Adani Energy Ltd, Ahmedabad vs Assessee

आयकर अपील सं./I.T.A. No.2178/Ahd/2011 ( नधा रण वष / Assessment Year : 2008-09) Adani Energy Ltd. बनाम/ The Addl.CIT (Formerly known as Gujarat Vs. Range-1 Adani Energy Ltd.) Ahmedabad Adani House Nr.Mithakhali Six Road Navrangpura, Ahmedabad थायी ले खा सं . /जीआइआर सं . / PAN/GIR No. : AABCG 5533 E (अपीलाथ# /Appellant) .. ($%यथ# / Respondent)

अपीलाथ# ओर से / Appellant by : Ms.Ukti, AR $%यथ# क' ओर से/Respondent by : Shri M.K.Singh, Sr.DR

ु वाई क' तार*ख / सन Date of Hearing 27/03/2015 घोषणा क' तार*ख /Date of Pronounce ment 10/04/2015

आदे श / O R D E R

PER SHRI KUL BHARAT, JUDICIAL MEMBER :

This appeal by the Assessee is directed against the order of the Ld.Commissioner of Income Tax(Appeals)-VI, Ahmedabad ('CIT(A)' in short) dated 19/07/2011 pertaining to Assessment Year (AY) 2008-09. The Assessee has raised the following grounds of appeal:-

ITA No.2178/Ahd/2011 Adani Energy Ltd. vs. Addl.CIT Asst.Year - 2008-09 -2-

1. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in treating Ground No. 1 of the appellant's appeal challenging the validity of the assessment order impugned before him as being general in nature and therefore, not required to be adjudicated upon. He ought to have appreciated, inter alia, that the assessment order impugned before him had been passed without application of mind and therefore, deserved to be cancelled.

2. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in upholding disallowance of deduction for travelling expenses of Rs.9,90,879. He ought to have appreciated, inter alia, that vide its written submissions before him which had even been reproduced in the impugned Appellate Order, the appellant had clearly shown that the expenditure had been incurred wholly and exclusively for the purposes of the appellant's business and being neither capital expenditure nor personal expenditure, it had got to be allowed u/s. 37 of the Income-tax Act, 1961, and that, in any case, it was not open to him to uphold the disallowance without dealing with the appellant's submissions.

3. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in not ordering cancellation of the levy of interest u/s. 234C prayed for by the appellant vide Ground No. 5 of its appeal. He ought to have appreciated, inter alia, that in the peculiar facts of the appellant's case, the ratio of the decision of the Gujarat High Court in Bharat Machinery and Hardware Mart's case (136 ITR 875) and of the decision of the ITAT, Delhi Bench in Haryana Warehousing Corporation v. DCIT [252 ITR (A.T.) 34] squarely applied and the levy deserved to be cancelled.

4. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in rejecting Ground No. 6 of the appellant's appeal challenging initiation of penalty proceedings u/s.

271(1)(c) on the ground that it was premature in nature. He ought to have appreciated, inter alia, that in the facts and circumstances of the appellant's case, initiation of penalty proceedings for concealment of ITA No.2178/Ahd/2011 Adani Energy Ltd. vs. Addl.CIT Asst.Year - 2008-09 -3-

income was not at all warranted and that, therefore, he ought to have ordered for the cancellation of those proceedings, thereby saving the appellant as well as the Department from having to undergo avoidable litigation.

5. The appellant craves leave to add, amend and/or alter the ground or grounds of appeal either before or at the time of hearing of the appeal.

2. Briefly stated facts are that the case of the assessee was picked up for scrutiny assessment and the assessment u/s.143(3) of the Income Tax Act,1961 (hereinafter referred to as "the Act") was framed vide order dated 20/12/2010, thereby the Assessing Officer (AO in short) made disallowance of travelling expenses of Rs.9,90,879/- on the basis that the assessee could not substantiate with evidence the business nexus for claiming the travelling expenditure. Against this, the assessee filed an appeal before the ld.CIT(A), who after considering the submissions rejected the ground against the disallowance of travelling expenses. Aggrieved by the order of the ld.CIT(A), the assessee is now in appeal before us.

