2019 (11) TMI 93 - AT - Income Tax

Disallowance out of foreign travel expenses - travelling of directors as incurred on the foreign travel to USA made by Ms Unnati Didwania, daughter of managing director of the assessee company - HELD THAT - The assessee has incurred expenses on travelling of the directors, which included expenses on travel of Ms. Unnnati Didwania to various countries of Europe, Bangkok, Dubai, Singapore, UK and USA etc. AO has disallowed only the expenses related to the USA trip as assessee failed to establish that travel to USA by Ms. Unnati Didwania was wholly and exclusively for the purpose of the business. The assessee failed to file copy of tour report, details of any clients met, details of any seminar/conference or any other documents which could establish that the purpose of the travel was for business. Before the learned CIT(A) also the assessee failed to establish the business purpose of the travel. CIT(A) from the vouchers of foreign exchange purchased by the assessee found that purpose of the travel was private in nature. Onus was on the assessee to establish that the expenditure incurred was for the purpose of the business and in view of the failure on the part of the assessee in discharging its onus, we do not find any error in the order of the CIT(A) on the issue in dispute and accordingly, we uphold the same. The grounds of the assessee in relation to this issue are dismissed. Disallowance of medical expenses incurred on treatment of one of the Director - HELD THAT - Resolution passed in the general body meeting of the company, there is no dispute as the reimbursement of medical expenses was allowed to Sh. G.L. Didwaniya as perquisite and not as commercial expediency. The assessee was required to deduct tax at source on the said amount of perquisite, which was part of the salary as defined under section 17 (2) - No error in the order of the learned CIT(A) on the issue in dispute and accordingly, we uphold the same. The grounds of the appeal of the assessee, related to the issue in dispute are accordingly dismissed.

Summary

Issues Involved:
1. Disallowance of foreign travel expenses.
2. Disallowance of medical expenses incurred on the treatment of a director.

Detailed Analysis:

1. Disallowance of Foreign Travel Expenses:

The primary issue revolves around the disallowance of ?3,21,065/- out of the total foreign travel expenses of ?37,24,282/- incurred by Ms. Unnati Didwania, the daughter of the managing director. The Assessing Officer (AO) questioned the business purpose of the trip to the USA, as the assessee failed to provide documentary evidence such as tour reports, client meeting details, or seminar/conference attendance records. The AO concluded that the trip might have been personal and disallowed the expenses.

The CIT(A) upheld the AO's decision, noting that the purchase of foreign currency under the scheme "PRIWTSIT" indicated a private purpose. The CIT(A) found no evidence to support the claim that the expenses were incurred wholly and exclusively for business purposes.

The Tribunal also upheld the disallowance, agreeing with the lower authorities that the assessee failed to substantiate the business purpose of the travel. The Tribunal emphasized that the onus was on the assessee to prove the business nature of the expenses, which was not met.

2. Disallowance of Medical Expenses:

The second issue pertains to the disallowance of ?18,13,574/- claimed as medical expenses for the treatment of Mr. G.L. Didwania, a director and founder of the company. The AO disallowed the expenses, treating them as perquisites under section 17(2) of the Income Tax Act, 1961, and not as business expenses.

The CIT(A) supported the AO's view, stating that the medical expenses were indeed perquisites and should have been treated as part of the director's salary. The CIT(A) referred to the company's resolution, which allowed medical reimbursement as a perquisite up to ?25,00,000/- per annum. The CIT(A) cited the case of Gururaj Mahuli, which differentiated between general medical expenses and those incurred due to accidents in the course of employment. The CIT(A) concluded that the medical reimbursement was a perquisite and not a business expense.

The Tribunal upheld the CIT(A)'s decision, noting that the medical expenses were approved as perquisites in the company's extraordinary general meeting. The Tribunal emphasized that the expenses were part of the director's remuneration package and should have been subjected to tax deduction at source. The Tribunal found no error in the CIT(A)'s order and dismissed the appeal.

Conclusion:

The Tribunal dismissed the appeal, confirming the disallowance of both the foreign travel expenses and medical expenses. The Tribunal agreed with the lower authorities that the assessee failed to substantiate the business purpose of the foreign travel and that the medical expenses were perquisites, not business expenses. The Tribunal's decision was pronounced on 31st October 2019.