COMMISSIONER OF INCOME TAX Vs. IRBAZ SHOE COMPANY

JUDGEMENT

(1.) The above Tax Case (Appeals) are filed by the Revenue as against the order of the Income Tax Appellate Tribunal raising the following substantial question of law:

(2.) The respondent/assessee, a partnership firm, is engaged in the manufacturing of leather shoe uppers. The assessee filed its return of income for the assessment years 2005-06 and 2007-08 admitting a total income of Rs.1,08,20,770/- and 24,99,170/- respectively. The return of income for the assessment year 2005-06 was processed under Section 143(1) of the Income Tax Act. Later on the said assessment was reopened under Section 147 of the Income Tax Act and notice under Section 148 of the Income Tax Act was issued to the assessee. The Authorised Representative of the assessee objected to the reopening of the assessment stating that the foreign travel expenses have been incurred to bring buyers to India as it is a practice in this trade. The Assessing Officer, while completing the assessment for both the assessment years, not satisfied with the explanation of the assessee, disallowed the assessee's claim on foreign travel expenses spent on the wife of the partner of the firm and also on others.

(3.) Aggrieved by the said order of assessment, the assessee preferred appeals before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) found that during the financial year 2004-05, the assessee incurred foreign travel expenses and the Tax Audit Report revealed that the expenses are personal in nature. The Commissioner of Income Tax (Appeals) further found that the assessee's wife is neither a partner nor an employee of the assessee firm. Therefore, the Commissioner of Income Tax (Appeals) held that the assessee failed to establish the business connection with the travelling expenses of the wife of the partner. Accordingly, the Commissioner of Income Tax (Appeals) dismissed the appeals holding that in the absence of any details, it is very difficult to believe the assessee's explanation.