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2016 (8) TMI 909 - MADRAS HIGH COURT

2016 (8) TMI 909 - MADRAS HIGH COURT - TMI - Addition u/s 40A(2)(a) - whether the appellant has substantiated the plea that the visits made to foreign countries were for promotion of business? - Addition u/s 69C - Held that:- It is the categorical admission of the learned counsel for the appellant that no documents were produced, either, before the Original Authority or Appellate Authority, as the case may be, to prove that there was any business transactions or activity in the foreign countries .....

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have been filed to contradict the same. When the appellant has failed to substantiate that the visit to Mecca and Medina by the Directors, in whose names, tickets were issued and spent money through their credit cards for the stay in hotels, SPA, etc., was for promotion of business, only it cannot be contended that both the original/appellate authorities have erred, in not properly adverting to the statutory provisions, under Sections 40A(2)(a) and 69C of the Income-Tax Act, 1961. - On facts .....

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MANIKUMAR, J.) Tax Case Appeal is directed against the order made in I.T.A.No.1017/Mds/2014, dated 22.05.2015, passed by the Income-Tax Appellate Tribunal, B Bench, Chennai, for the assessment year 2011-12. 2. Short facts leading to the appeal are that M/s.Rifah Shoes Pvt. Ltd., appellant herein, a Private Limited Company, filed its return on 15.10.2010, for the assessment year 2010-11, admitting a total income of ₹ 49,17,340/-. Return was processed under Section 143(1) of the Income-Tax A .....

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re of ₹ 15,77,819/-, ie., ₹ 4,73,345/- and added the same to the total income of the assessee, under Section 40A(2)(a) of the Income Tax Act. In terms of Section 69C of the Income Tax Act, the Assessing Officer disallowed a sum of ₹ 13,90,620/-. There were other heads of disallowance also. 3. Not satisfied with the order of the Assessing Officer, dated 28.01.2013, the appellant preferred an appeal to the Commissioner of Income- Tax (Appeals). Vide order, dated 24.12.2013, the A .....

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Against the said order, instant Tax Case Appeal is filed on the following substantial questions of law, (1) Whether the facts and circumstances of the case whether the Appellate Tribunal was right in sustaining the order of the Commissioner of Income Tax (Appeals) - V, by disallowing the claim of Business Promotion expenses incurred by the appellant on estimate basis of 30% on the total claim of ₹ 15,77,819/- u/s.40A(2)(a)? (2) Whether the facts and circumstances of the case whether the Ap .....

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rein the entire expenses were made through Account Payee cheques and are evident from the books of accounts of the appellant? 5. Inviting the attention of this Court to Section 40A(2)(a) of the Income-Tax Act, Mr.N.Senthil Kumar, learned counsel for the appellant submitted that when the assessee had incurred expenditure in respect of which payment has been or to be made to any person referred to in clause (b) of the above sub-Section and if the Assessing Officer is of the opinion that such expen .....

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els, was towards the legitimate needs of the business. But the assessing officer failed to consider the same, and while disallowing 30% of such expenditure, has not assigned any reasons, as to why, he had considered the expenditure to be exclusive or unreasonable and therefore, prayed that the 1st substantial question of law has to be answered in affirmative, in favour of the appellant/assessee. 6. As regards disallowance of a sum of ₹ 13,90,620/-, under Section 69C of the Income Tax Act, .....

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ed by the Commissioner of Income-Tax (Appeals), in proper perspective, and he rejected summarily, by stating that the same cannot be entertained, at the appellate stage. 7. Learned counsel for the appellant further submitted that flight tickets were taken in the name of the Directors and in the light of rule 46A(1)(b), when the appellant made a specific ground in the appeal, that due to administrative reasons, the remaining bills could not be submitted before the assessing officer, before the co .....

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in sustaining the addition made by the Assessing Officer, under Section 69C of the Income Tax Act. Heard the learned counsel for the appellant and perused the materials available on record. 8. The appellant has declared a total income of ₹ 49,17,343/-. Case has been taken up for scrutiny and on notice, his authorised representative has appeared. Going through the material documents, the assessing officer has found that payments have been made through Credit Cards and many entries have been .....

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ssessing officer has failed to record any reasons for disallowing a sum of ₹ 4,73,345/-, being 30% of ₹ 15,77,819/-, the latter being claimed as expenditure incurred towards business promotion charges, and that he has not assigned any reason, as to why, it was excessive or unreasonable, during the course of hearing, when the learned counsel was posed with a specific question, as to whether, any material was placed before the assessing officer or appellate authority, as the case may b .....

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rels, SPA, life style, etc., still, on an estimate basis, the assessing officer has disallowed only 30% of the credit credit payments, being personal in nature, out of total expenditure of ₹ 15,77,819/-, claimed as business promotion expenditure. 11. Though before the appellate authority, objections have been made for the disallowance, on the grounds that the assessing officer has failed to discharge the onus of proving that payments have been made to parties, under Section 40A(2) of the I .....

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eligious tourism, undertaken by the appellant company's Directors and employees and therefore, there is no irregularity, in disallowing 30%, claimed as business expenditure. So saying, the Commissioner of Income-Tax (Appeals), appellate authority, has confirmed the disallowance under the head, Business Promotion Charges . 12. Insofar as disallowance of ₹ 13,90,620/-, under the head, Foreign Travel Expenses under Section 69C of the Income-Tax Act, holding the same as unexplained expendi .....

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the assessee. 13. Section 69C of the Income Tax Act, deals with unexplained expenditure, etc., and the said section is extracted hereunder: Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the in .....

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of business. Before the appellate authority, the assessee has submitted that mere non production of bills/vouchers, does not per se attract disallowance and prayed to allow deduction for the entire expenditure, incurred for the foreign visit. 15. Before this Court, Mr.N.Senthil Kumar, learned counsel for the appellant contended that when foreign visits, undertaken by the appellant, were accepted, both the assessing officer and the appellate authority ought to have allowed the entire expenditure .....

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ature and that there was no material document to show how those payments incurred was to promote the business of the assessee. 16. This Court is not inclined to accept the abovesaid contentions, for the reasons that while considering the plea of the appellant-assessee that they were prevented from producing sufficient evidence, the appellate authority has observed that even though foreign visits have been undertaken, evidence produced would not be entertained, at the appellate stage, as most of .....

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fusal simpliciter, to entertain the evidence adduced at the appellate stage. 17. The Directors of the Company and employees have visited Mecca & Medina as pilgrimage and spent money for stay in hotels/resorts, disney vacancy purchase, apparels purchase, departmental stores, SPA/life style, by using credit cards. Though the appellant has claimed that the entire expenditure incurred towards foreign travel, was for promotion of business, having regard to the expenses incurred towards foreign tr .....

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n is whether the appellant has substantiated the plea that the visits made to foreign countries were for promotion of business? Has he satisfied the above condition to claim deductions? 18. As observed in the foregoing paragraphs, it is the categorical admission of the learned counsel for the appellant that no documents were produced, either, before the Original Authority or Appellate Authority, as the case may be, to prove that there was any business transactions or activity in the foreign coun .....

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