Income Tax Appellate Tribunal - Chennai
Irbaz Shoe Company, , Chennai vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
"A" BENCH, CHENNAI
(BEFORE SHRI N.S.SAINI, ACCOUNTANT MEMBER AND
SHRI S.S.GODARA, JUDICIAL MEMBER )
.....
I.T.A. Nos. 1032 & 1033/Mds/2012
Assessment Years : 2005-06 & 2007-08
M/s.Irbaz Shoe Company, ACIT, Business Circle XII,
2(487),Kilpauk Garden, Chennai
Road, Kilpauk, v.
Chennai 600 010.
(Respondent)
PAN : AAAFI 5586 M
(Appellant)
Appellant by : Shri T.Vasudevan, Advocate
Respondent by : Shri N.Madhavan, JCIT, D.R.
Date of Hearing : 19.09.13
Date of Pronouncement : 20.09.13
O R D E R
PER BENCH:
These two appeals filed by the assessee arise from a common order of CIT(A)-XII, Chennai dated 21.02.2012, passed in ITA No.348 & 349/2009-10 in proceedings under section 143(3) read 2 ITA Nos. 1032 & 1033Mds/13 with section 147 of the Income Tax Act, 1961 (in short 'the Act'), for assessment years 2005-06 & 2007-08, respectively.
2. In the course of hearing, the vehemently contention of the Assessee is that in both the assessment years, the CIT(A) has wrongly confirmed the validity of reassessment in question and disallowance pertaining to foreign travel expenses of `8,54,284/- & `2,89,027/- respectively. Thereafter, it reiterates the pleading and prays for acceptance of the appeals on legality of reopening as well as on merits by placing on record a copy of partnership deed dated 01.04.08 as well as its certificate of exporter/Importer code (IEC) bearing No.0493014233 issued on 13.09.1993.
3. In reply, the Revenue draws support from the order of the CIT(A) in both assessment years and prays for upholding the same. Qua the documents placed on record, its submission is that they are not part of the record of the lower authorities.
3 ITA Nos. 1032 & 1033Mds/13
4. The assessee is a 'shoe' company. It has been issued certificate of exporter/importer code as well(supra). For A.Y.2005-06, the assessee had filed its return on 31.10.2005 declaring a total income of `1,08,20,770/-. Similarly, for A.Y. 2007-08, its return was filed on 07.11.2007 disclosing an income of `24,99,170/-. Both returns were 'summarily' processed. Thereafter, Assessing Officer took recourse to reopening of assessment by issuing notices in both assessment years under section 148 of the Act.
4.1. Coming to assessment year 2005-06, the assessee had spent a sum of `8,54,284/- for foreign travel of Smt.Ravia Aejaz, wife of Mr.Aejaz Ahmed(partner). In the reassessment finalized on 23.11.09, the Assessing Officer observed that the same was not allowable on part of the failure of the assessee to prove its relevance for the purpose of business. In view thereof, the impugned addition `8,54,284/- was made in assessee's income.
Similar addition was also made in the re-assessment order dated 31.12.09 for Assessment Year 2007-08. The only difference 4 ITA Nos. 1032 & 1033Mds/13 being that in the said assessment year, the expenses were of `2,89,027/- out of which a sum of `2,03,607/- was incurred for one Adirano Natalini to attract foreign buyers for marketing of assessee's shoe produce.
5. Aggrieved, the assessee preferred appeals. We find that in the course thereof, the CIT(A) has not only confirmed the additions on merits, but also has rejected the assessee's ground challenging the validity of the reopening in question by observing as under:-
"Decision: The assessee is a partnership firm. In the tax audit report of A.Y.2005-06, it was mentioned that the foreign travel expenses are personal in nature. Since the personal expenses are not allowable expenses, the same needs to be excluded and added back to the taxable income in computing the taxable income while filing the return of income.Failure on part of the assessee to do so and since the return of income of A.Y. 2005-06 was not selected for scrutiny, the case was re-opened under section 147 of the Act. Further the re-opening was done within 4 years from the ends of the assessment year in which it was assessable. Hence the issue of disclosing the material facts in the return of income is ir-relevant. Further since the return was not subjected to scrutiny under section 143(3) of the Act earlier, the question of change of opinion does not arise at all. Hence, the Assessing Officer rightly re-opened the assessment of A.Y.2005-06, 5 ITA Nos. 1032 & 1033Mds/13 under section 147 of the Act. The action of the Assessing Officer is therefore confirmed. The assessee fails in its appeals in this regard.
