2016 (1) TMI 225 - HC - Income Tax

Business expenditure on account of foreign travel - professionally qualified son and daughter-in-law of only male partner of the appellant firm, both son and daughter-in-law being legal heirs of the partner also and having shown growth in firms business as a consequence of their foreign travel - Tribunal disallowing the entire foreign travel expense on the only premise that it was not incurred by a competent person - Held that - The findings have been recorded by the Assessing Officer and the Tribunal that the foreign travel expenses of Shri Deepak Aggarwal and Smt. Shilpa Aggarwal (son and daughter-in-law of the partners of the assessee firm) was on account of personal tours and not expended wholly and exclusively for business purposes and was, thus, inadmissible under Section 37(1) of the Act. It would primarily be a question of fact whether in a given facts and circumstances, the expense is wholly and exclusively for business purposes or not. The view taken by the Assessing Officer and the Tribunal is a plausible view and, therefore, does not call for any interference by this Court. - Decided against assessee.

Issues Involved:
1. Justification of Tribunal's reversal of CIT(A)'s order on foreign travel expenses.
2. Tribunal's disallowance of foreign travel expenses based on competency of individuals.
3. Consistency of Tribunal's order with established legal principles.
4. Allegation of perversity and legal non-compliance in Tribunal's order.

Issue-wise Detailed Analysis:

1. Justification of Tribunal's Reversal of CIT(A)'s Order on Foreign Travel Expenses:
The appellant-assessee, a partnership firm, filed its return for the assessment year 2001-02, claiming a deduction for foreign travel expenses incurred by Deepak Aggarwal and Shilpa Aggarwal. The Assessing Officer disallowed these expenses, concluding they were personal and not business-related. The CIT(A) later deleted this addition, but the Tribunal reversed this decision, agreeing with the Assessing Officer. The Tribunal found that the expenses were not incurred by competent persons (neither employees nor managers) and thus not wholly and exclusively for business purposes.

2. Tribunal's Disallowance of Foreign Travel Expenses Based on Competency of Individuals:
The Tribunal scrutinized the material on record and upheld the Assessing Officer's findings, noting that the travel expenses were personal and not for business purposes. The Tribunal emphasized that the individuals (Deepak Aggarwal and Shilpa Aggarwal) were not employees, managers, or agents of the firm, and thus the expenses could not be justified as business-related. The Tribunal highlighted that the correspondence supporting the expenses was in the individuals' names, not the firm's, and the firm admitted that these individuals had no formal role in the business during the relevant period.

3. Consistency of Tribunal's Order with Established Legal Principles:
The appellant argued that the Tribunal's decision contradicted established legal principles, citing several cases. However, the Tribunal and the Court found these cases distinguishable. For instance, in "Sassoon J. David and Co. P. Ltd. v. CIT, Bombay," the Supreme Court allowed deductions for compensation paid to employees, which was directly related to business expediency-a scenario not applicable here. Similarly, in cases like "Aspinwall and Co. Ltd." and "Appolo Tyres Ltd.," the foreign travel was directly linked to business activities, unlike in the present case where the individuals had no formal business role.

4. Allegation of Perversity and Legal Non-compliance in Tribunal's Order:
The appellant claimed that the Tribunal's order was perverse and against legal provisions. However, the Court found the Tribunal's conclusions to be based on a thorough analysis of the facts and evidence. The Tribunal's view that the foreign travel expenses were personal and not business-related was deemed plausible and did not warrant interference. The Court upheld the Tribunal's decision, affirming that the expenses were inadmissible under Section 37(1) of the Income Tax Act.

Conclusion:
The Court dismissed the appeal, supporting the Tribunal's decision to disallow the foreign travel expenses. The substantial questions of law raised by the appellant were answered against them, and the Tribunal's findings were upheld as consistent with the legal framework and supported by the facts of the case.

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