The Commissioner Of Income Tax, Faridabad v. M/S Porrits & Spencer (A) Ltd

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH ITA No. 362 of 2004 (O&M)Date of decision: October 29, 2009 The Commissioner of Income Tax, Faridabad ...Appellant Versus M/s Porrits & Spencer (A) Ltd. ...Respondent CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOELHON'BLE MR. JUSTICE GURDEV SINGH Present: Mr. Rajesh Sethi, Advocate, for Ms. Urvashi Duggha, Advocate, for the revenue.Mr. Santosh Aggarwal, Advocate, for the assessee. ORDER 1.The revenue has preferred this appeal under Section 260A ofIncome Tax Act, 1961 (for short, “the Act”) against the order of Income TaxAppellate Tribunal, Faridabad, in Bench 'B', New Delhi passed in ITA No.3797/Del/98 dated 5.5.2004 for the assessment year 1994-95, proposing toraise the following substantial questions of law:- “(i) Whether on the facts and in the circumstances of the case, the Hon'ble ITAT was right in law in dismissing of appealof the Department against the order of CIT (A) deletingthe disallowance on account of foreign travel expenses ofManaging Director i.e. Sh. K.C. Tapedar by ignoring thefacts that out of the total foreign travel period from11.08.1993 to 31.08.1993 was personal in nature as no appointments were shown for this period. (ii)Whether on the facts and in the circumstances of the case,the Hon'ble ITAT was right in law in confirming the orderof CIT (A) in restricting the deletion of commission paidto MD and executive employees of the company to theextent of 50%.the Hon'ble ITAT was right in law in confirming the orderof CIT (A) in restricting the deletion of commission paidto MD and executive employees of the company to theextent of 50%. (iii) Whether on the facts and in the circumstances of the case,the Hon'ble ITAT was right in law in confirming the orderof CIT (A) ordering the deletion of disallowance made inrespect of personal use of Car and telephones by theDirectors and executives of the Company.the Hon'ble ITAT was right in law in confirming the orderof CIT (A) ordering the deletion of disallowance made inrespect of personal use of Car and telephones by theDirectors and executives of the Company. (iv) Whether on the facts and in the circumstances of the case,the Hon'ble ITAT was right in law in rejecting the appealof the Department against the order passed by the CIT (A)accepting the plea of the assessee claiming the writing offthe duty draw back claimed of Rs. 35,96,707/- inspite ofthe fact that a writ petition challenging the order rejectingthe claim for refund of the duty draw back was stillpending.the Hon'ble ITAT was right in law in rejecting the appealof the Department against the order passed by the CIT (A)accepting the plea of the assessee claiming the writing offthe duty draw back claimed of Rs. 35,96,707/- inspite ofthe fact that a writ petition challenging the order rejectingthe claim for refund of the duty draw back was stillpending. (v)Whether on the facts and in the circumstances of the case,the Hon'ble ITAT was right in law in rejecting the appealof the Department against the order passed by CIT (A)deleting the disallowance of Rs. 64,870/- being theprovision made on account of salary of retrenchedemployees which was being carried on for the last severalyears and no actual payment having been made.the Hon'ble ITAT was right in law in rejecting the appealof the Department against the order passed by CIT (A)deleting the disallowance of Rs. 64,870/- being theprovision made on account of salary of retrenchedemployees which was being carried on for the last severalyears and no actual payment having been made. ITA No. 362 of 2004 (O&M) (vi) Whether on the facts and in the circumstances of the case,the Hon'ble ITAT was right in law in rejecting the appealof the Department against the order passed by the CIT (A)thereby holding that the turn over on account of sale ofscrap should not be added to the total turn over whileworking the deduction u/s 80 HHC of the Income TaxAct.” ITA No. 362 of 2004 (O&M) (vi) Whether on the facts and in the circumstances of the case,the Hon'ble ITAT was right in law in rejecting the appealof the Department against the order passed by the CIT (A)thereby holding that the turn over on account of sale ofscrap should not be added to the total turn over whileworking the deduction u/s 80 HHC of the Income TaxAct.” 2.In the course of assessment for the assessment year in question,the following issues arose about which dispute in this appeal is relevant:-the following issues arose about which dispute in this appeal is relevant:- (i)foreign travel expenses on account of foreign visits by itsMD and his wife;MD and his wife; (ii)deduction of commission paid to MD and the executives;(iii) expenditure of use of car and telephones by the Directorsand executives;(iii) expenditure of use of car and telephones by the Directorsand executives; (iv) writing off the duty draw back; (v)claim for provision made for salary of retrenchedemployees, which was carried forward for the last severalyears without actual payment; andemployees, which was carried forward for the last severalyears without actual payment; and (vi) sale of scrap was not added to the total income whilecalculating deduction under section 80HHC.calculating deduction under section 80HHC. 3.The Assessing Officer disallowed the claim with regard toforeign travel expenses on account of foreign visits by its MD and his wife.The CIT (A) partly upheld the claim but disallowed the claim