LANDMARK EDUCATION BREAKTHROUGH TECHNOLOGIES PVT. LTD.,MUMBAI vs. A,C,I.T.-10(2), MUMBAI

Assessee by: Shri Rashmikant C. Modi Department by: Shri Manoj Kumar सुनवाई क" तार"ख / Date of Hearing: 05.01.2016 घोषणा क" तार"ख /Date of Pronouncement: 11.05.2016 आदेश / O R D E R PER AMARJIT SINGH, JM:

This is an appeal against the order dated 17.07.2012 passed by the Commissioner of Income Tax (Appeals)-21, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the assessment year 2009-10.

Name of the person Date Name of the Rupees travelling Payee Kajal & Isha Rao 08.11.2008 Weldon Tours & 1,48,934/- Travels Dipanshu Rao 02.12.2008 --do-- 67,652/- Kajal / Isha / Dipanshu / 16.10.2008 --do-- 1,83,452/- Rao 4,00,038/- 3.1 The Assessing Officer disallowed the expenditure on the basis of law relied in Ram Bahadur Thakur Ltd., 261 ITR 390, wherein it has been observed that:-

2 Assessment Year: 2009-10 “In order that a particular item of expenditure may be deductible under sub-s.(1) of s. 37 the following conditions should concur : (1) the expenditure should not be of the nature described in ss. 30 to 36 (2) it should have been incurred in the accounting year, (3) it should be in respect of a business which was carried on my the assessee and the profits of which are to be computed and assessed, (4) it should not be in the nature of personal expenses of the assessee, (5) it should have been laid out or expended wholly and exclusively for the purpose of such business, and (6) it should not be in the nature of capital expenditure. It is for the assessee who claims deduction of the expenditure under this sub-section to satisfy the provisions of s.40A(2) so far as a company is concerned, it is open to the taxing authorities to go into the reasonableness of the expenses also. The Assessing Officer is also entitled to be satisfied as to the commercial necessity of spending that amount. In other words, there must be nexus between the expenditure and the business purpose. The capacity in which the assessee spends will also be relevant. The purpose must be for the purpose of the business, i.e., the expenditure must be incurred for carrying on of the business and the assessee should have incurred it in his capacity as a person carrying on the 3 Assessment Year: 2009-10 business. The term “wholly” refers to the quantum of the expenditure and “exclusively” refers to the motive, objective and purpose of the expenditure. The true test of an expenditure laid out wholly and exclusively for the purposes of trade or business is that it is incurred by the assessee as incidental to his trade for the purpose of keeping the trade going and of making it pay and not in any other capacity than that of a trader. The manner to apply the test is to ask the question-has the expenses been incurred with the sole object of furthering the trade or business interest of the assessee unalloyed or unmixed with any other consideration? It is trite that where an assessee seeks to deduct from his business profits certain items of expenditure the onus of proving that such deductions are permissible falls on the assessee. This is all the more so when the claims are based on facts which are within the exclusive knowledge of the assessee. Thus, the assessee has to place all the facts and circumstances before the Revenue authorities and the latter must examine these and make up its mind as to whether the expenses was justified by commercial expediency.” (emphasis supplied)

4 Assessment Year: 2009-10 3.2 In view of the said finding the Assessing Officer dismissed the said expenditure. In appeal the learned CIT(A) has also confirmed the disallowance. The learned representative of the assessee has argued that the assessee has paid the fringe benefit tax. Therefore, in the said circumstances no disallowance on account of foreign expenditure is liable to be agreed in view of the judicial pronouncements of the co- ordianate bench in A.Y.2008-09 dated 31.01.2013 in case of J.K.H. Export Vs. ACIT Circle 19(1).

3.3 On the other hand learned departmental representative has strongly relied upon the order passed by the learned CIT(A).

3.4 Keeping in view of the argument advanced by the learned representative of the parties and perused the record, we are of the view that it is necessary to advert the observation made by the Assessing Officer in connection of disallowance of foreign travelling expenses to the tune of Rs.4,00,038/-.

4.1 “During the course of assessment proceedings, the assessee vide this officer order sheet noting dated 22.12.2011, was asked to provide complete details of foreign travel – name of person, country visited, period of travel, purpose of travel alongwith supporting evidences. In response, the assessee submitted details on 26.12.2011 and it was seen that foreign travel expenditure in connection with family members of Mr.Gopal Rao (Director) were also claimed as incurred for business purpose. The assessee was also confronted with the same 5 Assessment Year: 2009-10 and was asked as to why the above expenses should not be disallowed. The assessee vide letter dated 27.12.2011 filed details of foreign travel expense incurred for the family members of Mr. Gopal Rao which are as under:-

Name of the person Date Name of the Rupees travelling Payee Kajal & Isha Rao 08.11.2008 Weldon Tours & 1,48,934/- Travels Dipanshu Rao 02.12.2008 --do-- 67,652/- Kajal / Isha / Dipanshu / 16.10.2008 --do-- 1,83,452/- Rao 4,00,038/- In view of the above, it cannot be said that the aforesaid expenses of RS.4,00,038/- incurred towards foreign travel of family members is for the purposes of business.

