Income Tax Appellate Tribunal - Chandigarh
Sh. Raghav Gupta, Patiala vs Jcit, Patiala on 24 January, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCHES 'B', CHANDIGARH
BEFORE MS. DIVA SINGH, JUDICIAL MEMBER
AND SHRI B.R.R.KUMAR, ACCOUNTANT MEMBER
ITA No. 693/CHD/2014
Assessment Year : 2008-09
The ACIT, Vs Shri Raghav Gupta,
Circle, S/o M/s Jagtu Mal Murari Lal,
Patiala. Malwa Picture Palae Complex,
The Mall, Patiala.
PAN : AEOPG8387C
ITA No. 670/CHD/2014
Assessment Year : 2008-09
Shri Raghav Gupta, Vs The JCIT,
S/o M/s Jagtu Mal Murari Lal, Patiala Range,
Malwa Picture Palae Complex, Patiala.
The Mall, Patiala.
PAN : AEOPG8387C
(Appellant) (Respondent)
Department by : Shri Manjit Singh, Sr.DR
Assessee by : Shri Tej Mohan Singh
Date of hearing : 20.11.2017
Date of Pronouncement : 24.01.2018
ORDER
PER DIVA SINGH, JM
The present appeals have been filed by the Revenue and the Assessee assailing the correctness of the order dated 16/05/2014 of the CIT(A) Patiala pertaining to 2008 - 09 assessment year. The respective grounds raised by the parties read as under:
The grounds raised by the Revenue reads as under:
1. In the facts and the circumstances of the case, Ld. CIT(A) has erred in deleting the addition of Rs. 1,71,33,389/- made by the AO on account of foreign travelling expenses
2. In the facts and the circumstances of the case, Ld. CIT(A) has erred in not sustaining-the addition of Rs. 1,71,33,389/- made by the AO by disallowing travelling-expenses claimed in respect of a new proposed business of trading in minerals which was entirely different from the existing business of the assessee of sale and purchase of shares and derivatives, by holding that the expenditure related to the same business of the assessee.
3. In the facts and the circumstances of the case, Ld. CIT(A) has erred in not ITA 693&670/CHD/2016.
A.Y. 2008-09 Page 2 of 10 sustaining the addition of Rs.1,71,33,389/- made by the AO by disallowing travelling expenses which were clearly of capital nature as the same were incurred for a new business proposed to be started by the assessee and not actually commenced.
4. In the facts and the circumstances of the case, Ld. CIT(A) has erred in not sustaining the addition of Rs.1,71,33,389/- made by the AO by disallowing travelling expenses claimed in respect of business which did not take off and nothing can be inferred about the management, organization, manpower, administration, source of finding and place of business i.e. regarding unity of control and interlacing of business.
2. The assessee on the other hand has come up on the following grounds in the present appeal:
1. That the Ld. CIT(A) is not justified in confirming the disallowance of Rs. 8,22,825/- under section 40(a)(ia) on account of management fees.
2. That the Ld. CIT(A) is not justified in confirming the disallowance of Rs. 27,55,751/- under section 36(i)(iii) on account of interest.
3. That without prejudice to the above Grounds of Appeals the appellant disputes the quantum of disallowances.
3. Ld. Sr. DR referring to the departmental grounds drew attention to the assessment order and carry us through the impugned order submitted that the relief granted by the CIT(A) on facts was not justified. Attention was invited to the specific findings and observations of the AO made in the assessment order to show that the assessee was engaged in the business of shares and derivatives and not in metals. Accordingly, heavy reliance was being placed upon the findings of the AO by the revenue.
4. The Ld. AR on the other hand submitted that right from the assessment stage, the assessee has been submitting that the assessee was engaged in the business of shares and derivative and sought to start a new venture. The expenses pertain to this business venture of the assessee which was attempted. The expenses are neither capital nor personal in nature and the fact that the assessee incurred the expenditure for this venture is not disputed by the Revenue. Accordingly, placing reliance upon the impugned order it was his submission that there is no merit in the departmental appeal as it is merely rehashing the issue on same facts which have already been considered by the CIT(A). Accordingly it was his prayer that the departmental grounds deserve to be dismissed.
