2015 (4) TMI 85 - AT - Income Tax

Disallowance of foreign travel expenses - Held that - the CIT(A) has observed that no specific instance of non-business expenditure or unverifiable expenditure is pointed out by the Assessing Officer. While allowing the claim of the assessee, the CIT(A) has also observed that the average expenditure of the assessee is below 400 USD per day which is in accordance with the norms of daily expenditure abroad adopted by the RBI for the purpose of granting foreign exchange in foreign visits. - Revenue could not point out a single instance of non business expenditure - No infirmity in CIT's order. Disallowance made out of vehicle running expenses and depreciation - Held that - Revenue could not point out as to on what reasons the disallowance can be made in the case of the company which is juristic entity when the vehicles are owned by the company. In the case of company there cannot be any element of personal use of the vehicle by the company, therefore, no disallowance can be made. no infirmity in the findings of CIT(A). Disallowance of Property Tax paid in USA - Held that - as per the matching principle whenever income earned abroad is taxed in India, the expenditure incurred in earning the same is to be allowed. Therefore, we do not find any infirmity in the order of CIT(A) and confirm the same. - Decided against Revenue.

Summary

Issues:
1. Disallowance of foreign travel expenses
2. Disallowance of vehicle running expenses and depreciation
3. Disallowance of HSD Oil & Lubricant expenses
4. Disallowance of electricity charges
5. Disallowance of property tax paid in the USA

Analysis:

1. Disallowance of Foreign Travel Expenses:
The Revenue appealed against the deletion of additions made on foreign traveling expenses by the CIT(A). The Assessing Officer had initially disallowed 10% of total expenses, suspecting non-business expenditure. However, the CIT(A) found no specific instances of non-business expenditure and noted that the average expenditure per day was within RBI norms. The Revenue failed to identify any non-business expenditure, leading to the confirmation of the CIT(A) order.

2. Disallowance of Vehicle Running Expenses and Depreciation:
The CIT(A) observed that as the vehicles were owned by the company, personal use by Directors was possible. However, the Revenue couldn't justify disallowance for a juristic entity like a company. The Tribunal agreed that personal use of company vehicles was irrelevant, upholding the CIT(A) decision to delete the additions.

3. Disallowance of HSD Oil & Lubricant Expenses:
The Assessing Officer made an ad hoc disallowance under this head, citing verification challenges. The CIT(A) overturned this, stating ad hoc disallowances require specific defects in vouchers. The Revenue couldn't prove any defects, leading to the confirmation of the CIT(A) decision.

4. Disallowance of Electricity Charges:
The dispute arose over disallowing electricity charges for premises used for business and residential purposes. The CIT(A) reduced the disallowance to 50% after verifying the premises' usage. The Revenue appealed, but lacking strong arguments, the Tribunal upheld the CIT(A) decision as reasonable.

5. Disallowance of Property Tax Paid in the USA:
The Assessing Officer disallowed property tax paid in the USA due to lack of separate accounts for the USA branch. The CIT(A) allowed the relief, considering ownership, usage, and tax payment evidence. The Tribunal agreed with the CIT(A) that when income earned abroad is taxed in India, related expenditure should be allowed, confirming the decision.

In conclusion, the Tribunal dismissed all Revenue appeals, upholding the CIT(A) decisions in favor of the assessee on various disallowances related to expenses incurred during the assessment years 2004-2005 and 2005-2006.