3. The ld.counsel for the assessee submitted that both the authorities below have failed to take note of the fact that the assessee has demonstrated the business nexus in respect of the expenditure incurred. The ld.counsel for the assessee drew out attention towards the statement of facts submitted before the ld.CIT(A), wherein it is submitted that the ITA No.2178/Ahd/2011 Adani Energy Ltd. vs. Addl.CIT Asst.Year - 2008-09 -4-

nature of business of the company requires appellant's official to travel and meet various people around the country and globe for entering into prospective trading business. It was further submitted that the trading in LNG is very niche aspect; as such there are no direct consumers for the LNG. In order to cap such demand the appellant has to keep track of market demand nationally and internationally. The executives of assessee-company travelled from one place to another for the purpose of the business. It was pointed out that such expenses had direct nexus with business of the assessee-company.

3.1. On the other hand, ld.Sr.DR supported the orders of the authorities below and submitted that it was incumbent upon the assessee-company to demonstrate the expenditure had been incurred for the business purposes. In the absence of any supporting evidence, the authorities below were justified in making the disallowance.

4. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the ld.CIT(A) has decided the issue in para-3.3 of his order by observing as under:-

"3.3. I have considered the facts of the case; assessment order and appellant's submission. Appellant claimed travelling expenses for which it was not able to give details of business purpose and ITA No.2178/Ahd/2011 Adani Energy Ltd. vs. Addl.CIT Asst.Year - 2008-09 -5-

accordingly assessing officer disallowed the same. Appellant argued that it was business expense and spent for the purpose of business however no specific details of purpose of these travelling expenses and their business nexus were submitted. Considering the fact that appellant did not discharge its onus of establishing the claim of expense for the purpose of business, the same is not allowable. Accordingly the disallowance made by the assessing officer is confirmed."

4.1. However, we find that before the ld.CIT(A), the assessee had made an elaborate submission by way of statement of facts which is reproduced hereunder:-

"1. Disallowance of Travelling expenses of Rs. 9,90,879/-

The appellant is in business of bulk trading of Liquified Natural Gas ('LNG'). The company has been in this business since its inception. It has entered into various contracts under earlier years and subsequent years with regards to the year under consideration. The nature of business of the company requires appellants' official to travel and meet various people around the country and globe for entering into prospective trading business. Appellant submits that trading in LNG is very niche aspect; as such there are no direct consumers for the LNG. Further there is a huge demand of energy and power sources on account of scarcity of sources of energy and fuels. To cap such demand the appellant has to keep track of market demand nationally and internationally. Considering such an intensive marketing scenario the travelling expenses of the appellant is justified.

The executives of appellant visit and meet several prospective buyers and traders for the purpose of procuring any substantial order. Hence such expenses have direct nexus with business of the appellant.

As far as the contention of the Ld. AO regarding the absence of any commercial expediency is concerned, the appellant would like to state ITA No.2178/Ahd/2011 Adani Energy Ltd. vs. Addl.CIT Asst.Year - 2008-09 -6-

that the reasons forming basis of such rejection are vague and without any evidences surfaced during the course of assessment proceedings. The travelling expenses are allowable under section 37 of the act as they are not expressly allowed under section 30 to 36 of the act, neither they are in the nature of capital transactions nor they are personal in nature further they are related to business carried on by the assessee and are incurred wholly and exclusively for the purpose of business. Hence all the criteria laid down in under section 37 of the act are met and accordingly they may be allowed.

Further the department cannot consider the expediency factor, but must confine its examination to the reality expect. The same understanding was elucidated by Madras High Court in the land mark judgment of Gobald Motor Service (P.) Ltd. 100 ITR 240. It was held that the expediency of the expenditure is not for the revenue to consider. That is a matter entirely left to the judgment of the assessee concerned. The jurisdiction of the revenue is under section 37 of the Act is, however confined to deciding the reality of the expenditure, namely whether the amount claimed as deduction was factually expended or laid out and whether it was wholly and exclusively for the purpose of the business.

