2013 (5) TMI 982 - AT - Income Tax

Summary

Issues involved: Appeal against order of CIT(A) for assessment year 2007-08. Grounds raised include applicability of section 41(1) for trade creditors, disallowance of traveling expenses, and disallowance of 1/5th expenses for Telephone, Car depreciation & Car expenses.

Section 41(1) Applicability - Trade Creditors:
The AO invoked section 41(1) due to outstanding trade creditors for more than three years. The CIT(A) confirmed the addition. Assessee argued no benefit was obtained from the liability, hence section 41(1) not applicable. Tribunal referred to a High Court decision supporting assessee's stance. Consequently, additions under section 41(1) were directed to be deleted.

Disallowance of Traveling Expenses:
Assessee's foreign traveling expenses of &8377; 1,62,087 were disallowed as business-related proof was lacking. Assessee provided details and explained the expenses were for business purposes, resulting in earnings of &8377; 3,56,900. Tribunal found the explanation convincing and directed 75% of the claimed expenditure to be allowed, with the rest disallowed.

Disallowance of 1/5th Expenses - Telephone, Car Depreciation & Car Expenses:
AO disallowed 1/5th of expenses for personal and non-business elements. The CIT(A) upheld the disallowance due to lack of evidence for business purposes. Tribunal found no evidence supporting full business use, thus confirming the 1/5th disallowance.

In conclusion, the appeal was partly allowed with the deletion of additions under section 41(1) for trade creditors, partial allowance of foreign traveling expenses, and dismissal of the 1/5th disallowance for certain expenses.