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Income Tax Appellate Tribunal, BENCH “A”, KOLKATA
Before: Hon’ble Shri N.V.Vasudevan, JM & Shri M.Balaganesh, AM]
This is an appeal by the Assessee directed against the order dated 27.02.2013 of CIT(A)-IV, Kolkata relating to A.Y.2007-08.
The only issue that arises for consideration in this appeal is as to whether the revenue authorities were justified in making disallowance of Rs.6,53,882/- being expenses relating to assessee’s Delhi Branch office.
The Assessee is a company. It derives income in the form of job charges from Contemporary Brokers P.Ltd which is closely related to the assessee besides brokerage income for participation in tea auction on behalf of others. In the course of assessment proceedings AO noticed that the assessee had incurred expenditure of Rs.6,53,882/- towards its Delhi Office. The assessee has three units/office located at Baroda, Delhi and Kolkata. The only source of income during the previous year in the Delhi office was liability which was no longer required and which was written back as income in the profit and loss account. In the above circumstances AO was of the view
M/s. Mission Row Tea Brokers Pvt. Ltd. A.Yr.2007-08 that the expenditure incurred in the Delhi office and claimed as deduction while computing the income of the assessee cannot be allowed as deduction as expenditure incurred wholly and exclusively for the purpose of business of the assessee can be allowed as deduction, as no business was carried on in the Delhi Office. In this regard AO also noticed that there was only one bank account maintained at Delhi and that cannot justify the expenditure of Delhi office. The AO accordingly disallowed the claim of the assessee for deduction of the aforesaid sum.
On appeal by the assessee CIT(A) confirmed the order of AO. Before CIT(A) assessee the list of expenses at the Delhi branch office which was under the following sub-heads - salary, bonus and ex-gratia, medical reimbursement, staff tea & tiffin, leave travel assistance, staff welfare, rate and taxes, vehicle running expenses, traveling expenses, business promotion, subscription, repairs, books and periodicals, bank charges, gas & electricity, security charges, interest on debentures and depreciation was noticed. The CIT(A) was of the view that from the above expenses it was evident that a full-fledged office was maintained at Delhi with office staff by the Assessee. The Assessee had contended before CIT(A) that it was not necessary that job work or Tea auction work has to be carried out at every location where the Assessee has an office. Business expediency may require a company to open branch at locations where its main activity is not carried on. The CIT(A) thereupon queried the Assessee as to what was the business expediency which required the Assessee to open an office at Delhi. According to CIT(A) there was no valid explanation given by the Assessee. The CIT(A) also held that the necessity to have liaison office at Delhi was not satisfactorily explained by the Assessee. The CIT(A) held that the main business activity of the appellant is Tea Auction at Kolkata and job work at Baroda and therefore there was no compelling need to have a branch or administrative headquarter at Delhi. With regard to maintenance of a bank account at Delhi, the CIT(A) was of the view that bank account at Delhi was not so critical and the same could have been operated from Kolkata or Baroda.
M/s. Mission Row Tea Brokers Pvt. Ltd. A.Yr.2007-08 4.1. Another argument taken by the Assessee before CIT(A) was is that the administrative office of its Tea broking company as well as the company for which it does job work at Baroda was at Delhi. Therefore, the Assessee too needs to have a branch office at Delhi. The CIT(A) however was of the view that there were several means of communicating through various fast and reliable means of communication like internet, fax, video conferencing etc. spending lacs of rupees to maintain an office at Delhi and it was not logical to have an office at Delhi for the aforesaid purpose. The CIT(A) held that there was no business activity that took place at Delhi. The disallowance made by the A.O. of a sum of Rs. 6,53,882/- was confirmed by the CIT(A).
Aggrieved by the order of CIT(A) the assessee is in appeal before the tribunal.
We have heard the submissions of the learned counsel for the assessee, who reiterated the submissions of the assessee as made before CIT(A). He also placed reliance on the decision of the Hon’ble Supreme Court in the case of SA Builders vs CIT (2007) 158 Taxman 74 (SC) wherein the Hon’ble Supreme Court has held that the revenue could not justifiably claim to put itself in the armchair of the business man or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. It was held that once commercial expediency for incurring a particular expenditure is pleaded it is to be looked at from the business man point of view. The learned DR placed reliance on the order of CIT(A).
We have given a careful consideration to the rival submissions. We have also perused profit and loss account of the Delhi office which is placed at pages 11 and 12 of the assessee’s paper book. A perusal of the profit and loss account of the Delhi office that expenses under the following head have been claimed Salary, staff welfare expenses, Rent and taxes, Travelling and Conveyance, Business promotion, repairs and maintenance and miscellaneous expenses which include deprecation of Rs.2,45,238/-. The Revenue does not dispute the nature of business of the assessee.
M/s. Mission Row Tea Brokers Pvt. Ltd. A.Yr.2007-08 The nature of business of the assessee is carrying out job work and acting as brokers in tea auction is the main activity of the assessee. It is a plea of the assessee that many corporate houses which would show interest related to the business of the assessee are located at Delhi and therefore it was necessary to have liaison office at Delhi. This fact could not denied by the AO or CIT(A). The argument of the revenue on this aspect was that there are very good means of communication today and sitting in Kolkata one could liaise. The other argument of the revenue is that the assessee has not explained as to why administrative headquarter was required at Delhi when the main activities of the assessee is tea auction at Kolkata and job work at Baroda. In our view the revenue authorities have clearly encroached upon the domain of a business man as to what is commercially expedient to be done in a particular situation. It has been repeatedly held in several decisions that the revenue cannot put itself in the armchair of a business man and decide as to what expenditure has to be incurred or not incurred. The factum of the existence of the office at Delhi and incurring of these expenses had not been denied by the revenue. In such circumstances we are of the view that the claim of the assessee for deduction of the aforesaid sum had to be allowed. We therefore direct that disallowance made by the revenue authorities be deleted.
In the result the appeal of the assessee is allowed.
Order pronounced in the court on 02.03.2016.