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Whether foreign traveling expenses is exempted under section 10B

Court : INCOME TAX APPELLATE TRIBUNAL


Brief : : The assessee has questioned first appellate order on several grounds involving two issues. Firstly as to whether the Ld. CIT(A) has erred in upholding the action of the AO in treating and apportioning the entire foreign traveling expenses of Rs. 19,49,568/- to exports business exempt u/s 10B of the Act instead of Rs. 4,13,308/- apportioned by the assessee company ? (ground Nos. 1.1 to 1.4). Secondly, as to whether the Ld. CIT(A) has erred in sustaining disallowance under section 14A read with Rule 8D of Rs. 11,13,374/- being the estimated expenses allegedly incurred in earning the dividend income and capital gains over and above the disallowance already made by the assesee u/s 14A in its return of income


Citation : Indica Chemical Industries Pvt. Ltd. A-4, Greater Kailash Part-1 New Delhi 110 048 PAN – AAACI0233Q (Appellant) Vs. Addl. CIT Range – 11 C.R. Building New Delhi. (Respondent)


Judgment :


 

IN THE INCOME TAX APPELLATE TRIBUNAL

DELHI BENCH: C : NEW DELHI

 

SHRI I. C. SUDHIR, JUDICIAL MEMBER

AND

SHRI A.N. PAHUJA, ACCOUNTANT MEMBER

 

ITA No. 5845/Del/2011

Assessment Year: 2008- 2009

 

Indica Chemical Industries Pvt. Ltd.

A-4,

Greater Kailash Part-1

New Delhi 110 048

PAN – AAACI0233Q

 (Appellant)

 

Vs.

 

Addl. CIT

Range – 11

C.R. Building

New Delhi.

 (Respondent)

 

Appellant by: Shri H Mitter, AR.

Respondent by: Shri Satpal Singh, Sr. DR

 

ORDER

 

PER I.C. SUDHIR, JUDICIAL MEMBER

 

The assessee has questioned first appellate order on several grounds involving two issues. Firstly as to whether the Ld. CIT(A) has erred in upholding the action of the AO in treating and apportioning the entire foreign traveling expenses of Rs. 19,49,568/- to exports business exempt u/s 10B of the Act instead of Rs. 4,13,308/- apportioned by the assessee company ? (ground Nos. 1.1 to 1.4). Secondly, as to whether the Ld. CIT(A) has erred in sustaining disallowance under section 14A read with Rule 8D of Rs. 11,13,374/- being the estimated expenses allegedly incurred in earning the dividend income and capital gains over and above the disallowance already made by the assesee u/s 14A in its return of income ? (ground Nos. 2,2.1 to 2.4)

 

2. At the outset of hearing the Ld. AR pointed out that the assessee does not wish to press issue No. 2. The related ground Nos. 2,2.1 to 2.4 are required as withdrawn.

 

3. Ground No. 1 The relevant facts are that the assessee has been engaged in the manufacture of Perlite filteraids and expanded perlite products, perlite blocks at Kotdwar Factories, automobile foam parts at Noida, Pune & Chennai units and Diatomaceous and perlite ore trading at Delhi and Pune. During the course of assessment proceedings, the AO noted that the assessee has claimed exemption u/s 10B of the Act in its EOU Unit located at Noida which is established under EOU scheme for the manufacture and export of part of motor cycles, including automobile

