M/S.Rifah Shoes Pvt. Ltd vs The Assistant Commissioner of Income-Tax, Company Circle-V(4)

Prayer: Tax Case Appeal filed under Section 260A of the Income Tax Act, 1961, against the order made in I.T.A.No.1017/Mds/2014, dated 22.05.2015.

For Appellant :Mr.N.Senthil Kumar

ORDER

(Order of the Court was made by S.MANIKUMAR, J.)

Tax Case Appeal is directed against the order made in I.T.A.No.1017/Mds/2014, dated 22.05.2015, passed by the Income-Tax Appellate Tribunal, B Bench, Chennai, for the assessment year 2011-12.

2. Short facts leading to the appeal are that M/s.Rifah Shoes Pvt. Ltd., appellant herein, a Private Limited Company, filed its return on 15.10.2010, for the assessment year 2010-11, admitting a total income of Rs.49,17,340/-. Return was processed under Section 143(1) of the Income-Tax Act. The total expenditure claimed towards business promotion charges, was Rs.15,77,819/-, expenditure incurred for payment to Spa, Hotels at Mecca & Medina, purchase of apparels, etc. Towards Foreign Traveling, the assessee claimed expenses of Rs.13,90,620/-. When asked to file the relevant bills and vouchers for foreign trips, the assessee produced the bills and vouchers only for Rs.8,24,256/-. On an estimate basis, the Assessing Officer, disallowed 30% of the total expenditure of Rs.15,77,819/-, ie., Rs.4,73,345/- and added the same to the total income of the assessee, under Section 40A(2)(a) of the Income Tax Act. In terms of Section 69C of the Income Tax Act, the Assessing Officer disallowed a sum of Rs.13,90,620/-. There were other heads of disallowance also.

3. Not satisfied with the order of the Assessing Officer, dated 28.01.2013, the appellant preferred an appeal to the Commissioner of Income-Tax (Appeals). Vide order, dated 24.12.2013, the Appellate Authority, in IT Appeal No.77/13-14, allowed the appeal, in part and confirmed the order of the Assessing Officer, in respect of disallowances under the heads, Business Promotion Charges and Foreign Travel Expenditure.

4. Being aggrieved by the same, the assessee has filed I.T.A.No.1017/Mds/2014, before the Income-Tax Appellate Tribunal, B Bench, Chennai, which, after considering the rival submissions and material on record, confirmed the decisions of the Original/Appellate authority. Against the said order, instant Tax Case Appeal is filed on the following substantial questions of law, (1) Whether the facts and circumstances of the case whether the Appellate Tribunal was right in sustaining the order of the Commissioner of Income Tax (Appeals)  V, by disallowing the claim of Business Promotion expenses incurred by the appellant on estimate basis of 30% on the total claim of Rs.15,77,819/- u/s.40A(2)(a)?

(2) Whether the facts and circumstances of the case whether the Appellate Tribunal was right in sustaining the order of the Commissioner of Income-Tax (Appeals)-V, by disallowing the claim of Travelling expenses incurred, on account of foreign Travel, by stating that no material was filed by the appellant to the extent of Rs.13,90,620/-?

(3) Whether in the facts and circumstances of the case, the Appellate Tribunal was right in law in sustain the addition made by the Assessing Officer, u/s.69C of the Income-Tax Act, on account of unexplained expenses, wherein the entire expenses were made through Account Payee cheques and are evident from the books of accounts of the appellant?

5. Inviting the attention of this Court to Section 40A(2)(a) of the Income-Tax Act, Mr.N.Senthil Kumar, learned counsel for the appellant submitted that when the assessee had incurred expenditure in respect of which payment has been or to be made to any person referred to in clause (b) of the above sub-Section and if the Assessing Officer is of the opinion that such expenditure was excessive or unreasonable, having regard to the fair market value of the goods, services or facilities for which payment was made or the legitimate needs of the business or profession of the assessee or the benefits derived by or accruing to him therefrom, so much of the expenditure, considered by him, to be excessive or unreasonable, need not be allowed as deduction. He submitted that the expenditure incurred by the assessee for SPA, Hotels at Mecca & Medina and purchase of apparels, was towards the legitimate needs of the business. But the assessing officer failed to consider the same, and while disallowing 30% of such expenditure, has not assigned any reasons, as to why, he had considered the expenditure to be exclusive or unreasonable and therefore, prayed that the 1st substantial question of law has to be answered in affirmative, in favour of the appellant/assessee.