5. We have heard the submissions and perused the material available on record. The record shows that the assessee is engaged in sale and purchase of shares and derivatives. The assessee has shown ITA 693&670/CHD/2016.
A.Y. 2008-09 Page 3 of 10 income arising from trading in derivatives under the head 'business income' and income from sale and purchase of shares (STT paid) under the head 'Capital Gains'. Para-2 of the assessment order referring to these facts was specifically referred to by the Sr.DR in the course of his arguments. The record shows that the assessee in the course of the assessment proceedings was required to justify the expenditure of Rs. 1,71,33,389/- which was claimed as 'travelling Expenses'. The break-up of the said expenditure is given in para-2.1 page 2 of the assessment order the same is reproduced hereunder for ready reference :
i) Foreign Exchange Purchase A/c Rs. 24,78,600/-
ii) Foreign Travelling Expenses Rs. 1,46,54,789/-
5.1 Our attention has been invited to the explanation offered by the assessee vide reply dated 20/09/2010 which has been extracted at pages 2 to 49 of the assessment order. Reading there from the ld. Sr. DR has specifically invited attention to the fact that the assessee has claimed that he was trying to expand the existing business. It was his submission that this very fact demonstrates that the expenditure does not pertain to his stated business as the existing business as per record of the assessee admittedly was from shares and derivatives. Thus, it has been submitted that the arguments and evidences in support of the expenditure having been incurred was considered and held to be not allowable. We note on a reading from the record that consistently the assessee has maintained that the expenditure was incurred for meeting with the concerned parties to explore the possibility of trading in minerals such as copper etc. as per page 6 of the assessment order and the submissions reproduced in the order were relied upon to show that the assessee had stated that the services of technically qualified people namely; Mr. NCS Parthasarthy and Mr. Rohit Gujral had been engaged. The factum of engaging the services of qualified people is not disputed. On considering the submission and the record, we note that the claim has been disallowed on an incorrect appreciation of law holding that it was not the stated business of the assessee. We note it has been explained that the expenses were also incurred for services of a local agent to act on assessee's behalf and also to meet people for the business namely; M/s Consultoria A SAC, PERU, also were engaged. It has also been ITA 693&670/CHD/2016.
A.Y. 2008-09 Page 4 of 10 submitted before the AO that Peru, Indian Chamber of Commerce also helped the assessee in establishing the contacts for the said activity for which purposes travelling had been undertaken. Evidences in support of the claim have been placed on record which have not been doubted however claim is held to be not allowable on the reasoning that this was not the original business of the assessee. The fact that a new venture was attempted also has not been doubted. However the fact that it ultimately did not succeed has been held against the assessee. Reliance was placed upon section 37 (1) and the definition of business as laid down in section 2 (13) of the Act and the legal position as considered by various Courts in their respective orders and decisions namely Produce Exchange Corporation Ltd. Vs CIT (1970) 77 ITR 739 (S.C), B.R.Ltd. V V.P.Gupta, CIT (1978) 113 ITR 647 (S.C)., CIT V Modi Industries Ltd. (1993) 200 ITR 341 (Del), CIT V Alembic Glass Industries Ltd. (1976) 103 ITR 715 (Guj), CIT V Prithivi Insurance Co. Ltd. (1967) 63 ITR 632 (S.C), CIT Vs Monnect Industries Ltd. 221 CTR (Del) 266, CIT V Shah Theatre P.Ltd. (1988) 169 ITR 499 (Raj), Veecumsees V CIT (1996) 220 ITR 185 (S.C), CIT Vs Relaxo Footwears Ltd. (293 ITR 231 (Del)]; Enpro India Ltd. Vs. DCIT (113 Taxman 132 Del)]; Jay Engineering Works Ltd. v. CIT (311 ITR 405(Del), CIT v. Tata Chemicals Ltd [256 ITR 395 (Bom.), Addl. CIT v. Aniline Dye Stuffs & Pharmaceuticals Pvt. Ltd. [138ITR843(Bom) Kesoram Industries and Cotton Mills Ltd. vs. CIT 196 ITR 845 (Cal.); Hindustan Aluminium Corporation Ltd. V CIT (159 ITR673 (Cal.)]; CIT v. Rane (Madras ) Ltd. (215 CTR 250 (Chenn.)]; Prem Spinning and Weaving Mills Co. Ltd. v.CIT (98 ITR 20(ALL.)]; CIT v. Shah Theatres P. Ltd. [169 ITR 499 (Raj)]; CIT v. Malwa Vanaspati & Chemicals Co. Ltd. [149 CTR283(MP)]; CIT v. Kerala State Industrial Development Corporation Ltd. [182 ITR 62 (Ker.)]; CCT v. Senapathy Whitely Ltd. [101 CTR 31 (Kar.)]; CIT v. Hindustan Machine Tools Ltd. [175 ITR 212 (Kar.)] the assessee it is noted has relied upon the above decision before AO in support of its claims. We note that the assessee has also submitted that the expenditure is a Revenue expenditure and not a capital expenditure as no new asset or commodity came into existence. In support of the said argument reliance has been placed on CIT Vs Ashok Leyland Ltd. (1969) 72 ITR 137, 143 (Mad) affirmed ITA 693&670/CHD/2016.
