business exp

(2010) 34 (II) ITCL 531 (Mum `J'-Trib)

Shabro International v. Addl. CIT

ORDER

These three appeals pertain to the same assessee involve common issues arising out of materially similar set of facts and circumstances and were heard together. As a matter of convenience, therefore, all the three appeals are being disposed off by way of this consolidated order.

2. First we take up assessee's appeal in ITA No.5122/Mum./2005, for assessment year 2002-03.

3. Ground no.1 raised by the assessee, reads as under:

"1. The learned Commissioner (Appeals) erred in allowing only 50% of total expenses as the expenses were incurred to protect the business interest of assessee firm. Hence, they are to be fully allowed."

3. Briefly stated the material facts are like this. The assessee is a partnership firm engaged in the business, inter-alia, of exporting "Precious" brand agarbattis (incense sticks) which are manufactured by it's sister concern M/s. Hem Corporation. During the relevant previous year, the assessee had to incur certain expenses in connection with trade mark "Precious" which is owned by it's sister concern, in respect of a litigation in U.S.A. While agarbattis are manufactured by the sister concern, the entire export of agarbattis is being handled by the assessee. It was in these circumstances and since the expenses related to export market, the expenditure was borne by the assessee firm. In the course of assessment proceedings, however, the assessing officer declined deduction in respect of the same on the ground that the trade mark was owned by the sister concern. Aggrieved, the assessee carried the matter in appeal before the learned Commissioner (Appeals) who allowed only half of the expenditure on the ground that the sister concern ought to bear half of this expenditure as the sister concern also had valuable rights protected by the said litigation. Being aggrieved, the assessee is in further appeal before us.

4. After having heard the rival contentions and on perusal of the material on record and duly considering the applicable legal position as also the factual matrix of the case, we are of the considered view that the assessee's grievance has legally sustainable on merits. We have noted that the learned Commissioner (Appeals) has given a finding to the fact that these expenditure were incurred in furtherance of the legitimate business interest of the assessee and the revenue has not challenged this finding. On the basis of these findings, 50% of this expenditure have been allowed. The learned Commissioner (Appeals) has, however, disallowed remaining 50% expenditure on the ground that the sister concern ought to have borne the amount. This observation, in our considered view is indeed devoid of any substance inasmuch as once the learned Commissioner (Appeals) accepts the business expediency of the expenditure, it is not for him to question as to how much the assessee and the sister concern should have borne. As long as expenses are incurred wholly and exclusively for the purposes of earning the income from business or profession, as is now uncontroverted position on the facts of this case, even if some of these expenses are borne voluntarily, these expenses do not cease to be deductible under section 37(1). It was so held by the Hon'ble Supreme Court in the case of CIT v. Chandulal Keshanlal & Co., (1960) 38 ITR 601, and Sasson J. David & Co. v. CIT, (1979) 118 ITR 261. That apart, on the facts of the present cases, assessee had bonafide business reasons to bear the impugned expenses. We have noted that the assessee has substantial business interest in protecting the valuable trade mark and it was the assessee alone who was doing the entire business in the U.S.A. for the products in respect of which trade mark was being sought to be protected. Under these circumstances, particular in the light of the uncontroverted findings of the learned Commissioner (Appeals), in our considered view, the disallowance sustained by the learned Commissioner (Appeals) is indeed only fit to be deleted. We do so. The assessee gets relief accordingly.

5. Ground no.2 raised by the assessee, reads as under:-

"2. The learned Commissioner (Appeals) erred in allowing only 50% of expenses as all the details were furnished before the assessing officer and all the expenses were relating to the business of assessee firm. Hence, they are to be fully allowed."

5. The assessee firm had incurred foreign tour expenses aggregating to Rs.9,49,094/-. The ticket component aggregating to Rs.4,51,879/- were allowed by the assessing officer as business expenditure. The balance amount of Rs.4,97,215/- has not been allowed on the ground that no details were filed by the assessee firm except credit card bills showing the amount spent.

