Income Tax Appellate Tribunal - Cochin
M/S.M.M.Publications Ltd, Kottayam vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S. GANESAN, JM & B. R. BASKARAN, AM ITA Nos. 26 & 27/Coch/2014 (Asst Years 2008-09 & 2009-10 ) The Asst Commr of Income Tax Kottayam Vs M/s M M Publications Ltd P B No. 226 Erayiulakadavu Kottayam 686 001 ( Appellant) (Respondent) PAN No. AACCM2082P Assessee By Shri Thomas Zachariah Revenue By Shri Anil Kumar, CIT-DR Date of Hearing 25th March 2014 Date of pronouncement 04th April 2014 ORDER PER B.R. BASKARAN, AM:
Both these appeals filed by the revenue are directed against the orders passed by the ld CIT(A)-V, Kochi and they relate to the AYs 2008-09 and 2009-10. Since the issue urged in both the appeals is identical in nature, they were heard together and are being disposed of by this common order, for the sake of convenience.
2 The solitary issue urged in these appeals is whether the ld CIT(A) was justified in deleting the disallowance made by the AO from Foreign travel expenses claimed by the assessee.
3 The facts relating to the issue are stated in brief: The assessee company is engaged in the business of printing and publishing popular magazines in Malayalam. In the assessment year 2008-09, the AO noticed that more than 50% of the travel expenses claimed by the assessee consisted of foreign travel expenses. The details of foreign travel expenses undertaken by the various persons are tabulated as under by the AO:
Sl..No. Name of the person travelling Designation Purpose Amount Expenditure details furnished 1 Prema Mammen Mathew Chef Editor, Vanitha United Kingdom to get acquainted with cuisine and editorial contract 2,78,230 Rs.192330 for travel cheque:
Rs. 85,900 for foreign currency. 2 Bina Mathew Assistant Editor Children's division Turkey, World Congress of International Press Institute 9,35,563 Rs 208263 for air ticket:
Rs 727300 for forex 3 Keya Tharakan Executive Fashion and design Turkey 56 gen assembly of IPI 563,632 Rs.187,042 for Air ticket; Rs 311700 forex;
Rs.61,890 forex.
4 Keya Tharakan Executive Fashion and design Australia to meet consolidated press holding 4,85,981 Rs.263.300 forex for newzealand trip:Rs. 199.681 air ticket 5 Keya Tharakan Executive Fashion and design Singapore-Life style shows and meet fashion people 2,31,398 Rs.36,780 air ticket; Rs. 34,098 forex; Rs.160,520 forex 6 Ammu Mathew Sub Editor, Vanitha Editor's Forum of WAN 1,92,732 Rs 5326 overseas medical insurance; Rs. 10,230 air ticket; Rs. 177,182 air ticket 7 Keya Tharakan Executive fashion and design Dubai-Vanitha Pookalam context 3,54,825 Rs. 64,870 air ticket;
Rs 245400 forex;Rs 44,555 air ticket 8 Bina Mathew Assistant Editor-Children's dvn Dubai-Vanitha payasamela Gulf cookbook publication meeting with integrated advertising 8,09,997 Rs.714,525 forex;
Rs 93,472 air ticket 9 Bina Mathew Assistant Editor-Children's dvn 9,78,930 Rs.7,26,075 forex;
Rs. 64,870 air tiecket;
Rs 187,985 air tiecket.
10 Ammu Mathew Sub editor, Vanitha 47,529 Air ticket 11 Thagam Mammon Executive - Liaison Officer 26,625 Air ticket 12 Prema Mammon Mathew Chief Editor Vanitha UK to get acquainted with cuisine 264,311 Rs.5236medical insurance; Rs. 178875 forex; Rs 80,200 forex 13 Bina Mathew Assistant Editor-Children's dvns
-do-
7,13,520 Forex 14 Prema Mammon Mathew Chief Editor, Vanitha Singapore-business promotion and culinary update 2,38,520 Rs. 158,480, travel cheque; Rs 80,100 foreign currency 15 Suresh Ninan Sr Manager- Works Dubai- Evaluation of software for colour managing and proofing 45,788 Foreign currency 16 Madhu Chandran Editorial Co coordinator Trip to Dubai for editorial article 65,552 34,402 air ticket; 4456 foreign travel allowance; 775 overseas medical insurance Rs 25,919 air ticket.