A.Y. 2008-09 Page 5 of 10 (1972) 86 ITR 549 (S.C), Jagat Bus Service V CIT (1950) 18 ITR 13, 23 (All), R.S.Radha Kishan Kapoor V CIT (1963) 47 ITR 938 (All) and Punjab State Industrial Development Corp. Ltd. V CIT 225 ITR 792, 795-796 (S.C). On a reading of the ratio of the decision cited, we note that there can be no straight jacket formula to decide whether a particular item is a capital expenditure or a revenue expenditure, the issue has to be considered in the peculiar set of facts of a stated case. Considering the judicial precedent as set out in the decisions cited we hold that the expenditure incurred towards exploring new business opportunities as extension of existing business even if ultimately it did not fructify in the facts of the present case has correctly been claimed and allowed by the CIT(A) as a Revenue expenditure. We find that the said conclusion is supported by the decision of the Delhi High Court itself in the case of Triveni Engineering Works Ltd. (1998) 232 ITR 639 which has been relied upon even before the AO and has been affirmed in Indorama Synthetics India Ltd. V CIT 228 CTR 278. Support was also drawn from the decision of the Calcutta High Court in Hindustan Aluminium Corporation Ltd. V CIT 190 ITR 328. Reliance was further placed upon Cama Hotels Ltd. V IAC 38 TTJ (Ahde.) 21, Enpro India Ltd. V DCIT 113 Taxman 132 (Mag), Usha Alloys and Steel Ltd. V DCIT 55 ITD 418. The expenditure we note cannot be called to be personal in nature as the foreign travel expenditure was incurred by the assessee and the accompanying consultants for expansion of new business. It is not the case of the AO or of the DR that it was a personal expenditure. We have taken of the fact that the assessee was required to explain before AO the qualifications and services of people who it was stated have rendered services. We note that the assessee's reply dated 15/11/2010 extracted at pages 44 to 49 of the assessment order shows that it was submitted that the expenses pertained to the assessee and his wife and they have been constantly engaging and following up the activities with the two consultants appointed namely Shri N.C.S.Parthasarthy and Shri Rohit Gujral. Referring to the qualification of Shri N.C.S. Parthasarathy we note it has been stated before the AO that the Assessee intended to trade in Minerals such as Natural Gas, Phosphates, Copper etc and Shri N.C.S. Parthasarathy had the requisite experience and technical qualifications in the said area. Accordingly his services were engaged by the assessee ITA 693&670/CHD/2016.