During the F.Y. 2004-05, the assessee incurred foreign travel expenses, which includes foreign travel expenses (Rs. `8,54,284/-) of the wife of one of the partners. The tax audit report categorically revealed that the expenses are personal in nature. Hence the same is not allowable expenditure under section 37(1) of the IT Act. Further, as confirmed by the assessee, the wife of the partner, who traveled abroad (England), is neither a partner nor an employee of the assessee firm. The assessee also failed to establish the business connection with the traveling expenses of the wife of the partner. Hence, the assessee's claim of expenses of the wife of the partner is not allowable. For this prupose, reliance is placed on the judgement of jurisdictional High Court, in the case of CIT Vs. S & S Power Switchgear Ltd. [2012] (18 Taxmann.com 28(Mad.), wherein it was held that unless it was established by assessee that travelling of chairman's wife was only for business purpose by producing tangible evidence, its claim could not be allowed particularly in circumstances when wife of chairman was not occupying any official position in company.
In view of the above discussions, the Assessing Officer is justified in disallowing the assessee's claim of foreign travel expenses of `8,54,284/- spent on the wife of one of the partners during the F.Y. 2004-05 i.e. relevant to A.Y. 2005-06. The action of theAO is therefore confirmed,.6 ITA Nos. 1032 & 1033Mds/13
As regards to the foreign travel expenses (Rs.2,89,027/-) disallowed by the Assessing Officer in the A.Y.2007-08, the expenses are incurred in relation to the following persons:
`
i) Adirano Natalini 2,03,607/-
ii) C.V.Cisarua 1,647
iii) Ravia 29,414/-
iv) Fazwaz.Walsa 7,5222/-
Total 2,89,027
The Assessing Officer in his order observed that there was no business connection with these expenses and hence disallowed the same.
Before the undersigned the assessee claimed that these foreign travels were undertaken to attract the foreign customers to come to India and buy the products (shoes etc.). This explanation is very vague. The assessee was not in to exports. All the sales are local sales only. Further, the assessee has not furnished any evidences as to how these persons contacted the prospective customers or the nature of efforts undertaken by them in order to canvass/add new customers. In the absence of any details, it is very difficult to believe the assessee's explanation. Hence, the Assessing Officer is justified in disallowing the said foreign expenses of `2,89,027/-, in the A.Y.2007-08. The disallowance made by the Assessing Officer is therefore confirmed.
Therefore, the assessee is aggrieved.
7 ITA Nos. 1032 & 1033Mds/13
6. We have heard both parties and perused the case file at length. The assessee's arguments are two folded i.e. challenge to the reopening as well as qua correctness of the additions on merits. First, we take up the issue on merits. Qua A.Y. 2005-06, it is to be seen that the only ground taken by the CIT(A) for rejecting ' foreign travel' expense's claim is that the partner's wife had travelled and no business purpose had been substantiated. A perusal of the partnership deed (supra) reveals that the assessee-firm came into being on 01.07.1993 and the traveller in question i.e. Smt.Ravia Aejaz was one of the founder partners. Though the Revenue has argued that the partnership deed and the other evidence (supra) is not a part of record, in our view, since the impugned A.Y. 2005-06 is not the first year of business of the assessee, it can be taken on record for doing substantive justice. Therefore, we hold that since Mrs.Ravia Aejaz had travelled in the capacity of a partner herself of the assessee firm and in view of the fact that assessee is also an importer/exporter of the shoes produced, the expenses in question had been incurred wholly and exclusively for the purpose of business. 8 ITA Nos. 1032 & 1033Mds/13 Accordingly, the relevant ground for A.Y. 2005-06 is decided in favour of the assessee.
7. This leave us with the A.Y.2007-08 containing the issue of disallowance of `2,89,027/-. In this regard, the CIT(A) held that the assessee is not in exports. As discussed hereinabove, the assessee has been given IEC No.(supra) by way of certificate of Importer/Exporter by Ministry of Commerce, Government of India. So, this findings of the CIT(A) does not hold ground. There is no other cogent reason cited to disallow the assessee's claim. In view thereof, we hold that the assessee being an importer/exporter in its line of business, has incurred the foreign travel expenses of Adirano Natalini along with other persons wholly and exclusively for the purpose of business, and the expenses in question are allowable. Accordingly, this ground is also accepted in favour of the assessee.
8. As sequel to our discussion, we are of the view that once we upheld the assessee's claim on merits, the ground of validity of 9 ITA Nos. 1032 & 1033Mds/13 reopening is merely of academic significance. The same is therefore not being adjudicated upon.
9. In the result, the appeals of assessee are allowed.
Order pronounced on Friday , the 20th September, 2013 at Chennai.
Sd/- Sd/-
(N.S.SAINI) (S.S.GODARA)
Accountlant Member Judicial Member
Chennai,
Dated the 20th September, 2013.
K s sundaram.
Copy to: Assessee/AO/CIT (A)/CIT/D.R./Guard file