The order of the 'Bench was delivered by
1 SAN JAY GARG (Judicial Member).-This appeal filed by the assessee is directed against the order of the Commissioner of Income-tax (Appeals) (hereinafter referred to as the learned CIT (A)), Mumbai, dated August 30, 2012, relevant to the assessment year 2009-10. The appeal of the assessee is barred by 12 days of limitation period. The assessee has filed an application for condonation of delay explaining the reasons for the abovesaid delay of 12 days in preferring the present appeal.
2 In view of the explanation for delay given by the assessee and also considering the shortness of the delay period, the delay in preferring the present appeal is hereby condoned and the appeal is heard on merits. The assessee has taken. the following grounds of appeal :
1/1. The appellant respectfully submit that the delay of 12 days in filing of this appeal may please be condoned and the appeal may be admitted.
2. The learned Commissioner of Income-tax (Appeals) has erred in law and on facts in confirming the disallowance of Rs. 5,63,792 being 20 per cent. out of the travelling expenses amounting to Rs. 28,18,958 without properly considering the facts and circumstances of the case.
3. The learned Commissioner of Income-tax (Appeals) has erred in law and on facts in confirming disallowing of Rs. 79,412 being 10 per cent. out of the sundry expenses amounting to Rs. 7,94,116 without properly considering the facts and circumstances of the case."
3 The assessee, a partnership firm, has been carrying on trade of jewellery and ornaments. For the year under consideration, the assessee filed a return of income declaring a total income of Rs. 9,58,46,796. The Assessing Officer disallowed 20 per cent. of the expenses claimed in respect of telephone expenses, printing and stationery expenses, sundry expenses, travelling expenses and sales promotion expenses on the ground that most of these expenses had been incurred on the basis of self-made vouchers and complete verification was not possible and further that there was a possibility of a personal element involved in incurring these expenses. The assessee preferred appeal before the Commissioner of Income-tax (Appeals).
4 Before the learned Commissioner of Income-tax (Appeals), it was submitted by the authorised representative of the assessee that the assessee-firm was in the business of specialised designer jewellery catering to the needs of high net worth individuals visiting the showroom. Shri Viren Bhagat, one of the partners of the assessee-firm has been stated to be one of the world's renowned jewellery designer and the assessee-firm participated in various jewellery exhibitions held in foreign countries to increase the export sales. It was further explained that the assessee recorded a turnover of Rs. 12.65 crores, Rs. 13.81 crores and Rs. 30.13 crores in the financial years relevant to the assessment years 2007-08, 2008-09 and the current assessment year 2009-10 respectively. For the year under consideration the gross profit and the net profit margins were at 25 per cent. and 20 per cent. of the sales respectively. Thus the direct expenses were hardly 5 per cent. of the sales which were reasonable as per the nature of business of the assessee.
The learned Commissioner of Income-tax (Appeals) observed that considering the volume of the assessee's business and the increase in sales by Rs. 17 crores during the year, the printing and stationery expenses and sales promotion expenses claimed at Rs. 1,04,628 and Rs. 1,44,859 respectively were reasonable and did not call for any disallowance. However, regarding the sundry expenses, he noted that the increase in this expenditure was mainly on account of photo shoot expenses and water proofing charges for the work carried out in one of the shops. He further observed that out of the foreign travel expenses claimed at Rs. 28,18,958, an amount of Rs. 90,645 was spent on foreign travel. It was explained before him that the said expenses were mainly incurred for purchase of air tickets and foreign exchange. But the learned Commissioner of Income-tax (Appeals) observed that the claim of hotel and stay expenses of foreign travel was on higher side in respect of foreign trips to Hongkong and Switzerland. He further observed that in respect of above expenses, the element of personal use could not be ruled out. Therefore, he disallowed 10 per cent. of telephone and sundry expenses and 20 per cent. of travelling expenses. The assessee is therefore in appeal before us in relation to sustaining of disallowance up the extent of 10 per cent. of sundry expenses and 20 per cent. of travelling expenses.
We have considered the rival submissions of the learned representatives of both parties and have also gone through the records.
It may be noticed from the order of the learned Commissioner of Income-tax (Appeals) that though he observed that the claim of the various expenses by the assessee was reasonable considering the nature and volume of business of the assessee, but, he confirmed 20 per cent. disallowance in relation to the travelling expenses and 10 per cent. in relation to the sundry expenses observing that element of personal use could not be ruled out. In out view the disallowance of 20 per cent. on ad hoc basis out of the claim of travelling expenses was on the higher side considering the details of expenses submitted by the assessee and the annual turnover of Rs. 30.13 crores of the business for the current assessment year. In over all view of the facts and circumstances of the case, the disallowance under this head is ordered to be reduced to 5 per cent. of the expenses claimed.
8 However, so far the second ground relating to the disallowance at 10 per cent. out of the claim of sundry expenses is concerned, the learned Commissioner of Income-tax (Appeals) himself has noted in the impugned order that the increase in this expenditure was mainly on account of photo shoot expenses and water proofing charges for the work carried out in one of the shops. Considering the nature of the business of designer jewellery and maintenance of showroom for the said purpose, the said expenditure was for the purpose of the business of the assessee and does not call for any disallowance .. Accordingly the disallowance on account of sundry expenses is hereby ordered to be deleted.
9 In the result, the appeal of the assessee is partly allowed.
10 The order pronounced in the open court on this 27th day of June, 2014.