IN THE ITAT AMRITSAR BENCH
I.J. Tools & Castings (P.) Ltd.
Assistant Commissioner of Income-tax, Range-II, Jalandhar
IT APPEAL NOS. 63 & 84 (ASR.) OF 2010 & 65 (ASR.) OF 2012
[ASSESSMENT YEAR 2005-06]
JULY 26, 2012
1. These cross appeals of the assessee and the Revenue arise from the order of the Ld. CIT(A), Jalandhar, dated 25.11.2009 for the assessment year 2005-06. The assessee has also filed appeal against the order of the CIT(A), Jalandhar, dated 19.01.2012 with regard to penalty under section 271(1)(c) of the Act for the assessment year 2005-06.
2. The assessee in ITA No. 63(Asr)/2010 has raised following grounds of appeal:
“1. That on the facts & circumstances of the case, Ld. CIT(A) has grossly erred in holding that alleged assessment framed is not barred by limitations. Limitation for deciding case for A.Y. 2005-06 expired on 31.12.2007. Alleged assessment framed on 31.12.2008 is barred by limitations and is void ab-initio.
2. That on the facts & circumstances of the case, Ld. CIT(A) has grossly erred in confirming conclusion drawn by the A.O. without confronting the assessee that M/s. Global Hardware System USA is an associated enterprise of M/s. I.J. Tools and Castings (P) Ltd. Conclusion drawn by the ld. AO without confronting the assessee is void ab-initio.
3. That on the facts & circumstances of the case, Ld. CIT(A) has grossly erred in holding that reference made to TPO by the AO by holding that M/s. Global Hardware System USA is an associated enterprise of M/s. I.J. Tools ad Casting (P) Ltd. has rightly been made. Reference made to TPO by the AO and confirmed by the ld. CIT(A) is illegal and bad in law.
4. That on the facts & circumstances of the case, Ld. CIT(A) has grossly erred in confirming addition of Rs. 23,56,100/-being foreign travelling expenses of Sh. Ramesh Uppal & Sh. Chand Shoor. Addition confirmed by the ld. CIT(A) is illegal and bad in law.
5. That on the facts & circumstances of the case, Ld. CIT(A) has grossly erred in confirming 20% of foreign travelling expenses of Director and Mg. Director of the company. Addition confirmed by the CIT(A) is illegal and bad in law since foreign traveling expenses of Mg. Director & Director of the company have not been discussed in the assessment order.
6. The impugned order passed by the ld. CIT(A) and the AO is contrary to the provisions of law and against all canons of natural justice and is also contrary to facts, material and evidence existing on records.
7. That the assessee requests for leave to add or amend the grounds of appeal before the appeal is heard or disposed off.”
3. The Revenue in ITA No. 84(Asr)/2010 has raised following grounds of appeal:
“1. That on the facts & circumstances of the case, Ld. CIT(A) has erred in law in deleting the addition of Rs. 8,00,000/- made by the AO invoking the provision of section 41(1) of the I.T. Act, 1961.
1a. While so holding the ld. CIT(A) failed to appreciate that there was sufficient material to establish that both creditors i.e. M/s. International Exports and M/s. Star Hardware Company were bogus and no liability existed on this account since the assessee had not been able to produce any bill in respect of any purchase made by the assessee from these concerns during the period relevant to the assessment year 2005-06.
2. It is prayed that the order of the ld. CIT(A) be set-aside and that of the A.O. restored.”
4. The assessee in penalty appeal in ITA No. 65(Asr)/2012 has raised following grounds :
“1. That on the facts & circumstances of the case, Ld. CIT(A) has grossly erred in law in confirming penalty in respect of addition of Rs. 23,38,985/- being 100% of the travel expenses of Sh. Ramesh Uppal and Sh. Chand Shoor. Penalty imposed is illegal and bad in law.
2. That no penalty u/s 271(1)(c) is attracted on disallowance of expenses claimed in the profit & loss account since disallowance of expenses cannot mean that assessee has concealed any income or furnished inaccurate particulars of income.”
5. First of all, we take up cross appeals of the assessee and the revenue in quantum. In assessee’s appeal, in grounds No. 1, 2 & 3, the ld. counsel for the assessee pointed out the sequence of events and the findings of the AO and the ld. CIT(A) and submitted that the assessment framed is barred by limitation. Since the assessee had never entered into any international transaction in terms of section 92B of the Act and extended time of one year availed by referring to TPO for determination of Arm’s Length price was not available. Resultantly, the assessment is barred by limitation and is void ab-initio, since he AO had not given any opportunity of being heard to the assessee before concluding that the assessee had entered into an international transaction in terms of section 92B of the Act.
6. The Ld. DCIT(DR), Sh. Tarsem Lal, on the other hand, pointing out to the provisions of sections 92A and 92CA, has argued that there is no specific provisions for giving any opportunity to the assessee before reference to the TPO. It is for the AO when he considers it necessary or expedient so to do, he may refer the computation of arm’s length price in relation to the said international transaction under section92C to the Transfer Pricing Officer. It was argued by Ld. DCIT (DR) Mr. Tarsem Lal that the Ld. counsel for the assessee, Mr. Surinder Mahajan, could not point out any specific mention in the statute. The legislature in its wisdom in the statute provides a specific mention when an opportunity of being heard is to be given to the assessee, which in the present case is not there. Therefore, the ld. DCIT(DR), Mr. Tarsem Lal, prayed to confirm the order of the Ld. CIT(A) in this respect.
7. We have heard the rival contentions and perused the facts of the case. We are convinced with the arguments of the Ld. DCIT(DR), Mr. Tarsem Lal that there is no specific mention of providing the opportunity to the assessee for referring the matter to the TPO and therefore, the argument made by the ld. counsel for the assessee, Mr. Surinder Mahajan cannot be accepted and the order of the ld. CIT(A) is approved and we find no error in this regard. Thus, ground Nos. 1, 2 & 3 of the assessee are dismissed.
