M/S. TANKER PACIFIC MANAGEMENT (INDIA) PVT. LTD, MUMBAI v. THE ITO 9(3)(3), MUMBAI

ITA 4416/MUM/2007 | 2002-2003
Pronouncement Date: 31-05-2010 | Result: Partly Allowed

Appeal Details

RSA Number 441619914 RSA 2007
Assessee PAN AAACT7449T
Bench Mumbai
Appeal Number ITA 4416/MUM/2007
Duration Of Justice 2 year(s) 11 month(s) 22 day(s)
Appellant M/S. TANKER PACIFIC MANAGEMENT (INDIA) PVT. LTD, MUMBAI
Respondent THE ITO 9(3)(3), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 31-05-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted E
Tribunal Order Date 31-05-2010
Date Of Final Hearing 11-05-2010
Next Hearing Date 11-05-2010
Assessment Year 2002-2003
Appeal Filed On 08-06-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E MUMBAI BEFORE SHRI. R.S. SYAL (A.M.) AND SHRI. VIJAY PAL R AO (J.M) ITA NO.4416/MUM/2007 ASSESSMENT YEAR: 2002-2003 ITA NO.4810/MUM/2008 ASSESSMENT YEAR: 2003-2004 TANKER PACIFIC MANAGEMENT (INDIA) PVT. LTD. 101 UNIQUE CENTRE 15 WATER FIELD RD. BANDRA (W) MUMBAI 400 050. PAN : AAACT7449T VS. A.C.I.T.-9(3)(3) AAYAKAR BHAVAN MUMBAI 400 020. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VIJAY MEHTA RESPONDENT BY : SHRI NAVEEN GUPTA O R D E R PER VIJAY PAL RAO J.M. THESE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST THE TWO DIFFERENT ORDERS DATED 07.03.2007 AND 16.04.2008 OF LEARNED C IT(A)-IX MUMBAI FOR THE ASSESSMENT YEAR 2002-03 AND ASSESSMENT YEAR 200 3-04 RESPECTIVELY. 2. SINCE THE ISSUES IN BOTH THE APPEALS ARE COMMON THESE APPEALS ARE CLUBBED AND HEARD TOGETHER AND DISPOSED OF BY THIS COMPOSITE ORDER. 3. IN ITA NO.4416/MUM/07 THE ASSESSEE HAS RAISED FO LLOWING EFFECTIVE GROUNDS. 1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THE DIS ALLOWANCE OF BUSINESS PROMOTION EXPENSES OF RS.1 15 572/- ON THE GROUND THAT THE SAME WAS NOT THE RESPONSIBILITY OF THE APPELLANT COMPANY. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THE DIS ALLOWANCE OF SOFTWARE EXPENSES OF RS.1 82 675/- AND TREATING THE S AME AS A ITA NO.4416/MUM/2007 ITA NO.4810/MUM/2008 2 CAPITAL EXPENSES ON THE GROUND THAT IT GIVES BENEFIT OF ENDURING NATURE TO THE APPELLANT AND ALLOWING DEPRECIATION ON T HE SAME @60%. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THE DIS ALLOWANCE OF TRAVELLING EXPENSES OF RS.1 83 405/- OUT OF TRAVELLING EXPENSES ON THE GROUNDS THAT THE EXPENSES ARE NOT INCURRED FOR THE PURPOSE OF BUSINESS. THE OTHER GROUNDS ARE ONLY SUPPORTING TO THESE GROUN D. 4. GROUND NO.1 IS REGARDING DISALLOWANCE OF BUSINES S PROMOTION EXPENSES. THE ASSESSEE DEBITED AN AMOUNT OF RS.1 15 752/- AS BUSINESS PROMOTION EXPENSES. THE ASSESSING OFFICER WAS OF T HE VIEW THAT THE EXPENDITURE HAS BEEN INCURRED FOR GIVING DIWALI SWE ETS DRY FRUITS GIFTS TO OFFICERS AND FOR GET-TOGETHER AT HOTELS. IT WAS D IRECTLY INVOLVED AS EMPLOYEES OF THE PARENT COMPANY AND IS IN NO WAY CONNECTED WI TH THE ASSESSEE. ACCORDINGLY THE ASSESSING OFFICER HELD THAT THE EX PENSES INCURRED FOR THE PURPOSE OF PARENT COMPANY AND NOT FOR THE ASSESSEE S COMPANY. THE ASSESSING OFFICER CONCLUDED THAT BUSINESS PROMOTION EXPENSES CLAIMED BY THE ASSESSEE IS NOT RESPONSIBILITY OF THE ASSESSEE AND ACCORDINGLY DISALLOW THE SAME. ON APPEAL THE CIT(A) HAS CONFIRMED TH E ACTION OF THE ASSESSING OFFICER IN DISALLOWING THE PROMOTION EXPENSES AS NO T THE RESPONSIBILITY OF THE ASSESSEE. 5. BEFORE US THE LEARNED AR OF THE ASSESSEE SUBMIT TED THAT THE ASSESSEE ENTERED INTO AN AGREEMENT WITH ITS PRINCIPAL COMPAN Y. HE HAS REFERRED TO CLAUSE NO.23 AND 24 OF THE AGREEMENT SIGNED ON 01.0 1.2001 AT A PAGE NO.23 TO 30 OF THE PAPER BOOK. THE AR HAS SUBMITTED TH AT AS PER THE AGREEMENT THE ASSESSEE WAS ENTITLED FOR REIMBURSEMENT OF COMM UNICATION VISA AND PRE-JOINING MEDICAL EXPENSES ON THE BASIS OF ACTUAL COSTS INCURRED BY THE ASSESSEE AS PER SUB-CLAUSE 23 OF THE AGREEMENT. T HE PAYMENTS WITH RESPECT TO COMPENSATION TO SEAFARERS EMPLOYED BY TH E ASSESSEE SERVING ON VESSELS MANAGED BY THE PRINCIPAL IN ACCORDANCE WITH THEIR INDIVIDUAL CONTRACTS ON EMPLOYMENT THAT HAS BEEN APPROVED BY T HE PRINCIPAL WILL BE ITA NO.4416/MUM/2007 ITA NO.4810/MUM/2008 3 PAID TO THE ASSESSEE AS PER SUB-CLAUSE 4 OF THE CLA USE 23. ANY OTHER PAYMENTS REASONABLY INCURRED BY THE ASSESSEE IN PER FORMING ITS OBLIGATION UNDER THIS AGREEMENT SUBJECT TO PRIOR APPROVAL OF THE PRINCIPAL WAS TO BE PAID TO THE ASSESSEE. THUS THE LD. AR OF THE ASSE SSEE HAS SUBMITTED THAT BUSINESS PROMOTION EXPENSES WHICH WERE INCURRED FOR TRAVELLING AND STAY OF VISITORS FROM CLIENT. THE INCURRENCE OF THE EXPEN DITURE IS CUSTOMARY IN NATURE AND WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ITS BUSINESS. THE COMMERCIAL EXPEDIENCY AND JUSTIFICA TION OF THE EXPENDITURE HAVE TO BE SEEN FROM THE BUSINESS MANS POINT OF VI EW. HE HAS REFERRED CORRESPONDENCE BETWEEN ASSESSEE AND THE PRINCIPAL V IDE LETTER DATED 16.02.2007 AND 19.02.2001 AT PAGE NO.31 AND 32 OF T HE PAPER BOOK AND SUBMITTED THAT IT WAS CLARIFIED THAT THE PRINCIPAL COMPANY SHALL NOT BEAR THE EXPENDITURE ON COMMUNICATION AS APPEARING IN THE SU B-CLAUSE (II) OF CLAUSE 23 OF THE AGREEMENT AND THE SAME WAS NOT TO BE REIM BURSED TO THE ASSESSEE. HE HAS RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. CHANDULAL KESHAVLAL & CO. 38 ITR 601 (SC) AND S UBMITTED THAT WHEN THE EXPENSES HAD INCURRED FOR PROMOTION OF THE BUSINESS AND THE SAME CANNOT BE DISALLOW. 