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Income Tax Appellate Tribunal, “C” BENCH : KOLKATA
Before: Hon’ble Shri N.V.Vasudevan, JM & Shri M.Balaganesh, AM ]
ORDER Per M.Balaganesh, AM
This appeal by the Assessee arises out of the order of the Learned Commissioner of Income Tax (Appeals), Central-II, Kolkata [ in short the ld CITA] in Appeal No. 76/CC-XXVII/CIT(A)C-II/13-14 dated 29.09.2014 against the order passed by the DCIT, Central Circle-XXVII, Kolkata [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (in short “the Act”) dated 30.07.2013 for the Assessment Year 2011-12.
2. The only issue to be decided in this appeal is as to whether the Ld. CIT(A) was justified in upholding the disallowance made towards foreign travel expenses in the sum of Rs. 20,43,899/- in the facts and circumstances of the case.
The brief facts of this issue is that the assessee is a company engaged in the business of manufacturing and trading of edible oil and also derived income from interest,
2 Vinayak Oil & Fats Private Limited A.Yr.2011-12 packing and processing charges. During the course of assessment proceedings the Ld. AO observed that the assessee had incurred a sum of Rs. 20,43,899/- towards foreign travel expenses. The assessee was asked to explain the same by proving the business nexus with supporting documents. In response to the assessee vide its letter dated 22.07.2013 replied as under: “………. We refer to your query regarding travelling expenses incurred by the company on tour of Mr. Ravinra Kumar Daruka with family, Mr. Manish Kumar Banka with family, Mr. Mukesh Kumar Agarwal and family and Mr. Rajesh Agarwal with family to Singapore. The four persons are renowned persons having rich knowledge in oil business, which the assessee company is also carrying on. Most of these persons are renowned oil brokers. We had agreed to send these persons with their family members to Singapore for their active involvement in improvement of sales and also for exploring knowledge of Crude Oil purchases at reasonable prices. We did not pay any brokerage in rupee terms to them but incurred all travelling expenses of the brokers with their family members for tour to Singapore. We submit herein below the following figures in respect of sales and brokerage payments on sales in the three financial years. Financial Year Total Sales (Rs.) Brokerage paid (Rs.) % of sales 2008-09 1,34,35,45,789 11,08,323 0.08 2009-10 1,67,36,87,457 1,69,721 0.01 2010-11 2,41,91,22,354 22,06,004 0.09
On comparative study of the aforesaid figures it would be found that the sales of the previous year ending 31st March, 2010 and 31st March, 2011 increased substantially due to personal endeavour of these four persons. Whereas brokerage expenditure reduced substantially in as much as we had asked these four persons to improve the sale and the company would allow these four persons with their family members for a foreign tour to Singapore etc. at company’s cost. In these circumstances we submit that the whole of the travelling expenses was incurred in relation to business of the company. We may mention here that the company was able to import Soyabean Oil from Singapore, a better quality of oil as compared CPO at lower cost from M/s Louis Greyfus Commodities Pvt. Ltd. of Singapore on the basis of their market survey during their trip to Singapore by these parties. This resulted in better realizations on the soyabean oil imported by the company in the financial year 2010- 11. We submit that all these facts and figures are discernible from the financial accounts of the company for the aforesaid three years. In case any other details and/or explanation is required we shall submit the same on hearing from you.
3 Vinayak Oil & Fats Private Limited A.Yr.2011-12 In the circumstances mentioned above we submit that the expenditure incurred on foreign tour of the four members and their family was in the business interest and therefore whole of such expenses are allowable as business expenditure.”
The Ld. AO observed that the assessee had not submitted any documents to prove as to how the aforesaid alleged brokers were linked to the business of the assessee. The ld. AO also observed that the services rendered by these alleged brokers to the assessee could not be proved with supporting documents by the assessee. Accordingly, he proceeded to disallow the sum of Rs. 20,43,899/- towards foreign travel expenses as expenditure not linked with the business of the assessee. In appeal, the assessee stated that the financials of the assessee itself stand as an evidence to prove that pursuant to the services rendered by these brokers to the assessee, the turn over of the assessee had improved from Rs. 167 crores to Rs. 242 crores. It was also pointed out that because of these brokers the company was able to import Soyabean Oil from Singapur which is a better quality of oil at lower cost from M/s Louis Greyfus Commodities Pvt. Ltd. of Singapore on the basis of market survey conducted by these brokers for and on behalf of the assessee. It was also pointed out that the assessee had not paid any brokerage to these parties during the year under appeal even though the brokerage had increased form Rs. 1.70 lakhs to 22 lakhs. It was further pointed out that these brokers are not relatives of either the shareholders or directors of the assessee company and hence, there is no scope for the Ld. AO to treat the same as excessive and unreasonable in terms of section 40A(2) of the Act. The Ld. CIT(A) did not heed to these contentions of the assessee and upheld the findings of the Ld. AO that the services rendered by these alleged brokers to the assessee were not proved by the assessee with supporting documents so as to establish the business nexus of incurrence of foreign tour expenses of these brokers. Aggrieved the assessee is in appeal before us on the following grounds: 1. That on the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of foreign travel expenses of Rs. 20,43,899/- incurred by the Assessee Company on the alleged 3
The Appellant craves leave to add, amend, alter vary and/or withdraw the above grounds of appeal.
The Ld. AR reiterated the submissions made before the lower authorities and further stated that the turnover of the company had substantially increased during the year. The assessee had not paid any brokerage to these brokers during the year under appeal and this incurrence of foreign tour expenses of these brokers is nothing but the brokerage paid by the assessee in kind, which is also increased with the terms and conditions agreed upon with those brokers for improvements in sales. He argued that the Revenue cannot sit in the armchair of the businessman to find out the business expediency of incurrence of an expenditure by the assessee. In response to this, the Ld. DR vehemently relied on the orders of the lower authorities.
We have heard the rival submissions. We find at the outset, that the assessee had organized foreign tour for four oil brokers together with their family for their visit to Singapore and had borne the entire expenditure thereon to the tune of Rs. 20,43,899/-. The short point that arises for our consideration is to establish the business nexus of incurrence of this expenditure with the assessee. The Ld. AR before us was only broadly able to address the issue by stating that the turnover had increased during the year and it was also able to better quality of oil at lower cost from a new party in Singapore which had also resulted in the increased profitability of their product. But we find that the clinching evidence in this regard would be a confirmation from these brokers and also an Affidavit from these brokers that they had indeed rendered relevant services to the assessee for which they were remunerated in the form of free foreign trip to Singapore at the cost of assessee. This evidence is summarily absent in the instant case without proving the rendering of services by these alleged oil brokers to the assessee, we are afraid that we could grant deduction towards foreign travel expenses as an expenditure 4
5 Vinayak Oil & Fats Private Limited A.Yr.2011-12 wholly and exclusively incurred for the purpose of business of the assessee. We hold that the assessee had not established the business nexus of incurrence of this foreign travel expenditure. Accordingly, we do not deem it fit to interfere in the order of the Ld. CIT(A) in this regard. Accordingly, grounds raised by the assessee in this regard are dismissed.
In the result, the appeal of the assessee is dismissed.
Order pronounced in the Court on 17.10.2017