2003 (12) TMI 578 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of foreign travel expenses.
2. Disallowance of repairs and maintenance expenses.
3. Disallowance of legal and professional fees.
4. Disallowance of consultancy charges.

Detailed Analysis:

1. Disallowance of Foreign Travel Expenses:
The first issue pertains to the disallowance of Rs. 1,28,280 claimed as foreign travel expenses under section 37 of the Income-tax Act. The assessee argued that the expenses were for studying the latest technology in sewerage projects. However, no details or evidence were submitted to substantiate the business necessity of the travel, including the travel of Mr. R.N. Ghanekar's wife. The Assessing Officer and the CIT(A) both disallowed the claim due to lack of evidence. The Tribunal upheld this disallowance, citing the absence of proof that the travel was for business purposes and referencing case laws that supported the decision.

2. Disallowance of Repairs and Maintenance Expenses:
The second issue involves the disallowance of Rs. 1,80,643 out of Rs. 1,97,016 claimed under repairs and maintenance, treated as capital expenditure by the Assessing Officer. The CIT(A) upheld this decision, stating the expenses were for complete restructuring of the office. The Tribunal examined each expenditure item:
- Rs. 26,108 for replacing flooring was considered revenue expenditure, referencing a judgment that extensive repairs are revenue in nature.
- Rs. 945 for plastering was also deemed revenue expenditure.
- Rs. 8,500 for re-wiring was treated as revenue expenditure, supported by a precedent where replacing old wiring was considered revenue.
- Other expenses for renovation of furniture and fittings were debated, with the Tribunal concluding that except for Rs. 6,300 for MS Grills, the expenses were revenue in nature. The Tribunal partially allowed the appeal, directing the Assessing Officer to allow Rs. 1,74,343 as revenue expenditure.

3. Disallowance of Legal and Professional Fees:
The third issue concerns the disallowance of Rs. 1,20,000 out of Rs. 1,44,000 paid to M/s. Hi-Calibre Investment & Holding P. Ltd. for professional services. The Assessing Officer deemed Rs. 10,000 per month excessive and not for business purposes, allowing only Rs. 2,000 per month. The CIT(A) upheld this, suggesting the payment was influenced by personal relations. The Tribunal, however, referenced Supreme Court judgments emphasizing that commercial expediency should be judged from the businessman's perspective, not the revenue's. The Tribunal found the disallowance unjustified and directed the deletion of the Rs. 1,20,000 disallowance.

4. Disallowance of Consultancy Charges:
The fourth issue involves the disallowance of Rs. 21,00,000 paid to M/s. Contessa Construction and Leasing Co. Ltd. for consultancy in collecting an arbitration award. The Assessing Officer and CIT(A) disallowed the expense, questioning the necessity and genuineness of the services rendered. The Tribunal noted the lack of evidence of services rendered by the consultant, such as correspondence or bills, and upheld the disallowance, referencing several judgments that emphasize the need for proof of services for such payments to be allowed.

Conclusion:
The Tribunal upheld the disallowance of foreign travel expenses and consultancy charges due to lack of evidence. It partially allowed the appeal on repairs and maintenance expenses, treating most as revenue in nature. The Tribunal fully allowed the appeal on legal and professional fees, emphasizing the principle of commercial expediency. The assessee's appeal was partly allowed.