2. The brief facts of the case are that the assessee is a company engaged in the business of dealing farm equipments, machinery, spares, wind power ge

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1 IN THE INCOME TAX APPELLATE TRIBUNAL Bangalore B Bench, Bangalore Before Shri Rajpal Yadav, Judicial Member and Shri Jason P. Boaz, Accountant Member ITA No.14/Bang/2013 (Assessment year: ) M/s Ratnagiri Impex Pvt Ltd Annapurna House, No.1/1G 7 th Cross New Guddadahalli Mysore Road, Bangalore PAN: AABCR 5888 B (Appellant) Vs. Dy. Commissioner of Income Tax, Circle 12(4) Bangalore (Respondent) Assessee by: Shri H.R. Suresh, CA Department by: Dr. K. Shankar Prasad, (DR) Date of Hearing: 3/9/2014 Date of Pronouncement: 5/9/2014 Per Rajpal Yadav, J.M. O R D E R The assessee is in appeal before us against the order of the learned CIT (A) dated passed for assessment year The grounds of appeal taken by the assessee are not in consonance with Rule 8 of the ITAT Rules and they are descriptive and argumentative in nature. The assessee has taken eight grounds of appeal, but its grievance revolves around two issues namely: a) Disallowance of Rs.8,71,524 out of travelling expenditure. b) Disallowance of Rs.4,84,147 out of sale promotion expenses. Page 1 of 8

2 2. The brief facts of the case are that the assessee is a company engaged in the business of dealing farm equipments, machinery, spares, wind power generation etc., It has filed its return of income on declaring total income of Rs.42,82,050/-. The case of the assessee was selected for scrutiny assessment and notice u/s 143(2) was issued and served upon the assessee. According to the Assessing Officer, twelve opportunities of hearing were granted to the assessee. On an analysis of the accounts, it revealed to the Assessing Officer that the assessee had debited an amount of Rs.22,19,188/- towards Directors travellinge expenses. Out of this amount, a sum of Rs.17,43,047/- was incurred on the foreign travel of four Directors. The learned Assessing Officer analysed the details as under: Mr. Vasudevamurthy, S.A.(U.K, Frankfurt, Italy) Rs. 4,59,622 Mr. Sundresh S.A. (South Africa) Rs. 4,37,096 Mr. Chandra Mohan S.A (Japan) Rs. 1,29,624 Mr. Gopala Krishna, SA (China, Taiwan, Rs. 7,16,704 Singapore, Hong Kond, Malaysia, U.K. bangkok, Japan) T O T A L Rs.17,43,047 He confronted the assessee to submit the supporting vouchers and other evidence of these expenditures. According to the Assessing Officer the assessee failed to submit necessary details, therefore, he disallowed the total claim. The brief findings of the Assessing Officer read as under: 6.3 In response to the above, the assessee company has not been able to substantiate the above amount of Rs.17,43,046/- with documents and evidence including Page 2 of 8

3 bills, vouchers, names and address of entities who were met and nature of business transaction from the same. 6.4 Therefore, an amount of Rs.17,43,046/- is disallowed and added back to the total income of the assessee company. 3. On appeal, the learned CIT (A) concurred with the conclusions of the Assessing Officer that the amount under traveling expenditure was not wholly incurred for the purpose of the visit. The learned first appellate authority has confirmed the disallowance of 50% of the expenditure on an estimated basis by recording the following findings: 6.2 On an examination of the ledger account, I find hat in respect of the foreign tours, while the hotel bills and ticket expenses are reflected in the vouchers, the purpose of the tours and the expediency thereof are not established on a tour-wise basis. For example, Sri Vasudeva Murthy traveled extensively in Europe and UK for 15 days from and likewise the ledger account reveal extensive payments made to the Directors in cash and in the form of air tickets. However, I have to note that the expediency of these trips is not established before me, apart from submission of some copies of bills from foreign hotels. The appellant s only general defense is that it imports goods from Italy, China and other European countries. On a conspectus of the issue, I am of the view that the expenses have not been fully justified, though the claim of having made certain trips on account of business expediency is generally acceptable, if evidence is adduced. In view of the facts of the case, I feel that only 50% of the expenditure of Rs.17,43,047/- can be fairly allowed in the absence of justification for incurrence of the same for business purposes. Accordingly, an amount of Rs.8,71,024 is deleted and the balance is sustained. Page 3 of 8

4 4. The learned Counsel for the assessee submitted that the assessee used to import farm equipments from these nations and therefore, its Directors had to undertake journeys. The expenses were incurred for the purpose of the business visit and no disallowance ought to have been made. On the other hand, the learned DR relied upon the order of the Assessing Officer. 5. We have duly considered the rival contentions and gone through the record carefully. In order to claim any expenditure incurred for the purpose of the business, an assessee has to demonstrate that the expenses were laid down wholly and exclusively for the purpose of the business only. The expression wholly denotes the quantum of expenditure, whereas exclusively denotes the purpose. Both these conditions should be fulfilled before claiming the expenditure. The details of expenses are available in the account, but whether these were incurred wholly for the purpose of the business or not?, the supporting evidence was not produced. The learned CIT (A) has observed that it cannot be construed that total expenses were not incurred for the purpose of business. Therefore, on an estimate basis, she has upheld disallowance up to 50% of the claim. 6. On due consideration of these facts, we are of the view that import of machinery was not disputed by the Assessing Officer. The visits of the Directors were also not disputed. The dispute is whether these visits were exclusively for the purpose of business or they were pleasure trips. Therefore, possibility of involvement of personal expenditure in the traveling expenses cannot be Page 4 of 8

