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Income Tax Appellate Tribunal, DELHI BENCH: ‘A’ NEW DELHI
Before: SHRI G.D. AGRAWAL, HON’BLE & SHRI K.N. CHARY
ORDER PER K. NARSIMHA CHARY, J.M. This is an appeal by the assessee challenging the order dated 01.08.2012 in appeal no. TR-33/2011-12 passed by the Ld. CIT (A)-IX, New Delhi.
Brief facts of the case are that the assessee derives her income from trading and export of fittings and other iron items under the name of proprietorship concern namely M/s BPJ & Company. For the AY 2007-08 they filed their return of income on 02.11.2007 declaring an income of Rs. 5,01,150/-. During the proceedings u/s 143(3) of the Act AO disallowed the expenditure and made the following additions:
Supervision Charges Rs. 2,91,680/- b) Travelling expenses Rs. 3,70,215/- c) Car expenses Rs. 2,03,531/- d) Interest & Bank Charge Rs. 2,78,670/- e) Commission paid to Puneet Jhalani Rs. 75,000/- f) Consultancy Charges paid to Yogesh Jhalani Rs. 60,000/- Total Rs.12,79,096/-
Appeal preferred by the assessee was partly allowed.
However, the Ld. CIT (A) sustained the addition made on disallowance of supervision charges, travelling expenses, car expenses and commission paid to one Puneet Jhalani and Yogesh Jhalani. The assessee is, therefore, before us in this appeal stating that the Ld. CIT (A) committed an error in directing the AO to make an addition on account of fall in GP rate on the basis of the preceding assessment year, sustaining the disallowing of travelling and car expenses to some extent and also 50% of the remuneration paid to Puneet Jhalani.
It is the argument of the Ld. AR that the gross profit ratio of the assessee for the period 2005-06 to 2007-08 is as follows:
COMPARATIVE SALES AND G.P. CHART ASSESSMENT YEAR SALES G.P. RATIO 2005-06 29,345,485.97 11.53% 2006-07 20,600,136.73 19.59% 2007-08 22,763,672.31 18.39%
Basing on this he submits that though the GP ratio of 2007-08 is less by 1.20% when compared to 2006-07 but it is very high when compare to year 2005-06 as such the Ld. CIT (A) is not justified in directing the AO to substitute the disallowance for the supervision charges with the shortfall in the GP ratio with reference to the immediately preceding assessment year. So far as the supervision charges are concerned, it is the argument of the Ld. AR that even for the previous assessment year the supervision charges paid were Rs. 2,87,162/-, whereas for the current assessment year it is only Rs. 2,91,680/-. He further submits that both the assessee and the sister concern namely M/s Ferreterro India Pvt. Limited fall in the high tax brackets, as such there is no loss to the Revenue. So far as the travelling expenses are concerned it is his submission that a lot many details are provided vide page nos. 174 & 175 of the PB giving details as to the name of the person who went abroad, purpose of visit and whether any business was generated or not. He also stated that vide page nos. 192 to 196 further details are given and in spite of this voluminous record produced, the authorities felt that not sufficient evidence was produced. Page No. 198 onwards contained the copies of invoices also. He placed reliance on the decision of the Jurisdictional High Court reported in Rahul J. & 3
Company P. Ltd. vs. ITAT Revision Petition No. 668 of 2011 in ITA No. 157 of 2011 for the principle that the relationship of the person with the concern or the benefits of the foreign travel are irrelevant considerations in so far as the fact remins that such person was sent by the assessee abroad in connection with the business of the assessee. His further contention is that vide remand report dated 14.03.2012 under page no. 164 of the PB, the AO confirms to have examined the bills and the confirmation given by the travelling agent. Adverting to the vehicle expenses, the authorities below sustained the disallowance of 1/4th of the expenditure which is unreasonable. Lastly he contended that the payments made to the consultants namely Puneet Jhalani and Yogesh Jhalani cannot be denied and, as a matter of fact, in the previous year, payments to those two people at Rs. 3,09,000/- to Puneet Jhalani Rs. 1,20,000/- paid to Yogesh Jhalani were accepted by the Revenue as against the payment of Rs. 1,50,000/- and 1,20,000/- respectively for the current assessment year. Per contra, Ld. DR vehemently relies upon the orders of the authorities below.
We have carefully gone through the record. In the light of the arguments of the Ld. AR and DR in respect of supervision
charges, admittedly the assessee is following the mercantile system of accounts and the AO in his order found that the assessee has been purchasing goods from M/s Ferreterro India Pvt. Limited. In the background of these facts, the AO examined the record to find that during the year under consideration no supervision work in contrast to the work done for the earlier year, was carried out and whatever the supervision activities in respect of which the assessee claimed expenditure, relate to the earlier assessment year only. AO further found that the bills were raised after two and half months and the details were different from those found at the time of processing in the month of 2006. AO further found that in respect of some cases the charges were reckoned on the basis of number of pieces and in respect of some on the basis of number of bags of kilograms and thus, held that there was no certainty of pattern for calculating the supervision charges. He further found that the expenses relating to the AY 2006-07 cannot be allowed as deduction for the AY 2007-08. It is only on these factual verifications AO disallowed such expense to the tune of Rs. 2,91,680/-. Ld. CIT (A) on a reappraisal of the material available before him reached a conclusion that AO rightly rejected the books of account, but the Ld.CIT (A) in the place of Rs. 2,91,680/- substituted the disallowance at the difference 5
19.59% of previous year and 18.39% of the current year.
On this aspect nothing is produced before us to contradict the factual findings of the authorities below and we are also of the considered opinion that there is no sufficient material on record to conclude that the assessee had to incur any supervision charges for the current year, more particularly in view of the fact that the entire goods were purchased from the sister concern and the expenditure that was incurred relates to the previous year.
We, therefore, do not find any illegality or regularity in the findings of the Ld. CIT (A). We, therefore, dismiss the grounds relating to this aspect.
Now turning to the travelling and vehicle expenditure, on a careful consideration of the orders of the authorities below and the papers relied upon the assessee, we find that there is no clinching record to support the entries in page nos. 174 to 175 and 192 to 196 of the PB. On their own, these entries doe not stand proved. The invoices filed do not establish any connection between the trip and the business purpose. Same is the case in respect to vehicle expenditure. No log book is produced before us.
In the circumstances, we are of the considered opinion that the personal expenditure out of these two heads cannot be ruled out.
However, having regard to the facts and circumstances of the case and the business needs of the assessee, we restrict the disallowance to 1/6th of the expenditure under the heads of travelling and vehicles.
Lastly coming to the commission on sales and consultancy charges paid to one Sh. Puneet Jhalani and Yogesh Jhalani, AO restricted the disallowance to 50%. On this aspect on a consideration of the amounts paid to these two persons over a period of time. As enumerated at page nos. 171 and 172 of the PB, we find that right from the year 2002-03 the assessee has been paying this commission and charges to these persons and for that matter the commission paid to Puneet Jhalani this year is equivalent to only 50% of the amount that was paid for the AY 2006-07. Having regard to the nature of the business and the nature of payments, we are of the opinion that the authorities below are not justified in disallowing the expenditure and this expenditure is allowable.
To sum up, we
i. confirm the finding of the Ld. CIT (A) in respect of the supervision charges. ii. restrict the disallowance of foreign travel expenses and vehicle expenses to 1/6th thereof and 7 iii. delete the disallowance in respect of the commission and consultancy charges.
In the result, appeal of the assessee is accordingly partly allowed.
Order pronounced in the open court on 05th May, 2017