2013 (1) TMI 265 - AT - Income Tax

Addition on account of foreign traveling expenses - A.Y. 2006-07 - Held that - The assessee, for the first time, has taken a plea that these expenses were subject to FBT and there was payment on FBT also by the assessee and therefore, no further disallowance was called for placing reliance on unreported decision in the case of Hansraj Mathuradas (2012 (10) TMI 300 - ITAT, MUMBAI) however, copy of the same was not furnished. Therefore, the benefit of the decision cannot be given - matter restored back to the file of the A.O. for fresh adjudication - in favour of assessee by way of remand. Expenses incurred by the assessee on foreign travels of third party - Held that - during the assessment year 2005-06 relief was given to the assessee by CIT(A) on the ground that assessee was able to make out a case that the persons who made foreign trips also conducted business on behalf of the assessee and therefore, restricted the disallowance of the foreign traveling expenses to 50% of the expenses claimed and that order of ld. CIT(A) was confirmed by the ITAT, however, in the year under consideration no such case was made out on behalf of the assessee that the persons who made foreign trips conducted business on behalf of the assessee and therefore, CIT(A) has categorically mentioned that the expenses incurred by the assessee on foreign travels of third party including sons and nephews of the partners were not incurred wholly and exclusively for the purpose of business and therefore he has confirmed the action of the A.O. in disallowing expenses of Rs.14,55,625/- - against assessee. Bifurcation of exhibition and advertisement expenses towards EOU units - Held that - CIT(A) has confirmed the addition made during the year under appeal on the ground that assessee has not been able to produce any evidence in support of its contention that the expenditure was incurred only for the purpose of non- EOU division. There is no dispute about the fact that these expenses have been entirely debited to the non-EOU division. CIT(A), therefore, was of the view that these expenses have been debited to the non-EOU division to reduce its tax liability. Before us also the assessee has failed to substantiate its claim that this expenditure was incurred only for non-EOU division. Only general submissions have been made and in support of that submission no evidence whatsoever has been put on record - against assessee. Lumpsum addition out of factory expenses, sawing labour, postage and angadia expenses - Held that - CIT(A) found that most of these expenses have been incurred in cash and were not supported by vouchers. Thus, these expenses, according to AO were not verifiable and he, therefore, disallowed 10% of these expenses amounting to Rs.4,69,474/- and added the same to the income of the assessee - no evidence was produced to interfere with the order passed by the CIT(A) - against assessee.

Summary

Issues Involved:
1. Addition of foreign traveling expenses incurred for "Holiday".
2. Addition of foreign traveling expenses incurred by non-partners.
3. Addition on account of bifurcation of exhibition and advertisement expenses towards EOU units.
4. Lumpsum addition out of factory expenses, sawing labour, and postage and angadia expenses.

Issue-wise Detailed Analysis:

1. Addition of Foreign Traveling Expenses Incurred for "Holiday":

The assessee claimed foreign traveling expenses of Rs. 44,70,121/- for A.Y. 2006-07, out of which Rs. 17,86,840/- was disallowed by the Assessing Officer (A.O.) as it was recorded in the books of account as "Holiday". The assessee argued that these were business cum holiday trips beneficial for the business, and since the expenses were subject to Fringe Benefit Tax (FBT), no further disallowance was justified. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the A.O.'s decision, stating that expenses not incurred "wholly and exclusively" for business purposes do not qualify for deduction under Section 37(1) of the Income Tax Act. The Tribunal restored the matter to the A.O. for fresh adjudication, considering the assessee's claim of FBT payment and directed the assessee to furnish the relevant order of the Mumbai Bench relied upon.

2. Addition of Foreign Traveling Expenses Incurred by Non-Partners:

The A.O. disallowed Rs. 14,55,625/- of foreign traveling expenses incurred by persons who were neither employees nor partners of the assessee firm, including close relatives and associates. The assessee failed to provide evidence of the business purpose of these visits. The CIT(A) confirmed the disallowance, noting the lack of details proving the business connection of these trips. The Tribunal upheld the CIT(A)'s decision, emphasizing that the assessee did not demonstrate that the persons conducting the foreign trips were engaged in business activities on behalf of the assessee.

3. Addition on Account of Bifurcation of Exhibition and Advertisement Expenses Towards EOU Units:

The A.O. noted that the assessee's EOU and non-EOU divisions both imported and exported diamonds, yet all advertisement, exhibition, and stamp charges were debited to the non-EOU division. The A.O. apportioned these expenses between the divisions based on their turnover, resulting in a disallowance of Rs. 24,96,740/-. The CIT(A) upheld this disallowance, agreeing that the expenses were not substantiated as incurred solely for the non-EOU division. The Tribunal confirmed the CIT(A)'s decision, as the assessee failed to provide evidence supporting its claim that these expenses were exclusive to the non-EOU division.

4. Lumpsum Addition Out of Factory Expenses, Sawing Labour, and Postage and Angadia Expenses:

The A.O. disallowed 10% of the total expenses of Rs. 46,94,247/- (amounting to Rs. 4,69,474/-) due to most expenses being incurred in cash and unsupported by vouchers, making them unverifiable. The CIT(A) confirmed this disallowance in the absence of material evidence from the assessee. The Tribunal upheld the CIT(A)'s decision, as no evidence was presented to substantiate the assessee's claims.

Conclusion:

The appeals filed by the assessee were partly allowed for statistical purposes, with the Tribunal directing a fresh adjudication on the matter of foreign traveling expenses subject to FBT. The other disallowances were upheld due to the lack of substantiating evidence from the assessee.