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Income Tax Appellate Tribunal, “C” BENCH : KOLKATA
Before: Hon’ble Shri A.T.Varkey, JM & Shri M.Balaganesh, AM ]
ORDER Per M.Balaganesh, AM
This appeal by the Revenue arises out of the order of the Learned Commissioner of Income Tax(Appeals)-3, Kolkata [in short the ld CIT(A)] in Appeal No.2168/CIT(A)- 3/Cir-8/14-15/Kol dated 17.06.2016 against the order passed by the JCIT, Special Range-16, Kolkata [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (in short “the Act”) dated 15.03.1999 for the Assessment Year 1996-97.
The only issue to be decided in this appeal is as to whether the ld CITA was justified in deleting the deleting the disallowance of Rs.30,00,000/- under passage and travelling expenses on adhoc basis in the facts and circumstances of the case.
The brief facts of this issue is that the assessee company is engaged in running of different hotels. The return of income for A.Y.1996-97 was filed by the assessee on 29.11.1996 declaring total income of Rs.52,50,17,321/-. The return of income was M/s EIH Ltd. A.Yr.1996-97 supported by audited financial statements, computation of income, TDS certificates and tax payment challans together with Tax Audit report and its annexures and the audit report in Form 10CCAD for claiming deduction u/s 80HHD of the Act. A revised return was filed on 12.08.1997 declaring total income of Rs.50,04,38,718/-. The ld. AO observed that the assessee has debited various expenses under various heads. The ld. AO made observations on various expenses debited by the assessee in its profit and loss account and held that most of these expenses are either capital in nature or are not incidental to the assessee’s genuine commercial needs. Accordingly he disallowed Rs.30,00,000/- on an estimated basis under other expenses.
4. The ld. AO also observed that the assessee has debited passage and travelling expenses of Rs.10,00,62,323/- in its profit and loss account. The assessee claimed that majority of the expenditure incurred thereon were in connection with the foreign travelling by the directors and executives of the assessee company. The excess expenditure incurred thereon under Rule 6D has been calculated by the tax auditors and amount disallowed thereon. Since the specific purpose for which the said foreign travel was carried on together with requisite details were not furnished by the assessee, the ld. AO made an adhoc disallowance of Rs.30,00,000 towards passage and travelling expenses for being in the nature of personal expenses.
This matter was adjudicated in the appeal by the ld. CIT(A) and later on to the tribunal by the assessee and the tribunal in for A.Y.1996-97 had remitted the issue back to the ld. CIT(A). The ld. CIT(A) observed that the ld. AO had made adhoc disallowance of Rs.30,00,000/- towards various expenses claimed by the assessee which was deleted by the tribunal. Apart from this the ld. AO had also made specific disallowance of Rs.30,00,000/- towards passage and travelling expenses on the ground that it might involve personal element thereon. The ld. CIT(A) observed as under :- 2
M/s EIH Ltd. A.Yr.1996-97 “3.7 The ITAT has sent this back to the CIT(A)'s file for proper verification since the latter's order was not clear on the point of travelling expenses. During the current process of hearing while deciding the set aside case, the appellant was asked to produce the details of travelling expenses. However, the case being more that 20 years old, the appellant expressed inability to produce the corresponding bills and vouchers for the travelling expense. In the interest of justice he was asked to produce scrutiny assessment orders of the subsequent A.Y.s to draw a parallel with regard to travelling expenses in subsequent assessment years since he claimed travelling expenses were incurred in such volumes every year without exception and had been granted by the department after verification at the assessment stage itself.
3.8 The appellant produced copies of the order of assessment u/s. 143(3) for the A. Y.s 1999-00, 2000-2001 and 2001-02 (which are more or less proximate to the impugned Assessment Year in question). The passage and travelling expenses were Rs. 179,181,335/-, Rs. 113,565,550/- and Rs.190, 559,641/- respectively for these years and there was no disallowance made by the AO, and were fully allowed. I, therefore, have reason to believe that for the A., Y. 1995-96 too the appellant's expenses were not excessive and must have been verifiable during those years. AO should not have disallowed Rs. 30,00,000/- on ad-hoc basis in any case out of this expenses. The then Ld. CIT(A) had given relief on this account but without specifically mentioning that he was giving relief on "passage and travelling expenses.".
