2015 (5) TMI 1059 - AT - Income Tax

Allowable business expenditure - payments made to Hotels, Spa and purchase of apparels - Held that - Admittedly, payments were made through credit card to Hotels/Resorts, Disney Vacancy purchase, apparels, Departmental stores, Spa, etc. These expenses were personal in nature. There is no material on record to show how these payments are going to promote the business of the assessee. Therefore, this Tribunal is of the considered opinion that the CIT(Appeals) has rightly confirmed the addition to the extent of ₹ 4,73,345/-. Disallowance of foreign travel expenses - Held that - The assessee claimed expenditure relating to foreign travel. The assessee could not file any details. However, the bills and vouchers to the extent of ₹ 8,24,256/- were filed. In respect of the balance expenditure, no material was filed by the assessee. Therefore, this Tribunal is of the considered opinion that the CIT(Appeals) has rightly confirmed the addition to the extent of ₹ 13,90,60/- on account of foreign travel. We do not find any infirmity in the order of the CIT(Appeals). Accordingly, the same is confirmed. Disallowance towards repairs and renewals - Held that - The assessee claims that a sum of ₹ 25,88,711/- was incurred in repairs and renewals of compound wall, relaying of connecting roads and construction of temporary dining hall for the workers. If it is a construction of new wall and new roads, it can be a capital expenditure, but, if it is repairs and maintenance of existing walls and roads, then definitely it is a revenue expenditure. The assessee claims that a temporary dining hall was constructed for the workers in the factory. It is not known the nature of construction made by the assessee. When the assessee claims that these are all revenue expenditure, the Assessing Officer estimated 60% of the same as capital expenditure. The details with regard to the nature of construction of the dining hall are not available on record. Therefore, we set aside the orders of the lower authorities and the issue of repairs and renewals is remitted back to the file of the Assessing Officer. The Assessing Officer shall reconsider the issue afresh to find out whether it is a construction of new compound wall and roads. The Assessing Officer shall also reconsider the nature of temporary structure made by the assessee for dining hall. The Assessing Officer shall thereafter decide the issue in accordance with law after giving reasonable opportunity to the assessee.

Summary

Issues:
1. Disallowance of business promotion expenses
2. Disallowance of foreign travel expenses
3. Disallowance of repairs and renewals expenses

Analysis:

Issue 1: Disallowance of Business Promotion Expenses
The appellant contested the disallowance of business promotion expenses amounting to Rs. 15,77,819, arguing that these expenses were incurred to entertain customers and were thus relevant to business expenditure. The Assessing Officer disallowed a portion of the expenditure on an estimate basis, which was confirmed by the CIT(Appeals). The Departmental Representative contended that expenses related to hotels, spa, and apparel purchases were personal in nature and not business-related. The Tribunal found that the expenses were personal and lacked evidence of promoting the business, upholding the addition of Rs. 4,73,345 as confirmed by the CIT(Appeals).

Issue 2: Disallowance of Foreign Travel Expenses
The appellant claimed a deduction of Rs. 22,14,876 for foreign travel expenses, but could only provide bills and vouchers totaling Rs. 8,24,256. The Assessing Officer disallowed the remaining amount, which was upheld by the CIT(Appeals). The appellant argued that the foreign travel was business-related, but the lack of supporting documentation led to the disallowance. The Tribunal agreed with the CIT(Appeals) and confirmed the addition of Rs. 13,90,620, as the appellant failed to substantiate the entire claim.

Issue 3: Disallowance of Repairs and Renewals Expenses
Regarding the disallowance of Rs. 15,53,226 for repairs and renewals, the appellant contended that these expenses were revenue in nature, primarily for constructing a compound wall and relaying connecting roads. The Assessing Officer treated these as capital expenditure, disallowing a portion on an estimate basis. The CIT(Appeals) considered the disallowed amount as capital expenditure eligible for depreciation. The Tribunal found ambiguity in the nature of the expenses and remitted the issue back to the Assessing Officer for reevaluation. The Assessing Officer was instructed to determine whether the expenses were capital or revenue in nature, especially concerning the construction of new structures, providing the appellant with a fair opportunity.

In conclusion, the Tribunal partially allowed the appeal for statistical purposes and remitted the issue of repairs and renewals back to the Assessing Officer for a fresh assessment in accordance with the law.