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2010 (3) TMI 902 - AT - Income TaxDisallowance made under the head expenditure incurred for repairing the space used for recreation room Held that - Since assessee did not acquire a capital asset but put up a construction of building only for purpose of business, same was allowable as revenue expenditure Disallowance on account of foreign travel Held that - Foreign travel was necessitated to grow the business of the assessee s magazines, periodicals, etc. which is now on globalization and on competition, which requires to know more about to cut down the cost of the publications and printings and such other matters, which are required for the purpose of the business - foreign travel expenses were incurred only for the purpose of business. - Decided in favour of assessee.
Issues Involved:
1. Disallowance of expenditure incurred for repairing and creating a recreation room. 2. Disallowance of foreign travel expenditure. Issue-wise Detailed Analysis: 1. Disallowance of Expenditure Incurred for Repairing and Creating a Recreation Room: - Facts and Background: The assessee, a limited company engaged in printing and publication, declared taxable income for the assessment year 2005-06. The Assessing Officer disallowed a portion of the expenditure incurred for repairing and creating a recreation room for the staff, treating it as capital expenditure. - Department's Contention: The department argued that the expenditure was for creating a new recreation hall, an asset of enduring nature, and should be treated as capital expenditure as per Explanation 1 to Section 32, which allows depreciation on capital expenditure incurred by a lessee. - Assessee's Argument: The assessee contended that the expenditure was for renovation of rented premises and should be treated as revenue expenditure. The company had previously capitalized other renovations and additions, but the current expenditure was for repairs and replacement, necessary for business operations. - Tribunal's Analysis: The Tribunal noted that the renovation converted an empty derelict hall into a recreation room, which was necessary for business efficiency and welfare measures. Citing the decision of the Hon'ble Madras High Court in CIT v. TVS Lean Logistics Ltd., the Tribunal concluded that the expenditure did not result in the acquisition of a capital asset but was for business advantage, thus admissible as revenue expenditure. - Conclusion: The Tribunal dismissed the Revenue's appeal, affirming that the expenditure of Rs. 6,51,670 was revenue in nature and allowable under Section 37. 2. Disallowance of Foreign Travel Expenditure: - Facts and Background: The assessee also faced disallowance of foreign travel expenditure for the assessment years 2005-06 and 2006-07. The foreign travel was undertaken by the Chief Editor, Assistant Editors, and other staff to study topics of interest and interact with readership and advertisers abroad. - Assessee's Argument: The assessee argued that the foreign travel expenses were necessary for business purposes, such as gathering materials, studying techniques, and increasing readership and advertisement revenue. The expenses were consistently allowed in previous and subsequent years, except for the years in question. - Department's Contention: The department disallowed a portion of the foreign travel expenditure on an ad hoc basis, suspecting personal or pleasure trips without concrete evidence. - Tribunal's Analysis: The Tribunal emphasized that Section 37 allows deduction of all expenditure wholly and exclusively for business purposes. It found that the foreign travel was essential for the business of publishing periodicals with a wide international readership. The Tribunal noted that the disallowance was made on mere conjectures without specific evidence of personal trips. - Conclusion: The Tribunal accepted the assessee's claim, stating that the foreign travel expenses were incurred solely for business purposes. It allowed the cross objection and appeal filed by the assessee for the assessment years 2005-06 and 2006-07. Final Judgment: - Revenue's Appeal: Dismissed. - Assessee's Cross Objection and Appeal: Allowed.
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