2011 (12) TMI 62 - HC - Income Tax

Traveling expenditure on foreign travel of the Chairman s wife - business expenditure - held that - the facts on the case on hand would show that the wife of the Chairman has nothing to do with the business of the company. At least if she is one of the Directors of the Company, then the arguments put forth by the respondent could have some force. - In our view, the decision of this Court in T.S. Hajee Moosa s case (1985 -TMI - 27501 - MADRAS High Court) would squarely apply to the facts of the case. - Decided in favor of revenue. Depreciation u/s 32 - lease - whether or not machinery have been supplied under lease - held that - it is submission of the assessee that even if the assessee is not entitled for the claim under the head depreciation they are entitled to business loss under section 28 of the Income Tax Act since it is the contention of the revenue that the manufacturer has not supplied the assets to the lessee; for which, it is the reply of the the revenue that once the assessee has made a claim of depreciation on assets, which claim was disputed by the revenue, the assessee cannot alternatively make a claim under the head of business loss . - the question is answered in favour of the revenue.

Summary

Issues Involved:
1. Deductibility of foreign travel expenses incurred for the Chairman's wife as a business expenditure.
2. Entitlement of the assessee to depreciation on the amount paid in a sale and leaseback transaction.

Issue-wise Detailed Analysis:

1. Deductibility of Foreign Travel Expenses:

The primary issue was whether the expenses incurred for the foreign travel of the Chairman's wife could be allowed as a business expenditure. The assessee claimed a deduction of Rs.1,18,219/- for these expenses, which was disallowed by the Assessing Officer on the grounds that the expenditure was not incurred for business purposes. This disallowance was upheld by the Commissioner of Income Tax (Appeals) but overturned by the Income Tax Appellate Tribunal.

The High Court, however, found that the wife of the Chairman had no official role in the company, and thus, her travel expenses could not be considered as business-related. The Court referred to previous judgments, including *Commissioner of Income Tax vs. T.S. Hajee Moosa and Co.*, which stated that if the expenditure serves both business and private purposes, it does not qualify for allowance under Section 37(1) of the Income Tax Act. Similarly, in *D.B. Madan vs. Commissioner of Income Tax*, it was held that such expenses are personal and do not qualify for business expenditure deduction.

The High Court concluded that unless the assessee could provide tangible evidence that the travel was solely for business purposes, the expenditure could not be allowed. Since the Chairman's wife did not hold any official position in the company, the Tribunal's order allowing the expenditure was set aside, and the question was answered in favor of the Revenue.

2. Entitlement to Depreciation on Sale and Leaseback Transaction:

The second issue concerned the assessee's claim for depreciation of Rs.1,84,52,500/- on assets involved in a sale and leaseback transaction. The assessee had entered into a lease transaction and claimed depreciation on two flameless furnaces allegedly supplied by M/s. Ashish Engineering Works and leased to Prakash Industries.

The Assessing Officer disallowed this claim based on an investigation report indicating that M/s. Ashish Engineering Works did not have the capacity to manufacture such assets and that the invoices provided by the assessee were not issued by the alleged supplier. This finding was confirmed by the Commissioner of Income Tax (Appeals).

The Income Tax Appellate Tribunal, however, allowed the claim, stating that the assessee had produced complete details, and the existence of the leased assets could not be doubted based on conjectures or surmises.

The High Court disagreed with the Tribunal, noting that the fact-finding authorities had consistently held that the transaction was not genuine. The Court cited the Supreme Court's decision in *Lachminarayan Madan Lal vs. Commissioner of Income Tax*, which allows the Income Tax Officer to determine the genuineness of transactions regardless of existing agreements. The Court also referred to *Commissioner of Income Tax vs. Jain (S.P.)*, emphasizing that the Tribunal's reliance on inadmissible material and conjectures was improper.

The High Court concluded that the Tribunal's decision was legally unsustainable and set aside the order, answering the question in favor of the Revenue.

Conclusion:

The appeal was allowed in favor of the Revenue, with the High Court setting aside the Tribunal's decisions on both issues. The expenses incurred for the Chairman's wife's foreign travel were not allowed as business expenditure, and the claim for depreciation on the sale and leaseback transaction was disallowed due to the lack of genuine evidence.