2015 (4) TMI 1244 - AT - Income Tax

Allowability of expenditure on foreign traveling in the units other than the STP-I unit - allowable busniss expenses - Held that - In the absence of any discussion on facts in the assessment orders for the years under consideration the issue necessarily has to be restored to the AO. Accordingly the appeal of the assessee and the Revenue in the respective assessment years are being restored back to the AO with the direction to decide the issue raised therein qua the addition made by way of a disallowance discussing the relevant facts in the respective years. Needless to say that before passing the order the assessee shall be afforded a reasonable opportunity of being heard. Appeal allowed for statistical purposes.

Summary

Issues:
Appeals against orders of CIT(A)-X for 2003-04 and 2004-05 Assessment Years remitted by High Court to Tribunal for examination of foreign traveling expenses for business purposes.

Analysis:
The Hon'ble High Court remitted the appeals back to the Tribunal for fresh examination of the issue of foreign traveling expenses incurred for business purposes in the years under consideration. The Court observed that the Tribunal had not provided any discussion or findings based on the material on record regarding whether the foreign travel expenses were genuinely for business purposes. The parties agreed that the issue needed to be reconsidered by the Assessing Officer due to the lack of detailed analysis in the assessment orders.

In the assessment for the 2003-04 year, the assessee company, involved in software development and consultancy services, had claimed an expenditure of Rs. 51,71,028 on foreign traveling. The Assessing Officer disallowed 50% of the expenses as not wholly and exclusively for business purposes, leading to an addition of Rs. 25,85,514. The AO initiated penalty proceedings under section 271(1)(c) for furnishing inaccurate particulars of income and concealing income. Similarly, in the 2004-05 assessment, the AO disallowed 50% of the Rs. 63,32,763 foreign travel expenses, resulting in an addition of Rs. 31,66,382.

The Tribunal, upon reviewing the facts and pleadings, found that there was a lack of detailed discussion on the facts in the assessment orders for both years. Consequently, the appeals of the assessee and the Revenue were remitted back to the Assessing Officer for a fresh decision on the disallowance of foreign travel expenses, with directions to discuss the relevant facts in each year and provide the assessee with a reasonable opportunity to be heard. The appeals were allowed for statistical purposes.

In conclusion, the Tribunal's decision highlighted the necessity for a thorough examination of foreign travel expenses to ensure they are incurred wholly and exclusively for business purposes, emphasizing the importance of detailed discussions and findings based on the material on record to support such disallowances.