4.3 In this connection, reliance is placed on the full bench decision of the Kerala High Court in the case of Ram Bahadur Thakur Ltd., 261 ITR 390, wherein the Hon’ble Court has expressed their opinion as under:

In order that a particular item of expenditure may be deductible under sub-s.(1) of s. 37 the following conditions should concur : (1) the expenditure should not be of the nature described in ss. 30 to 36 (2) it should have been incurred in the accounting year, (3) it should be in respect of a business which was carried on my the assessee and the profits of which 6 Assessment Year: 2009-10 are to be computed and assessed, (4) it should not be in the nature of personal expenses of the assessee, (5) it should have been laid out or expended wholly and exclusively for the purpose of such business, and (6) it should not be in the nature of capital expenditure. It is for the assessee who claims deduction of the expenditure under this sub-section to satisfy the provisions of s.40A(2) so far as a company is concerned, it is open to the taxing authorities to go into the reasonableness of the expenses also. The Assessing Officer is also entitled to be satisfied as to the commercial necessity of spending that amount. In other words, there must be nexus between the expenditure and the business purpose. The capacity in which the assessee spends will also be relevant. The purpose must be for the purpose of the business, i.e., the expenditure must be incurred for carrying on of the business and the assessee should have incurred it in his capacity as a person carrying on the business. The term “wholly refers to the quantum of the expenditure and “exclusively” refers to the motive, objective and purpose of the expenditure. The true test of an expenditure laid out wholly and exclusively for the purposes of trade or business is that it is incurred by the assessee as incidental to his trade for the purpose of keeping the trade going and 7 Assessment Year: 2009-10 of making it pay and not in any other capacity than that of a trader. The manner to apply the test is to ask the question-has the expenses been incurred with the sole object of furthering the trade or business interest of the assessee unalloyed or unmixed with any other consideration? It is trite that where an assessee seeks to deduct from his business profits certain items of expenditure the onus of proving that such deductions are permissible falls on the assessee. This is all the more so when the claims are based on facts which are within the exclusive knowledge of the assessee. Thus, the assessee has to place all the facts and circumstances before the Revenue authorities and the latter must examine these and make up its mind as to whether the expenses was justified by commercial expediency.” (emphasis supplied)

4.4 In the light of above discussion, the expenditure incurred on foreign travel aggregating to Rs.4,00,038/- is being disallowed. Penalty proceedings u/s. 271(1)(c) are initiated separately for furnishing of inaccurate particulars of income.”

3.5 It is also required to be seen what the learned CIT(A) has ordered while giving the finding on the above mentioned decision. In this regard the para no. 2.3 is hereby reproduced as under:-

8 Assessment Year: 2009-10 “ 2.3 I have considered the facts of the case. The appellant has incurred foreign travel expenses at Rs.4,00,038/- which pertains to the family members of one of the Director. The appellant has failed to explain as to how incurring of such expenditure on family members will be benefited to the business of the appellant. The expenditure on foreign travel expenses of family members was having no nexus with the appellant’s business. In the facts and circumstances the expenditure was not incurred by the appellant wholly and exclusively for the purpose of business. The disallowance made by A.O. is therefore, upheld. This ground of appeal is dismissed.”

3.5. Now the question arose whether this foreign expenses of Rs.4,00,038/- is required to be allowed merely on the ground of that the assessee has paid the fringe benefit tax. The appellant has incurred the foreign travel expenses to the tune of Rs.4,00,038/- pertaining to the family member of one of the Director. Apparently, the expenditure are clearly in the nature of personal expenditure of the family member of the Director. However, at the time of argument the learned representative of the assessee has placed reliance upon the order passed by Income Tax Appellate Tribunal, Mumbai in case M/s. Om Intercontinental Vs. JCIT Cir 18(2). On appraisal of the said order it is apparent that the said order is in connection with the employee of a 9 Assessment Year: 2009-10 company where the fringe benefit tax was paid. But in the instant case the foreign travelling expenses were claimed on account of the family member of the Director Mr. Gopal Rao. No doubt in the said circumstance the law relied by the learned representative of the assessee is not applicable to the present case. So far as to furnishing the fringe benefit tax qua the family member of the one of the Director is concerned, the same can be claimed back if so advised. In view of the said circumstances we are of the view that the learned CIT(A) has passed the order judiciously and correctly which does not required to be interfere with at this appellate stage.

Order pronounced in the open court on 11th May, 2016 (AMARJIT SINGH) (B.R.BASKARAN) लेखा सद"य / ACCOUNTANT MEMBER "या"यक सद"य/JUDICIAL MEMBER मुंबई Mumbai; "दनांक Dated : 11th May, 2016 MP MP MP MP