2023 (2) TMI 1162 - AT - Income Tax

Disallowance u/s 14A - no dividend income received - HELD THAT - During the year, the assessee has not received any dividend, hence we hold that in the absence of any dividend received and claim of exempt income, no disallowance u/s 14A is called for. Foreign Travel Expenses disallowed - assessee could not produce any documentary evidences inspite of providing multiple opportunity - CIT(A) deleted the addition on the grounds that all the details have been provided and the foreign travel is a business contingency - HELD THAT - It reflects the details of employees name, designation, date of visit, and the countries visited. We find that the employees visited countries namely, Nairobi, South Africa, Singapore, China, Tashkent, Denmark, Dhaka, France, Bangkok, Hong Kong, Dubai, Italy, USA, Canada, Sri Lanka. We find that the entire trips have been made by the employees and the Directors. There were no trips pertaining to any personal staff or relatives of the directors of the employees. All the tours have been made for the purposes of expanding the business for imports and exports. In the absence of any personal element or nonbusiness purpose brought by the AO any tours undertaken, we hereby affirm the action of the ld. CIT(A) in deleting the addition. Car Expenses disallowed - Addition made on the grounds of personal use owing to non submission of any log books produced for verification of the purpose of the journeys performed by the company vehicles and the personal use of the cars by the directors cannot be ruled out - CIT(A) deleted the addition on the grounds that the details of the personally owned vehicle by the directors were obtained and examined - HELD THAT - Since, the directors have also own the vehicles in their personal capacity, the allegation of the AO that the company vehicles were used for personal purpose in the absence of any tangible evidence cannot be sustained. The decision of the CIT(A) is hereby affirmed. Trading Results of Fabrics - AO applied GP @ 28.97% on the total turnover - CIT(A) held that the GP rate of 28.97% of footwear cannot be applied to the sale of fabric and held that GP @ 7% on the declared sale is acceptable - HELD THAT - Having gone through the entire issue of purchase and sale of goods to the tune of Rs.8 .3 Cr. and after examination of the material on record, we decline to interfere with the order of the ld. CIT(A) determining the GP @7%.

Summary

Issues involved:
1. Disallowance u/s 14A
2. Foreign Travel Expenses
3. Car Expenses
4. Admission of additional evidences - Deletion of undisclosed business profits
5. Trading Results of Fabrics

1. Disallowance u/s 14A:
The assessee did not receive any dividend during the year, leading to the conclusion that no disallowance u/s 14A was warranted due to the absence of any dividend received. The Tribunal upheld this decision, stating that in the absence of any dividend income and claim of exempt income, disallowance u/s 14A was not justified.

2. Foreign Travel Expenses:
The Assessing Officer (AO) disallowed a portion of foreign travel expenses due to lack of documentary evidence supporting the business purpose of the trips. However, the CIT(A) deleted the addition, emphasizing that all necessary details had been provided and that the foreign travels were essential for business expansion. The Tribunal affirmed the CIT(A)'s decision after reviewing the records and confirming that the trips were business-related without any personal elements, thus justifying the deletion of the addition.

3. Car Expenses:
The AO disallowed car expenses, suspecting personal use, as log books were not submitted for verification. The CIT(A) overturned this disallowance by examining details of personally owned vehicles by the directors, concluding that personal use could not be substantiated without tangible evidence. The Tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeal on this ground.

4. Admission of Additional Evidences - Deletion of Undisclosed Business Profits:
The CIT(A) granted relief based on additional evidences submitted under Rule 46A without involving the AO or calling for a remand report. The Tribunal remanded the issue back to the CIT(A) to allow the AO to provide comments on the additional evidences and to adjudicate the matter in accordance with the law.

5. Trading Results of Fabrics:
The AO made substantial additions against the declared profit from fabric sales, applying a high GP rate. The CIT(A) disagreed with the GP rate applied by the AO, reducing it to 7% and providing relief to the assessee. After examining the purchase and sale transactions, the Tribunal declined to interfere with the CIT(A)'s decision on the GP rate, partially allowing the appeals of both the assessee and the Revenue for statistical purposes.

Overall, the Tribunal addressed various contentious issues related to disallowances, expenses, undisclosed profits, and trading results, ensuring a detailed analysis and appropriate application of legal provisions to reach a fair decision in each case.