A.Y. 2008-09 Page 6 of 10 with a view to act and help the assessee in conducting the business more efficiently and profitability. A copy of his resume as well as his Appointment Letter had been placed on record. A perusal of his resume it is noted shows that Sh. N.C.S. Parthasarthy was qualified Chemical Engineer from the Birla Institute of technology & Science (BITS) Pilani, Rajasthan having more than 24 years experience in Projects, Technical Services and Production functional areas in Fertilizer , Petroleum Refining and Consulting areas. His active professional life as per the extract of the order covered employment in various companies of not only National but also International repute such as Nagarjuna Fertilizers and Chemicals, Kakinands (AP) India , Qatar Fertilizer Company, Qatar, Arabian Gulf, Bharat Petroleum Corporation, Bombay, India and Coromandel Fertilizers limited, Visakhapatnam, India and subsequently as an Independent Consultant since December 2006. We note that there is no rebuttal on these assertions before the AO which have been relied upon by the CIT(A) and also have not been rebutted by the Revenue in the present proceedings. We further note that in justification of engaging the services of the said consultant it has also been argued that given the educational qualification, experience and technical perspective of Mr. Parthasarthy his services were engaged by the Assessee to help in arriving at proper technical evaluation of the activity to be undertaken of which Shri C.S. Parthasarthy possessed substantial and over arching domain knowledge. Reliance has been placed on the following facts demonstrating and evidencing that his services were actually rendered namely: Appointment letter dated 07/04/2007 setting out the terms of engagement; the evidence of entire expenses of travel including Travel, Stay, Medical, food and other out of pocket expense were to be borne by the Assessee and a payment of remuneration was to commence subsequently only when actual trading commenced. Since during the year under consideration no actual transactions took place, no amount was paid to him towards his remuneration but only the actual cost incurred by him were borne by the Assessee. These facts have been relied upon to demonstrate the expenses incurred on the Traveling Expenses of Shri N.C.S. Parthasarthy were actuall y incurred for the purpose of the Assessee's business. The payments towards ITA 693&670/CHD/2016.
A.Y. 2008-09 Page 7 of 10 expenses of Shri. Rohit Gujral it has been argued that Traveling Expenses etc. were paid and keeping in view his qualification and experience carry to the issue of rendering of services. Shri Rohit Gujral it has been submitted held an MBA degree from the Institute of Management Technology, Ghaziabad and had substantial experience in the managerial and functional issues relating to the business. We note that it has been explained that in view thereof his services were retained and utilized by the Assessee to help in making proper business and commercial decisions so as to compliment the technical domain knowledge of Shri N.C.S. Parthasarthy. The services of Shri Rohit Gujral it was elaborated were engaged only as a part time Consultant- Cum-Representative in connection with trading business of Minerals such as Copper which the Assessee planned to import from abroad and sell in India. Shri Rohit Gujral we note was engaged as a Part time Consultant and was entrusted with helping the assessee in development, follow-up and arriving at optimal business solution for the said activity. In terms of the planning exercise undertaken by the Assessee. Shri Rohit Gujral and Shri N.C.S. Parthasarthy it was stated it was visualized would work as a team where by both the managerial and non- technical areas as well the technical areas and aspects of the entire business would be taken care of in their entirety. A copy of the resume of Shri Rohit Gujral alongwith his Appointment Letter had been placed on record before the AO so as to fortify the claims made. We note none of this evidence is rebutted. A perusal of his resume it has been argued would show that given his qualifications and experience in various function areas such as Sales & Marketing, Strategic Planning, Start up operations his services were required for optimize results and maximize of his business efficiency. Referring to the decisions relied upon by the assessing officer at page 50 of his order namely Produce Exchange Corporation Ltd versus ACIT 77 ITR 739 it has been argued that the same was distinguishable as in the facts of that case business was not in existence whereas in the facts of the present case existence of business is not in doubt and it is only the failure of a new business venture that has been undertaken by an existing business entity which has been questioned by the tax ITA 693&670/CHD/2016.
A.Y. 2008-09 Page 8 of 10 authorities. In view of this material distinction on facts we note that the said decision is not applicable.
5.2. We further note that the following decisions on the above facts CIT Vs. TATA Robins Fraser Ltd. 253 CTR (Jharkhand) 227, Indo Rama Synthetics (I) Ltd. vs. CIT, 228 CTR (Del) 278, CIT Vs. Priya Village Roadshows Ltd. 228 CTR (Del) 271, and CIT Vs. Havells India Ltd. 73 DTR (Del) 57 fully support the view taken. Accordingly being satisfied by the consistent explanation offered by the assessee on the facts as they stand the challenge posed by the Revenue vide Ground No. 1 to 4 is rejected.
