ADDL CIT RG 4(2), MUMBAI vs. MIT CHATSON P.LTD, MUMBAI

Revenue by: Shri M. Rajan Assessee by: Dr. K. Shivaram (Senior Advocate & Shri Rahul K. Hakani सुनवाईकीतारीख / Date of Hearing:26.09.2016 घोषणाकीतारीख /Date of Pronouncement: 29.12.2016 आदेश / O R D E R

PER AMARJIT SINGH, JM:

“1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made on account of Foreign Travelling Expenses of Rs.14,36,369/-, even though the assessee failed to prove that the expenses were made wholly and exclusively for business.

2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition on account of payment of Rs.6,90,009/- made to his related concern M/s Art Beads Pvt. Ltd. and failed to produce the comparative chart regarding expenses.

3. The brief facts of the case are that the assessee filed its return of income for the A.Y.2009-10 on 24.09.2009 by declaring total income to the tune of Rs.5,50,50,692/-. The return of income was processed u/s.143(1) of the Income Tax Act, 1961( in short “the Act”). The case was taken up for scrutiny, therefore, statutory notice u/s.143(2) of the A.Y. 2009-10 Act was issued on 20.09.2010 and duly served upon the assessee on 29.09.2010. Thereafter, the present case was assigned to the present Assessing Officer vide order of CIT-4 bearing No.CIT-4/Scrutiny cases /2010-11 dated 13.06.2011. Notice u/s.142(1) of the Act was issued on 20.06.2011. The assessee company is engaged in Manufacturing of Faceted Glass Beads. The Assessing Officer disallowed the foreign travelling expenses to the tune of Rs.14,36,369/- and also disallowed the payment u/s.40A(2)(b) of the Act to the tune of Rs.6,90,009/- and disallowed late payment of employees contribution to P.F. to the tune of Rs.4,58,531/- and disallowed the depreciation upon the furnace to the tune of Rs.14,41,468/- and disallowed the Keyman Insurance Premium to the tune of Rs.23,00,696/- and assessed the total income to the tune of Rs.6,13,77,770/-. Thereafter, the assessee filed an appeal before the CIT(A), who allowed the said disallowances, therefore, the revenue has filed the present appeal before us. ISSUE NO.1:- 4. Under this issue the revenue has challenged the deletion of the disallowance on account of foreign travelling expenses to the tune of Rs.14,36,369/-. It is argued by the learned representative of the department that the assessee failed to prove this fact that the expenses were incurred wholly and exclusively for the business purpose but the CIT(A) has wrongly deleted the said addition, hence, the order of the A.Y. 2009-10 CIT(A) on this issue is wrong against law and facts and is not liable to be sustainable in the eyes of law. However, on the other hand the learned representative of the assessee has placed reliance upon the order passed by the CIT(A) in question. It is not in dispute that the assessee incurred foreign travelling expenses to the tune of Rs.14,36,369 but it is required to be seen whether these expenditure are related to the business or not. Before going further, it is necessary to advert the finding of the CIT(A) on record:- “2.2 I have considered the facts of the case and submission of the appellant. The appellant is engaged in the manufacturing of Faceted Glass Beads and it regularly imports raw materials and capital goods along with other countries from Czeck Republic which has not been denied by the AO. The persons who have travelled abroad are all employees of the company and no other relationship of these employees with the appellant company or personal benefit received by the appellant or to its directors have been found by the A.O. There is no dispute that only 6 employees have travelled to Czeck Republic, Germany, France and China. The appellant has claimed that the purpose of their travel was to study manufacturing process adopted by these countries in the business line of the appellant for improving the A.Y. 2009-10 company’s efficiency and productivity etc. A detailed note relating to employee-wise foreign travel expenses was submitted before the AO by the appellant vide letter dated 18.10.2011, which has also been filed during the course of appellate proceedings. These expenses include tickets, visa charges and purchase of foreign currency which may be required for incurring other expenses during traveling abroad. There cannot be any other purpose of sending employees to such countries. The AO has also been not able to point out any other purpose and simply stated that the appellant has failed to discharge its onus whereas the assessee has given all the details such as purpose of visit and expenditure incurred for different items and therefore ticket, visa charge in no case said to have been incurred for any other purposes than the business purposes and if it is a business purposes and if it is a business purpose, then the question of any apportionment of any expenditure does not arise. Looking at other expenses on account of foreign currency, these are Rs.35,165/- in case of 3 employees, Rs.65,850/- in case of other 2 employees and Rs.98,825/- in case of 1 employee as per the details filed by the appellant which was also filed before the AO. The AO has neither disputed any of these details or genuineness A.Y. 2009-10 of the vouchers filed with these details. The expenditure incurred appears to be very reasonable looking at the countries travelled and other factors. Therefore, no part of the expenditure is disallowable. It cannot be said that part of the travel is on personal account and part of the travel is on business account. Similarly, other expenses can also be not apportioned as long as any personal expenditure is not established. Therefore, there is no doubt that the entire expenditure is for business purpose only. Hence, the addition made by the AO is disallowed and the ground of appeal

