2018 (12) TMI 409 - HC - Income Tax

Adhoc disallowance of business promotion and dress and costume expenses - allowable business expenditure u/s 37 - Held that - Requirement of Section 37 is that the expenditure should be wholly and exclusively laid out and expended for the purpose of business. Merely because payments were made through credit card would not show that the expenditure was wholly and fully for the purpose of business. This contention was rightly rejected by the assessing officer as nature and object of the outgoing has to be also examined. Word wholly refers to quantum of expenditure and word exclusively refers to motive object and purpose of the expenditure. Personal expenses or money spend for private purpose is not deductible. They fail the business expediency test. Further whether the expenditure was incurred wholly and fully for the purpose of business has to be established and proven by the assessee. These facts are within the exclusive knowledge of the assessee and therefore he is under an obligation to place all facts and circumstances before the authorities. The appellant-assessee had failed and did not produce material and documents to show that the expenditure under the aforesaid heads was incurred wholly exclusively for the purpose of business. The findings of the Assessing Officer affirmed in the appeals are factual. Nothing has been placed before us to show that these findings are perverse and contrary evidence and material on record. No substantial question of law therefore arises on account of ad-hoc disallowance of expenses under the head business promotion and dress and costume expenses. - decided against assessee.

Summary

Issues:
1. Disallowance of business promotion and dress expenses for assessment years 2007-08 and 2008-09.
2. Disallowance of higher education expenses and tour/travel expenses for the appellant's son.

Issue 1: Disallowance of business promotion and dress expenses:
The appellant contested the 50% adhoc disallowance of expenses for business promotion and dress/costume for the assessment years 2007-08 and 2008-09. The Assessing Officer raised concerns about the lack of bills and vouchers for the expenses incurred through credit cards. The appellant argued that credit card statements should suffice as evidence, but the Assessing Officer emphasized the need for detailed proof under Section 37(1) of the Income Tax Act, 1961. The Assessing Officer referred to various court cases to support the requirement of substantiating expenditure claims. The Tribunal upheld the disallowance due to insufficient evidence provided by the appellant.

Issue 2: Disallowance of higher education and tour/travel expenses:
The Assessing Officer disallowed the deduction claimed by the appellant for expenses related to his son's higher education and tour/travel. The officer concluded that these expenses were not wholly and exclusively for business purposes, as they were incurred by the father for his son's education. The appellant failed to provide sufficient evidence to justify these expenses. The appellant later mentioned an affidavit by his son, but as it was not submitted during the assessment proceedings, it was not considered. The appellant sought to present additional documents before the Tribunal, but the case was dismissed as withdrawn, with the option to file a new appeal after addressing procedural matters.

In conclusion, the High Court upheld the disallowances of various expenses due to insufficient evidence and failure to prove that the expenditures were wholly and exclusively for business purposes. The judgments emphasized the importance of providing detailed documentation to support expense claims under the Income Tax Act.