attributable toexpenses of travelling by the wife of MD. The Tribunal affirmed the saidorder. The Assessing Officer disallowed the claim with regard to deductionin commission paid to MD and the executives, but the CIT (A) upheld the ITA No. 362 of 2004 (O&M) claim to the extent of 50% and the Tribunal allowed the claim of theassessee in full. The Assessing Officer disallowed the claim for use of carand telephones on the ground that the same was attributable to personal useof the Director. The CIT (A) partly upheld the claim to the extent theexpenditures had nexus with the business purpose in the opinin of the saidauthority. The Tribunal allowed the claim of the assessee in full. TheAssessing Officer did not accept the writing off the duty draw back on theground that the claim of the assessee was pending consideration in a writpetition. The assessee had not given up the claim. The CIT (A) upheld thewriting off duty draw back which was affirmed by the Tribunal. TheAssessing Officer disallowed the provision made for salary of retrenchedemployees but the said claim was upheld by the CIT (A) as well as theTribunal. The Assessing Officer held that amount generated from the saleof scrap was liable to be added to the turnover, but the contention of theassessee was upheld by the CIT (A) as well as the Tribunal on the groundthat the scrap was not generated from manufacturing goods neither fromexport turnover. 4.We have heard learned counsel for the parties. 5.Learned counsel for the revenue submitted that the foreigntravel expenses were rightly disallowed by the Assessing Officer as thesame had no nexus with the business purpose. Similar is the objection withregard to deletion of commission paid to the MD and the executives andexpenses of car and telephones. The finding with regard to writing off dutydraw back, allowing provision for salary to retrenched employees and notincluding income derived from the sale of scrape in the total turnover wereerroneous. 6.Learned counsel for the assessee points out that proposedquestion (i) is not a substantial question of law. Reliance has been placedon the order of this Court dated 15.9.2009 in I.T.A. No. 423 of 2005 (The 4.We have heard learned counsel for the parties. 5.Learned counsel for the revenue submitted that the foreigntravel expenses were rightly disallowed by the Assessing Officer as thesame had no nexus with the business purpose. Similar is the objection withregard to deletion of commission paid to the MD and the executives andexpenses of car and telephones. The finding with regard to writing off dutydraw back, allowing provision for salary to retrenched employees and notincluding income derived from the sale of scrape in the total turnover wereerroneous. 6.Learned counsel for the assessee points out that proposedquestion (i) is not a substantial question of law. Reliance has been placedon the order of this Court dated 15.9.2009 in I.T.A. No. 423 of 2005 (The Commissioner of Income Tax, Faridabad Versus M/s Porrits & Spencer(A) Ltd., 113-114, Sector 24, Faridabad) in the case of assessee for theassessment year 1993-1994. For proposed question under (ii), it issubmitted that the said question is not a substantial question of law.Reliance has been placed on the order of this Court dated 5.3.2009 in I.T.A.No. 540 of 2006 (Commissionerof Income Tax, Faridabad Versus M/sPorrits & Spencer (A) Ltd., Faridabad) in the case of the assessee.Similar is the submission with regard to proposed question (iii). Reliancehas been placed on the order of this Court dated 5.3.2009 in I.T.A. No. 38 of2008 (Commissioner of Income Tax, Faridabad Versus M/s Porrits &Spencer (Asia) Ltd.) As regards proposed question (iv), it is submitted thatthis question cannot be held to be a substantial question of law, in view ofthe finding of the Tribunal that the assessee had not so far received theamount of duty draw back and mere filing of writ petition was not a bar towriting off. It is submitted that the assessee genuinely formed an opinionthat the amount was not recoverable and made all efforts but theGovernment of India rejected the same. Mere pendency of the writ shouldnot be a bar to the writing off. As regard question (v), learned counsel forthe assessee has drawn our attention to the finding of the Tribunal that thesalary for which provision was made was duly paid in pursuance of thesettlement and in effect it was projected in the assessment year for the year1998-1999. The balance amount was included in the assessment year forthe year 2006-2007. The provisions are, thus, genuine. As regard question ITA No. 362 of 2004 (O&M) (vi), apart from submitting that this question cannot be held to be asubstantial question of law as the amount involved is Rs. 3797/-, learnedcounsel for the assessee drew our attention to the finding of the Tribunalthat the amount of scrap was not incidental to the activities ofmanufacturing and export and he submitted that, in the circumstances, it hasbeen held in CIT v Madras Motors Ltd., (2002) 257 ITR 60 (Mad.), CITv. Ashok Leyland Ltd., (2007) 297 ITR 107 (Mad.), CIT v VardhmanPolytex Ltd., (2007) 296 ITR 382 (P&H), that the amount is not requiredto be included in the turn over.7.In view of the discussions of the rival submissions mentionedabove, we are of the view that the questions proposed are not substantialquestions of law. Appeal is dismissed. (ADARSH KUMAR GOEL) JUDGE October 29, 2009 (GURDEV SINGH )prem JUDGE Note:- Whether this case is to be referred to the Reporter .....Yes/No