2012 (7) TMI 682 - AT - Income Tax

Disallowance of traveling and conveyance expenses - incurring foreign travelling expenses - Held that - The expenditure have been carried out as per the Board Resolution of the assessee company authorizing Shri Bhawnani to undertake the tours for promoting the business of the company - that similar expenditure were accepted by the department in earlier years - argument of the AO that assessee had made purchases mostly from Singapore and USA and hence the travel expenses to other countries are not allowable is not correct - attending trade fairs and exhibitions in the line of the assessee s business in other countries cannot be said to be not related with the assessee s business - in favour of assessee. Disallowance of business promotion expenses - Held that - Since all the vouchers and books of account were produced before AO but he has not pointed out any mistake in the account and has disallowed the above amount on adhoc basis - although the matter had been remanded to the AO he has not given any comment on it - in favour of assessee.

Summary

Issues:
1. Disallowance of Rs. 8,00,000/- towards travelling and conveyance expenses.
2. Disallowance of Rs. 1,80,000/- under the head 'business promotion expenses'.

Analysis:

Issue 1: Disallowance of Rs. 8,00,000/- towards travelling and conveyance expenses:
The Assessing Officer disallowed a portion of the claimed travelling and conveyance expenses, specifically focusing on expenses related to foreign travel by a major shareholder who was not an employee or director of the company. The AO raised concerns about the lack of proof that the expenses were incurred exclusively for business purposes and the absence of supporting documentation for a significant portion of the expenses. However, the assessee argued that the shareholder's involvement was crucial for business promotion, supported by board resolutions and past acceptance of similar expenses by the department. The Commissioner of Income Tax (Appeals) found the AO's objections unsubstantiated, emphasizing that business-related travel expenses, even to countries where purchases were not made, were allowable. The Commissioner deleted the disallowance, a decision upheld by the ITAT Delhi, which found no fault in the Commissioner's reasoning.

Issue 2: Disallowance of Rs. 1,80,000/- under the head 'business promotion expenses':
The Assessing Officer disallowed a specific amount claimed as business promotion expenses due to the non-production of certain bills and vouchers. The AO's decision was based on an ad hoc assessment without pinpointing any errors in the accounts. The assessee contended that all necessary documents were provided, and the AO failed to address the matter despite a remand. Consequently, the Commissioner of Income Tax (Appeals) overturned the disallowance, noting the lack of comments from the AO post-remand. The ITAT Delhi concurred with the Commissioner's decision, highlighting the absence of deficiencies in the vouchers and the AO's failure to provide any input during the reassessment. As a result, the ITAT upheld the deletion of the ad hoc disallowance.

In conclusion, the ITAT Delhi dismissed the Revenue's appeal, affirming the decisions of the Commissioner of Income Tax (Appeals) regarding both the disallowance of travelling and conveyance expenses and the disallowance under the head of business promotion expenses.

This analysis provides a detailed overview of the judgment, addressing each issue comprehensively while maintaining the legal terminology and significant details from the original text.