2015 (1) TMI 354 - AT - Income Tax

Disallowance out of travelling expenditure - Whether thes visits were exclusively for the purpose of business or they were pleasure trips Held that - In order to claim any expenditure incurred for the purpose of the business, an assessee has to demonstrate that the expenses were laid down wholly and exclusively for the purpose of the business only - The expression wholly denotes the quantum of expenditure, whereas exclusively denotes the purpose - Both these conditions should be fulfilled before claiming the expenditure - import of machinery was not disputed by the Assessing Officer - The visits of the Directors were also not disputed - possibility of involvement of personal expenditure in the traveling expenses cannot be ruled out - However, the involvement of personal expenditure could not be to the magnitude of 50% - The disallowance, even if made on estimate basis, it should be a fair and justifiable estimate considering the surrounding circumstances the disallowance is restricted to the extent of 25% of the total expenditure. TDS u/s 194C expenses incurred for convening meeting of dealers Held that - The assessee has not hired services of any event organizer - It simply booked the hotel for boarding - The hotel did not work on behalf of the assessee as a contractor - Otherwise every guest whosoever stay in a hotel ought to have deducted TDS while making booking or staying in it following the decision in The East India Hotels Ltd. & Jaswant Singh Bhatia Versus CBDT and UOI 2009 (3) TMI 8 - BOMBAY HIGH COURT - section 194 C is not applicable for payments made by the customer to the hotel - the facilities/amenities made available to its customers do not constitute 'work' within the meaning of section 194C of the Act - the circular No.681 dated 8/3/1994 to the extent it holds that the services made available by a hotel to its customers are covered under section 194C of the Act must be held to be bad in law Decided partly in favour of assessee.

Summary

Issues:
1. Disallowance of Rs. 8,71,524 out of traveling expenditure.
2. Disallowance of Rs. 4,84,147 out of sale promotion expenses.

Analysis:
Issue 1: Disallowance of Rs. 8,71,524 out of traveling expenditure
The assessee, a company dealing in farm equipment, machinery, and wind power generation, filed its return declaring income. The Assessing Officer disallowed Rs. 17,43,046 of the total traveling expenses of Rs. 22,19,188, incurred on foreign travel by four directors, due to lack of supporting evidence. The CIT (A) upheld the disallowance of 50% of the expenditure, citing insufficient justification for business purposes. The ITAT noted the necessity to demonstrate expenses were solely for business purposes. Despite acknowledging the business nature of the visits, the ITAT reduced the disallowance to 25% considering the possibility of personal expenditure.

Issue 2: Disallowance of Rs. 4,84,147 out of sale promotion expenses
The Assessing Officer disallowed this amount for non-deduction of TDS, as the assessee had not deducted tax at source for payments made to certain entities. The CIT (A) upheld the disallowance, holding the assessee should have deducted TDS. However, the ITAT, following a Bombay High Court decision, ruled that payments to a hotel for boarding did not fall under the definition of work as per Section 194C of the IT Act. As the assessee did not hire an event organizer but only booked a hotel, the disallowance was deleted.

In conclusion, the ITAT partially allowed the assessee's appeal, reducing the disallowance on traveling expenses and deleting the disallowance on sale promotion expenses based on legal interpretations and factual considerations.