TMI Blog2013 (8) TMI 242X X X X Extracts X X X X X X X X Extracts X X X X ..... ertaken for the purpose of business of the respondent company - expenditure, on the visits by the representative of the company abroad and expenditure as well as the visits to India by the London based officials of the respondent company, in view of the respondent company's substantial exposure to overseas trade and large holdings of the respondent company with foreign promoters, were business expenditures - No substantial question of law arises - Following decision of Eastern Investments Ltd. vs. CIT [1951 (5) TMI 1 - SUPREME Court] - Decided against Revenue. Disallowance under head publicity expenses - Held that:- If the management paid some amount for the upliftment/ running of the club in question, then it must be held that the payment was made in the interest of the company so that its employees remain happy and consequently the work of the company was not hampered in any way due to dissatisfaction on the part of its employees - while dealing with donation made voluntarily by an assessee with the object of obtaining permits of business, so as to enable the assessee to earn profits by export and selling of gram in the neighboring states - it is for the assessee to decide whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer interfered with various claims of deduction, which the respondent company had made. The deductions, which were disallowed, and the reasons assigned therefore, can be enumerated as under: (a) While dealing with the respondent company's claim of Rs. 53,97,556/-, as Foreign Travel Expenses, the Assessing Officer noted that the respondent herein had appointed its selling agent, in London, for sale of tea in overseas market and used to pay commission, brokerage, etc, to its selling agent, that three non-resident Directors of the assessee company were permanently residing in U. K. looking after the respondent company's overseas business and since three Directors of the respondent company had been residing in London itself and they had been doing their job properly, there was no necessity to undertake foreign trips by the Directors and senior officers of the respondent company for promotion of sale of their products. The Assessing Officer further noted that as no overseas conferences could be proved to have been held by the Directors/Executives of the respondent company, it was not clear whether the said trips were for business purposes or not and, above all, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the claim of the respondent company for deduction under Section 80HHC. (iii) Aggrieved by the Assessing Officer's refusal to approve the respondent company's claims, as mentioned above, the respondent company filed an appeal before the Commissioner of Income Tax (Appeals)-II, Guwahati, which was registered as GWA 40/2005-06. (iv) By order, dated 01.09.2006, the Commissioner of Income Tax (Appeals) disposed of the said GWA 40/2005-06, wherein it was observed and decided as follows: (a) With regard to ground No. 1 of the appeal, which was against disallowance of the respondent company's claim of Rs. 17,99,185/- under Foreign Travel Expenses, the Commissioner not only upheld the Assessing Officer's decision in disallowing the respondent company's claim for a sum of Rs. 17,99,185/- on the ground that the respondent company had furnished inaccurate particulars of income, but also directed the Assessing Officer to initiate penalty proceedings against the respondent company and to enhance the income of the respondent company by a further sum of Rs. 14,76,687/-. (b) That regarding ground Nos. 2, 3 and 4 of the appeal, which were in respect of the disallowance of fen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maining amount of Rs. 28,90,655/- incurred by respondent company as their Foreign Travel Expenses. While dealing with this ground of appeal, the learned Tribunal observed as under: During the relevant year the assesse's export turnover was over Rs. 100 crores. If for promoting export senior executives of the company undertook Foreign travel then the expenditure could not be considered for non-business purposes. It was not correct on the part of CIT(A) to expect that the assessee should depend solely on the directors and executives were not involved in export promotion. The visits to UK and Kenya were undertaken by garden managers who were actively associated with growing and manufacture of tea and were competent to study the methods of competitors and effectively interact with foreign customers for export promotion. Having regard to the facts therefore we do not find any merit in the CIT(A)'s action of fully disallowing the foreign travel expenditure of garden managers. We also do not find merit in CIT(A)'s order in disallowing the entire expenditure on visits to India by the representatives of the London office because having regard to assessee's substantial exposure to over ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peals), and the order of the learned Tribunal deleting the disallowance of Rs. 9,00,000/-, as had been disallowed by the Assessing Officer, under head publicity expenses, and as confirmed by the Commissioner, Income Tax (Appeals), the Commissioner of Income Tax has preferred the present appeal, as indicated above, under Section 260A of the Act. 9. We have heard Mr. G. K. Joshi, learned Senior Counsel, appearing on behalf of the appellant, and Ms. Nitu Hawelia, learned counsel, appearing for the respondent company. 10. While considering the present appeal, we note that the following two questions have, primarily, arisen for determination: (i) Whether, in the facts and circumstances of the present case, the learned Tribunal was justified and correct in deleting the disallowance of Rs. 28,90,655/-, under the head of Foreign Travel Expenses, as had been made by the Assessing Officer and upheld by the first appellate authority and whether the said decision is perverse ? (ii) Whether, in the facts and circumstances of the present case, the learned Tribunal was justified and correct in law in deleting the disallowance of Rs. 9,00,000/-, as had been made by the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , cannot be accused of not submitting the necessary documents and evidence in support of the expenditure incurred by it. Ms. Hawelia also contends that it is for an assessee, such as, the respondent company, to decide, in the interest of promoting its business, whether any expenditure is to be incurred, in the course of business, and whether such expenses are to be incurred voluntarily. The learned counsel for the respondent company submits that the respondent company can incur certain expenditure and claim deductions of the same under Section 37 even though there was no necessity to incur such expenditure. Ms. Hawelia further