The apex court in various milestone decisions of CIT v. Malayalam Plantations Ltd. [1964] 53 ITR 140 (SC), Madhav Prasad Jatia v. CIT [1979] 118 ITR 200 (SC), CIT v. Birla Cotton Spg. &_Wvg.Mills Ltd. [1971] 82 ITR 166(S.C) held that the expression 'for the purpose of business' is wider in scope than the expression 'for the purpose of earning profit'. Its range is wide; it may take in not only day-to-day running of a business but also the relationship of its administration and modernization of machinery, it may include measure for the preservation of the business and for protection of its assets and property from expropriation or a coercive process and many other acts incidental to carrying on a business.

Further the assessing officer has not made any express reference under which provision of the Income-tax Act, 1961 ('the Act') the travelling expenses have been disallowed.

ITA No.2178/Ahd/2011 Adani Energy Ltd. vs. Addl.CIT Asst.Year - 2008-09 -7-

In light of the above facts, judicial precedents the appellant prays your good office to direct the Ld.AO to delete the addition made by disallowing transportation expenses of Rs. 9,90,879/-. "

4.2. We also find that the ld.CIT(A) has not adverted to the submissions of the assessee. The assessee had specifically submitted that the expenditure have been incurred on travelling of the executives for the business purpose of the assessee-company. There is no dispute with regard to proposition that deduction of expenditure is allowable if same is incurred for the business purpose. The assessee is required to demonstrate the business purpose. In the present case, as per assessee, the travelling expenditure was incurred on travelling of the executives of the company to study market condition and to contact prospective consumers for the purpose of trading in LNG. It is not disputed that such expenditure is allowable, however, the expenditure disallowed on the basis that the assessee failed to establish business nexus. The assessee had also relied on the judgements of Hon'ble Apex Court rendered in the case of CIT vs. Malayalam Planations Ltd. reported at (1964) 53 ITR 140(SC) and of Madhav Prasad Jatia vs. CIT reported at (1979) 118 ITR 200(SC) in support of the contention that 'for the purpose of business' is wider in scope than 'for the purpose of earning profit. In view of the ratio laid down by the Hon'ble Apex Court the cases of CIT vs. Malayalam Planations Ltd.(supra) and Madhav Prasd Jatia vs. CIT (supra), we are of the considered view that the ld.CIT((A) was not ITA No.2178/Ahd/2011 Adani Energy Ltd. vs. Addl.CIT Asst.Year - 2008-09 -8-

justified in rejecting the ground on the basis that there is nexus between the expenditure incurred and the business of the assessee-company. Therefore, we hereby set aside the order of the ld.CIT(A) and direct the AO to delete the addition. Thus, grounds raised in the assessee's appeal are allowed.

5. In the result, appeal of the assessee is allowed.

Order pronounced in the Court on Friday, the 10th day of April, 2015 at Ahmedabad.

Sd/- Sd/- (एन.एस.सैनी) (कुल भारत) लेखा सद य या यक सद य ( N.S. SAINI ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 10/ 04 /2015 ट*.सी.नायर, व. न.स./T.C. NAIR, Sr. PS

आदे श क" # त%ल&प अ'े&षत/Copy of the Order forwarded to :

1. अपीलाथ# / The Appellant

2. $%यथ# / The Respondent.

3. संबं4धत आयकर आयु6त / Concerned CIT

4. आयकर आयु6त(अपील) / The CIT(A)-VI, Ahmedabad

5. 7वभागीय $ त न4ध, आयकर अपील*य अ4धकरण, अहमदाबाद / DR, ITAT, Ahmedabad

6. गाड; फाईल / Guard file.

आदे शानुसार/ BY ORDER,

स%या7पत $ त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad