ITA No. 362 of 2004 (O&M) 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 362 of 2004 (O&M) Date of decision: October 29, 2009 The Commissioner of Income Tax, Faridabad ...Appellant Versus M/s Porrits & Spencer (A) Ltd. ...Respondent CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL HON'BLE MR. JUSTICE GURDEV SINGH Present: Mr. Rajesh Sethi, Advocate, for Ms. Urvashi Duggha, Advocate, for the revenue. Mr. Santosh Aggarwal, Advocate, for the assessee. ORDER 1. The revenue has preferred this appeal under Section 260A of Income Tax Act, 1961 (for short, “the Act”) against the order of Income Tax Appellate Tribunal, Faridabad, in Bench 'B', New Delhi passed in ITA No. 3797/Del/98 dated 5.5.2004 for the assessment year 1994-95, proposing to raise the following substantial questions of law:- “(i) Whether on the facts and in the circumstances of the case, the Hon'ble ITAT was right in law in dismissing of appeal of the Department against the order of CIT (A) deleting the disallowance on account of foreign travel expenses of Managing Director i.e. Sh. K.C. Tapedar by ignoring the facts that out of the total foreign travel period from 11.08.1993 to 31.08.1993 was personal in nature as no ITA No. 362 of 2004 (O&M) 2 appointments were shown for this period. (ii) Whether on the facts and in the circumstances of the case, the Hon'ble ITAT was right in law in confirming the order of CIT (A) in restricting the deletion of commission paid to MD and executive employees of the company to the extent of 50%. (iii) Whether on the facts and in the circumstances of the case, the Hon'ble ITAT was right in law in confirming the order of CIT (A) ordering the deletion of disallowance made in respect of personal use of Car and telephones by the Directors and executives of the Company. (iv) Whether on the facts and in the circumstances of the case, the Hon'ble ITAT was right in law in rejecting the appeal of the Department against the order passed by the CIT (A) accepting the plea of the assessee claiming the writing off the duty draw back claimed of Rs. 35,96,707/- inspite of the fact that a writ petition challenging the order rejecting the claim for refund of the duty draw back was still pending. (v) Whether on the facts and in the circumstances of the case, the Hon'ble ITAT was right in law in rejecting the appeal of the Department against the order passed by CIT (A) deleting the disallowance of Rs. 64,870/- being the provision made on account of salary of retrenched employees which was being carried on for the last several years and no actual payment having been made. ITA No. 362 of 2004 (O&M) 3 (vi) Whether on the facts and in the circumstances of the case, the Hon'ble ITAT was right in law in rejecting the appeal of the Department against the order passed by the CIT (A) thereby holding that the turn over on account of sale of scrap should not be added to the total turn over while working the deduction u/s 80 HHC of the Income Tax Act.” 2. In the course of assessment for the assessment year in question, the following issues arose about which dispute in this appeal is relevant:- (i) foreign travel expenses on account of foreign visits by its MD and his wife; (ii) deduction of commission paid to MD and the executives; (iii) expenditure of use of car and telephones by the Directors and executives; (iv) writing off the duty draw back; (v) claim for provision made for salary of retrenched employees, which was carried forward for the last several years without actual payment; and (vi) sale of scrap was not added to the total income while calculating deduction under section 80HHC. 3. The Assessing Officer disallowed the claim with regard to foreign travel expenses on account of foreign visits by its MD and his wife. The CIT (A) partly upheld the claim but disallowed the claim attributable to expenses of travelling by the wife of MD. The Tribunal affirmed the said order. The Assessing Officer disallowed the claim with regard to deduction in commission paid to MD and the executives, but the CIT (A) upheld the ITA No. 362 of 2004 (O&M) 4 claim to the extent of 50% and the Tribunal allowed the claim of the assessee in full. The Assessing Officer disallowed the claim for use of car and telephones on the ground that the same was attributable to personal use of the Director. The CIT (A) partly