlier years as well as in the subsequent year. In the immediate preceding year, expenditure on this account claimed at Rs. 2201052/- was allowed in assessment. In the immediate succeeding year, the assessment for which had been completed after the impugned assessment, expenditure on account of tour and travel of Shri Chachra had been claimed at Rs. 2615341/- and a sum of Rs. 5 lacs on estimate has been disallowed under the head 'tour and travel'. The business requirement of the substantial tour and travel by Shri Chachra has therefore, been accepted by the revenue authorities in the earlier years as well as in the subsequent year. The disallowance of entire expenditure is therefore, not justified. One of the reasons given by the authorities below for making the disallowance of entire expenditure was that he was not an employee. But this aspect, we have already dealt with while dealing with another ground relating to disallowance of salary in the later part of this order and have held in para 12.5 that salary has to be allowed as deduction. However, the full details and evidence are not available to quantify as to how much expenditure had been incurred wholly and exclusively for the purpose of business. Expenditure on travelling may vary substantially from year to year as the business requirement may not be the same. In our view, considering the entirety of facts and circumstances including the past record, it will be appropriate to disallow on estimate 20% of the expenditure claimed as not incurred wholly and exclusively for the purpose of business. We order accordingly. The order of CIT(A) will be modified to that extent." 8 ITA 7429-30/Mum/2017 Omega Realtech Ltd 12. Thus, the tribunal has estimated and disallowed 20% of the foreign travel expenditure on the ground that it may not have been incurred wholly and exclusively for the purpose of business. The said amount will be slightly more than Rs. 6 lacs. We fail to understand why and on what ground the Revenue can claim and submit that the findings recorded by the tribunal are perverse. No substantial question of law, therefore, arises on the said aspect.
In view of the aforesaid discussion, and respectfully following the order of Hon’ble Delhi High Court as noted above, we direct the AO to restrict the disallowance to the extent of 25% of the foreign travelling expenses. In the result the ground of appeal
raised by the assessee is partly allowed. – AY 2014-15
10. The issue and facts and circumstances involved in this appeal are undisputedly identical to the appeal for AY 2013-14. The assessing officer has disallowed the expenses as according to him, “business expenses have no basis”. Since we have already partly allowed the appeal for assessment year 2013-14, therefore, this appeal is also allowed with similar directions.
11. In the result, both the appeals are partly allowed.
Order pronounced in the open court on 16-10-2019.