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TMI Blog2017 (11) TMI 382X X X X Extracts X X X X X X X X Extracts X X X X ..... the same is irrecoverable and written off as such, the same should be allowed as a loss while computing the profit and gains of business. - Decided in favour of assessee Disallowance of foreign travel expenditure - payment for commercial expediency - Held that:- In the instant case, the senior employees of the assessee visited foreign countries and it has generated revenue to the assessee in the form of brokerage income on tea/coffee. Further, the said expenses have been incurred out of commercial expediency and hence it should be viewed from a businessman’s point of view. The assessee had incurred similar foreign travel expenses in earlier years also. The revenue had accepted the same till assessment year 2009-10 by allowing the same as business expenditure. The scrutiny assessment orders for the assessment years 2007-08 and 2009-10 framed u/s 143(3) of the Act dated 31.12.2009 and 30.12.2011 respectively are filed by the Ld. AR in this regard. When there is no change in the facts and circumstances of the case during the year under appeal, then there is no need for the Revenue to take a different stand ignoring the principle of consistency. Reliance in this regard is placed on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to my notice that since the advances form a part of the business activity, the write off of the same as irrecoverable should be allowable as a normal trading loss while computing the income. 6.3. My attention is also drawn to the fact that the appellant vide its letter dated 15th March, 2013 has made available to the AO adequate documents to demonstrate that the advances given have become bad during the relevant Assessment Year apart from Board s Resolution as alleged by the AO which has not at all considered by the AO while finalizing the order. I have gone through the documents and have found that the same rightly demonstrate that reasons for writing off the advances during the years under consideration. 6.4 My attention is further drawn to the decision of the Hon'ble Supreme Court in the case of CIT vs. Mysore Sugar Company Limited (Supra) and Hon ble Madras High Court is the case of Devi Films Private Limited vs. CIT (Supra) wherein it was stated that even though the claim for deduction of an amount of advance written off did not squarely fall under section 36(1)(vii), the amount would nonetheless be allowed as deduction while computing the business profits wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade in the books of accounts based on approval of the Board of Directors in the Board meeting held on 29.09.2010. We find that the assessee had during the course of assessment proceedings given its reply through its Authorized Representative s letter dated 15.03.2013 with regard to advances written off partywise as under: Advances Written Off Daloo Tea Co. (I) Ltd.: The assessee company as a part of normal course of its business made an interest bearing advance to Doloo Tea Co on a condition that the entire sale proceeds of tea would be exclusively through the assessee company. Thus, your kindself may kindly appreciate that in order to secure the business of the assessee, the advance was made. However, in the year 2008, it was noticed by the assessee company that Doloo was not selling the tea through the assessee and hence as demand notice was raised on Doloo. However, Doloo did not give any reply to the aforesaid demand notice. As no reply was received, a suit was filed before the Hon ble Calcuttta High Court on 1st September, 2008 for recovery of the amount given to Doloo. During pendency of the suit, Doloo agreed for an out of Court settlement on 6th February, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was written off by the assessee in the books of accounts for the previous year relevant to the assessment year under consideration passing the Board Resolution dated 20th September, 2010. A copy of the Board Resolution is enclosed for the reference of your kindself. Manjamalai Tea Factory: The assessee company as a part of its normal course of its business made an advance with interest to Manjamalai Tea Factory on a condition that the entire crop would be exclusively sold through the assessee. Thus, your kindself may kindly note that in order to secure the business of the assessee company, the advance was made to Manjamalai Tea Factory. However, since the factory remained closed and the firm could not resume their business, the aforesaid advance could not be collected I recovered. Further, during the year under consideration, the assessee company was informed by the Banker, namely, M/s Union Bank, that substantial amounts were due to them from Manjamalai and dues of other creditors were also substantial. As there was no probability for recovery of advance from Manjamalai, the balance standing in the account of Manjamalai Tea Factory was written off by the assessee company du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and consequently the agreements could not be executed. Thereafter settlements were arrived between the assessee and these companies, wherein, certain dues were paid to the assessee-company and the balance was written off. The Board of Directors of the assessee- company had recorded these business developments and passed resolution accepting the settlements. Further there were small sundry balances receivable from various tea companies and these were written off as irrecoverable by passing necessary resolutions The assessee relied on the judgment of the Hon'ble Supreme Court in the case of CIT -vs.- Mysore Sugar Company Limited [46 ITR 649(SC)] and by the Hon'ble Madras High Court in the case of Devi Films Private Limited -vs.- CIT [75 ITR 301 (Mad.). Reliance was placed on the judgment of the Hon'ble Supreme Court in the case of CIT -vs.- Abdullabhai Abdulkadar reported in 41 ITR 545. Reliance was also placed on the decision of the Kolkata Bench of this Tribunal in case of DCIT -vs.- ITC Limited in ITA No. 157/KOL/1996, order dated 30.04.2001. The Id. CIT(Appeals) agreed with the contentions of the Id. counsel for the assessee and granted relief. We find no infirmity i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther asked to provide the details of foreign travel expenses showing the names of visiting persons and the purpose of their visit abroad. The assessee vide its reply dated 04.03.2013 had filed the aforesaid details. Kindly refer to page no. 15 of Paper Book for a statement showing details of foreign travel expenses incurred during the relevant year along with the purpose of visit. The Ld. AO had further asked the assessee to provide a brief note on justification of foreign travel. In reply to the same, the assessee, vide its letter dated 15.03.2013 had filed its detailed reply justifying the claim. 