6. ON THE OTHER HAND LEARNED DR SUBMITTED THAT THE ASSESSEE IS A LIMITED COMPANY CARRYING ON BUSINESS OF RECRUITING CREW REQUIRED FOR THEIR PRINCIPAL COMPANY. THE ASSESSEE WAS PAID TO CONCL UDE SUCH CONTRACT ON BEHALF OF THE PRINCIPAL IN RESPECT OF SEAFARERS AS APPROVED BY THE PRINCIPAL IN WRITING. AS PER THE CONTRACT THE PRINCIPAL WAS RE SPONSIBLE FOR ALL THE EMPLOYEES TOWARDS SEAFARERS AND SERVING ON VESSELS MANAGED BY THE SEAFARERS COMPENSATION AS PER THE TERMS AND OTHER E MPLOYMENT CONTRACT. THUS THE LEARNED DR SUBMITTED THAT THE ASSESSEE WA S NOT REQUIRED TO INCUR ANY EXPENDITURE WITH RESPECT TO ENTERTAIN AND PROVI DING GIFTS TO THE CREW MEMBERS AND CAPTAINS OF THE SHIPS OWNED BY THE PRIN CIPAL AND IF ANY EXPENDITURE ASSESSEE HAS INCURRED IN RESPECT OF THE CREW MEMBERS THE SAME IS ONLY ON BEHALF OF THE PRINCIPAL THEREFORE THE A SSESSEE IS NOT ENTITLED FOR CLAIMING SAID EXPENDITURE AS BUSINESS EXPENDITURE O F THE ASSESSEE. HE HAS RELIED UPON ORDER OF THE LOWER AUTHORITIES. ITA NO.4416/MUM/2007 ITA NO.4810/MUM/2008 4 7. WE HAVE CONSIDERED THE RIVAL CONTENTION AND RELE VANT RECORD. AS PER THE AGREEMENT BETWEEN THE ASSESSEE AND PRINCIPAL M/ S.TANKER PACIFIC MANAGEMENT (INDIA) PVT. LTD. THE ASSESSEE WAS ACTIN G AS AN AGENT TO EMPLOY INDIAN SEAFARER ON THE NOMINATED VESSELS OF THE PRI NCIPAL COMPANY. THE ASSESSEE UNDERTOOK FOR RECRUITMENT OF EXPENSES AND SUITABLE QUALIFIED OFFICERS AS CREW ON THE VESSELS OF THE PRINCIPAL CO MPANY. THUS ONCE HIRING AND RECRUITMENT PROCESS IS OVER THE CREW MEMBERS A ND OTHER OFFICERS EMPLOYED ON THE SHIPS OF THE PRINCIPAL BECOME THE E MPLOYEES OF THE PRINCIPAL AS THE EMPLOYMENT CONTRACTS WERE APPROVED BY THE PRINCIPAL. THOUGH THE WAGES AND SALARIES WERE PAID BY THE PRIN CIPAL THROUGH THE ASSESSEE BUT ALL POWERS WERE WITH THE PRINCIPLE REG ARDING THE PROMOTION AND TRANSFER. THUS WHATSOEVER THE EXPENDITURE WAS INC URRED BY THE ASSESSEE IN RESPECT OF RECRUITMENT OF THE SEAFARERS FOR THE VES SELS OF THE PRINCIPAL THE SAME WAS TO BE REIMBURSED AND REPAID BY THE PRINCIP AL TO THE ASSESSEE. IT IS NOT EVIDENT FROM THE RECORD THAT THE ASSESSEE HAS I NCURRED THE EXPENDITURE ON ACCOUNT OF BUSINESS PROMOTION FOR ATTRACTING THE NEW PERSON AND CREW MEMBERS BUT IT SEEMS THAT THE SAID EXPENDITURE WAS INCURRED FOR THE EXISTING CREW MEMBERS AND OTHER EMPLOYEE WORKING ON THE PRINCIPAL VESSELS. THEREFORE WHEN THE EXPENDITURE WAS NOT FOR THE FUR THER PROMOTION BUT FOR THE EXISTING EMPLOYEES WORKING AT THE VESSELS OF TH E PRINCIPAL THEN THE SAME CANNOT BE TREATED AS EXPENDITURE FOR THE BUSINESS P ROMOTION OF THE ASSESSEE. ACCORDINGLY WE DID NOT FIND ANY MERITS IN THE CONT ENTION OF THE LEARNED AR AND THE ORDER OF THE LOWER AUTHORITIES FOR THIS ISS UE. 8. REGARDING DISALLOWANCE OF SOFTWARE EXPENSES WE H AVE HEARD THE LEARNED AR AS WELL AS DR AND CONSIDERED THE RELEVAN T RECORD SINCE THE ISSUE IS REGARDING TREATMENT OF SOFTWARE EXPENSES INCURRE D BY THE ASSESSEE AS WHETHER THE SAME IS REVENUE OR CAPITAL IN NATURE. THE ASSESSEE CLAIMED EXPENSES OF RS.1 82 675/- TOWARDS SOFTWARE EXPENSES AS BUSINESS EXPENDITURE BUT THE ASSESSING OFFICER WAS OF THE VI EW THAT THE ASSESSEE ACQUIRED SOFTWARE WHICH WERE ENDURING NATURE THERE FORE EXPENDITURE IS