Income Tax Appellate Tribunal - Ahmedabad
Mahendra Oil Cake Industries Pvt. Ltd. vs Assistant Commissioner Of Income Tax ... on 22 March, 1996
ORDER
H. L. Karwa, J. M.
1. These two cross-appeals involve consideration of common facts and they are, therefore, dealt with by a consolidated order for the sake of convenience.
ITA No. 19/Ahd/19892. This appeal filed by the assessee relates to asst. yr. 1985-86. The first ground taken in the appeal is that the learned CIT(A)-I, Rajkot has grievously erred in directing the ITO to restrict the addition of Rs. 58,000 on account of alleged purchases to the extent of 25% of the value claimed. The assessee claimed purchases of the oil cake from the below mentioned party :
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Name of the party from whom purchased Quantity Amount
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Rs.
M/s Ganesh Industries, Rafaleshwar National Highway, Morvi 500 Bags 58,000
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2.1 The assessee-company is a private limited company engaged in the business of manufacture of oil, oil cake and other allied products. The basic material used for manufacture of aforesaid products are groundnut, groundnut oil cake and other seeds.
2.2 At the very outset, both the representatives of the parties invited our attention to the order passed by the Tribunal dt. 29th July, 1994 for the asst. yrs. 1983-84 and 1984-85 in assessee's own case (ITA Nos. 736 and 737/Ahd/1988 and ITA No. 1230/Ahd/1988) where the Tribunal has decided the matter vide para 9 of its order by restoring the matter to the file of the AO. Respectfully following the order of the Tribunal cited above, we set aside the finding of the CIT(A) on this issue and restore the matter to the file of the AO with a direction to decide the same afresh as per the directions and guidelines given in the order of the Tribunal (supra) and also in accordance with the provisions of law after affording an opportunity of being heard to the assessee.
3. The next ground in assessee's appeal is that the learned CIT(A) has erred in not deleting the entire disallowance of foreign tour expenses but confirming the same to the extent of 1/4th of the total amount disallowed by the ITO.
3.1 The assessee-company claimed travelling expenses of Rs. 64,216 in connection with foreign tour of one Shri Bipin N. Patel, director of the assessee-company. The AO disallowed 1/4 out of foreign travelling expenses holding that the assessee-company has nowhere mentioned that Shri Bipin N. Patel had devoted his time fully and exclusively for company's work while on tour. The learned CIT(A) confirmed the order of the AOP on this issue.
3.2 The learned counsel for the assessee submitted that during the year under consideration, one of the directors of the assessee-company Shri Bipin N. Patel had visited foreign countries in connection with the business affairs, which is an admitted fact. The main purpose of the visit was to study the future trend in Extraction market, the expected price variation, the available stocks in the West European Markets. He further submitted that this would enable the company to plan its export targets especially in relation to the type of extractions. The said director had visited foreign countries with due permission from the RBI. The learned counsel for the assessee further contended that the tour undertaken by the director of the assessee-company was entirely for the business purpose and the authorities below have wrongly disallowed the expenses incurred by the director of the assessee-company. Once the authorities below have accepted that Shri Bipin N. Patel, director of the assessee-company, visited the European countries in connection with business purposes, it was wholly unjustified on their part to disallow 1/4th of the foreign tour expenses on ad hoc basis on the presumption that when a person is on foreign tour, the entire expenditure cannot be attributed towards business purposes. He invited our attention to the decision of Ahmedabad Bench of the Tribunal (to which one of us the Accountant Member, was a party) in the case of Raymon Glues & Chemicals vs. IAC (1993) 46 TTJ (Ahd) 693 to support his contention that foreign tour expenses, without pointing out any objectionable item, cannot be disallowed on ad hoc basis.
3.3 The learned Departmental Representative Shri P. N. Dixit, on the other hand, supported the finding of the authorities below. He further submitted that onus is on the assessee-company to prove that Shri Bipin N. Patel had devoted his time fully and exclusively for the company's work while on foreign tour. The learned Departmental Representative further submitted that full details of expenditure are also not available.
