2012 (11) TMI 805 - AT - Income Tax

Disallowance u/s.40(a)(ia) - CIT(A) deleted the addition - Held that - The CIT(A) has recorded that the assessee has incurred certain expenses for advertisement and publicity, which have been reimbursed by the principal company and that no part of the expenses have been claimed by the appellant in its P&L account, and therefore the provisions of section 40(a)(ia) are not applicable and no disallowance could be made while computing the income of the appellant - as revenue unable to produce any fatcs to contrary no disallowance is warranted - in favour of assessee. Disallowance on account of foreign travel expenses as non-business purposes - CIT(A) deleted the addition - Held that - The assessee also could not justify how the travelling by the directors would have enhanced or bought value to its own business and these expenses have any relevance to the business of the assessee and in reply to a specific question from the Bench as to the date-wise details of foreign visit by two directors of the assessee-company, the same could not be produced on behalf of the assessee. Onus is on the assessee to prove the business purpose of the expenses to claim deduction, as the same is out of its taxable income, which in this case, the assessee has failed to discharge. The assessee was expected atleast to maintain a date-wise detailed programme of the directors during their foreign traveling as letters of the two directors during the relevant period addressed to the assessee-company mentioning the places where they have visited does not inspire confidence - in favour of Revenue. Disallowance u/s.40A(2)(b) - CIT (A) restricted the addition to Rs.2,00,000/- as against Rs.6,00,000/- - Held that - CIT(A) after considering entire facts and circumstances of the case and qualification of the lady directors and their contribution to the assessee-company has allowed salary at Rs.2 lakhs per annum each of the lady directors and disallowance was restricted to Rs.2 lakhs - no interference in his order on this issue is called for - against Revenue.

Summary

Issues involved:
1. Disallowance under Section 40(a)(ia) of the IT Act for reimbursement of expenses.
2. Disallowance of foreign travel expenses as non-business purposes.
3. Disallowance under Section 40A(2)(b) of the Act for salary paid to lady directors.

Detailed Analysis:
1. The first issue pertains to the disallowance under Section 40(a)(ia) of the IT Act for reimbursement of expenses. The Revenue contended that the assessee could not prove that the expenses were on behalf of the principal company and not its own. The CIT(A) noted that the expenses were reimbursed by the principal company and not claimed in the profit and loss account, hence the provisions of Section 40(a)(ia) did not apply. The Tribunal upheld the CIT(A)'s order, confirming that no disallowance could be made as the expenses were not claimed as deductions by the assessee.

2. The second issue revolves around the disallowance of foreign travel expenses as non-business purposes. The Revenue argued that the directors' visits to the USA and China did not serve a business purpose and lacked evidence to support the claim. The Tribunal observed that the business purpose of the visits was not established by the assessee. Despite letters and submissions, the Tribunal found insufficient evidence to justify the expenses as business-related. The Tribunal held that the disallowance was rightly made by the AO, as the onus to prove business purpose was not discharged by the assessee.

3. The third issue concerns the disallowance under Section 40A(2)(b) of the Act for salary paid to lady directors. The CIT(A) restricted the disallowance after considering the qualifications and contributions of the lady directors to the company. The Tribunal upheld the CIT(A)'s decision, noting that the directors had higher responsibilities and managerial roles, justifying the salary paid. The Tribunal found the CIT(A)'s view reasonable and confirmed the order, dismissing the Revenue's appeal on this issue.

In conclusion, the Tribunal partly allowed the Revenue's appeal while dismissing the assessee's Cross Objection, affirming the decisions on the disallowances related to expenses reimbursement, foreign travel expenses, and salary paid to lady directors.