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Ajith Abraham Snr.subedtor Malaysia for article 39,750 18 Sanjee George Snr GM Payasamela 93,434 Rs. 29,067 air ticket; Rs.63,592 forex Rs. 775 medical insurance.
3.1 The AO examined the foreign travel expenses in order to ascertain whether there is any business connection in incurring those expenses. The AO noticed that the husband of Smt Prema Mammen Mathew is the Managing Director of another group concern, viz., Malayala Manorama. Similarly, Smt Bina Mathew is the wife of Shri Philip Mathew, Managing Editor of Malayala Manorama. Smt Keya Tharakan is the daughter-in-law of Smt Bina Mathew and Philip Mathew; Smt Ammu Mathew is the wife of Shri Jacob Mathew, Executive Editor of Malayala Manorama. Thus, the AO noticed that Smt Prema Mamman Mathew, Smt Bina Mathew, Smt Keya Tharakan and Smt Ammu Mathew have only accompanied their respective spouses in the foreign tour. Since the above said persons are related to each other and also shareholders of the assessee company, the AO held that the provisions of sec. 40A(2) of the Act shall be applicable to the impugned expenditure. Accordingly, the AO took the view that the above said persons in most of the trips have accompanied their respective spouses and hence the business exigency is not proved.
3.2 The AO noticed that the objective of the foreign visit stated by these persons were very much general in nature and even pleasure trips can be covered by it. Some of the foreign trips were claimed to have been undertaken to attend conferences. However, the AO noticed that these persons were not the delegates of such conference and only their respective spouses have attended the conference. Further, the AO noticed that the assessee has not provided any details about the particulars of the expenses in respect of foreign exchange purchased by them. Accordingly the AO took the view that the possibility of incurring personal expenses during the course of foreign trips cannot be ruled out.
3.3 The AO also noticed that all the expenses have been incurred by the group concern, viz., M/s Malayala Manorama and the assessee has reimbursed the expenses in response to the debit note raised by M/s Malayala Manorama. The debit notes gave details about the Air fare and foreign exchange drawn; but did not give the details of the expenses incurred in the foreign country.
3.4 The AO also took the view that the explanations offered by the assessee with regard to the purpose of foreign travel were having remote business relationship of the assessee. Accordingly, the AO disallowed the expenses claimed as per entries 1 to 6 and 12 to 14 of the table extracted earlier, treating the same as personal expenses. With regard to the visit to Dubai (entries nos 7 to 11), the AO disallowed 50% of such expenses.
3.5 Before the AO, the assessee placed reliance on certain case laws and the AO held that they are not applicable to the facts of the instant case. It was also contended before the AO that identical disallowance made in AY 2005-06 and 2006-07 were deleted by the Hon'ble ITAT, Cochin Bench. However, the AO took the view that the facts differ from year to year and further the department has challenged the decision of the Tribunal by filing appeal before the High Court. Accordingly, by placing reliance on the decision of the Hon'ble Madras High Court in the case of Seshasayee Bros Ltd vs CIT (1960) (42 ITR 568)(Mad), the AO concluded that the foreign travel expenditure incurred by the assessee was primarily of a personal in nature and they were undertaken for pleasure and that there was neither necessity nor commercial expediency to incur such expenditure. Accordingly, he disallowed a sum of Rs.49,57,763/- out of the travel expenditure claimed by the assessee.
4. In the AY 2009-10, the AO noticed that the foreign travels have been undertaken with family members and further most of the places visited were also found to be tourist attractions. The AO also noticed that the purpose of foreign trips is too generalistic in nature. Accordingly the AO expressed the view that the business purpose or outcome of the visit was not convincingly established in several cases. However, the AO also took the view that the possibility of involvement of business purpose cannot be ruled out. Accordingly, the AO disallowed 1/5th of the foreign expenses as apparently related to personal purposes as against 100% disallowance made in the preceding year.
5 In the appellate proceedings, the ld CIT(A) the Tribunal had deleted the identical disallowance made in 2005-06 to 2007-08. By following the decision rendered by the Tribunal, the Ld CIT(A) deleted the disallowances made in both the years. Aggrieved, the revenue has filed the present appeals for both the years.
6. The Ld D.R placed strong reliance on the assessment orders and submitted that the assessee has failed to show the business necessity and expediency in undertaking foreign trips. The Ld D.R further submitted that the foreign trips have been mostly undertaken for pleasure trip purposes, which is evidenced by the fact that foreign trips have been undertaken with family members that too tourist attractions.