8. As regards ground Nos. 4 & 5 of the assessee, the brief facts are that the assessee could not justify the commercial expediency of trips undertaken by Sh. Ramesh Uppal & Sh. Chand Shoor, the started agents of the assessee to the foreign countries. The AO made a disallowance of the expenditure so claimed. The AO also made total disallowance of the foreign travel expenses claimed with regard to the Managing Director and Director in the computational part. The Ld. CIT(A) upheld the disallowance of foreign travel expenses in the name of these two persons. As regards the disallowance in the name of the Managing Director, the Ld. CIT(A) has restricted the disallowance at 20% vide para 4.5 and 4.6 of his order.
9. We have heard the rival contentions and perused the facts of the case. As per statement of Sh. Ramesh Uppal, who has stated that he had gone abroad on behalf of the assessee-company, is not under dispute. He had also booked orders for the assessee-company from M/s. Bolten Steel Tube Co. Ltd; and M/s. Frost Fence Ltd. He has booked orders worth Rs. 292917 Canadian Dollars. Such statements are on record and therefore, the argument of the ld. DCIT (DR) Mr. Tarsem Lal that such persons have not booked the orders or have not worked for the assessee, cannot help the revenue. Similarly, Sh. Chand Shoor in his statement has admitted of looking after the sales promotion of M/s. Bani Exports and had experience of selling the goods in USA, UK, UAE and Saudi Arabia and he had gone abroad on behalf of the assessee to book the orders. He also stated that he has business connection and booked the orders from M/s. Mubarak AM-BA-Naeem, M/s. Abdullaha bin Omer and M/s. Osman Ahmad in UAE. Therefore, the argument of the Ld. DR, Mr. Tarsem Lal that both the agents/persons have not established the expenditure on behalf of the assessee cannot be accepted. Moreover, there is no rebuttal by the AO that these two persons have not gone abroad and no orders have been booked on behalf of the assessee. It was submitted before the authorities below that due to commercial reasons and special increase in sale prices, the orders were not accepted. At the same time, the decision taken by the assessee cannot be challenged by the AO and he can not sit in the chair of the assessee. Since it is an established law that foreign travel expenses are for exploration of possibility of expansion of business are allowable even though the object for such expenditure incurred has not been materialized. The reliance was placed on the decision of the Hon’ble Calcutta High Court in the case of CIT v. Woodcrafts Products Ltd.  69 Taxman 415 and the decision of the ITAT, Amritsar Bench, in the case of ITO v. Dhiman Systems  147 Taxman 37 (Mag.) Accordingly, the AO was not justified in disallowing the expenditure incurred by Sh. Ramesh Uppal and Sh. Chand Shoor in view of their statements and copy of the orders booked and other relevant material placed on record.
10. As regards the disallowance of foreign expenses by the Managing Director and Director, the AO has not given any reason for disallowance of such expenses. What has been done by the AO is that he made a disallowance in the computational part without assigning any reason. It is not a speaking order of the A.O. and no disallowance in this regard, in fact, should have been made by the AO. The Ld. CIT(A) had sustained 20% of the disallowance made by the AO which is also not justified. Therefore, in the facts and circumstances of the case, disallowance made by the AO is not justified and the order of the ld. CIT(A) in sustaining 20% disallowance is also reversed, as discussed hereinabove. Thus, ground Nos. 4 & 5 of the assessee are allowed.
11. Ground No. 6 & 7 are general in nature and do not required any adjudication.
12. As regards the appeal of the Revenue in ITA No. 84 (Asr) 2010, the tax effect involved in this appeal is less than Rs. 3 lacs.
12.1 In the course of present appellate proceeding, the ld. counsel for the assessee raised a preliminary objection that the Tax effect involved in the Revenue’s appeal is less than Rs. 3 lacs. Therefore, the present appeal filed by the Department may be dismissed, as the same is not maintainable being contrary to CBDT’s Instruction No. 3 of 2011 dated 09.02.2011.
13. On the contrary, the Ld. DR relied upon the orders of the authorities below.
14. After hearing both the parties, it is seen that the tax effect involved in this appeal is less than Rs. 3,00,000/-. Hence, as per CBDT Instruction No. 3 of 2011 dated 9th February, 2011, which is binding on the department, the department is precluded from filing the appeal. Therefore, in our considered opinion, the said Instruction of CBDT is binding upon the Department and the present appeal has been filed contrary to the said Instruction issued by the CBDT. Accordingly, the appeal filed by the Revenue is dismissed as not maintainable.
15. As regards, the appeal of the assessee in ITA No. 65 (Asr)/2012, the brief facts are that the AO levied a penalty of Rs. 12,56,380/- for furnishing inaccurate particulars of income in respect of the disallowance of Rs. 35,02,102 out of foreign travelling expenses claimed by the assessee. The Ld. CIT(A) accordingly sustained the addition with respect to the addition of Rs. 23,38,985/- sustained in the quantum appeal.
16. We have heard the rival contentions and perused the facts of the case. Since the disallowance of Rs. 35,02,102/- has been deleted by us in assessee’s quantum appeal in ITA No.63(Asr)/2010, therefore, no addition of income remains in the present case. Once the addition has been deleted, as mentioned hereinabove, the penalty cannot be sustained and the same is directed to be cancelled. Thus, all the grounds of the assessee are allowed.
17. In the result, the appeal of the assessee in ITA No. 63(Asr)/2010 is partly allowed, the appeal of the Revenue in ITA No. 84(Asr) 2010 is dismissed and the appeal of the assessee in 65(ASR)/2012 is allowed.