6. As regards disallowance of a sum of Rs.13,90,620/-, under Section 69C of the Income Tax Act, learned counsel for the appellant further submitted that though before the original authority, all the bills and vouchers, substantiating foreign travel for promotion of business, could not be produced, in the light of Rule 46A of the Income-Tax Rules, necessary bills were produced before the appellate authority. According to him, when the copies of the remaining bills and vouchers were produced to the appellate authority, for the balance amount of Rs.13,90,620/-, the same were not considered by the Commissioner of Income-Tax (Appeals), in proper perspective, and he rejected summarily, by stating that the same cannot be entertained, at the appellate stage.

7. Learned counsel for the appellant further submitted that flight tickets were taken in the name of the Directors and in the light of rule 46A(1)(b), when the appellant made a specific ground in the appeal, that due to administrative reasons, the remaining bills could not be submitted before the assessing officer, before the completion of scrutiny proceedings, the documentary evidence produced before the appellate authority ought to have been considered on merits and that the said authority ought to have allowed the expenditure of Rs.13,90,620/-, incurred towards foreign travel. When the failure of the appellate authority, in adverting to the abovesaid grounds, was specifically pointed out, the Income Tax Appellate Tribunal has simply confirmed the decision of the authorities and thus, the Tribunal was not right in sustaining the addition made by the Assessing Officer, under Section 69C of the Income Tax Act.

Heard the learned counsel for the appellant and perused the materials available on record.

8. The appellant has declared a total income of Rs.49,17,343/-. Case has been taken up for scrutiny and on notice, his authorised representative has appeared. Going through the material documents, the assessing officer has found that payments have been made through Credit Cards and many entries have been made, towards expenditure incurred towards stay in the Hotels/Resorts, Disney Vacancy purchase, apparels purchase, departmental stores, SPA/life style and stay in the Hotels at Mecca & Medina. Though the appellant has contended that credit card payments were made in relation to foreign travel for business purposes, the assessing officer has observed that foreign visits made was for religious pilgrimage.

9. Though Mr.N.Senthil Kumar, learned counsel for the appellant has contended that the assessing officer has failed to record any reasons for disallowing a sum of Rs.4,73,345/-, being 30% of Rs.15,77,819/-, the latter being claimed as expenditure incurred towards business promotion charges, and that he has not assigned any reason, as to why, it was excessive or unreasonable, during the course of hearing, when the learned counsel was posed with a specific question, as to whether, any material was placed before the assessing officer or appellate authority, as the case may be, to prove that the foreign travel and stay in hotels at Mecca & Medina, were for the legitimate need of the business, learned counsel for the appellant stated that no specific documents were produced before the authorities on the said aspect.

10. Even though as admitted before us that no specific documents were submitted before the Original/Appellate authority, considering that foreign visits made to Mecca and Medina and stay in hotels, and the expenditure incurred for the purchase of apparels, SPA, life style, etc., still, on an estimate basis, the assessing officer has disallowed only 30% of the credit credit payments, being personal in nature, out of total expenditure of Rs.15,77,819/-, claimed as business promotion expenditure.

11. Though before the appellate authority, objections have been made for the disallowance, on the grounds that the assessing officer has failed to discharge the onus of proving that payments have been made to parties, under Section 40A(2) of the Income Tax Act, 1961, were excessive or unreasonable, from the perusal of the materials on record, it could be deduced that the appellate authority has categorically held that the assessing officer has given proper reasoning in his order that part of expenditure is not related to business and the same, in no way, has contributed for the purpose of business. The appellate authority has also found that credit card payments, relating to various purchases, relate to personal expenditure, as well as religious tourism, undertaken by the appellant company's Directors and employees and therefore, there is no irregularity, in disallowing 30%, claimed as business expenditure. So saying, the Commissioner of Income-Tax (Appeals), appellate authority, has confirmed the disallowance under the head, Business Promotion Charges.

12. Insofar as disallowance of Rs.13,90,620/-, under the head, Foreign Travel Expenses under Section 69C of the Income-Tax Act, holding the same as unexplained expenditure, is concerned, it is the case of the assessing officer that when the assessee was asked to file relevant bills and vouchers for the foreign trips to substantiate the claim, the assessee filed bills and vouchers, only to the extent of Rs.8,24,256/-. In the absence of necessary bills and vouchers, the difference amount of Rs.13,90,620/- was disallowed by the assessing officer, as unexplained expenditure, under Section 69C of the Income Tax Act and thus, added to the total income of the assessee.

13. Section 69C of the Income Tax Act, deals with unexplained expenditure, etc., and the said section is extracted hereunder:

Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year.

Provided that, notwithstanding anything contained in any other provision of this Act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income.

14. It is an admitted fact that the appellant has not produced all the bills and vouchers before the assessing officer to substantiate the claim that an extent of Rs.22,14,876/-, incurred for foreign travel, for the purpose of business. Before the appellate authority, the assessee has submitted that mere non production of bills/vouchers, does not per se attract disallowance and prayed to allow deduction for the entire expenditure, incurred for the foreign visit.