9. The Ld. AO observed that the assessee is not engaged in the manufacture and sale of tea. Instead it is only acting as Tea Auctioneer, which is a platform through which, tea could be purchased and sold by the Indian manufacturers. In the instant case, there was no necessity of incurrence of foreign travel expenses by the assessee and thereby assessee has failed to prove the business nexus vis- -vis the foreign travel expenses. He further observed that the foreign tour expenses incurred by the assessee had only benefitted the Indian manufacturers who in turn had exported tea to vari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hrough tea auctions , the said brokerage is computed on the basis of value of tea auctioned by the assessee. The parties who participate in auction are mainly two folds: 1) Who purchase tea from tea auction and 2) the parties who are selling tea through tea auctions. Hence, the assessee is earning both buying brokerage and selling brokerage. The tea purchased by the parties in auction is sold by them to various consumers within India and abroad. The Ld. AR further stated that the various customers who participated in tea auction had purchased tea through auction conducted by the assessee amounting to ₹ 376,65,99,580/- for the purpose of their export. The brokerage earned by the assessee out of such auctions was ₹ 4,37,49,885/-. In this regard, the Ld. AR filed a statement showing partywise details of purchases made by various customers through auctions conducted by the assessee and brokerage earned thereon by the assessee, as an additional evidence for which a separate application under Rule 18(4) read with Rule 29 of the ITAT Rules, for filing the additional evidence was preferred. This application contained the reasons for admission of the same by mentioning that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is submitted that with the knowledge and experience of the above senior employee of the assessee in the areas of tea manufacturing and marketing, the details of prospective foreign buyers with their requirement of grade/quantity of tea are being noted and this information is being given to the clients of the assessee who have export licenses which in turn help the auction buyers to buy the quantity required to meet the demands of the foreign buyers. It helps the assessee to generate revenue in the form of brokerage from tea auctions. The Ld. AR further submitted that by visiting the foreign countries for the purpose of attending various tea festivals at the request of the Indian Tea Association/Indian Tea Board, the senior officials of the assessee find out new markets for Indian tea abroad other than conventional markets, which also helps the clients of the assessee to export substantial quantity of tea in those countries after buying tea through auction conducted by the assessee which directly generates revenue to the assessee. Thus, by finding out new foreign buyers as well as finding out new markets abroad, the assessee is helping the clients to export huge quantity of tea b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iamson Tea Assam Ltd. reported in 38 Taxmann.com 154(Gau) in the context of foreign travel expenses vis- -vis Section 37 of the Act had held that : Before deciding the issues, in question, we deem it apposite to have a look at the scope of section 37 of the Act. Section 37 of the Act provides that an expenditure to be covered by the ambit of section 37 of the Act, the expenditure should be wholly and exclusively for the purpose of business. The true test for an expenditure, laid out wholly and exclusively for the purpose of business, is that it is incurred by the assessee as incidental to its trade for the purpose of keeping its trade going on and that the expenditure must be incurred by the assessee as a trader and not in any other capacity. The word wholly refers to the quantum of expenditure and the word exclusively refers to the motive, objective and purpose of the expenditure. The expression wholly and exclusively , appearing in section 37, does not mean necessarily. It is important to note, in this regard, that the word necessarily found place in the Income tax Bill, 1961, but it was dropped at the legislative anvil. The Hon ble High Court has further held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... served here that the expression wholly and exclusively used in section 10(2)(xv) of the Act does not mean necessarily . Ordinarily it is for the assessee to decide whether any expenditure should be incurred in the course of his or its business. Such expenditure may be incurred voluntarily and without any necessity and if it is incurred for promoting the business and to earn profits, the assessee can claim deduction under section 10(2)(xv) of the Act even though there was no compelling necessity to incur such expenditure. It is relevant to refer at this stage to the legislative history of section 37 of the Income Tax Act, 1961 which corresponds to section 10(2)(xv) of the Act. An attempt was made in the Income-tax Bill of 1961 to lay down the necessity of the expenditure as a condition for claiming deduction under section 37. Section 37(1) in the Bill read any expenditure laid out or expended wholly, necessarily and exclusively for the purposes of the business or profession shall be allowed. The introduction of the word necessarily in the above section resulted in public interest. Consequently, when section 37 was finally enacted into law, the word necessarily came to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpense relying on the decision of the Apex Court in the case of Shri Venkata Satyanarayana Rice Mill Contractors Co. Vs. CIT reported in 89 taxman 92 (SC) wherein it has been held that what is to be seen is not whether it was or was not compulsory for the assessee to make the payment, but the correct test is that of commercial expediency. The commercial expediency of a businessman s decision to incur such an expenditure. Such decisions have to be taken from a businessman s point of view and have to be respected by the authorities even if it appears to the latter that the expenditure incurred was unnecessary and avoidable. 10.6. We find that in the instant case, the senior employees of the assessee visited foreign countries and it has generated revenue to the assessee in the form of brokerage income on tea/coffee. Further, the said expenses have been incurred out of commercial expediency and hence it should be viewed from a businessman s point of view. 10.7. The Ld. AR stated that the assessee had incurred similar foreign travel expenses in earlier years also. The revenue had accepted the same till assessment year 2009-10 by allowing the same as business expenditure. The scrut ..... X X X X Extracts X X X X X X X X Extracts X X X X
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