CAPITAL IN NATURE. ITA NO.4416/MUM/2007 ITA NO.4810/MUM/2008 5 9. ON APPEAL THE CIT(A) HAS CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER HOWEVER DIRECTED TO THE ASSESSING OFFICER TO ALLOW DEPRECIATION AS PER THE PROVISION OF LAW. AT THE OUTSET WE NOTE THAT THE ISSUE IS DECIDED BY DELHI SPECIAL BENCH OF THE TRIB UNAL IN THE CASE OF AMWAY INDIA ENTERPRISES V. DCIT (2008) (111 ITD 112) (DEL.) (SB) . ACCORDINGLY WE SET ASIDE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR DECIDING THE SAME AS PER THE DECISION OF SPECIAL BENCH (SUPRA). 10. REGARDING DISALLOWANCE OF TRAVELLING EXPENSES THE ASSESSEE CLAIMED TO THE EXPENSES OF RS.1 83 405/- AS TRAVELLING EXPE NSES EXCLUSIVELY INCURRED FOR THE BUSINESS OF THE COMPANY. THE ASSESSING OF FICER WHILE REFERRING THE CLAUSE 23 OF THE AGREEMENT BETWEEN ASSESSEE AND THE PRINCIPAL HAS HELD THAT REASONABLE EXPENSES INCURRED BY THE ASSESSEE SHALL BE REIMBURSED BY THE PRINCIPAL; THEREFORE THESE EXPENSES INCURRED BY TH E ASSESSEE WILL BE PAID BY THE PRINCIPAL. ON APPEAL THIS CIT(A) IS CONFIRME D THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 11. BEFORE US THE LEARNED AR OF THE ASSESSEE SUBMI TTED THAT THE ASSESSEE INCURRED THE TRAVELLING EXPENSES FOR FOREIGN VISITS OF THE OFFICERS OF THE ASSESSEE EXCLUSIVELY FOR THE BUSINESS PURPOSE. TH E OBJECT OF SUCH TRAVELLING WAS TO KEEP ABREAST OF THE CREW QUALITY TRAINING A ND QUASH THE OTHER COUNTRIES CREW STANDARDS. HE HAS THUS SUBMITTED THAT THE EXPENSES WERE FOR COMMERCIAL EXPEDIENCY OF THE ASSESSEE AND JUSTI FIED THEREFORE ALLOWABLE AS BUSINESS EXPENDITURE. HE HAS REFERRED THE DET AILS OF THE EXPENDITURE AT PAGE NO.33 OF THE PAPER BOOK AND SUBMITTED THAT EXP ENDITURE WERE INCURRED ON THE VISITS OF THE GM OF THE ASSESSEE TO THE SHIP S IN AND AROUND INDIA TO CARRY OUT ENQUIRY AND TO LOOK INTO THE CREW RELATED PROBLEMS. THE TRIPS ABROAD WERE ALSO REGARDING FOR VISITING THE SHIP HA NDLING RESEARCH AND TRAINING CENTRE AS WELL AS TO THE HEAD QUARTERS OF THE PRINCIPALS FOR NECESSARILY BRIEFING UPDATING AND FEEDBACK ETC. T HEREFORE THESE EXPENSES ARE INCURRED FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. ITA NO.4416/MUM/2007 ITA NO.4810/MUM/2008 6 12. ON THE OTHER HAND THE LEARNED DR HAS SUBMITTED THAT THE BUSINESS OF THE ASSESSEE IS TO EMPLOYING AND RECRUITMENT OF THE CREW MEMBERS AND OTHER STAFF AS PER THE ADVICE OF THE PRINCIPAL AND ON BEHALF OF THE PRINCIPAL THEREFORE THE NATURE OF THE EXPENDITURE CLAIMED BY THE ASSESSEE CANNOT BE SAID FOR THE BUSINESS PURPOSE OF THE ASSESSEE. HE HAS RELIED UPON ORDER OF THE LOWER AUTHORITIES. 13. WE HAVE CONSIDERED THE RIVAL CONTENTION AND REL EVANT RECORD. IT IS NOT DISPUTED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS INCURRED THIS EXPENSES ON VISITS UNDERTAKEN BY THE GM OF THE ASSE SSEE ON VARIOUS PLACES. