PIONEER CHEMICAL INDUSTRIES,MUMBAI vs. ITO-WARD 25(3)(1), MUMBAI

In this case, the assessee has claimed an amount of Rs.7,09,248/- under the head “travelling expenses”. Therefore, the assessee was asked by the Assessing Officer (AO) to give details of the expenses incurred for business purposes, in response to which the assessee filed the details. Perusing the same, it was noticed by the AO that the assessee travelled to USA, Hyderabad, Chennai, Ahmadabad and Zambia during the year under consideration.

The Assessee in response and in support of its claim qua USA trip filed its written submission, which is reproduced below:

The assessee in support of its claim also produced a copy of Memorandum Of Understanding dated 05.07.2008 entered into by the assessee with United International Ltd., crux of which is as under:

The AO though considered the aforesaid details furnished by the assessee, however, by perusing the same ultimately observed that from the MOU, it is clear that the assessee is procurement agent of Unimed International Ltd. in India and as per the assessee’s reply all the expenses are borne by United International Ltd. Regarding visit to USA the assessee has explained that Unimed International Ltd. called the assessee to hold meeting in USA to have meeting for MOH Zambia. “Unimed” is a UK based company supplying medicine to various countries. So assessee’s visit to USA has no connection with its business activities. The assessee has failed to prove business exigency of visit to USA along with supporting documentary evidences. The AO ultimately disallowed the expenses to the tune of Rs.3,96,926/- and Rs.1,43,365/- totaling to Rs.5,40,291/- expenses allegedly claimed to be incurred on visit to USA and Zambia and treated the same as non business expenses and accordingly added to the taxable income of the assessee. The AO also made disallowance of Rs.1,29,174/- on account of various expenses such as telephone, vehicle & depreciation expenses.

The Assessee, being aggrieved, challenged the aforesaid additions before the Ld. Commissioner who though deleted the addition of Rs.1,29,174/-, however, affirmed the addition of Rs.5,40,291/- under section 37(1) of the Act by holding as under:

We have heard the parties and perused the material available on record and also given thoughtful considerations to the peculiar facts and circumstances of the case. We observe that both the authorities below have categorically observed in their orders that as per assessee’s reply, all the expenses are borne by United International Ltd. whereas as demonstrated by the Ld. A.R. that all the expenses incurred for visit to USA & Zambia have been incurred by the assessee itself. Further, both the authorities below also observed that the assessee’s visit to US and Zambia had no connection with its business activities and the assessee has failed to prove documentary evidence of business exigencies to incur such expenses. Whereas it is a fact that the assessee procured the orders after visiting the US and Zambia, as it appears from the documents submitted by the assessee before us with a certification that the said documents such as copy of Memorandum of Understanding executed between Assessee and Unimed International Ltd., copy of order received from Unimed International Ltd. for US $ 3.9 million in May 2013, copy of mail communication qua Zambia trip with the client etc. were available before the authorities below.

In the result, the appeal filed by the assessee stands allowed.