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2024 (8) TMI 1429 - AT - Income TaxAdmission of additional evidences by CIT(A) - Whether CIT(A) did not insist on the comments of the AO through the remand report under Rule 46A of the Income Tax Rules? - AO disallowed the sampling/designing expenses and foreign travel expenses primarily on the basis that the assessee did not submit any explanation as to how the same were for the business of the assessee - HELD THAT - As discernible from the perusal of the impugned order that the CIT(A) requested the AO to offer his comments/report on the submissions of the assessee, in conformity with the provisions of Rule 46A of the Rules. AO did not respond to such a request and did not file any remand report in response to the submissions filed by the assessee. Thus, it is evident from the record that a reasonable opportunity was allowed to the AO to respond to the written submissions of the assessee and since the AO chose not to file any remand report, CIT(A) proceeded to adjudicate the appeal based on documents/evidence on record. From the plain reading of Rule 46A of the Rules, we find that there is no provision which requires the learned CIT(A) to insist on the comments of the AO. Therefore, we find no merits in the contention of the Revenue raised in grounds no. A and B of the present appeal, and accordingly the said grounds are dismissed. Addition on account of sampling/design expenses - CIT(A) deleted addition - It is the submission of the assessee that these expenses were incurred for the purpose of the business of the assessee and form an integral part of its operations as a marketing support service provider. In support of its claim, the assessee has also furnished various evidence of sampling/designing expenditure, such as bank statements, payment vouchers, sample reimbursement statements, purchase bills of fabrics, etc., which forms part of the paper book. Revenue apart from harping that opportunity was not granted to the AO to comment on the evidence produced by the assessee before the learned CIT(A), did not bring any material on record to controvert the detailed submissions of the assessee supported by documentary evidence. Accordingly, we are of the view that considering the business model of the assessee the expenditure incurred on sampling/designing is pivotal for the conduct of its business efficiently and profitably, and therefore has rightly been allowed by CIT(A). Accordingly, ground no. C raised in Revenue s appeal is dismissed. Addition on account of foreign travel expenses - CIT(A) deleted addition - As per the assessee, the entire expenditure incurred by the said employee on its boarding, lodging, and local travel was authorised by the management of the assessee company and was fully incurred for the advancement/expansion of the assessee s business. In support of the aforesaid claim, the assessee has placed on record documentary evidence containing ledger account, chart of expenses furnished by the employee, and invoices of boarding, lodging and currency purchase. No material has an brought on record by the Revenue to doubt the genuineness of the claim of the assessee that the said expenditure was incurred for the purpose of the business. Accordingly, we find no infirmity in the impugned order in allowing the foreign travel expenses incurred by the assessee. As a result, ground no. D raised in Revenue s appeal is dismissed. Addition on account of website design expenses - CIT(A) deleted addition - It cannot be disputed that in today s corporate world having a website and digital presence has become essential for increasing the digital footprint of the company. Considering the business profile of the assessee, wherein it acts as an intermediary between foreign customers and Indian manufacturers, having a fully functional and updated website is a necessity not only for having a digital presence but also for the efficient working of its business - any expenditure for keeping the website operational and updated with the latest product catalogues cannot be said to be providing enduring benefit to the assessee, and therefore, is not capital in nature. Apart from merely doubting the genuineness of the expenditure, the Revenue did not examine the fact that the website is still functional and provides information regarding various brands, partners, etc. with whom the assessee is having business transactions. Accordingly, we find no infirmity in the impugned order in allowing the website designing expenses. Addition on account of excess salary paid to directors and their relatives - CIT(A) deleted addition - The assessee submitted that the salary paid to the directors is commensurate with their services. It is evident from the record that the AO has merely compared the salary of the directors, without examining the services rendered by them to the assessee company. Therefore, considering the experience and magnitude of operations handled by the aforenoted directors, we are of the considered view that the learned CIT(A) has rightly deleted the disallowance of salary made by the AO. Appeal by the Revenue is dismissed.
Issues Involved:
1. Whether the CIT(A) erred by not insisting on the comments of the AO through a remand report under Rule 46A of the Income Tax Rules. 2. Deletion of addition on account of sampling/design expenses. 3. Deletion of addition on account of foreign travel expenses. 4. Deletion of addition on account of website design expenses. 5. Deletion of addition on account of excess salary paid to directors and their relatives. Issue-wise Detailed Analysis: 1. Comments of the AO through Remand Report: The primary grievance of the Revenue was that the CIT(A) did not insist on the comments of the AO through a remand report under Rule 46A of the Income Tax Rules. The Tribunal noted that the CIT(A) had requested the AO to offer comments on the assessee's submissions, but the AO did not respond. The Tribunal found no provision in Rule 46A requiring the CIT(A) to insist on the AO's comments. Therefore, the Tribunal dismissed the grounds raised by the Revenue on this issue. 2. Sampling/Design Expenses: The assessee, engaged in marketing support services, incurred Rs. 89,98,290 on sampling/design expenses. The AO disallowed these expenses, questioning their business purpose. The assessee provided detailed explanations and documentary evidence, including bank statements, payment vouchers, and purchase bills of fabrics. The Tribunal observed that the expenses were pivotal for the assessee's business model and were incurred for procuring huge orders overseas. The Revenue failed to counter the assessee's detailed submissions and evidence. The Tribunal upheld the CIT(A)'s decision to allow these expenses, dismissing the related ground of appeal. 3. Foreign Travel Expenses: The assessee incurred Rs. 1,91,438 on foreign travel expenses for an employee, Mr. Lanka Rajkumar. The AO disallowed these expenses due to a lack of explanation. The assessee clarified that the expenses were for business trips to the UK, meeting major clients, and advancing business. Documentary evidence, including ledger accounts and invoices, supported the claim. The Tribunal found no material to doubt the genuineness of the expenses and upheld the CIT(A)'s decision, dismissing the related ground of appeal. 4. Website Design Expenses: The assessee debited Rs. 5,28,000 towards website designing expenses, claiming it as revenue expenditure. The AO treated it as capital expenditure due to a lack of explanation and evidence. The assessee argued that continuous development and upgradation of the website were necessary for its business. The Tribunal agreed that maintaining a functional website was essential for the assessee's business model and did not provide enduring benefits. The Tribunal upheld the CIT(A)'s decision to allow these expenses, dismissing the related ground of appeal. 5. Excess Salary Paid to Directors and Relatives: The AO disallowed excess salary payments to directors and relatives, comparing their salaries without examining their services. The assessee justified the salaries based on the directors' roles, experience, and contributions. Detailed profiles and resumes were provided. The Tribunal found the AO's comparison inadequate and agreed with the CIT(A) that the salaries were commensurate with the services rendered. The Tribunal upheld the CIT(A)'s decision, dismissing the related ground of appeal. Conclusion: The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all contested issues. The order was pronounced in the open Court on 22/08/2024.
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