Ita/1033/2017 Of M/S Swan Silk Private Limited v. The Assistant Commissioner Of Income Tax

IN THE HIGH COURT OF KARNATAKA AT BENGALURUDATED THIS THE 30 DAY OF JUNE 20271 PRESENT| THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’/BLE MR. JUSTICE HEMANT CHANDANGOUDARLT.A.§ NO.1033 OF 2017 BETWEEN: M/S. SWAN SILK PRIVATE LIMITEDREP. BY ITS DIRECTORSRI. K.S. MANJUNATH.POST BOX 25210, SWAN HOUSE|#40, 4TH CROSS, RESIDENCY ROADBENGALURU-5600725PAN: AACCS451DR. (BY SRI. S. ANNAMALAT, ADV.,). ... APPELLAN| AND* THE ASSISTANT COMMISSIONER OF INCOME-TAXCIRCLE-12(3), BMTC BUILDING|80 FEET ROAD, KORAMANGALA 6TH BLOCK|BENGALURU-560095., ~. RESPONDENT (BY SRI. K.V. ARAVIND, ADV.,) THIS I.T.A. IS FILED UNDER SEC. J6O0-A OF INCOME TAXACT 1961, ARISING OUT OF ORDER DATED 31.07.2017 PASSEDIN ITA NO.1861/BANG/2016 FOR THE ASSESSMENT YEAR 2010-11, PRAYING TO: (i) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW AS.STATED ABOVE AND THE ANSWER THE SAME IN FAVOUR OF THE.APPELLAN!. | (ii) ALLOW THE APPEAL AND SET ASIDE THE FINDINGS TO.THE EXTENT AGAINST THE APPELLANT IN THE ORDER PASSED BY.THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU BENCH “B-BENGALURU IN ITA NO.1861/BANG/2016 DATED 31.07.2017 FORTHE ASSESSMENT YEAR 2010-11 (ANNEXURE-A) & ETC. THIS ILT.A. COMING ON FOR’ HEARING, THIS DAY, | ALOK ARADHE J.,DELIVERED THE FOLLOWING: | JUDGMENT This appeal under Section 260A of the Income TaxAct, 1961 (nereinafter referred to as the Act for short)nas been preferred by the assessee. The subject matterof the appeal pertains to the Assessment year 2010-11..The appeal was admitted by a bencn of this Court on thefollowing substantial questions of law: “(1) Whether the Tribunal was Justified|in law in upholding the disallowance of credit.card expenses of Rs.6,50,921/- incurredwholly and exclusively in earning the incomeanda conseguently passed a perverse orderon the facts and circumstances of the case. (2) Whether the Tribunal was Justified|in’ law in upholding the disallowance ofBUuSINeSSDevelopment.ExpensesofRs.7,61,200/-incurredwhollyand| exclusively in earning the income andconsequently passed a perverse order on thefacts and circumstances of the case. (3) Whether the Tribunal was Justified|in| law in upholding the disallowance offoreign travel expenses of Rs.37,18,/705/-incurred wholly and exclusively in earning>the income and consequently passed aDerverseorderOP)thefacts|andcircumstances of the case. (4) Whethertheauthoritiesbelow.disallowed the Traveling expense to aneextent of Rs.37,18,/705/- on the ground thatthere was no. necessity to incur suchexpenses wnicn finding Is contrary to thewell settied principles that necessity is not.essential for allowance Under section 3/7 ofthe Act and consequently passed a perverseorder on the facts and circumstances of theCa Se, (5) Whether the Tribunal was Justified|in law in remanaing tne issue of disallowance.made under section 40(a)(il) of the Act of Rs.96,24/7/- being provision for Wealth taxpaid which was already added back to in thereturn of income tax and consequentlypassed a perverse order on the facts andcircumstances of the case. 2.|Facts leading to filing of this appeal brieflystated are that assessee is a private limited companyand is a 100% export oriented unit and is engaged in)the business of manufacturing pure silk furnishings. Theassessee filed return of Income on 14.10.2010 for.Assessment Year 2010-11 and declared a loss of.Rs.1,03,30,047/-. The return was selected for scrutinyand notices were issued to the assessee. The assesseefurnished the details sought for by the Assessing Officer.The Assessing Officer by an order dated 14.02.2013.determined the loss at Rs.50,61,956/- after making|following additions: (a) Disallowance of 50% of credit card expenses -Rs.6,50,921/-.. (Db)Disallowance.ofbuSINeSSdevelopmentexpenses - Rs.7,61,200/-.. (Cc)Disallowance.of50%OF foreigntravel] expenses - Rs.37.18,/05/-. (d) Disallowance under Section 40(a)(iia) of theAct- Rs.96,247/-.. (a) Disallowance of 50% of credit card expenses -Rs.6,50,921/-.. (Db)Disallowance.ofbuSINeSSdevelopmentexpenses - Rs.7,61,200/-.. (Cc)Disallowance.of50%OF foreigntravel] expenses - Rs.37.18,/05/-. (d) Disallowance under Section 40(a)(iia) of theAct- Rs.96,247/-.. 3The assessee thereupon filed an appealbefore the Commissioner of Income Tax (Appeals) who.by an order dated 29.08.2016 dismissed the appeal. Theassessee thereupon filed an appeal before the IncomeTax Appellate Tribunal (hereinafter referred to as thetribunal for snort). The tridDunal Dy an order dated24.07.2701 remittedtneISSUCS|witnregardtO.disaliowance under Section 40(a)(ila) of the Act remittedthe matter to the Assessing Officer, however, withregardCO remainingIssues|theorder|OF theCommissioner of Income Tax (Appeals) was upheld. Inthe aforesaid factual Dackground, this appeal nas beenfiled. 