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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
This appeal by the assessee is arising out of the order of Commissioner of Income Tax-33, Mumbai [in short CIT(A)], in appeal No. CIT(A)-33/Rg.21/288/2007-08 dated 01.12.2015. The Assessment was framed by the Addl. Commissioner of Income Tax, Circle-6(3)(1), Mumbai (in short ‘ACIT’) for the A.Y. 2005-06 vide order dated 28-12-2007 under section 143(3) of the Income Tax Act, 1961(hereinafter ‘the Act’).
The first issue in this appeal of assessee is against the order of CIT(A) confirming the action of the AO in disallowing foreign travelling expenses amounting to ₹ 6,10,422/-. For this assessee has raised the following ground No. 1: -
"On facts and in law, the learned Commissioner of Income-tax (Appeals) thereinafter referred to as "Ld. CIT(A)"] had erred in confirming the disallowance out of Travelling expenses amounting to ₹6,10,422/- even though no personal/pleasure advantage was availed by the persons who travelled abroad. Under the facts and circumstances of the matter, the Ld. ClT(A) ought not to have confirmed the disallowance of Rs.6,10,422/- made by the learned Assessing Officer (hereinafter referred to as 'LAO") in the impugned assessment order
Briefly stated facts are that the assessee is engaged in the business of export of Textile of readymade garments, made up fabric and handicraft items. The AO noted from the profit and loss accounts during the course of assessment proceedings that the assessee has debited the travelling expenses of ₹ 88,39,145/-, which includes foreign traveling expenses of ₹ 80,11,755/- and local travelling of Rs. 8,27,390/-. The AO require the assessee to explain the foreign travelling expense including foreign trips to Malaysia, Singapore and Sri Lanka, the details of which are as under:-
As the assessee could not explain the purpose of these trips to foreign countries by Shri Shiv Hari Agarwal, Siddarth and Sandhini. Accordingly, the AO disallowed the foreign travelling expenses relating to these three persons amounting to ₹ 6,10,422/- as there is no export or business carried out with the country of Singapore. Aggrieved, assessee preferred the appeal before CIT(A). The CIT(A) also confirmed the action of the AO that the expenses relating to foreign trips to Malaysia, Singapore and Sri Lanka were incurred for non- business purposes as the assessee did not have any business connection with these countries, he confirmed the disallowance of ₹ 6,10,422/- by observing in Para 4.10 as under:-
"4.10 It is observed that the appellant has failed to submit any documentary evidence or reply to my specific query about business connection in the form of the parties to whom the concern persons met during the visit, specific details about business meetings, conferences, seminars etc. attended, details of business dealing. anything tangible which can establish that the visits were for business purpose What the appellant has submitted is the name of the persons who visited Malaysia. Singapore and Srilanka. The appellant has taken a very strange stand that since the partners have not visited these places along with their spouse, personal or non-business visit is automatically ruled out. It appears that the appellant has forgotten that the firm is otherwise not allowed to debit any travel expenses related to the spouse or any other person, if they are not a partner or an employee and not incurred for business purpose. Once the AO has brought on record that there is no business connection with these countries and no business purpose is established with respect to visit to these three countries, the onus shifts on the appellant to provide any cognate material to justify the expenses It is not the case of the AO that the entire foreign expense of Rs. 80,11,355/- has been disallowed by the AO, but he has found expenses of Rs. 6,10,422/- only related to three countries where neither any business connection was found nor any business purpose was apparent. I find that the appellant has completely failed in supplying any document to justify business purpose as far as foreign expenses of Rs. 6,10,422/- are concerned. Just because. turnover of business has increased during the year as compared to the preceding years, the claim of the appellant cannot be accepted that all expenses debited in the books are justified. Each & every expense is required to be established that for the purpose of business. Ultimately, it is the responsibility of the assessee to establish the genuineness and purpose of an expense debited in the books of accounts and to the satisfaction of the revenue, which has not been discharged. In view of the above, I do not find any wrong in disallowing the foreign expenses related to these three countries.”
Aggrieved assessee preferred the appeal before Tribunal.
We have heard the rival contentions and gone through the facts and circumstances of the case. We require the assessee’s Counsel to explain what type of business conducted by assessee in relation to the visits of Shri Shiv Hari Agarwal to Singapore and Siddarth and Sandhini to Singapore but he could not explain. He only stated that just to explore the market. He could not submit any evidence of the same. In such circumstances, we are of the view that these foreign travelling expenses to Singapore by Shri Shiv Hari Agarwal and Siddarth and Sandhini is not in connection with the business of the assessee and assessee has no business connection with these countries at all. In such circumstances, we confirm the order of CIT(A) confirming the disallowance of foreign travelling expenses. This issue of assessee’s appeal is dismissed.
The next issue in this appeal of assessee is against the order of CIT(A) conforming the disallowance of telephone expenses and motor car expenses at the rate of 10% on adhoc basis. For this assessee has raised the following grounds:-
"2. On facts and in law, the Ld. CIT(A) had erred in confirming the disallowance out of telephone expenses amounting to Rs.1,92,076/- on ad-hoc basis (10%) without appreciating the facts of the case. Under the facts and circumstances of the matter, the Id. CIT(A) ought not to have confirmed the said disallowance of Rs. 1,92,076/- made by the LAO in the impugned assessment order.
3. On facts and in law, the Ld. ClT(A) had erred in confirming the disallowance out of Motor car expenses amounting to Rs.1,37,466/- on ad-hoc basis (10%) without appreciating the facts of the case. Under the facts and circumstances of the matter. the Id. CIT(A) ought not to have confirmed the said disallowance of Rs. 1,37,466/- made by the LAO in the impugned assessment order.”
We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the assessee’s export turnover for three AYs and telephone expenses are as under:-
Asst. Year Asst. Year Asst. Year 2005-06 2004-05 2003-04 Export Turnover 48,67,467 26,41,28,636 28,97,27,503 Telephone, Telex and fax 19,20,765 16,58,248 15,83,478 expenses Further, the motor car expenses are as under
We find that the CIT(A) confirmed the adhoc disallowance of 10% by observing in Para 5.3 as under:-
5.1 The above contentions of the appellant have been carefully considered. It is observed that there are six partners in the firm. The AO made disallowance of Rs. 192,076/- (@10% of total expenses) under the head "telephone' and Rs, 1,37,466/- (@ 10% of total expenses) under the head "Motor Car expenses treating it as incurred for non-business purpose and for personal use. The appellant has not come out with any details to establish that the partners and the employees have other telephone and mobile phone instruments, bills of which are not incurred/reimbursed by the firm during the year under consideration. During the appellate proceedings, it is admitted that personal element in the use of the telephones, cell phones cannot be ruled out. Hence, the estimation of the AO for 10% use of such communication devices for personal & non-use purposes, cannot be termed as excessive. Apart-from that from the details of the vehicles. I find that there are a no. of luxury vehicles which are used by the partners of the firm. The appellant has not brought on record details of personal vehicles in the names of the partners whose expenses are not debited by the firm during the year under consideration. In the absence of such details, the act of the AO to estimate personal use of the vehicle @ 10% cannot be treated as excessive.”
Now, before us, the assessee could not controvert that how the findings of CIT(A) is wrong. Accordingly, we confirm the finding of CIT(A) and this common issue of assessee’s appeal is dismissed.
In the Result, the appeal of the Assessee is dismissed.
Order pronounced in the open court on 04-04-2018.