2016 (6) TMI 81 - AT - Income Tax

Disallowance of Directors foreign travel expenditure - Held that - On perusal of the financial statements of the assessee for the relevant financial year, we find that in the Director report attached to financial statements, the assessee has reported the name of Mr. Ruchirans Jaipuria in the key managerial personal. The other Director Smt. Payal Jaipuria s name did not find in the key managerial, personal position. Therefore, we are of the view that the assessee has filed to prove that Mrs. Payal Jaipuria is a Director actively involved in the business of the assessee to say that she had attended the meetings in abroad to discuss about the future plan of the company. Under these circumstances, we are of the considered view that the assessee has failed to discharge the onus cast upon it to prove the expenditure incurred exclusively for the purpose of business of the assessee. Therefore, we are of the view that the A.O. has rightly disallowed the foreign travel expenditure. The CIT(A) after considering the relevant details filed by the assessee uphold the order of the A.O. We do not see any error or infirmity in the order passed by the CIT(A) - Decided against assessee TDS u/s 194A - non TDS on finance charges - Held that - Considering the ratio of the coordinate bench decision, in the case of M/s. Merilyn Shipping & Transporters (2012 (4) TMI 290 - ITAT VISAKHAPATNAM ), we are of the opinion that no disallowance can be made u/s 40(a)(ia) of the Act for the amounts which have been already paid during the same financial year. The CIT(A) without appreciating the facts, simply uphold the additions made by the A.O. Therefore, we set aside the order passed by the CIT(A) and direct the A.O. to delete the additions made u/s 40(a)(ia) of the Act.- Decided against revenue

Summary

Issues Involved:
1. Disallowance of Directors' foreign travel expenditure.
2. Disallowance of finance charges under section 40(a)(ia) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Disallowance of Directors' Foreign Travel Expenditure:
The assessee, engaged in the manufacture and trading of soft drinks, claimed a deduction for Directors' foreign travel expenditure amounting to ?29,44,193/-. The Assessing Officer (A.O.) disallowed this expenditure on the grounds that the assessee failed to provide sufficient evidence to prove that the expenditure was incurred exclusively for business purposes. The assessee argued that the Directors traveled to meet PEPSICO executives to discuss marketing and production plans and to mobilize funds from NRIs for business expansion. However, the A.O. noted the lack of supporting documents such as invitations or meeting minutes.

The CIT(A) upheld the A.O.'s decision, emphasizing the absence of concrete evidence to substantiate the business purpose of the travel. The Tribunal agreed with the lower authorities, noting that the assessee did not discharge the onus of proving the expenditure was exclusively for business purposes. The Tribunal observed that while the assessee provided letters addressed to PEPSICO executives, it failed to produce invitations or detailed records of the meetings. Additionally, one of the Directors involved was not listed as a key managerial person in the financial statements, further weakening the claim. Consequently, the Tribunal upheld the disallowance of the foreign travel expenditure.

2. Disallowance of Finance Charges under Section 40(a)(ia):
The A.O. disallowed finance charges amounting to ?5,56,121/- under section 40(a)(ia) of the Act due to the assessee's failure to deduct TDS as required under section 194A. The assessee contended that the finance charges were related to hire purchase agreements for acquiring vehicles and thus did not attract TDS under section 194A. Alternatively, the assessee argued that since the payments were made within the same financial year, no disallowance should be made, referencing the ITAT Visakhapatnam Special Bench decision in the case of Merilyn Shipping and Transporters.

The Tribunal rejected the primary contention, clarifying that interest paid under hire purchase agreements is subject to TDS under section 194A. However, the Tribunal accepted the alternative plea, citing the Merilyn Shipping case, which held that disallowance under section 40(a)(ia) does not apply to amounts paid within the same financial year. Thus, the Tribunal directed the A.O. to delete the disallowance of ?5,56,121/-.

Conclusion:
The appeal was partly allowed. The Tribunal upheld the disallowance of Directors' foreign travel expenditure due to insufficient evidence but directed the deletion of disallowance of finance charges under section 40(a)(ia), applying the Merilyn Shipping precedent.