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE A SSESSEE ONLY ON THE GROUND THAT AS PER THE AGREEMENT BETWEEN ASSESSEE A ND THE PRINCIPAL THE ASSESSEE SHOULD HAVE RECEIVED BACK THIS EXPENSES AS REIMBURSED BY THE PARENT COMPANY. ONCE THE FACTUM OF EXPENSES INCUR RED ON FOREIGN TOURS UNDERTAKEN BY THE GM OF THE ASSESSEE AND THE PURPOS E FOR SAID VISITS IS ALSO NOT DISPUTED THEN IN OUR VIEW THE SAID EXPENSES I NCURRED BY THE ASSESSEE FOR EXPLOITING THE BETTER TRAINING CENTRE AND INSTI TUTIONS AS WELL AS FOR UPDATING THE INFORMATION BETWEEN THE ASSESSEE AND T HE PRINCIPAL THEN THE SAID EXPENDITURE WAS FOR BUSINESS OF THE ASSESSEE. EVEN OTHERWISE FROM THE DETAILS OF THE EXPENDITURE AND THE PURPOSE OF THE E XPENSES IT IS CLEAR THAT THE SAID EXPENDITURE WAS INCURRED BY THE ASSESSEE F OR THE ASSESSEES OWN BUSINESS INTEREST AND NOT FOR THE TRAINING OF THE E XISTING PERSONS ALREADY RECRUITED BY THE ASSESSEE FOR THE PRINCIPAL. ACCO RDINGLY WE ARE OF THE VIEW THAT THE SAID EXPENDITURE IS FOR THE BUSINESS PURPO SE AND FOR COMMERCIAL EXPEDIENCY OF THE ASSESSEE. THERE IS NO ELEMENT O F PERSONAL EXPENDITURE IN THE SAID EXPENDITURE AND THE SAME IS ALLOWABLE AS B USINESS EXPENDITURE OF THE ASSESSEE. 14. IN ITA NO.4810/MUM/2008 THE ASSESSEE HAS RAISE D FOLLOWING EFFECTIVE GROUNDS. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW; THE LD COMMISSIONER OF INCOME TAX(APPEAL) CENTRAL-1 MUMBAI (HER EINAFTER REFERRED TO AS CIT(A)) HAS ERRED IN UPHOLDING THE D ISALLOWANCE OF CORPORATE ITA NO.4416/MUM/2007 ITA NO.4810/MUM/2008 7 EXPENSES AMOUNTING TO RS.1 49 179/- ON THE GROUND THAT TH E APPELLANT HAD FAILED TO ESTABLISH COMMERCIAL AND BUSINESS EXPEDIENCY O F THE EXPENSE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD CIT(A) HAS ERRED IN UPHOLDING THE DISALLOWANCE OF BUSIN ESS PROMOTION EXPENSES AMOUNTING TO RS.2 87 982/- ON THE GROUND THAT IT WAS UNDER NO OBLIGATION TO INCUR THE SAID EXPENDITURE. 15. THESE ISSUE NO.1 AND 2 ARE IDENTICAL IN NATURE AND DISALLOW BY THE LOWER AUTHORITIES ON SIMILAR REASONING AS TO THE I SSUE OF BUSINESS PROMOTION EXPENSES IN THE APPEAL FOR A.Y.2002-03. SINCE WE HAVE DECIDED THE ISSUE OF BUSINESS PROMOTION EXPENSES IN THE APPEAL FOR THE A SSESSMENT YEAR 2002- 03 AGAINST THE ASSESSEE THEREFORE IN VIEW OF THE O UR FINDINGS ON THE ISSUE IN THE APPEAL FOR ASSESSMENT YEAR 2002-03 THESE ISSUE S FOR A.Y. 2003-04 ARE DECIDED AGAINST THE ASSESSEE ON SAME OCCASIONING. 16. IN THE RESULT ITA NO.4416/MUM/07 IS PARTLY ALL OWED AND ITA NO.4810/MUM/08 IS DISMISSED. ORDER PRONOUNCED ON THIS 31 ST DAY OF MAY 2010. SD/- (R.S. SYAL) (ACCOUNTANT MEMBER) SD/- (VIJAY PAL RAO) (JUDICIAL MEMBER) MUMBAI DATED 31 ST MAY 2010. JANHAVI COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)- MUM BAI 4. COMMISSIONER OF INCOME TAX CITY- MUMBAI 5. DEPARTMENTAL REPRESENTATIVE BENCH E MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR ITAT MUMBAI