7. On the contrary, the Ld A.R submitted that the assessee is in the business of publishing various types of magazines and hence it is imperative for the staffs and directors to undertake travel to foreign countries. The business expediency and necessity of foreign travel has been considered in a detailed manner by the Tribunal in assessment years 2005-06 to 2007-08 and the identical disallowances made in those years have been deleted by the Tribunal. The Ld A.R submitted that the employees / directors have furnished tour report on completion of each tour, which clearly shows that there was business necessity in undertaking the foreign travels. The Ld A.R further submitted that the Ld CIT(A) has followed the orders passed by the Tribunal in these two years and accordingly contended that they do not require any interference.
8. We have heard rival contentions and carefully perused the record. We have also gone through the orders passed by the Co-ordinate bench of Tribunal in the assessee's own case in assessment years 2005-06 and 2006-07, which was followed by this Tribunal in assessment year 2007-08. We notice that the Tribunal in all these years has considered the question, viz., whether there was business necessity or business connection in undertaking the foreign travels by the directors or relative of the directors of the assessee company. For the sake of convenience, we extract below the operative portion of the order passed by the co-ordinate bench in assessment year 2005-06 and 2006-07:-
"10. We have heard rival submissions and perused the materials available on record including the precedence. Section 37 is a residuary provision. It provides for deduction of all expenditure wholly and exclusively laid out or expended for the purpose of the business. The expenditure must not be a proceeding (sic. Personal) in nature but at the same time the expenditure must not be a capital in nature. Under the circumstances, when the expenditure not covered by the provisions of section 30 to 36 and the expenditure which was laid out wholly and exclusively for the purpose of the business of the assessee, there should not be any impediment on the part of the authorities to allow it under the residuary provision of section 37. We have to see the incurring of expenditure whether it is necessitated for the purpose of business. It is not a disputed fact that the assessee is in the business of printing and publishing of popular magazines. During the relevant year, the assessee has eight periodicals publishing regularly and other onetime special issue of various topics like write ups, informative articles, on subjects like health, education, fashion, cookery, factors affecting human life, etc. All these publications have a wide readership outside India is also not disputed. Foreign travel undertook by the staff who were Chief Editor, Asst. Editors, etc. and their designations are not disputed. It is a clear cut case of the assessee that they have nothing to do with the management and they are staff. In some cases, they accompanied their husband whereas husband are the employees of the other group concerns of the assessee, viz. Malayala Manorama. This fact also made clear by the ld.counsel that those foreign travel expenditure of the husbands of the staff were taken care by their employer, Malayala Manoramma. The staff of the assessee company visited various places in various countries to attend international press meeting, to explore the possibilities to bring out advertisement income and to explore the possibilities for bringing out an International Edition of its magazines which was necessitated to make the staff to travel abroad. This is for the purpose of business of the assessee.
11. The ld. CIT(Appeals), however, found that some element of personal nature is there, some pleasure trip was undertaken. As rightly contended by the ld. Counsel for the assessee, nothing has been pointed out that the staff of the assessee company went on pure pleasure trips disassociating from the business of the assessee so as to reject the claim of the assessee. On a perusal of the orders of the authorities, we find that an ad- hoc disallowance has been made and nothing has been pin pointed for the disallowance. On the other hand, the ld. counsel for the assessee would convince us that this foreign travel was necessitated to grow the business of the assessee's magazines, periodicals, etc. which is now on globalization and on competition, which requires to know more about to cut down the cost of the publications and printings and such other matters, which are required for the purpose of the business. Under the above circumstances, we have no hesitation in accepting the claim of the assessee that the foreign travel expenses were incurred only for the purpose of business. Hence, the cross objection for the assessment year 2005-06 and the appeal for the assessment year 2006-07 filed by the assessee are allowed."
9. However, in the assessment order relating to the assessment year 2008-09, the assessing officer has pointed out that the employees of the assessee company, viz., Smt Prema Mamman Mathew, Smt Bina Mathew and Smt Ammu Mathew have under taken foreign tours with their respective spouses, who happened to be the employees of another group company. Smt Keya Tharakan happened to be another close relative and she was holding only junior position in the company. The foreign tours have been undertaken by the family members jointly. In assessment years 2005-06 to 2007-08 also, the foreign trips have been undertaken by family members jointly, though they happened to be the employees of different companies falling under the same group. Thus we notice that the family members are undertaking foreign tours jointly every year and it would, in our view, casts shadow of doubt over the claim of business connection or business necessity in undertaking the foreign travels. In the paper book filed by the assessee, the tour report has been furnished. We extract below contents of the some of the reports:-
"Report on Travel to the United Kingdom From April 22, 2007 to May 06, 2007 I left to London on April 22, 2007 and returned on may 06, 2007.