5 ruled out. However, the involvement of personal expenditure could not be to the magnitude of 50%. The disallowance, even if made on estimate basis, it should be a fair and justifiable estimate considering the surrounding circumstances. In our opinion, ends of justice would met, if such disallowance is restricted to the extent of 25% of the total expenditure of Rs.17,43,047/-. 7. In the second fold of grievance, assessee has pleaded that it had incurred expenditure for convening a meeting of dealers. Assessing Officer was of the opinion that the assessee had taken services of an event organizer and therefore, it should have deducted the TDS. He disallowed the expenses. Brief finding recarded by the Assessing Officer in this connection read as under: 12. Non deduction of tax at source: 12.1 The assessee company has debited an amount of Rs.4,84,147/- towards the following: M/s Eagleton Golf Resorts Sales Promotion Rs.3,29,519 M/s F S Events & Services Sales promotion Rs. 69,776 M/s. Fashion Point Advertisement Rs. 84,852 total turnover Rs.4,84, On further verification, it was ascertained that the assessee company has not deducted tax at source for the above amount of Rs.4,84,147/ In accordance to the provisions of Income Tax Act, 1961 the assessee company making any payment shall at the time of credit of such income to the account or at the time of payment thereof in cash or by issue of cheque or draft or by any other mode, Page 5 of 8

6 whichever is earlier, deduct income tax thereon at the rate applicable When the above issue was brought to the notice of A.R the A.R. could not substantiate the reason fro the same Therefore, an amount of Rs.4,84,147/- is added back to the total income of the assessee company. Thus, the addition under this head is Rs.4,84,147/-. 8. On appeal, the learned CIT (A) did not give any relief to the assessee. The learned Counsel for the assessee submitted that the assessee has not availed services of any event organizer. It simply booked the hotel and also arranged other items food etc., from outside. On the other hand, the learned DR submitted that TDS ought to have been deducted by the assessee. 9. We have duly considered the rival contentions and gone through the record carefully. Section 194C of the I.T. Act provide that any person responsible for paying any sum to any resident for carrying out any work (including supply of labour) for carrying out any work, in pursuance of a contract between the contractor and a specified person, shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by any other mode, deduct amount equal to 1%, where the payment is being made or credit is being given to an individual or HUF, 2% where the payment is being made or credit is being given to a person other than an individual or HUF, of such sum as Income Tax on income comprise therein. Explanation attached to this section provides Page 6 of 8

7 the definition of work. In this definition payment to a hotel for boarding does not fall within the ambit of work. The assessee has not hired services of any event organizer. It simply booked the hotel for boarding. The hotel did not work on behalf of the assessee as a contractor. Otherwise every guest whosoever stay in a hotel ought to have deducted TDS while making booking or staying in it. The Hon'ble Bombay High Court has considered this issue in the case of East India Hotels vs. CBDT in CWP No.2104 of 1994 (copy of the order placed by the learned Counsel). The CBDT had issued a circular bearing No. of 681 dated which was challenged in the High Court. The Hon'ble High Court has considered the following question based on the circular and has quashed the circular. The Hon'ble Court held that section 194 C is not applicable for payments made by the customer to the hotel. The first and last three paragraphs of the judgment read as under: 1. The said circular provides that all service contracts are covered under section 194C of the Income Tax Act, 1961 ('Act' for short). As a result whereof, every customer of the petitioner No.1 hotel, while making payment to the hotel for occupying its room and availing other facilities /amenities provided by the hotel is required to deduct income tax at the rate specified in section 194C of the Act. 22. In the present case, we are concerned with the question as to whether the services rendered by the petitioner hotel to its customers is covered under section 194C of the Act? 23. As noticed above, the facilities/amenities made available by the petitioner No.1 hotel to its customers do not constitute 'work' within the meaning of section 194C of the Act. Consequently, the circular No.681 dated 8/3/1994 to the extent it holds that the services made available by a hotel to its customers Page 7 of 8

8 are covered under section 194C of the Act must be held to be bad in law. 24. For all the aforesaid reasons, the petition is allowed by quashing the circular No.681 dated 8/3/1994 to the extent it holds that section 194C of the Income Tax Act applies to payments by the customers to the petitioner No.1 hotel for availing the facilities/amenities made available by the petitioners. 10. Respectfully following the decision of the Hon'ble Bombay High Court, we delete the disallowance made by the Assessing Officer. 11. In the result, appeal of the assessee is partly allowed. Order pronounced in the Open Court on 5 th September, Sd/- (Jason P. Boaz) Accountant Member Bangalore, dated 5 th September, Vnodan/sps Copy to: 1. The Appellant 2. The Respondent 3. The concerned CIT(A) 4. The concerned CIT 5. The DR, ITAT, Bangalore 6. Guard File By Order Sd/- (Rajpal Yadav) Judicial Member ASSISTANT REGISTRAR Income Tax Appellate Tribunal, Bangalore Benches, Bangalore Page 8 of 8

IN THE HIGH COURT OF DELHI AT NEW DELHI ITA 605/2012. CIT... Appellant. Through: Mr Sanjeev Rajpal, Sr. Standing Counsel. versus ORIENTAL STRUCTURAL

IN THE HIGH COURT OF DELHI AT NEW DELHI ITA 605/2012 CIT... Appellant Through: Mr Sanjeev Rajpal, Sr. Standing Counsel. versus ORIENTAL STRUCTURAL ENGINEERS PVT LTD... Respondent Through: Mr Rajat Navet