2018 (3) TMI 1567 - AT - Income Tax

Nature of expenditure - permit fee paid - revenue or capital expenditure - Held that - When the business is established and is ready to commence business, then it can be said of that business that is already set up. The words ready to commence would not necessarily mean that all the integrated activities are fully carried out and/or wholly completed. This requirement is also complied with in this case where the assessee has already commenced business and it is going on and the impugned expenditure was incurred in connection with Vellayambalam project for getting approval from the Municipal Corporation and it cannot be said that the expenditure was incurred before the commencement of business or it cannot be disallowed on the pretext that the assessee has not offered income from Vellayambalam project in respect of which the expenditure was incurred. The impugned expenditure was incurred by the assessee after setting up of business and it is to be revenue expenditure. - Decided in favour of the assessee Disallowance being 1/5th of expenses relating to foreign travel as having incurred for personal purposes - Held that - In this case though the assessee has claimed an expenditure towards foreign travel expenditure undertaken by the Directors the assessee has not produced details of the work carried out by the Directors at various countries. The assessee has only filed details of flight tickets in support of the claim of that expenditure. Unless the assessee submitted the details of the names of the clients or customers with whom the Directors held talks and the number of days spend therein, it is not possible to hold that the entire expenditure claimed by the assessee is wholly and exclusively for the purpose of the business of the assessee. It was necessary for the assessee to furnish details of the work carried out by the Directors at abroad in connection with the business of the assessee. Hence, the Assessing Officer is justified in disallowing a part of the expenditure as personal in nature. - Decided against assessee.

Summary

Issues Involved:
1. Addition of permit fee as capital expenditure.
2. Disallowance of expenses relating to foreign travel for personal purposes.

Issue 1: Addition of Permit Fee as Capital Expenditure:
The appeal was against the CIT(A)'s order disallowing a permit fee of ?14,18,410 as a capital expenditure for a project at Vellayambalam. The Assessing Officer and CIT(A) held that the payment was for enduring benefits and not statutory, thus not deductible under section 43B. The CIT(A) reasoned that the fee was for future benefits, not tax or duty. The Tribunal disagreed, stating that the fee was a business expenditure as the project was ongoing. It cited precedents and ruled in favor of the assessee, emphasizing that the expenditure was incurred after the business was set up and was revenue in nature.

Issue 2: Disallowance of Expenses for Foreign Travel:
The second ground involved disallowance of ?4,72,232 for personal elements in foreign travel expenses. The CIT(A) upheld the disallowance, noting that the assessee failed to prove the expenses were solely for business. The Tribunal agreed, stating that without details of work done abroad, the expenditure could not be deemed wholly for business. Citing relevant judgments, the Tribunal confirmed the disallowance, rejecting the argument that personal expenditure cannot be attributed to a company. The appeal on this ground was dismissed.

In conclusion, the Tribunal partially allowed the appeal, ruling in favor of the assessee on the permit fee issue but confirming the disallowance of expenses related to foreign travel for personal purposes. The judgment highlighted the distinction between capital and revenue expenditures and emphasized the necessity of proving business-related expenses for deduction purposes.