upheld the claim to the extent the expenditures had nexus with the business purpose in the opinin of the said authority. The Tribunal allowed the claim of the assessee in full. The Assessing Officer did not accept the writing off the duty draw back on the ground that the claim of the assessee was pending consideration in a writ petition. The assessee had not given up the claim. The CIT (A) upheld the writing off duty draw back which was affirmed by the Tribunal. The Assessing Officer disallowed the provision made for salary of retrenched employees but the said claim was upheld by the CIT (A) as well as the Tribunal. The Assessing Officer held that amount generated from the sale of scrap was liable to be added to the turnover, but the contention of the assessee was upheld by the CIT (A) as well as the Tribunal on the ground that the scrap was not generated from manufacturing goods neither from export turnover. 4. We have heard learned counsel for the parties. 5. Learned counsel for the revenue submitted that the foreign travel expenses were rightly disallowed by the Assessing Officer as the same had no nexus with the business purpose. Similar is the objection with regard to deletion of commission paid to the MD and the executives and expenses of car and telephones. The finding with regard to writing off duty draw back, allowing provision for salary to retrenched employees and not including income derived from the sale of scrape in the total turnover were erroneous. ITA No. 362 of 2004 (O&M) 5 6. Learned counsel for the assessee points out that proposed question (i) is not a substantial question of law. Reliance has been placed on the order of this Court dated 15.9.2009 in I.T.A. No. 423 of 2005 (The Commissioner of Income Tax, Faridabad Versus M/s Porrits & Spencer (A) Ltd., 113-114, Sector 24, Faridabad) in the case of assessee for the assessment year 1993-1994. For proposed question under (ii), it is submitted that the said question is not a substantial question of law. Reliance has been placed on the order of this Court dated 5.3.2009 in I.T.A. No. 540 of 2006 (Commissioner of Income Tax, Faridabad Versus M/s Porrits & Spencer (A) Ltd., Faridabad) in the case of the assessee. Similar is the submission with regard to proposed question (iii). Reliance has been placed on the order of this Court dated 5.3.2009 in I.T.A. No. 38 of 2008 (Commissioner of Income Tax, Faridabad Versus M/s Porrits & Spencer (Asia) Ltd.) As regards proposed question (iv), it is submitted that this question cannot be held to be a substantial question of law, in view of the finding of the Tribunal that the assessee had not so far received the amount of duty draw back and mere filing of writ petition was not a bar to writing off. It is submitted that the assessee genuinely formed an opinion that the amount was not recoverable and made all efforts but the Government of India rejected the same. Mere pendency of the writ should not be a bar to the writing off. As regard question (v), learned counsel for the assessee has drawn our attention to the finding of the Tribunal that the salary for which provision was made was duly paid in pursuance of the settlement and in effect it was projected in the assessment year for the year 1998-1999. The balance amount was included in the assessment year for the year 2006-2007. The provisions are, thus, genuine. As regard question ITA No. 362 of 2004 (O&M) 6 (vi), apart from submitting that this question cannot be held to be a substantial question of law as the amount involved is Rs. 3797/-, learned counsel for the assessee drew our attention to the finding of the Tribunal that the amount of scrap was not incidental to the activities of manufacturing and export and he submitted that, in the circumstances, it has been held in CIT v Madras Motors Ltd., (2002) 257 ITR 60 (Mad.), CIT v. Ashok Leyland Ltd., (2007) 297 ITR 107 (Mad.), CIT v Vardhman Polytex Ltd., (2007) 296 ITR 382 (P&H), that the amount is not required to be included in the turn over. 7. In view of the discussions of the rival submissions mentioned above, we are of the view that the questions proposed are not substantial questions of law. Appeal is dismissed. (ADARSH KUMAR GOEL) JUDGE October 29, 2009 (GURDEV SINGH ) prem JUDGE Note:- Whether this case is to be referred to the Reporter .....Yes/No