15. Before this Court, Mr.N.Senthil Kumar, learned counsel for the appellant contended that when foreign visits, undertaken by the appellant, were accepted, both the assessing officer and the appellate authority ought to have allowed the entire expenditure. He further submitted that the appellate authority has merely rejected the documents, by observing that the documentary evidence produced at the appellate stage, cannot be entertained and therefore, there is a failure to adhere to Rule 46A(1)(b) of the Income-Tax Rules. He also submitted that the Income-Tax Appellate Tribunal has further erred in sustaining the order of the Commissioner of Income-Tax (Appeals), by merely stating that the payments to Business Promotion expenses are personal in nature and that there was no material document to show how those payments incurred was to promote the business of the assessee.

16. This Court is not inclined to accept the abovesaid contentions, for the reasons that while considering the plea of the appellant-assessee that they were prevented from producing sufficient evidence, the appellate authority has observed that even though foreign visits have been undertaken, evidence produced would not be entertained, at the appellate stage, as most of the bills furnished were in the name of the individual parties and hence, cannot be treated as business expenditure. From the above, it could be seen that it is not a case, where the appellate authority has totally rejected the documents, but the said authority has considered the merits of the submission and documents and held that they cannot be accepted, for the reasons assigned and thus, concluded that the evidence adduced, at the appellate stage, cannot be entertained. It is not a case of refusal simpliciter, to entertain the evidence adduced at the appellate stage.

17. The Directors of the Company and employees have visited Mecca & Medina as pilgrimage and spent money for stay in hotels/resorts, disney vacancy purchase, apparels purchase, departmental stores, SPA/life style, by using credit cards. Though the appellant has claimed that the entire expenditure incurred towards foreign travel, was for promotion of business, having regard to the expenses incurred towards foreign travel for Mecca and Medina, stay in hotels, etc., and upon considering the materials, the appellate authority, by observing that as most of the bills, furnished were in the name of the individuals and that the same cannot be treated, as business expenditure, held that the addition made by the assessing officer, on account of foreign travel expenditure, is not related to business, and treated the same as personal expenditure and so saying, confirmed the disallowance of Rs.13,90,620/-. Question is whether the appellant has substantiated the plea that the visits made to foreign countries were for promotion of business? Has he satisfied the above condition to claim deductions?

18. As observed in the foregoing paragraphs, it is the categorical admission of the learned counsel for the appellant that no documents were produced, either, before the Original Authority or Appellate Authority, as the case may be, to prove that there was any business transactions or activity in the foreign countries, visited by the Directors of the appellant-Company, on the said aspect. Pilgrimage to Mecca and Medina is substantiated and finding on that aspect, has not been disputed. From the above materials, it could be safely concluded that the appellant has failed to discharge the burden to prove that the visit to the above countries was only for the business purpose. At this juncture, at the risk of repetition, it is worthwhile to record the reasons of the appellate authority, As this credit card payments related to various purchases which are related to personal expenditure as well as religious tourism undertaking by the appellant company's Directors and employees. Hence, the dis allowance made by the Assessing Officer at 30% of business of expenditure claimed at Rs.4,73,345/- is confirmed dismissing the grounds raised by the AR of the appellant.

19. The said finding recorded by the appellate authority, the expenses incurred for pilgrimage, has not been disputed and no materials have been filed to contradict the same. When the appellant has failed to substantiate that the visit to Mecca and Medina by the Directors, in whose names, tickets were issued and spent money through their credit cards for the stay in hotels, SPA, etc., was for promotion of business, only it cannot be contended that both the original/appellate authorities have erred, in not properly adverting to the statutory provisions, under Sections 40A(2)(a) and 69C of the Income-Tax Act, 1961.

20. On facts, when the appellant did not satisfy the requirements for claiming deductions, disallowance has to consequently follow. Thus, the disallowance of Rs.4,73,345/- under the head, Business Promotion Chargesand Rs.13,90,620/- under the head, Foreign Travel Expenditure, cannot be said to be said to be erroneous, both on law and facts.

21. In the light of the above discussions, the substantial questions of law, raised by the assessee, are answered against the assessee. Hence, the Tax Case Appeal is dismissed. No costs.

(S.M.K., J.) (D.K.K., J.) 30.06.2016 Index: Yes Internet: Yes

To

The Income Tax Appellate Tribunal, B Bench, Chennai.

S.MANIKUMAR, J. AND D.KRISHNAKUMAR, J. skm

T.C.A.No.413 of 2016

30.06.2016