During the visit at London I met Steven Brown, Managing Director, Press Association Ltd. We discussed the digital revolution on traditional news. Further we exchanged the skills and strategies needed to sustain and improve journalism in the context of changing technological and business environment.
English cuisine has distinctive attributes of its own, but also share much with wider British cuisine, largely due to the importation of ingredients and ideas from places such as North America, china and India during the time of the British Empire and as a result of postwar immigration. The popular British cuisine consists of fish & chips, jellied eels, pie & mash with parsley liquor, boiled beef & carrots with pease pudding, tripe & onions. Roly-poly pudding with custard for afters. Roys joseph pothen Head chef, Raj Malabar, Cambridge UK, narrates some of these.
The trips was very informative and useful Sd/ Prema Memen Mathew May 15, 2007"
Report on travel to Turkey from 06.05.2007 to 17.05.2007 56th General assembly of the International Press Institute was being held in Istanbul, Turkey during May 2007. I have been delegated by the company to attend the World congress and General assembly.
The conference provided a useful meeting place where delegates could exchange views, share experience and establish new contacts.
Sd/ Bina Mathew"
Gist of details of travel to Australia from May 29, 2007 to June 06, 2007 by Keya Mathew Tharakan, Executive Fashion:
Keya Mathew Tharakan left for Australia from Cochin on May 07, 2010 and returned to Cochin on June, 2010. It was an official trip to meet our Editorial contacts in Australia. She had discussions with various editors in consolidated media holdings, which is Australia's largest and most diversified media and entertainment group. Its assets includes Nine Network Australia, ACP Magazines etc. ACP Magazines publishes over 60 titles in Australia which sells nearly 109 million individual copies each year. They include some of the longest running and most successful Mastheads such as The Australian Womens Weekly, Womans day, Dolly, NW, TV Week, Cleo, Cosmopolitan, Madison. She state that she shared the challenges and opportunities offered by the digital revolution and found an increasing demand for multimedia approach to journalists. The discussion gave an opportunity for her to improve the existing skills and learn new ones. Sd/-
K j Philip Senior Manger, Finance"
Report on travel to Cape Town, South Africa.
14th World Editors forum of the World Association of News papers was being held at Cape Town, South Africa. The company has delegated me to attend the World Editors forum.
The conference gave a range of concrete initiatives that can be implemented in the newsroom.
A brief summary of the programme schedule is also attached.
Sd/-
Ammu Mathew June 21, 2007"
Though Smt. Bina Mathew claims in the tour report that she attended the conference held at Istanbul, the case of the assessing officer is that she was not a delegate at all to the conference and she accompanied her husband only. A perusal of the other reports would show that they are too general in nature and did not narrate about the trip with full details. In fact, the tour report of Keya Mathew Tharakan was prepared by the Senior Manager, Finance. The case of the assessing officer is that Smt. Keya Mathew Tharakan is holding junior position and the persons holding such a position would not be normally deputed on foreign tours. It is in the common knowledge of every one that the foreign travels involves huge expenditure and hence the tour itinerary shall be prepared meticulously with predetermined program for each day of the tour, viz., the places of stay, the people to be met, purpose of visit, topic to be discussed etc. Further foreign tours shall be finalized after fixing appointment with the foreigners or upon their invitation. We notice the tour reports furnished by these persons are general in nature and do not contain such details.
10. The assessing officer, in assessment year 2008-09, has observed that the foreign travel expenses have been accounted for in the books of the assessee company on the basis of debit note raised by the group concern, viz., M/s Malayala Manorama. In this regard it was submitted that there is commercial advantage in following the said procedure, as the bulk booking would, on some occasions, result in savings. Accordingly, it was submitted that this kind of procedure is followed through out. In our view, the said procedure followed by the group concern and the assessee company may not be found fault with in view of the claim of commercial advantage.
