2010 (3) TMI 915 - AT - Income Tax

Summary

Issues involved: Disallowance of travelling expenses under Rule 6D, disallowance of guest house expenses u/s 37(4), disallowance of advertisement expenses.

Travelling expenses under Rule 6D:
The dispute arose regarding the disallowance of Rs 18,65,533/- out of travelling expenses under Rule 6D of the Income-tax Rules, 1962. The Assessing Officer calculated disallowance on the basis of expenditure incurred per trip per person, resulting in the said disallowance amount. The CIT (A) confirmed this disallowance, citing the judgment of the Hon'ble High Court of Mumbai in the case of Arrow India. The Tribunal upheld the disallowance, stating that it is in conformity with the High Court's judgment, which emphasized calculating disallowance with reference to the expenditure incurred during each trip separately.

Guest house expenses u/s 37(4):
The second dispute involved the disallowance of guest house expenses amounting to Rs 5,56,884/- u/s 37(4) of the Income-tax Act, 1961. The Assessing Officer disallowed the expenses, which was confirmed by the CIT (A) following the decision in an earlier year and the judgment of the Hon'ble Supreme Court in the case of Britannia Industries Ltd. The Tribunal upheld the disallowance, stating that expenses related to a guest house, even if allowable under other sections, have to be considered for disallowance u/s 37(4) as per the Supreme Court's judgment.

Advertisement expenses:
The third dispute pertained to the disallowance of advertisement expenses amounting to Rs 2,83,865/-. The Tribunal had earlier restored this issue to the Assessing Officer for further examination. The Departmental Representative argued that the expenditure was not allowable due to non-deduction of tax at source, citing judgments of the Hon'ble Supreme Court and the Hon'ble High Court of Karnataka. The Tribunal considered the nature of the expenditure incurred in foreign currency for advertisement services rendered outside India, leading to a discussion on the applicability of section 40(a)(i) and the taxability of income arising from such payments.