3.9 In view of the above discussion and after examination of AO's order and appellant's track records of scrutiny assessments of other years where in the travelling expenses have been examined and no addition on the account were made, I delete the addition made on this ground. The then CIT(A)had already granted relief of addition of Rs. 30 lakhs on Ground no 16 of the Appellant's grounds of appeal, in his order while discussing it in detail as Ground no 8.
CONCLUSION
As a result the appeal is allowed.”
Aggrieved the revenue is in appeal before us on the following grounds : “1. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred to delete the addition of Rs.30,00,000/- under passage and travelling expenses which was in the nature of personal expenses.
M/s EIH Ltd. A.Yr.1996-97 2. That the appellant reserves the right to amend, alter or add to any grounds of appeal before or at the time of hearing of the appeal.”
We have heard the rival submissions. At the outset, we find that the appeal under consideration pertains to A.Y.1996-97. Due to huge lapse of time the ld. CIT(A) had observed that the assessee could not produce the requisite details before him towards passage and travelling expenses and accordingly the ld. CIT(A) had gone by the subsequent conduct of the assessee with regard to the subject mentioned expenditure as well as the subsequent conduct of the revenue with regard to the allowability of the subject mentioned expenditure. It is not in dispute that the expenses has been disallowed in the sum of Rs.30,00,000/- on adhoc basis. The books of accounts of the assessee have not been rejected by the revenue. We find that in assessee’s own case for A.Y.2000-01, the Hon’ble jurisdictional High Court in of 2006 dated 27.06.2016 had in the context of adhoc disallowance of expenses made by the ld. AO had granted relief to the assessee. The question no.2 raised by the revenue before the Hon’ble High Court is as under :- “2. Whether on the facts and in the circumstances of the case the Ld. Tribunal was justified in law in confirming the order of the CIT(A) in deleting the disallowance of Rs.2 crore out of sundry expenses without going into the details of expenditure and by relying on the submission of the assessee in violation of Rule 46”
The Hon’ble high court held as under : “In so far as the question no.2 is concerned, the assessing officer had made the addition because he was of the opinion that “ I am adding back on a reasonable estimation basis Rs.2 crores treating the same as expenses incurred on managerial, administrative staff and other overhead expenses for the new on-going projects during the year and the same is disallowed from the managerial, administrative expenses debited in its accounts by the assessee." He did not disclose any basis for the estimate, which according to him, is reasonable estimate. The CIT, therefore, deleted the addition holding a follows:-
The disallowance made by the A. O. is purely based on conjecture and surmises and not on any material evidence on record. As such the addition of Rs.2 crores is deleted." 4
Learned Tribunal upheld the same. When the disallowance was made purely on the basis of conjecture there was no alternative to the CIT(A) or to the learned Tribunal but to delete the disallowance. In that view of the matter, the question no.2 is also answered in the affirmative.”
6.1. We find that this tribunal in assessee’s own case for A.Y.2002-03 vide order dated 11.09.2015 had also deleted the adhoc disallowance made by the ld. AO by placing reliance on the decision of the Hon’ble Gujarat High Court in the case of Sayaji Iron and Engineering Co. vs CIT 253 ITR 749 (Guj) wherein it was held that there cannot be any personal element of expenditure debited in the books of the company being non- natural person and cannot have personal element thereon. Accordingly it was held that expenditure incurred had to be construed only for business purposes.
6.2. In view of the aforesaid findings in these peculiar facts and circumstances of the case and respectfully following the judicial precedents relied upon herein above we find no infirmity in the order of the ld. CIT(A) granting relief to the assessee. Accordingly grounds raised by the revenue are dismissed.
In the result the appeal of the revenue is dismissed.
Order pronounced in the Court on 15 .05.2018