2018 (12) TMI 37 - HC - Income Tax

Claim of deduction u/s. 37 in respect of amounts paid to GVF - whether these amounts were paid on account of commercial expediency and were revenue expenses wholly and exclusively for the purposes of business? - Held that - As seen that two Revenue authorities and the Tribunal concurrently came to the conclusion that Assessee failed to establish the connection between the expenditure and its business activities. We further find that there is nothing on record to suggest that trademark in question had any marketable value and that the Assessee used said trademark for purpose of its products. We are informed that the Assessee is engaged in the business of manufacturing scientific instruments. The issue is purely factual. No question of law arises. Disallowance u/s. 14A r/w Rule 8D - absence of any recorded satisfaction of the assessing officer as to how having regard to the accounts of the assessee the assessee s calculation of disallowance was incorrect? - Held that - Tribunal has also considered this issue in detail and noted that Assessee had made investments in shares which had also yielded considerable amount of tax free dividends. Allotment of small expenditure for earning tax free income therefore would not give rise to any question of law. Claim of expenditure in respect of traveling expenses of customers and consultants - expenditure incurred wholly and exclusively for the purposes of business - addition u/s 37 - Held that - Assessee s claim of expenditure which was incurred for traveling of persons/ customers who are not in the employment of the Assessee. The CIT(A) and the Tribunal examined the material on record and came to the conclusion that same could not have been allowed as a business expenditure. No question of law arise.

Issues:
1. Deduction u/s. 37 for payment to GVF
2. Disallowance u/s. 14A r/w Rule 8D
3. Claim of expenditure for traveling expenses

Issue 1: Deduction u/s. 37 for payment to GVF
The Assessee claimed a deduction under Section 37 of the Income Tax Act for a payment made to Global Vipasana Foundation (GVF). The payment of ?50 lakhs was made to acquire a trademark "Global Pagoda" and for meditational activities/training. The Tribunal rejected the claim, stating that the Assessee failed to establish a connection between the payment and its business activities. The Tribunal found no evidence of the trademark's marketable value or its use in the Assessee's products. The decision was based on factual analysis, and it was concluded that no question of law arose.

Issue 2: Disallowance u/s. 14A r/w Rule 8D
The Assessing Officer disallowed an expenditure of ?2.85 lakhs under Section 14A of the Act due to tax-free dividends earned from investments in shares. The Tribunal upheld this decision, stating that incurring small expenditure for earning tax-free income did not raise any legal question. The Tribunal's detailed consideration led to the conclusion that there was no legal issue in this regard.

Issue 3: Claim of expenditure for traveling expenses
The Assessee claimed an expenditure of ?5.53 lakhs for traveling expenses of non-employee persons/customers. Both the CIT(A) and the Tribunal denied this claim as a business expenditure. It was determined that this expenditure could not be allowed as a business expense, and it was concluded that no legal question arose in this matter.

In conclusion, the High Court upheld the Tribunal's decision, dismissing the Assessee's appeal on all three issues. The judgment emphasized the importance of establishing a clear connection between expenses and business activities to claim deductions. The decision was based on detailed factual analysis by the authorities, and it was determined that no legal questions arose in the issues presented for consideration.

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