2018 (1) TMI 447 - AT - Income Tax

Disallowance of the foreign expenses - Held that - We have deliberated on the aforesaid claim of the assessee that in the backdrop of the observations of Tribunal in the assesses own case for A.Y(s). 2007-08 to 2009-10, the disallowance out of foreign travelling expenses for the year under consideration may also be restricted to 10% of Other expenses . We are of the considered view that in the backdrop of the very fact that the disallowance out of foreign travelling expenses in the preceding years, AY s 2007-08 to 2009-10, as claimed by the assessee, was restricted by the CIT(A) to 10% of the Other expenses , which order of the CIT(A) had thereafter been affirmed by the Tribunal, therefore, going by the rule of consistency in all fairness restrict the disallowance of the foreign expenses for the year under consideration on the same footing to 10% of the Other expenses for the year under consideration. The Ground of Appeal No. 1 is allowed. Disallowance in respect of the motor car expenses - Held that - We find from the records that the assessee had not maintained any log book in respect of the motor cars, as a result whereof the lower authorities had rightly concluded that the element of personal usage of the motor cars cannot be ruled out. We find that the CIT(A) after recording the aforesaid observations had relied on the order passed by his predecessor in the assesses own case for the earlier assessment years, wherein under similar facts a disallowance to the said extent was made in the hands of the assessee. We further find that as observed by the CIT(A), the orders of his predecessor for the earlier assessment years had been upheld in respect of the issue under consideration by the Tribunal. We are of the considered view that as neither any material had been brought to our notice which would persuade us to observe that the observations of the CIT(A) are perverse or incorrect, therefore, find no reason to dislodge the same. We thus in the terms of our aforesaid observations uphold the sustaining of the disallowance of expenses pertaining to motor car usage of ₹ 5,30,432/- by the CIT(A). The Ground of Appeal No. 2 raised by the assessee is dismissed.

Summary

Issues Involved:
1. Disallowance of 20% out of Hotel & other Expenses included in foreign travel expenses.
2. Disallowance of motor car expenses.

Issue-wise Detailed Analysis:

1. Disallowance of 20% out of Hotel & other Expenses included in foreign travel expenses:
The assessee, engaged in the business of manufacture, trading, and export of ladies designer wear garments, claimed a deduction of ?92,69,949/- on account of foreign travelling expenses. The Assessing Officer (A.O) disallowed 1/3rd of these expenses, amounting to ?30,89,983/-, based on similar disallowances in preceding years (A.Ys 2007-08 to 2010-11), asserting that the expenses were not wholly related to the business. The CIT(A) reduced this disallowance to 20% of the expenses booked under "Hotel and other expenses" (?39,79,935/-), amounting to ?7,95,987/-, due to lack of supporting bills and invoices, and the inclusion of non-business-related expenses like samples and gifts.

The assessee contended that the facts for A.Y. 2011-12 were different from A.Y. 2006-07 and should follow the ITAT decision for A.Ys 2007-08 to 2009-10, where only 10% of "Other Expenses" were disallowed. The Tribunal agreed with the assessee, emphasizing consistency and fairness, and restricted the disallowance to 10% of "Other Expenses" for the year under consideration.

2. Disallowance of motor car expenses:
The A.O disallowed 20% of motor car expenses (?1,48,542/-), proportionate depreciation (?2,89,017/-), and interest on car loan (?92,873/-), totaling ?5,30,432/-, due to the absence of a log book to verify exclusive business use. The CIT(A) upheld this disallowance, noting the personal use element could not be ruled out, and similar disallowances in earlier years were affirmed by the Tribunal.

The assessee argued that all motor car expenses were incurred wholly for business purposes and should not be disallowed. However, the Tribunal found no merit in this claim, given the lack of a log book and upheld the CIT(A)'s decision, affirming the disallowance of ?5,30,432/-.

Conclusion:
- The appeal regarding the disallowance of foreign travel expenses was partly allowed, reducing the disallowance to 10% of "Other Expenses".
- The appeal concerning the disallowance of motor car expenses was dismissed, upholding the disallowance of ?5,30,432/-.

Order Pronounced:
The appeal of the assessee is partly allowed, as per the detailed analysis above. The order was pronounced in the open court on 20.12.2017.