2011 (11) TMI 636 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of foreign travel expenses.
2. Disallowance of finance commission written off.
3. Disallowance of prior period expenses.
4. Disallowance of expenditure on fees and remuneration paid to a Director.

Summary:

1. Disallowance of Foreign Travel Expenses:
The issue pertains to the disallowance of Rs. 73,534/- made by the AO and confirmed by the CIT(A) on account of foreign travel expenses incurred for the spouse of a Director. The assessee, a dealer of Hyundai Motors, claimed the expenses as deductible business expenditure. The AO disallowed 50% of the expenses, citing the lack of evidence for business expediency and relying on precedents from the Kerala and Madras High Courts. The CIT(A) upheld the disallowance, noting the absence of evidence that the spouse's travel was necessary for business purposes. The Tribunal found no infirmity in the CIT(A)'s order, dismissing the assessee's appeal on this ground.

2. Disallowance of Finance Commission Written Off:
The issue involves the disallowance of Rs. 1,38,074/- made by the AO and confirmed by the CIT(A) on account of finance commission written off as irrecoverable. The AO disallowed the claim, noting the ongoing business relationship with the debtor and the lack of evidence for irrecoverability. The CIT(A) upheld the disallowance, questioning the bona fides of the claim. The Tribunal, however, followed the Supreme Court's decision in TRF Ltd. (323 ITR 397), which held that post-1-4-1989, it is sufficient if the bad debt is written off in the accounts. Consequently, the Tribunal deleted the disallowance and allowed the assessee's appeal on this ground.

3. Disallowance of Prior Period Expenses:
The issue concerns the disallowance of Rs. 60,297/- made by the AO and confirmed by the CIT(A) out of expenses on commission and rebate, treating them as prior period expenses. The AO noted that the expenses pertained to the previous year, and the CIT(A) upheld the disallowance, citing the assessee's mercantile system of accounting. The Tribunal, upon reviewing the details and submissions, found merit in the assessee's contention that part of the expenses pertained to the current year. The Tribunal set aside the CIT(A)'s order and remanded the matter to the AO for verification, treating the ground as allowed for statistical purposes.

4. Disallowance of Expenditure on Fees and Remuneration Paid to a Director:
The issue relates to the disallowance of Rs. 1,75,000/- paid as fees to S.P. Jain Institute for a management course and Rs. 3,12,500/- as remuneration to Mr. Krishna Kachalia, a Director. The AO disallowed the expenses, citing personal considerations and lack of commercial expediency. The CIT(A) upheld the disallowance, noting the absence of any scheme for employee training and the lack of evidence for business-related benefits. The Tribunal agreed with the CIT(A), emphasizing the factual nature of the issue and the assessee's failure to establish the business purpose of the expenses. The Tribunal dismissed the assessee's appeal on this ground for both assessment years 2005-06 and 2006-07.

Conclusion:
The appeal for assessment year 2005-06 (ITA No. 4879/Mum/2009) is partly allowed, while the appeal for assessment year 2006-07 (ITA No. 4880/Mum/2009) is dismissed. The order was pronounced on 18th November 2011.