6. The assessee, being aggrieved by the order so passed by the assessing officer, carried the matter in appeal before the learned Commissioner (Appeals) who allowed 50% of the expenses on the ground that the amount is reasonably spent by the assessee firm for the stay abroad for the purpose of the business. While doing so, the learned Commissioner (Appeals), inter-alia, observed as follows:-

"11. Even before me, the A/R has not produced any evidence that the disallowed amount had indeed been spent for the business. Firstly, the disallowed amounts pertaining to A.Y. 2003-04 have not been exactly clarified and the purposes have not been spelt out. Secondly, for the A.Y. 2004-05, the A/R has mentioned in his submission, inter alia, it is not feasible and practical to retain each and every bill and/or voucher.

12. Considering the arguments, I am of the view that the appellant firm has not established its contention. It is only baffling that when the amounts could be ledgerised to arrive at a figure under a particular head of expenses, how the same could not be justified with any noting or narration? I refuse to believe that the expenditure had indeed been made for the purpose of business. Therefore, I confirm the disallowances made in both the years. The ground taken in this regard is dismissed."

7. Not satisfied by the stand so taken by the learned Commissioner (Appeals), the assessee is in further appeal before us.

8. We have heard the rival contentions, perused the material on record and duly considered the applicable legal position as also the factual matrix of the case.

9. The impugned disallowance is with respect to foreign currency purchases in respect of which actual supporting evidences of expenditure are not filed. An amount of Rs.4,97,215/- is shown to have been spent for purchase of currency but beyond that there are no bills or vouchers. To the extent the details are not furnished, partial disallowance is indeed justified for want of details. As for the break-up filed by the assessee, even this break-up, in round figures, is devoid of any support or basis. It has been contended before us that hotel bills which are paid on credit cards, have also been disallowed on ad-hoc basis @ 50%. We do not think such a disallowance is called for. We, therefore, modify the learned Commissioner (Appeals)'s order to the extent that the extent assessee has borne any direct expenses on the credit card, the same should be allowed fully. As for the expenses for which no supporting evidence is available, except for evidence of purchasing the foreign currency, only 50% of expenses are to be allowed on estimate basis even without bills and vouchers. To that extent, the order of the learned Commissioner (Appeals) is modified.

10. The remaining ground raised by the assessee is not pressed and is accordingly dismissed as such.

11. In the result, assessee's appeal is partly allowed in the terms indicated above.

12. Now we take up assessee's appeal in ITA No.5885/Mum./2007, for assessment year 2004-05.

"1. The learned Commissioner (Appeals) erred in allowing only 50% (and disallowing balance 50%) of expenses, as the expenses were incurred solely to protect the business interest of assessee firm. Hence, they are to be fully allowed.

13. The issue arising out of the above ground is mutatis mutandis identical to the ground no.1 decided by us in the appeal in ITA No.5122/Mum./2005 for assessment year 2002-03, vide Para-4, wherein, we have deleted the disallowance sustained by the learned Commissioner (Appeals). In view of our directions as contained in Para-4 above, similar directions are issued on this ground also. Thus, the assessee gets relief accordingly.

14. Ground No.2, reads as under:-

"2. The learned Commissioner (Appeals) erred in confirming the disallowance of foreign tour expenses of Rs.10,14,157/- without appreciating the fact that the assessee has not furnished to the assessing officer details and bills for currency purchase and credit card statements."

15. The issue arising out of the above ground is mutatis mutandis identical to the ground no.2 decided by us in the appeal in ITA No.5122/Mum./2005 for assessment year 2002-03, vide Para–8, wherein, we have direct the assessing officer to allow the amount recomputed on the basis of our decision Para-9 above. Similar directions are issued on this ground also. Thus, the assessee gets partial relief accordingly.

16. The remaining ground raised by the assessee, reads as under:-

"3. The ld. Commissioner (Appeals) erred in confirming the disallowance of membership and subscription expenses of Rs.2,83,852/- without appreciating the fact that they are for membership of assessee firm only and no asset is acquired by incurring these expenses."

17. The assessee claimed Rs.2,65,980/- as charges of Club Mahindra membership. The assessing officer noticed that the main place of business of the assessee is at Mumbai and Club Mahindra does not have any resort in Mumbai. He was of the view that the Club Mahindra are mainly located for enjoying vacation with the family and the resorts are mainly located at various tourist places which are not connected with the assessee's business. The assessing officer also seen that the joining fees is for a period of 25 years and the whole expenditure cannot be allowed in one year. He disallowed the whole expenditure as the same is person in nature. Apart from this, the assessing officer also disallowed Rs.6,372/- on account of New Year Card Membership, Rs.4,000/- on account of Acre Club, Rs.7,500/- on account of J.W. Marriot Membership aggregating to Rs.2,83,852/-.