components etc. The AO noted that the assessee while preparing the profit and loss account of EOU unit has debited expenditure under the head raw material consumed, packing material consumed , power gas and fuel etc. as direct expenses. However for other expenses under the head like personnel expenses, administrative and selling expenses etc. have not been debited entirely against the sale receipt but have been allocated on the basis of the turnover among exempt and non-exempt units. The assessee claimed to have incurred foreign traveling expenses amounting to Rs. 19,49,567/-  which as per the AO was not debited to the profit and loss account of the exempt unit. The AO was of the view that since the entire traveling expenses has been incurred for earning the exempt income, the same need to be debited to the profit and loss account of the exempt unit. The assessee was asked to explain but the AO was not convinced with the explanation furnished by the assessee and thus disallowed the claimed expenses of Rs. 19,49,567/-. The assessee questioned the above action of the AO before the Ld. CIT(A) and it was also argued that an amount of Rs. 497311/- was already reduced by the assessee from the export profit while originally calculating the deduction u/s 10B of the Act and the AO should have taken cognigence of the same while computing the revised profit of the EOU Unit. The Ld. CIT(A) did not agree with the assessee. He however directed the AO to reduce an amount of Rs. 4,97,311/- while computing the profit of EOU unit as the assessee had already reduced this amount in its calculation of deduction u/s 10B.

 

4. The Ld. AR reiterated the submissions made before the authorities below on the issue. He submitted that some of the foreign visits were common hence in accordance with the method of accounting regularly followed by the assessee, the same like other common expenses were apportioned to the exempt and non exempt units in ratio of their respective turn over. Accordingly out of total foreign traveling expenses of Rs. 19,48,568/- Rs. 4,13,308/- were apportioned to the profit and loss account of EOU unit and Rs. 84,003/- to Kotdwar Unit – II in the ratio of their turnover leaving the balance claim of Rs. 14,52,257/-. He submitted that the apportionment of foreign traveling expenses in the ratio of export turn over to exempt turnover has throughout been accepted by the department in all the earlier years. It is only during the year the AO disregarded the rule of consistency and allocated the entire foreign traveling expenses to export based on misconceived and wrong assumptions. He pointed out that 90% of raw material are imported from 31 foreign suppliers. He pointed out further that even in the assessment year 2009-10 the AO has accepted the account of apportionment of foreign traveling expenses in the ratio of export turn over and exempt turnover adopted by the assessee. The Ld. AR referred page No. 4 to 50 of the paper book filed on behalf of the assessee. These are the copies of profit and loss account and balance sheet alongwith copies of schedule 1 to 4 and 15. He also referred page Nos. 23 to 39 of the paper book. These are the copies of list of suppliers of imported raw material and the countries in which they are located and the export buyers, invoices for export to middle east countries, invoices for participation in EP minerals distributors made in USA and detailed agenda, statement of assessable income filed alongwith the return of income in which expenses attributable to exempt income was disallowed. These documents were filed before the Ld. CIT(A). He also referred page Nos. 13 to 16 of the paper book ( assessee) i.e. copy of letter dated 18.10.2010 filed before the AO.  The Ld. AR contended that without considering the above submissions, the authorities below have decided the issue against the assessee.

 

5. Ld. DR on the other hand oppose the ground and tried to justify the orders of the authorities below.

 

6. Considering the above submissions especially keeping in mind that in earlier years and in the next assessment year 2009-10, the AO has accepted the similar method of apportionment of foreign traveling expenses in the ratio of export turnover and exempt turnover adopted by the assessee, we are of the view that due consideration has not been given to the submission of the assessee made in this regard by the authorities below. We also find that the assessee should have furnished details of the claimed expenditure to examine its correctness and genuineness. We thus set aside the issue to the file of the AO for fresh consideration after affording opportunity to the assessee to furnish the details of the claim and represent its case. The ground Nos. 1 to 14 involving the issue are thus allowed for statistical purpose.

 

6. Consequently appeal is allowed for statistical purpose.

 

Order is pronounced in the open court on 30th October, 2012.

 

Sd/- Sd/-

(A.N. PAHUJA) (I.C. SUDHIR)

ACCOUNTANT MEMBER JUDICIAL MEMBER

 

Dated 30/10/2012

*Veena

 

Copy of order forwarded to:

 

1. Appellant

2. Respondent

3. CIT(A)

4. CIT

5. DR

 

By Order

Deputy Registrar, ITAT





Posted by : [Scorecard : 6344] Posted on 29 November 2012


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