1999 (8) TMI 19 - HC - Income Tax

Business Expenditure, Disallowance Of Expenditure, Interest On Borrowed Capital, Travel Expenses

Summary

Issues Involved:
The judgment involves questions regarding disallowance of interest, confirmation of addition representing payment made to a firm, and disallowance of foreign travel expenses claimed as deductible.

Disallowed Interest:
The assessee claimed deduction of interest on a borrowed cash loan of Rs. 8,60,000 advanced to another company. However, it was found that the advance was not for business purposes, leading to disallowance of interest of Rs. 1,01,250. The Tribunal upheld this decision as the assessee failed to provide evidence supporting the claim that the advance was for business purposes, despite oral assertions. The absence of any concrete evidence regarding the purpose of the advance led to the rejection of the claim.

Confirmation of Addition:
The Tribunal confirmed the addition of Rs. 94,506 representing payment made by the assessee-firm to a transport company. The Commissioner of Income-tax (Appeals) admitted additional evidence in the form of an affidavit from transporters, which was found to be in violation of rules. The Tribunal determined that the cash payments exceeding Rs. 2,500 were hit by section 40A(3) due to lack of exceptional circumstances for cash payments. The Tribunal reversed the Commissioner's decision and reinstated the Income-tax Officer's order disallowing the claim.

Disallowance of Foreign Travel Expenses:
The assessee claimed Rs. 1,08,381 as foreign travel expenses for business purposes, specifically for exploring markets and contacting foreign traders. The Income-tax Officer disallowed these expenses citing lack of evidence for business purposes. The Commissioner of Income-tax (Appeals) allowed the claim, but the Tribunal overturned this decision, emphasizing the insufficiency of evidence connecting the foreign tour to business activities. The Tribunal upheld the Income-tax Officer's decision to disallow the expenses under sections 37 and 35B. The Court remanded the matter back to the Tribunal for a fresh finding, allowing the assessee to provide additional evidence to support the claim that the foreign tour was for business and sales promotion.

Conclusion:
The judgment addressed issues related to interest disallowance, confirmation of payment addition, and disallowance of foreign travel expenses. The Court ruled in favor of the Revenue regarding interest disallowance, in favor of the assessee on the payment addition, and remanded the matter back to the Tribunal for a fresh finding on the foreign travel expenses.