18. The assessee, being aggrieved by the order so passed by the assessing officer, carried the matter in appeal before the learned Commissioner (Appeals), but without any success. The learned Commissioner (Appeals) affirmed the action of the assessing officer, observing as follows:-

"22. It is seen from the ledger copy presented before me that out of 11 entries made therein between 1-4-2003 and 18-2-2004, the following are worth the consideration for their apparent non-business purposes. They are mentioned in brief as under:-

Date
Expenditure incurred on account of
Amount (Rs.)

30.4.2003
Acre Club Membership
4,000/-

12.6.2003
Hotel Membership
7,000/-

06.2.2004
Club Mahindra Holiday for season
2,65,980/-

18.2.2004
18.2.2004 New Year Card Membership
6,372/-

Total
2,83,852/-


23. It is true that while listing the above at Para-7 of Page-3 of his order, the assessing officer has inadvertently omitted the figure for Club Mahindra Holiday membership, although in the total he has mentioned of Rs.2,83,852/-.

24. The A.R. argued before me that these amounts had all been spent for the purpose of business only without categorically justifying the same. However, after careful consideration of the details, I am of the view that the listed out expenditure had been ostensibly made for personal benefits of one partner Mr. Uday Shah. From no angle, these can be considered as expenses incurred wholly and exclusively for the purpose of business. Therefore, I confirm the disallowance made by the assessing officer The ground taken in this regard is dismissed.

19. We have heard the rival contentions, perused the material on record and duly considered the applicable legal position as also the factual matrix of the case.

20. Learned counsel for the assessee has relied upon a co-ordinate bench's decision in the case of Sterlite Industries India Ltd. v. Addl. CIT, 6 SOT 497 in support of the proposition that the amount paid for corporate membership of Club Mahindra is to be allowed as deduction. However, as is the clear uncontroverted finding of the assessing officer, the club membership is in the name of the partner of the firm and even this is not established that the expenditure was of the assessee firm. The judicial precedents cited by the assessee are of thus no use. In any event, there is no material on record to establish, or even indicate that the expenditure was incurred for the assessee firm or the assessee firm benefited from the same. We, therefore, see no reason to interfere in the order of the learned Commissioner (Appeals) in this regard. We approve and uphold the same.

21. In the result, assessee's appeal is partly allowed in the terms indicated above.

22. Now we take up assessee's appeal in ITA No.5884/MUM./2007, for assessment year 2003-04.

23. Ground no.1 raised by the assessee, reads as under:-

"1. The learned Commissioner (Appeals) erred in allowing only 50% (and disallowing balance 50%) of expenses as the expenses were incurred to protect the business interest of assessee firm. Hence, they are to be fully allowed."

24. The issue arising out of the above ground is mutatis mutandis identical to the ground no.1 decided by us in the appeal in ITA No.5122/Mum./2005 for assessment year 2002-03, vide Para–4, wherein, we have deleted the disallowance sustained by the learned Commissioner (Appeals). Similar directions are issued on this ground also.

25. The remaining ground raised by the assessee, reads as under:-

"2. The learned Commissioner (Appeals) erred in confirming the disallowance of Foreign Tour Expenses of Rs.49,454/- without appreciating the fact that the assessee has furnished to the assessing officer details of bills of Rs.31,950/- and credit card statements for Rs.17,504/- relating to the disallowance made by the assessing officer.

26. The issue arising out of the above ground is mutatis mutandis identical to the ground no.2 decided by us in the appeal in ITA No.5122/Mum./2005 for assessment year 2002-03, vide Para–8, wherein, we have direct the assessing officer to allow full amount incurred on account of local travel, food and hotel expenses and re-compute the income in the light of our aforesaid directions as contained in Para–8 above. Similar directions are issued on this ground also. Thus, the assessee gets relief accordingly.

27. In the result, assessee's appeal stands partly allowed in the terms indicated above.

28. To sum up, all the appeals are allowed. Pronounced in the open court today on 30-4-2010.

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