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Income Tax Appellate Tribunal, “A” BENCH, KOLKATA
Before: Shri M. Balaganesh
This appeal of the revenue arises out of the order of the Learned CIT(A)-VIII, Kolkata in Appeal No. 97/CIT(A)-VIII/Kol/11-12 for AY 2009-10 dated 06-12-2012 against the order of assessment passed by the Learned AO u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’).
The only issue to be decided in this appeal is as to whether in the facts and in the circumstances of the case the Learned AO is justified is making disallowance of travelling and other expenditure on an estimated basis @ 20% .
The brief facts of this issue is that the assessee is engaged in the business of export of trading goods necessitating frequent travel to foreign countries and incur various expenditures in foreign currency. The assessee incurred the following expenditures in foreign currency , details of which were reflected in Note No. 14 of M/s. R.Piyarelall Interntional P.Ltd 1 Part B of Notes on Accounts (Schedule 15) attached to the financial statements and claimed deduction for the following expenses among others :-
Foreign Travel Expenses 13,88,227 Sales Promotion 98,020 Legal & Consultancy 63,39,870 Membership & Subscription 2,14,574 80,40,691
The Learned AO during the course of assessment proceedings, it was observed that the assessee had not furnished any documentary evidences to support its claim in respect of the aforesaid expenditure. He observed that the assessee had made a general statement that the assessee being in export –import business , the directors and other personnel of the company often require to travel abroad in the business interest of the company and hence the same has to be allowed on the ground of commercial expediency. Similarly in respect of other expenditure as detailed above, it was claimed that the same are incurred wholly and exclusively for the purpose of business which again was only a general statement not supported by any documentary evidences. The Learned AO observed that sales, gross profit and net profit during the year had decreased in comparison to that of the earlier year. In these circumstances, the Learned AO resorted to make estimated disallowance of 20% of the total expenditure as above and made an addition of Rs. 16,08,138/-.
During the first appellate proceedings, the assessee furnished the details before the Learned CIT(A) and the following submissions were made by the assessee:-
(i) Expenses in respect of Foreign Travelling had to be incurred by the assessee for purpose of currency purchased and used in foreign travelling included in total amount of expenditure to the tune of Rs. 34,24,684/- during the year.
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(ii) The amount of Rs. 98,020/- was incurred to meet participation in China Conference held / organized by The Industrial & Commercial Bank of China in order to maintain business trend being in the nature of sales promotion.
(iii) Legal & Consultancy charges amounting to Rs. 70,59,311/- out of which Rs. 63,39,870/- was paid in foreign currency to Chalos O’Connor & Duffy besides Rs. 17,16,914/- & Rs. 46,22,956/- were paid to Wong Partnership.
(iv) Membership and Subscription to the extent of Rs. 2,14,574/- were paid to, inclusive of Rs. 85,172/- to International Maritime Bureau (London), Rs. 75,139/- to Shanghai Ganglion E-Commerce Company Limited and Rs. 39,935/- to ICC International Maritime Bureau.
5.1. It was contended that the expenditure had to be incurred actually for maintaining and /or augmenting business relations and understanding the business trend in foreign country. It was further argued that the observation of the Learned AO that expenditure for the years continued to remain the same generally in conducting business depending on various factors from all corners of the business irrespective of output in having motive behind to earn profit from business. It was also submitted that the quantum and reasonableness of expenditure under any head in running business cause do not have relevancy in continuity of business and cannot be criterio for consideration of purpose in relation to concerning business. The Learned CITA found that the replies and arguments of the assessee to be vague and without any supporting evidences and found that the disallowance made by the Learned AO on an estimated basis @ 20% of foreign travel expenditure to be reasonable and upheld the addition.
M/s. R.Piyarelall Interntional P.Ltd 3 5.2. In respect of other expenditure of Rs. 66,52,464/- comprising of sales promotion, legal & consultancy charges and membership & subscription, the Learned CIT(A) observed that the Learned AO had not pointed out any specific item of disallowable expenditure and found lot of force in the arguments of the assessee based on the details and evidences furnished before him and gave a categorical finding that the expenditure towards legal and consultancy charges, membership & subscription were wholly and exclusively incurred for the purpose of business of the assessee and accordingly deleted 20% disallowance made thereon by the Learned AO. However, in respect of sales promotion of Rs. 98,020/- , for want of details and supporting evidences, he found that the disallowance made by the Learned AO on an estimated basis @ 20% of sales promotion expenditure to be reasonable and upheld the addition.
Aggrieved by the above, the revenue had preferred this appeal before us on the following ground:- “1. That on the facts and circumstances of the case and in law, the ld.CIT(A) erred in allowing the assessee’s appeal regarding AO’s disallowance of expenditure under the travelling and other expenses.”
The Learned DR vehemently relied on the order of the Learned AO. In response to this, the Learned AR argued that no specific item of disallowable expenditure was pointed out by the Learned AO while making disallowance on an estimated basis @ 20% of legal and consultancy charges and membership & subscription. He also argued that the necessity of incurrence of expenditure had to be viewed from the point of view of businessman and not that of revenue. He argued that TDS provisions have been duly complied with by the assessee in respect of legal and consultancy charges paid abroad in terms of section 195 of the Act and accordingly prayed for non- interference in the order of the Learned CIT(A).
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We have heard the rival submissions and perused the materials available on record. The facts stated hereinabove remain undisputed and hence the same are not reiterated for the sake of brevity. We find that the Learned CIT(A) having not being satisfied with the evasive replies given by the assessee in respect of foreign travel expenses and sales promotion expenses, had taken into account the principle of commercial expediency vis a vis the nature of business of the assessee and found it reasonable to confirm the disallowance made on an estimated basis @ 20% of such expenditure. It is undisputed that the assessee had indeed furnished all the details regarding legal and consultancy charges and membership & subscription before the revenue and had duly complied with the TDS provisions contemplated in Chapter XVIIB of the Act, wherever applicable. The genuinity of incurrence of these expenditure has not been doubted by the revenue. Hence in these circumstances, we do not find any reason to interfere with the findings recorded by the Learned CIT(A) in this regard. Accordingly, the ground raised by the revenue is dismissed.
In the result, the appeal of the revenue is dismissed.
ORDER PRNOUNED IN THE OPEN COURT ON 4 /12/2015