contends that in order to make an expenditure deductible under Section 37 of the Act, it is not necessary that the primary motive to incur the expenditure has to be directly earn income thereby. According to the learned counsel for the respondent company, the expenditure incurred, though may not be with a view to obtain direct and immediate benefit, but for the purpose of commercial expediency as well as to indirectly facilitate carrying on of business, yet such an expenditure would be regarded as having been incurred, wholly and exclusively, for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder Section 37 of the Act. It is the further contention of Ms. Hawelia that the learned Tribunal, as a final fact finding authority, having come to a conclusion that the publicity expenses, incurred by the company, were for the purposes of business, the same is a finding of fact and no substantial question of law arises out of such an order. In support of her contention, learned counsel for the respondent company has relied on a decision of the Madras High Court in Commissioner of Income Tax vs. Balaji Enterprises, 236 ITR 587, wherein the learned Tribunal had held the payment made to the Karnataka Lawn Tennis Association to be expenses for assessee's business and allowable under the Act. The High Court held that no question of law arose from the order of the Tribunal. The decision of the Calcutta High Court, in Sarda Plywood Industries Ltd. vs. Commissioner of Income Tax, 238 ITR 354, has also been relied upon by Ms. Hawelia, in support of her submission that once it is found that the expenditure had, as a matter fact, been incurred by the assessee for the purpose of publicity and advertisement, it is not for the department to consider whether commercial expediency justified the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofitable one or that any profit was, in fact, earned or not; (c) It is enough to show that the money was expended not of necessity and with a view to a direct and immediate benefit to the trade, but voluntarily and on the ground of commercial expediency, and in order indirectly to facilitate the carrying out of the business; (d) Beyond that, no hard and fast rule can be laid down to explain what is meant by the word 'solely' occurring in the pre- 1939 law. 19. In CIT vs. Malayalam Plantations Ltd., (1964) 53 ITR 140, the Supreme Court held that business expediency may not require that all the expenses be incurred for earning immediate profits. The Supreme Court also held that such expediency may also require that expenses be incurred to save business from coercive process and unlawful expropriation so that business may remain on sound footing and may earn better profits in future. An expenditure to which one cannot apply an empirical or subjective standard is to be judged from the point of view of a businessman and it is relevant to consider how a businessman himself treats a particular item of expenditure, whether as revenue expenditure or as capital expenditure. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctly. In CIT vs. Dhanrajgirji Raja Narasingirji (91 ITR 544), the Supreme Court held that it is not open to the department to prescribe what expenditure an assessee should incur and in what circumstances he should incur the expenditure. Every businessman knows his business best. Section 37, nowhere, casts a duty on the assessee to give evidences as regards the exact making of the expenditure, which is a decision to be taken by the assessee. Evidence, which is required to be produced by the assessee, is as regards the incurring of expenditures. The Assessing Officer must be satisfied that the expenditure claimed by the assessee was, in fact, incurred by the assessee and the same was for the purpose of business and, for that purpose, the Assessing Officer may direct the assessee to produce evidence in support of the same. However, to direct the assessee to adduce evidence in support of the purpose of expenditure or to give direct evidence as to how such expenditure was incurred and/or to adduce evidence about the benefit accruing/to be accrued from such expenditure would amount to interfering in the business decision of the assesse, which is, in our considered view, not contemplated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... state managers, were also held to be not for the purposes of business. The Commissioner of Income Tax (Appeals) held that the respondent company failed to prove the necessity of the wives of the tea estate managers travelling with their spouses and the expenditure incurred in connection therewith. Our attention is drawn, at this stage, to the contention of the learned counsel for the respondent company that the necessity of the expenditure is not a subject matter of examination by the Assessing Officer. As regards the question on the expenditure incurred in connection with the travels of the wives of the tea estate managers, we find force in the submission of Ms. Hawelia, learned Counsel for the respondent company, that since it is customary in the European countries for the wives to accompany their husbands, the travelling of the wives along with their husbands cannot be said to be personal visits of the wives, but such a visit has to be regarded as having been undertaken for the purpose of business of the respondent company. The Tribunal, as a fact finding authority, having come to the finding that the expenditure, on the visits by the representative of the company abroad and exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yed at the said functions. Therefore, the said expenditures were held by the Tribunal to be wholly and exclusively incurred in connection with business. While allowing the respondent company's claim, the learned Tribunal relied on a decision of the Calcutta High Court, in Assam Brooke Ltd. (supra), wherein a sum of Rs. 5,00,000/- was paid by the assessee to a club. The relevant portion of the observations, made by the Calcutta High Court, read as under: "If the management paid some amount for the upliftment/ running of the club in question, then it must be held that the payment was made in the interest of the company so that its employees remain happy and consequently the work of the company was not hampered in any way due to dissatisfaction on the part of its employees. As this payment of Rs. 5,00,000- was made by the company to the club keeping its business interest in mind, the payment must be held to be business expenditure and accordingly as per section 37 of the Income Tax Act, the assessee company was entitled to get deduction, in respect of it." 26. In Additional Commissioner of Income Tax vs. Kuber Singh Bhagwandas, 118 ITR 379, while dealing with donation made volu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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