is allowed. ”

5. The expenditure claimed by the assessee was on account of travelling of the assessee’s 6 employees to Czeck Republic, Germany, France and China. It is not in dispute that the assessee company is engaged in the Faceted Glass Beads and was importing raw materials and capital goods along with other countries from Czeck Republic and this fact has not been denied by the Assessing Officer. The appellant did not receive any personal benefit etc. The appellant has given the details of the tickets, visa charges, purchase of foreign currency which is required for the incurring of expenses during travelling abroad. No other purpose of any kind came into the notice on record. Further, the CIT(A) has also considered the expenses of each employee considering their travel abroad. Three employees expended a sum of A.Y. 2009-10 Rs.35,165/- and 2 employees expended a sum of Rs.65,850/- and one employee expended a sum of Rs.98,825/- which was found very reasonable. No tangible material has been produced before us to which it can be assumed that the CIT(A) has arrived at this conclusion wrongly and illegally. In view of the above said circumstances, we are of the view that the CIT(A) has passed the order judiciously and correctly which is not required to be interfere with at this appellate stage. Accordingly, this issue is decided in favour of the assessee against the revenue. ISSUE NO.2:- 6. Under this issue the revenue has challenged the deletion of the addition on account of payment of Rs.6,90,009/- paid to his related concerned M/s.Art Beads Pvt. Ltd.. The fact on this issue is that the appellant purchased an articles of Rs.27,60,035/- from M/s. Art Beads Pvt. Ltd. during the relevant assessment year. M/s.Art Beads Pvt. Ltd. is related concerned in terms of section 40A(2)(b) of the Act. The Assessing Officer asked the comparative rates but the assessee failed to submit the comparative rate on the ground of that he did not purchase these items from any outside party, therefore, the Assessing Officer disallowed the 25% of the payment to M/s.Art Beads Pvt. Ltd.. However, CIT(A) has allowed the same. The contention of the learned representative of the revenue is that the CIT(A) has wrongly allowed the purchases specifically in the circumstances when the A.Y. 2009-10 assessee failed to justify the reasonable purchases to the tune of Rs.27,60,035/-. Before going further it is necessary to advert the finding of the CIT(A) on this record:- “3.2 First of all, it is undisputed that M/s.Art Beads Pvt. Ltd. is in the same range of the company as that of the appellant. No finding has been given in the case of M/s.Art Beads whereas the appellant has pointed out that M/s.Art Beads has also showed income for A.Y.2009-10 and paid tax as per the details given in the submission of the appellant as is produced above and therefore, charging of the AO that income has been diverted to a s loss making concern does not hold good on facts of the case. The details made by the AO are not based on any comparative study or an any evidence or any reasonable basis. It has merely disallowed 25% of the purchases holding that the appellant has failed to give comparative rates but in such a situation, it is for the AO to show that purchases are on a higher side and only then the disallowance can be made u/s.40A(2)(b). Merely because the appellant has failed to show any comparative rate, the disallowance cannot be made. If there was no any other comparative rate available, it was for the AO to bring some other evidence on record to show that the A.Y. 2009-10 payment was excessive but the AO has been able to show any reason for holding the payment excessive. Therefore, disallowance made by the AO on this account cannot be sustained and hence, the addition of Rs.6,90,009/- is deleted. This ground of appeal is allowed.”

