2014 (12) TMI 211 - AT - Income Tax

Foreign tour expenses disallowed Nexus between foreign expenses with the business carried out by the assesse Held that - CIT(A) rightly considered that while adjudicating the issue, the AO has stated that the travelling payments incurred and claimed also included the expenses incurred towards the foreign tour of the Director Saleem Bakshi, in support of which, the assessee company had also filed a copy of bill dated 06.06.2008 the dealer was required to bear the cost of travelling to and from Beijing, China, and the other expenses were being borne by the Company for their stay at Beijing from 13th June, 2008 to 16th June, 2008, in respect of their boarding, lodging, and local travelling, etc. - it was obligatory on the Director to go and attend the conference, and the tour was having no personal element - In support, the copy of bill dated 06.06.2008 was also filed along with the copy of cash memo dated 11.06.2008, towards the payment of to and fro expenses from Delhi to China and for having the currency also, from which, it was wrongly inferred by the Assessing Officer, that the Director had gone to Thailand on his personal tour, without appreciating, that the Director had gone to China by Thai Airways, as appeared in the Travelling bill - since only a part of the claim made by the assessee has been allowed, it is obvious that the AO himself did not dispute the nature of the expenditure as a business expenditure the order of the CIT(A) is upheld Decided against revenue. Classification of repairs and maintenance Capital in nature or not Held that - The premises whereat the repairs and maintenance were carried out, was a rented premises - Tiles, adhesive and other raw-material were purchased for improvement and beautification of the premises - this expense did not amount to capital expenditure, just because the bills were raised for renovation - The repairs were found to have been carried out as a business necessity of the assessee - whenever the assessee incurs expenditure for repair and maintenance of a building taken on lease for carrying on its business activity, it has to be allowed u/s 30(a)(i) - CIT(A) correctly noted that it was only for the year under consideration, that a sum had been disallowed out of the total expenditure incurred and claimed of ₹ 22,55,710/-, wrongly presuming it to be expenditure capital in nature, without going through the records, and that the premises owned were all leased out premises and not owned by the assessee company the order of the CIT(A) is upheld Decided against revenue.

Summary

Issues Involved:
1. Deletion of disallowance of Rs. 2,00,000/- on account of foreign tour expenses.
2. Admission of additional evidence by CIT(A) without affording opportunity to the Assessing Officer under Rule 46A of the Income Tax Rules, 1962.
3. Treatment of Rs. 14,36,874/- under the head 'Repairs and Maintenance' as revenue expenditure instead of capital expenditure.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance of Rs. 2,00,000/- on Account of Foreign Tour Expenses:

The Assessing Officer (AO) observed that the assessee had debited Rs. 8,54,603/- for staff travelling charges and Rs. 6,40,211/- for the Director's travelling expenses, which included foreign tours. The AO disallowed Rs. 2,00,000/- on an ad-hoc basis, stating that there was no nexus between these expenses and the business activities of the assessee, and most expenses were incurred in cash, making them difficult to verify. The AO also noted that the foreign tour appeared to be personal in nature.

The CIT(A) deleted this addition, noting that the Director's foreign tour was for a conference organized by TATA Motors in Beijing, China, and was not a pleasure trip. The CIT(A) considered that the AO failed to appreciate that the assessee was an authorized dealer of TATA Motors, and the conference was related to business activities. The CIT(A) also noted that the AO did not raise any doubt about the bona fide nature of the expenditure during the assessment proceedings and that the payments were made via A/c payee cheques, contrary to the AO's claim of cash payments.

The Tribunal upheld the CIT(A)'s decision, emphasizing that the expenditure was business-related, and the AO did not dispute the nature of the expenditure as a business expense. Thus, the ground raised by the department was rejected.

2. Admission of Additional Evidence by CIT(A) Without Affording Opportunity to the Assessing Officer:

The AO made an addition of Rs. 14,36,874/- under the head 'Repairs and Maintenance,' treating it as capital expenditure. The CIT(A) deleted this addition, stating that the expenditure was for routine repair and maintenance of rented premises, which is allowable under Section 30(a)(i) of the Income Tax Act.

The department contended that the CIT(A) wrongly admitted additional evidence without giving the AO an opportunity under Rule 46A of the Income Tax Rules, 1962. However, the Tribunal found that the premises were indeed rented, and the expenditure was for business necessity. The CIT(A) correctly noted that the expenditure did not become capital in nature merely because the bills were raised for renovation. The Tribunal also observed that the AO did not dispute the evidence provided by the assessee during the assessment proceedings.

3. Treatment of Rs. 14,36,874/- Under the Head 'Repairs and Maintenance':

The CIT(A) held that the expenditure on rented premises for repair and maintenance should be treated as revenue expenditure under Section 30(a)(i) of the Act. The Tribunal supported this view, referencing various case laws, including Installment Supply P. Ltd. Vs. CIT and CIT Vs. Hi Line Pens (P) Ltd., which upheld the principle that repair and maintenance expenses on leased premises are allowable as revenue expenditure.

The Tribunal noted that the AO did not provide any material evidence to justify treating the expenditure as capital in nature. The CIT(A) had correctly considered that the expenditure was for maintaining and updating the leased premises, which was a regular business activity, and had been consistently treated as revenue expenditure in previous years.

Conclusion:

The Tribunal found no error in the CIT(A)'s order and dismissed the department's appeal, rejecting all grounds raised. The decisions were based on the correct application of legal principles and appreciation of the facts and evidence presented. The order was pronounced in the open court on 5.9.2014.