6. Accordingly the departmental appeal in view of the above reasoning on facts and law is dismissed.
7. In assessee's appeal the Ld. AR addressing the first issue raised in the assessee's appeal submitted that the arguments advanced before the assessing officer and the CIT-A are heavily relied upon. It was also his submission that M/s Kotak Mahindra and M/s Religare investment have paid taxes on the receipt of this payment accordingly the issue may be sent back to the assessing officer for verification. The Ld. Sr. DR relied upon the order however he had no objection if the assessee could demonstrate before the AO on facts that taxes have been paid by the respective parties on the receipt of the said income. Accordingly accepting the common prayer of the parties, Ground No. 1 of the assessee is remanded back to the assessing officer with a direction to pass a speaking order in accordance with law after giving the assessee reasonable opportunity of being heard.
8. Addressing ground No. 2 raised in the present appeal the Ld. AR submitted that the issue raised herein also may be remanded to the assessing officer for verification on facts. The assessee in the facts of the said case it was submitted has made a suo moto disallowance which on facts is not disputed. Accordingly in terms of the judicial precedent as available on the said issue, it was his submission that the AO may be permitted to verify the facts and grant necessary relief as per law. The details of the interest free advances available with the assessee are as under:
"(1) The details of the interest free advances/investments made by the Assessee as at 31/03/2008 are as under:
S.No. Name Amount Remarks
1 M/s GD Goenka Pvt. 5,00,00,000/- Amount has been advanced
ITA 693&670/CHD/2016.
A.Y. 2008-09
Page 9 of 10
Ltd. towards share application money
2 Smt. Sunaina Gupta 93,00,000/- Amount advanced to Smt. Sunaina
Gupta, mother of the assessee
3 M/s Inrus Impex Pvt. 2,42,000 Amount paid to M/s Inrus Impex
Ltd. Pvt. Ltd. (of which assessee is a
shareholder) to meet various
expenses.
4 M/s Captain Hygiene 1,16,24,697/- Amount paid to various parties on
Products Pvt. Ltd. behalf of M/s Captain Hygiene
Products Pvt. Ltd. (which is not
carrying on any business activities
at present and of which Assessee
is a shareholder)
5. M/s Bakemans 1,19,55,385/- Amount paid to various parties on
Industries Pvt. Ltd. behalf of M/s Bakemans Industries
Pvt. Ltd. (which is not carrying on
any business activity these days
and of which the Assessee is a
shareholder.
6. M/s Jagtumal Murari 29,91,861/- Outstanding balance in the books
Lal of M/s Jagtumal Murari Lal
wherein he is a partner.
(2) In this connection it is submitted as under:
(a) The amount of 5 Crores advanced to M/s GD Goenka Pvt. Ltd. is in the nature of share application money and represents amounts advanced in the ordinary course of business. The amounts advanced to M/s Captain Hygiene Products Pvt. Ltd. And M/s Bakemans Industries Pvt. Ltd. represent amounts advanced as a shareholder to help the said companies to tide over temporary business difficulties and as such was motivated by a desire to protect his existing investments and to assist and aid in the process of their revival. As such, occasioned as they were by a desire to enhance the long term prospects of the said companies, it is clear that they have also been made in the ordinary course of business and are not in the nature of interest free advances.
8.1 The suo-moto disallowance made by the assessee it was submitted was coming out from the assessment order itself however the issue has been decided by the CIT-A relying upon case laws without addressing the facts accordingly it was his prayer that the said issue may also be remanded to the assessing officer with a direction to decide the same addressing the facts of the specific case. The Ld. Sr. DR relied upon the impugned order however the prayer for remand was not objected to.
9. We have heard the submissions and perused the material on record. Considering the facts and the submissions advanced on behalf of the parties before the bench wherein the facts as argues are borne out from the assessment order itself we are of the view that in the peculiar facts and circumstances of the case it would be appropriate to set aside the impugned order back to the file of assessing officer with a direction to pass a speaking order in accordance with law after giving the assessee a reasonable opportunity of heard.
ITA 693&670/CHD/2016.
A.Y. 2008-09 Page 10 of 10
10. In the result the appeal of the Revenue is dismissed and the appeal of the assessee is allowed for statistical purposes Order Pronounced in the Open Court on 24th January 2018.
Sd/- Sd/-
( Dr.B.R.KUMAR) ( DIVA SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
'Poonam/Amit Kumar'
Copy to:
1. The Appellant
2. The Respondent
3. The CIT
4. The C IT(A)
5. The DR
Asstt. Registrar
ITAT,Chandigarh.