7. The CIT(A) has considered the facts that M/s. Art Beads Pvt. Ltd. was the same range company and showed its income for the assessment of 2009-10 and also paid the tax accordingly. Therefore, it does not seems justifiable that the appellant company had diverted the loss. The disallowance was also not made on the basis of comparative study or on the basis of any evidence. The disallowance was made by the Assessing Officer only on the ground that the appellant failed to prove the comparative rate but the Assessing Officer was not having any material for the disallowance of the expenditure of 20% of the purchases. There is no plausible explanation on record to which it can be assumed that the Assessing Officer has rightly disallowed the expenditure. Disallowance is not required on the basis of assumption and presumption. Therefore, in the said circumstances, we are of the view that the CIT(A) has rightly deleted the disallowance in accordance with law. Moreover, at the time of argument the revenue failed to provide any distinguishable material on record to which it can be assumed that the CIT(A) has A.Y. 2009-10 wrongly decided the matter of controversy. In view of the said circumstances, we are of the view that the CIT(A) has passed the order judiciously and correctly which is not required to be interfere with at this appellate stage. Accordingly, this issue is decided in favour of the assessee against the revenue. ISSUE NO.3:-

8. Under this issue the revenue has challenged the deletion of the disallowance upon the depreciation on Furnace amounting to Rs.14,41,468/-. The factual position is that the appellant added Furnace amount as new asset and claimed depreciation. The Assessing Officer disallowed the depreciation on the ground of that some bills were relating to the year of 2006-07. The learned representative of the department has argued that the learned CIT(A) has wrongly deleted the said addition, therefore, the finding on this issue is liable to be set aside. However, on the other hand, the learned representative of the assessee has placed reliance upon the order passed by the CIT(A) in question. Before going further, it is necessary to advert the finding of the CIT(A) on record:- “4.2 I have considered the facts of the case and submission of the appellant. It appears that the AO has presumed that the Furnace is also purchased like any other movable fixed asset. The construction of Furnace is generally A.Y. 2009-10 takes about 2-3 years as claimed by the appellant and therefore, the expenditure on Furnace is generally takes about 2-3 years as claimed by the appellant and therefore, the expenditure on Furnace construction is incurred in earlier years and the same is shown as Work-in-progress as long as the construction is not completed and therefore, certain expenses relating to Furnace construction may be relating to earlier years. The expenditure has not been denied and disputed by the AO. He has only hold that it relates to earlier years but expenditure incurred in earlier years during construction period is justified and the same was shown as WIP by the appellant and on completion of construction, the same is transferred to Schedule of assets as new addition during the year and therefore, the depreciation has been rightly claimed. Hence, disallowance made by the AO is deleted and the ground of appeal is allowed.”

9. The Assessing Officer disallowed the depreciation on the ground of that the large number of bills pertaining to Furnace were not belonging to the present assessment year and some of them were belonging to the assessment year of 2006-07, therefore, the Assessing Officer disallowed the same. The Assessing Officer treated the same as movable fixed assets. According to the explanation of the assessee A.Y. 2009-10 which has been considered by the CIT(A) is that the construction of the Furnace generally takes about 2-3 years. Undoubtedly, the bill might be belonging to the earlier years also which was not verified, however, the same had been showed as Work-in-progress because the construction was not completed. The expenditure was not denied. The bills were on record. After the completion of the construction, the same was to be transferred to Schedule of assets as new addition during the year, therefore, the CIT(A) has allowed the depreciation. We nowhere, found any tangible material to which it can be assumed that the CIT(A) has passed the order wrongly and illegally. No distinguishable material has been placed on record. Furnace is the part and partial of the asset therefore the depreciation has rightly been claimed. In view of the said circumstances, we are of the view that the CIT(A) has passed the order on this issue judiciously and correctly which is not require to be interfere with at this appellate stage. Accordingly, this issue is decided in favour of the assessee against the revenue. ISSUE NO.4:-