4Learned counsel for the assessee with regard.to claim of the assessee for disallowance of credit card.expenses submitted that the audited books of accountsof the assessee were not rejected by the AssessingOfficer and therefore, adhoc disallowance could not have.been made by the Assessing Officer. It is also pointedout that for the subsequent year claim with regard to)disallowance of credit card expenses has been remittedto the Assessing Officer. With reference to business.development expenses, it is urged that the assessee hadadduced the documentary evidence before the tribunalwhich has not been taken note of. It Is also Submitted.that the tribunal erred in holding the disallowance ofclaim of 50% of the foreign travel expenses. It Is furthersubmitted that for the subsequent year, the matter wasremitted to the Assessing Officer with regard to.disallowance of claim under Section 40(a)(jia) of theAct. It is submitted that in the computation of income,the provision for the tax for an amount of Rs.96,247/-. was already added by the assessee. Therefore, thequestion of adding back the same to the income of theassessee does not arise and therefore, the tribunal erredin remitting the matter to the Assessing Officer. In.Support of aforesaid submissions, reliance has beenplaced on decisions of Supreme Court in'"RAGHUBARMANDAL HAIRHAR MANDAL VS. STATE OF BIHAR,ATR 1957 SC 810, ‘PCIT VS. R.G.BUILDWELLENGINEERS LTD. , (2018) 99 TAXMANN.COM 284(SC), ‘S.A.BUILDERS LTD. VS. CIT’, (2007) 288ITR 1 (SC)and decisions of this court in.M/S DELUXEROADLINESPVT.LTD.VS,DCIT",ITA|NO.213/2014DATED14,10.2014|and5M/SKODAGU DISTRICT CO-OPEARTIVE BANK LTD. VS.ACIT, ITA NO.318 OF 2016 DATED 19.01.2021. 5.On the other hand, learned counsel for therevenue submitted that auditor could not certify theexpenses incurred by the assessee for the purposes ofDusiness and burden is on the assessee to prove the fact that the assessee had incurred expenditure for business.under Section 37(1) of the Act. It is further submittedthat findings of fact have been recorded by all theauthorities under the Act on meticulous appreciation ofevidence on record which do not suffer from anyinfirmity warranting interference in this appeal. 6.|We have considered the submissions made§by learned counsel for the parties and have perused therecord. The Assessing Officer with regard to claim.disallowance of 50% of credit card expenses has heldthat the assessee has not adduced any evidence thatdrawings made by the Directors through their personalcredit card are in fact, incurred for the purpose ofbusiness of the company. Accordingly, the amount has—been added back to the income of the assessee. TheCommissioner of Income Tax (Appeals) as well astripbunal has furtner held tnat no evidence nas peenadduced by the assessee to show that expenses areincurred for purposes of Dusiness by assessee. It IS 6.|We have considered the submissions made§by learned counsel for the parties and have perused therecord. The Assessing Officer with regard to claim.disallowance of 50% of credit card expenses has heldthat the assessee has not adduced any evidence thatdrawings made by the Directors through their personalcredit card are in fact, incurred for the purpose ofbusiness of the company. Accordingly, the amount has—been added back to the income of the assessee. TheCommissioner of Income Tax (Appeals) as well astripbunal has furtner held tnat no evidence nas peenadduced by the assessee to show that expenses areincurred for purposes of Dusiness by assessee. It IS pertinent to note that before the tribunal the assesseehad filed the documents with regard to the claims madeby the assessee. The tribunal has rejected the aforesaidapplication on the ground that the documents annexed|with the application are neither certified nor have beenfiled before the tribunal and the Assessing Officer. It has.further been held that no application for admission of.additional evidence along with documents was filed.Accordingly, it was held by the tridunal that nocognizance can be taken of the document along with the)documents filed by the assessee. Thus, in the absenceof any document on record, all the authorities haverightlydisallowedthecreditCard|EXPeNnsesOf Rs.6,50,921/-. Similarly, in the absence of any evidenceOn record, the disallowance of business developmentEXDeNnsesCO theexTen.yofRs.7,61,200/- anddisallowance.of|foreigntravelEXPeNnsesofRs.3/7,18,/05/- has been upheld. The issue whether theassessee nas added a sum of Rs.96,24/7/- as provision for wealth tax in income is a question which has to beascertainedafterremandand|aftergivingan|Opportunity of being heard to the assessee. The findings|of fact have been recorded by the Assessing Officer,|Commissioner of Income Tax (Appeals) and the tribunaldo not suffer from any infirmity. The aforesaid findings|are also not demonstrated to be perverse. For theaforesaid reasons, the substantial question of law are.answered against tne assessee and in favour of therevenue. | In the result, we do not find any merit in theappeal, the same fails and is nereby dismissed. Sd/-—JUDGE. Sd/-JUDGE.