2011 (8) TMI 478 - AT - Income Tax

Foreign travel expenses - Foreign travel expenses of Chairperson along with certain employees is business expenditure or not in the business of running pre-nursery school. - Held that - The assessee did not produce any evidence which can indicate tour programme what type of training they have taken any certificate issued by such institution any photograph along with the heads of those institutions and any video film. Thus by merely debiting such expense under the business head it would not be allowed automatically to the assessee. - Decided in favor of revenue. Marketing expenses. - AO was of the view that assessee has been paying heavy amounts for advertisement and publicity therefore there is no need to incur marketing expenses. - Held that - Assessing Officer should not sit in the judgment seat of a businessman for deciding the necessity of such expenses for the purpose of the business. - Decided in favor of assessee.

Issues Involved:

1. Deletion of addition of Rs. 7,58,676 incurred on foreign travel expenses.
2. Deletion of addition of Rs. 5,13,948 incurred towards marketing expenses.
3. Disallowance of 2% out of kitchen expenses.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Rs. 7,58,676 Incurred on Foreign Travel Expenses:

The revenue's primary grievance concerns the deletion of Rs. 7,58,676, which the Assessing Officer (AO) disallowed as foreign travel expenses. The assessee, a company running pre-nursery schools, claimed these expenses for the chairperson and certain employees' travel, purportedly for business purposes such as learning better management and development of pre-nursery schools. The AO rejected the claim due to a lack of documentary evidence linking the expenses to business exigencies, concluding the trip was personal.

The CIT(Appeals) deleted the addition, noting that the expenses were for business purposes, supported by board resolutions, bills, and vouchers, and that fringe benefit tax was paid. The CIT(A) emphasized the need for continuous learning in the education business.

The Tribunal, however, found no demonstrative proof of the business purpose, such as correspondence with foreign institutions, training certificates, or other evidence. The Tribunal highlighted that merely debiting expenses under the business head does not automatically qualify them as business expenses. The Tribunal restored the AO's order, allowing the revenue's appeal on this issue.

2. Deletion of Addition of Rs. 5,13,948 Incurred Towards Marketing Expenses:

The revenue also contested the deletion of Rs. 5,13,948 in marketing expenses. The AO disallowed these expenses, arguing that the assessee already incurred significant advertisement and publicity costs, making additional marketing expenses unnecessary.

The Tribunal referred to the principles for allowing business expenses, emphasizing that the AO should not judge the necessity of expenses from a businessman's perspective. The Tribunal upheld the CIT(A)'s deletion of the addition, noting that the AO did not dispute the quantum of expenses or their business purpose, only their necessity. The Tribunal found no merit in the revenue's appeal on this ground, rejecting it.

3. Disallowance of 2% Out of Kitchen Expenses:

The assessee contested the CIT(A)'s restriction of disallowance to 2% of kitchen expenses. The AO had initially disallowed 5% of the Rs. 35,81,769 claimed under kitchen expenses due to unverifiable vouchers. The CIT(A) reduced this to 2%, roughly Rs. 71,000.

The Tribunal noted that both revenue authorities found the expenses not fully verifiable. The Tribunal suggested that a detailed verification of each voucher would be cumbersome and not necessarily fruitful. The Tribunal emphasized that this year's disallowance should not set a precedent for subsequent years, where detailed verification should be conducted if necessary. The Tribunal found no merit in the assessee's ground of appeal, upholding the 2% disallowance.

Conclusion:

In conclusion, the Tribunal partly allowed the revenue's appeal, reinstating the disallowance of foreign travel expenses while rejecting the appeal concerning marketing expenses. The Tribunal also rejected the assessee's cross-objection regarding kitchen expenses, maintaining the 2% disallowance.

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