10. Under this issue the revenue has challenged the disallowance of expenses to the tune of Rs.23,59,244/- on account of Keyman Insurance Premium appearing different names of proposal other than assessee was. The assessee made the payment of Rs.23,59,244/- on account of payment to Keyman Insurance Premium. The payment A.Y. 2009-10 was related to 6 Keyman Insurance Policies where the proposer was M/s.Art Glass Industries and one policy was with the name of Bhagwan Singh Kushwaha which was proposed by the assessee company. The Assessing Officer disallowed the Keyman Insurance Premium relating to 6 insurance policies where the proposer was M/s. Art Glass Industries and the total disallowance was to the tune of Rs.23,00,696/-. The Assessing Officer was of the view that the assessee company was making the payments without any benefit accruing from these policies because the appellant has not changed name of the proposer of these policies which was with the M/s.Art Glass Industries. Before going further it is necessary to advert the finding of the CIT(A) on record:- “5.2 I have considered the facts of the case, submission of the appellant. There is no dispute that in the normal course where the appellant takes and proposes the Keyman Insurance Policies, then the premium is allowed the same has been allowed in one case of Bhagwan Singh Kushwaha by the AO himself. As per the details and submissions filed by the appellant, out of 6 policies for which the disallowance has been made, 5 other than one in the name of Mayur Bhavsar wherein the proposer was M/s. Art Glass Industries, a firm which has been taken over by the appellant and the proposer officially both A.Y. 2009-10 have been transferred and changed to the name of the assessee company and therefore, the same is also allowable. Similarly, in the case of Mr. Mayur Bhavsar, one policy who was employee of M/s.ABPL has closed its business and the manufacturing division has been transferred to the assessee company along with the employee Mayur Bhavsar and other employee and therefore Mr. Bhavsar became Keyman of the assessee company. Therefore, the same is also allowable. In result, the entire claim for payment of Keyman Insurance Premium is allowable. Therefore, the disallowance is deleted and the ground of appeal is allowed.”

11. The Assessing Officer allowed the premium in case of Bhagwan Singh Kushwaha who was proposed by the appellant but denied the 6 policies proposed by M/s. Art Glass Industries. The CIT(A) allowed the same on the ground of that M/s. Art Glass Industries was taken over by the appellant company and the proposer officially has been transferred and changed to the name of the assessee company. In brief the other companies employee became the employee of the assessee company, therefore the CIT(A) has allowed the claim of the payment for Keyman Insurance Premium. Nothing found unjustifiable on facts as well as on law. In view of the said circumstances, we are of the view that the CIT(A) has passed the A.Y. 2009-10 order on this issue judiciously and correctly which is not require to be interfere with at this appellate stage. Accordingly, this issue is decided in favour of the assessee against the revenue. ISSUE NO.5:- 12. Under this issue the revenue has challenged the disallowance of expenses of Rs.4,58,531/- on the ground of late payment of Employee’s Contribution of Provident Fund. The learned representative of the department has argued that the assessee failed to deposit the Provident Fund well in time, therefore, the Assessing Officer has rightly disallowed the expenses in this regard but the CIT(A) has allowed the said expenses wrongly and illegally, therefore, the finding of the CIT(A) on this issue is liable to be set aside in the interest of justice. However, the learned representative of the assessee has placed reliance upon the finding of the CIT(A) and argued that the assessee has deposited the said expenses before the due date of filing the return, hence, the CIT(A) has rightly allowed the expenses. Before going further, it is necessary to advert the finding of the CIT(A) on record:- “7.2 I have considered the facts of the case and submission of the assessee. The additional ground of appeal was forwarded to the AO and after considering the submission of the appellant and that of the comments of A.Y. 2009-10 the AO, the additional ground of appeal is admitted. The appellant has claimed that it made payment of employees’ contribution to P.F. amounting to Rs.4,58,531/- before filing of return of income but the AO disallowed it u/s42B of the Act without any discussion and without giving any reason. The addition was made straight in the computation of income in the assessment order which has been objected by the appellant. There is no dispute that the payment has been made before filing of return of income and therefore, the same is allowable. This issue is covered by the decision of the Hon’ble Supreme Court in the case of Alom Extrusion Ltd. 319 ITR 306 and by the decision of Hon’ble ITAT in the case of M/s.Pikpen Pvt. Ltd. Vs.ITO in and other cases as relied upon by the assessee. Hence, the addition is deleted and the ground of appeal is allowed.”

13. The CIT(A) has arrived at this conclusion that the assessee made the payment before filing the return of income and was of the view that the same was allowable and in this regard also placed reliance upon the law settle Hon’ble Supreme Court in the case of Alom Extrusion Ltd. 319 ITR 306 and by the decision of Hon’ble ITAT in the case of M/s.Pikpen Pvt. Ltd. Vs.ITO in ITA A.Y. 2009-10