4. We have carefully considered the rival submissions of the parties. We have also gone through the orders of the lower authorities and material placed on record. We find that the AO while disallowing 1/4th foreign travelling expenses has held that during the stay of Shri Bipin N. Patel in foreign countries, he must have devoted certain time in site seeing, recreation or other personal work other than company's work. Similarly, the learned CIT(A) while confirming the order of the AO has observed that entire expenses incurred by the director while on foreign tour cannot hold to be business expenditure. In our opinion, the aforesaid reasoning and conclusions of the authorities below are not tenable in the eyes of law, as no specific item or instance of personal expenditure has been noted. Both the authorities below have gone on conjectures and surmises and the disallowance is made on probabilities. Moreover, the authorities below have also not pointed out any violation of r. 6D of the IT Rules, 1962. In this view of the matter, we are in agreement with the submission of the learned counsel for the assessee that there was no justification in making such ad hoc disallowance to the extent of 1/4th of the total tour expenditure without any basis. We, therefore, direct the ITO to delete the entire disallowance.
5. Now we come to ITA No. 121/Ahd/1991 in which the Revenue has raised the following grounds :
"1. The learned CIT(A) erred in law and on facts in restricting the disallowance to 25% of Rs. 58,000 on account of bogus/not proved purchases.
2. The learned CIT(A) erred in law and on facts in directing to exclude the amount of sales-tax paid according to law although such payment falls in the next accounting period.
3. The learned CIT(A) erred in law and on facts in directing to allow expenses of Rs. 33,000 being expenses on 'road'."
5.1 The ground No. 1 raised by the Revenue has been decided by us while dealing the assessee's appeal in ITA No. 19/Ahd/1989. The finding given by us in assessee's appeal would apply to the ground No. 1 raised by the Revenue, which is identical. Accordingly, this ground is disposed of.
6. Regarding ground No. 2 raised by the Revenue, both the representatives of the parties have agreed that the point in controversy is squarely covered by the decision of the Tribunal in the case of Chandulal Venichand & Ors. vs. ITO (1991) 40 TTJ (Ahd) 358 : (1991) 38 ITD 138 (Ahd), which has since been approved by the Gujarat High Court by its decision CIT vs. Chandu Lal Venichand reported in (1994) 209 ITR 7 (Guj). In this view of the matter, we uphold the finding given by the learned CIT(A), and reject the ground raised by the Revenue.
7. Regarding ground No. 3, the AO observed that the amount of Rs. 33,000 was spent by the assessee towards meeting the expenses for the repairs of the roads in the area around the factory. The short question for determination before us is that as to whether the aforesaid expenditure is in the nature of capital or revenue expenditure. If it is in capital nature then deduction is not allowable; otherwise it is allowable. The assessee-company is engaged in the business of manufacture of oil, oil cake and other allied products and the raw-materials used for the manufacture of the aforesaid products are groundnut, groundnut oil cake and other seeds. The said expenditure was incurred by the assessee for the purpose of facilitating running of vehicles engaged for transportation of raw-material to its business premises and also for removing the finished products. The expenditure was incurred for repair of the existing road and no new road has been constructed. The expenditure was necessary for keeping the road in good condition. Thus, the expenditure was properly attributable to running the business and for the benefit of the day to day business of the assessee. In this connection, the consensus of judicial opinion is as under :
"If the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business it is properly attributable to capital and is of the nature of capital expenditure. If on the other hand it is made not for the purpose of bringing into existence any such asset or advantage but for running the business or working it with a view to produce the profits it is a revenue expenditure."
The expenditure in question was incurred only to meet the expenses of the repair and no asset or advantage of an enduring benefit accrued or resulted to the assessee. The learned CIT(A) has rightly held that the expenses were necessary to keep the roads around the factory in good condition. Because repair of roads in area around the factory was considerably advantageous to the business of the assessee, as it facilitated running of vehicles engaged for transportation of raw-materials necessary for its manufacturing work. In this view of the matter, the learned CIT(A) has rightly held that these expenses are clearly of revenue in nature and further directed the ITO to allow the same. In this view of the matter, we do not find any infirmity in the order of the learned CIT(A) on this ground and we confirm the same.
8. In the result, for statistical purposes, the assessee's appeal is allowed while the Revenue's appeal is partly allowed.