2017 (8) TMI 947 - AT - Income Tax

Disallowance of expenses incurred towards the two foreign travels - expenses related to business - Held that - Submissions made by the Ld. AR that the assessee has shown the evidence by way of copy of email from John Abernethie regarding meeting to new business opportunities at Abernethie Trading, USA on 8-9/10/2007 and the other e-mails shows the participation of Rakesh Jindal in respect of future/prospective business with USA. The said evidence was produced before the Assessing Officer as well as before the CIT(A). The said e-mail was addressed to B M Garg by stating initial B M. Also it is clearly mentioned that the parties in the US was communicating for the new business and for new products and range development with Shri Rakesh Jindal who was representing Garg Industries. These documents were though on record not taken into cognizance by both the Revenue authorities. Thus, the travel expenses as related to Rakesh Jindal amounting to ₹ 6,56,593/- has to be considered as the expenses towers the business expansion. TDS u/s 194C - trade fair expenses - obligation to deduct TDS - amount below the threshold limit of TDS specified - Held that - Hon ble Delhi High Court in case of CIT Vs. DLF Commercial Project Corporation (2015 (7) TMI 576 - DELHI HIGH COURT) wherein it has been held that obligation to deduct TDS is only with respect to income as amounts paid as reimbursement of expenses do not have the character of income. In-fact, the effective amount paid towards handling charges was only ₹ 4,477/- including taxes which is much below the threshold limit of TDS specified in Section 194C of the Act. Therefore, the Ld. AR s contention that this amount was not liable to TDS and no disallowance under Section 40(a)(ia) can be made is accepted. Disallowance of certification fees over a period of 5 years - Held that - CIT(A) s finding that the CC Certification was valid for 5 years but in the manner which the CIT(A) has directed to allow 20% of the said expenses in each of the 5 years by stating that the expenses are revenue in nature is not proper. If it is Revenue expense then the same should be allowed in full in the year of incurrence even though it provides long term benefit. Once, it is stated that it is a Revenue expenditure the assessee is entitled for the said claim. Therefore, the same is allowable in full in this year even though certification has been provided for 5 years. Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Disallowance of interest on negative balance of the capital account.
2. Disallowance of foreign travel expenses.
3. Disallowance under section 40(a)(ia) for trade fair expenses.
4. Disallowance of certification fees over a period of five years.

Issue-wise Detailed Analysis:

1. Disallowance of Interest on Negative Balance of the Capital Account:
The assessee did not press this ground, and thus, it was dismissed. The original dispute involved the CIT(A) confirming the estimated disallowance of interest on the negative balance of the capital account of the assessee in the books of M/s Garg Industries. The CIT(A) had ignored the facts and submissions placed on record to prove that interest-bearing funds were used for business purposes and that various real estate advances were given through personal statements of affairs.

2. Disallowance of Foreign Travel Expenses:
The CIT(A) disallowed ?17,29,436/- for foreign travel expenses incurred towards trips to the UK and USA. The assessee argued that the travel expenses were for business purposes, providing qualifications and responsibilities of the traveling individuals. The CIT(A) allowed some expenses but disallowed others, citing a lack of direct business connection. The tribunal found that the evidence, including emails and documentation, supported the business purpose of the travels. Thus, the tribunal allowed the travel expenses incurred by Rakesh Jindal to the USA, amounting to ?6,56,593/-, recognizing them as business expansion expenses.

3. Disallowance under Section 40(a)(ia) for Trade Fair Expenses:
The Assessing Officer disallowed ?78,075/- paid to M/s R.E. Rogers India (P) Ltd. without TDS deduction, considering it liable under section 40(a)(ia). The CIT(A) upheld this disallowance. The assessee argued that the amount included reimbursement of air freight charges and other expenses, which do not constitute handling charges and are not liable to TDS. The tribunal accepted this argument, citing the Delhi High Court's judgment in CIT Vs. DLF Commercial Project Corporation, which held that TDS is only required for income, not reimbursements. Thus, the tribunal deleted the disallowance.

4. Disallowance of Certification Fees Over a Period of Five Years:
The CIT(A) held that certification fees of ?10,56,925/- for CE certification, valid for five years, should be spread over five years, allowing 20% per year. The assessee contended that the expense is revenue in nature and should be allowed in full in the year of incurrence. The tribunal agreed, stating that if an expense is deemed revenue, it should be fully deductible in the year it is incurred, even if it provides long-term benefits. Thus, the tribunal allowed the entire expense of ?10,56,925/- in the year it was incurred.

Conclusion:
The tribunal allowed the appeal of the assessee, overturning the disallowances made by the CIT(A) regarding foreign travel expenses, trade fair expenses, and certification fees. The decision emphasized the importance of recognizing genuine business expenses and adhering to legal principles regarding the nature of expenses and TDS obligations.