11. We notice that Tribunal has deleted the ad-hoc disallowance made in assessment year 2005-06 and 2006-07 on the reasoning that nothing has been pin pointed for the disallowance. However the assessing officer has pointed out that the debit notes raised by M/s Malayala Manorama furnishes details of Air ticket, Foreign exchange purchased and sometimes the details of medical insurance and nothing else. The foreign currency is obtained from the banks in order to spend them in the foreign countries. The purchase of foreign currency itself would not make the assessee eligible to claim deduction of the same. It is the expenditure that was incurred by using the foreign currency that is required to be considered for the purpose of allowing the claim. In the instant case, the AO has pointed out that the assessee has failed to furnish the details of expenses incurred out of the foreign exchange purchased for the foreign tour. In our view, this is a major deficiency in the claim put forth by the assessee. In the absence of details, it may not be possible to presume or it may not be correct to presume that the entire amount of foreign exchange was used for business purposes only.
12. Though the assessing officer has disallowed 100% of claim and in some cases 50% of the case, we notice that the assessing officer has changed his view on the claim of foreign travel expenses in assessment year 2009-10, i.e., he has taken the view that there is business connection in undertaking foreign travels. However, the AO has also expressed the view that the claim that the trips were undertaking solely for business purposes is not convincing. Since the tours have been undertaken with family members mostly to the places of tourist attractions and since the purpose of tour stated by the assessee was too general in nature, the AO has held that the personal element in these expenses cannot be ruled out. The assessing officer has also noticed that the foreign tours have been undertaken by the persons who are covered by the provisions of sec. 40A(2).
13. Thus in both the years under consideration, the assessing officer has taken the view that the business necessity or business purpose was not fully established by the assessee in respect of the foreign tours undertaken. The deficiencies pointed out by the assessing officer in assessment year 2008-09 would show that there is merit in the view entertained by the assessing officer. The fact that the foreign tours are undertaken with family members every year that too, to the places of tourist attraction, the absence of details of expenditure incurred by using the foreign currency purchased, absence of detailed tour report with supporting materials etc., would, in our view, warrant disallowance as held by the Hon'ble Madras High Court in the case of Seshasayee Brothers Ltd Vs. CIT (1961)(42 ITR 568).
14. However, as noticed by us earlier, the AO has taken contradictory stand with regard to the quantum of disallowance. In assessment year 2008-09, the AO has disallowed 100% of expenditure relating to certain tours and 50% of the expenditure of other tours. However, in assessment year 2009-10, he has disallowed 20% of the total expenditure incurred on foreign tours. Since the assessing officer, in assessment year 2009-10, has taken the view that the business purpose involved in foreign tours cannot be altogether ruled out, we are of the view that the same position should be extended to the assessment year 2008-09 also.
15. In view of the foregoing discussions, we are of the view that the involvement of personal purpose and incurring of personal expenses during foreign travels undertaken by the key personnel cannot be altogether ruled out. The absence of details of expenses incurred out of foreign exchange coupled with the fact that the key personnels are covered by sec. 40A(2) of the Act fortifies our view further. Hence, in our view, the disallowance of 20% of the foreign tour expenses made by the assessing officer in assessment year 2009-10 is quiet reasonable. Accordingly, we set aside the order passed by the Ld CIT(A) for assessment year 2009-10 and sustain the addition made by the assessing officer.
16. In order to maintain uniformity, we are of the view the disallowance of foreign travel expenses should be maintained at the same level in assessment year 2008-09 also. Accordingly, we set aside the order passed by Ld CIT(A) in assessment year 2008-09 and direct the assessing officer to restrict the disallowance to 20% of the claim in the places of 100% and 50% disallowance made by him.
16. In the result, the appeal filed by the revenue for assessment year 2008-09 is partly allowed and the appeal filed for assessment year 2009-10 is allowed.
Order pronounced in the open Court on this 4th day of April 2014.
Sd/- Sd/-
(N.R.S. GANESAN)
(B.R. BASKARAN)
Judicial Member
Accountant Member
Cochin: Dated 4th, April 2014
Raj*
Copy to:
Appellant - The Asst Commr of Income Tax, Kottayam
Respondent - M/ s M M Publications P Ltd P B No.226 Kottayam
CIT(A)
CIT, -Kottayam
DR
Guard File
By order
Assistant Registrar
ITAT, COCHIN
TA No 26 & 27/Coch/2014
MM Publications P Ltd
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