In The ITAT Chandigarh Bench ‘B’
Assistant
commissioner of Income-tax, Circle-V, Ludhina
v.
Sahib
Forge
JOGINDER
SINGH, JUDICIAL MEMBER
AND
N. K. SAINI, ACCOUNTANT MEMBER
I.
T. APPEAL NO. 497(CHANDI) OF 2006
ASSESSMENT
YEAR 2002-03
June
29, 2007
Section 37(1), read with section 80 HHC of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 2002-2003 - Assessee was engaged in business of export of engineering goods/hand tools - It incurred sales promotion expenses on account of travelling, boarding and lodging of foreign buyers who were representatives of U.K. based company - Assessee claimed deduction on sales promotion under section 80HHC - Assessing Officer disallowed claim - On appeal, Commissioner (Appeals) observed that those visitors were directly instrumental in promoting exports sales of assessee which was actually a commercial expediency, directly linked with assessee’s business and deleted additions made by Assessing Officer - Whether since, expenses had been incurred for business delegates who visited India for business promotional avenues to whom major portion of export was transacted, could not be said to be a pleasure trip or expenses for non-business purposes, order of Commissioner (Appeals) was to be upheld - Held, yes
The assessee was engaged in the business of export of engineering goods/hand tools. It incurred sales promotion expenses on account of travelling, boarding and lodging of foreign buyers who were claimed to be representatives of U.K. based company to whom majority of the goods were exported by the assessee. The assessee claimed deduction under section 80HHC on sales promotion expenses. The Assessing Officer disallowed the claim. On appeal, the Commissioner (Appeals) found that those visitors were directly instrumental in promoting the exports sales of the assessee which was actually a commercial expediency, directly linked with the assessee’s business and deleted the addition made by the Assessing Officer.
On revenue’s appeal:
The assessee was engaged in the business of export of engineering goods/hand tools. The assessee incurred sales promotion expenses to the tune of Rs. 9,67,000/- on account of travelling, boarding and lodging of foreign buyers who were claimed to be representatives of U.K. based company to whom majority of the goods were exported by the assessee. The claim of the assessee was that those persons were directly instrumental in promoting the sales of the assessee firm and were incurred purely on commercial expediency. Those visitors were claimed to be representatives of the ‘B’-company to whom the assessee made export of Rs.194.32 lakhs out of the total export of Rs. 278.30 lakhs. The assessee furnished the proof of such expenses before the Assessing Officer. It was also found that names of those persons had been mentioned along with the expenses as was evident from the paper book. Another point pertinent to mention was that even the assessing officer had mentioned that most of the expenses were incurred towards travelling hotel charges. Another suspicion raised by the revenue was that there was no proof that those persons were actually associated with “B” or not. [Para 3]
If the total export of Rs. 278.3 lakhs made by the assessee was analysed one factual position was coming out that major portion was made “B”. It could be said that the major business of the assessee was with that firm only. Therefore, the business of the assessee was to a large extent influenced by that firm. The assessee had claimed that those persons/representatives were from that company only. If the Assessing Officer was having any doubt about the identity of those persons, nothing prevented him to make investigation at his end. If the assessee had fraudulently claimed the expenses, definitely a case could have been filed under IPC or other provisions of the law. As far as the expenses were concerned, no prudent businessmen incur such a huge expenses without commercial expediency. The true test of commercial expediency depends upon the nature and purpose of trade/business. In the instant appeal the business of the assessee was from exports therefore, necessarily some foreign buyers might visit the assessee also. The Apex Court in the case of CIT v. Delhi Safe Deposit Co. Ltd. [1982] 133 ITR756/8 Taxman 1 (SC) held that the expenditure incurred on the preservation of a profit-earning asset of a business is always a deductible expenditure. The test of commercial expediency cannot be reduced in the shape of a ritualistic formula nor can it be put in a water type compartment so as to be confined in a strait-jacket. The test merely means that the court will place itself in the position of a businessman and to find out whether the expenses incurred could be said to have been laid out for the purposes of business or the transaction was merely a subterfuge for the purposes of sharing or dividing the profit ascertained in a particular manner. The ultimate analysis depends upon the intention of the parties and the surrounding circumstances. At the same time the connection between the expenditure and the object must be real and not remote and illusory which is designed to the furtherance of the object and purpose of the assessee. The true test of an expenditure laid out wholly and exclusively for the purpose of trade or business is that it is incurred by the as incidenta to his trade for the purpose of keeping the trade going and not making it pay in any other capacity than that of a trader. [Para 5]
In the instant appeal, since the expenses had been incurred for the business delegates, who visited India for business promotional avenues, to whom the major portion of the export was transacted, cannot be said to be a pleasure trip or expenses for non-business purposes. In view of those facts and judicial pronouncements there was no interference with the order of the Commissioner (Appeals), consequently the same was to be upheld and appeal of the revenue was to be dismissed. [Para 6]