2019 (12) TMI 664 - AT - Income Tax

Disallowance in respect of business promotion expenses debited to Profit and Loss Account - AO has disallowed the said expenditure during year solely based on a letter from Taj Palace Hotel in which pre-wedding function is noted whereas the fact on record suggest that there was no wedding ceremony took place in the family of the assessee during the year and it was happened only in the years 2004 and 2014 - HELD THAT - Function was organized for lunch only and the expenditure incurred does not suggest any expenditure on account of DJ Flower decoration stage etc. suggesting that there was any marriage function organized in the family. Further the invoice of Taj Palace Hotel issued and banquette challans does not mention any pre-wedding functions. Further if there had been wedding in family the other expenses on various transactions could have reflected in capital account of the assessee. Therefore these circumstantial evidences lead to infer that the expenditure was in the nature of business promotion only hence such disallowance made by the AO is without corroborating evidences and without cross examining the parties hence same are deleted. With regards to 1/5th of the disallowance of remaining expenses we find that the AO has pointed out that some of the expenditure were incurred for personal travelling and are in the nature of personal therefore the nature of expenditure is such in which personal element cannot be ruled out. Therefore we are of the considered opinion that AO was justified in making disallowance of the remaining expenses @1/5th accordingly the disallowance of 2, 02, 993/- confirmed. This ground of appeal is partly allowed. Disallowance of Travelling Expenses being 1/4th of the total travelling expenses on account of personal element - HELD THAT - We are of the view that the AO has cited some instances of Air Tickets which are definitely personal in nature. It is further seen that the various family members have travelled in India which are not for the purpose of business therefore considering the totality of the facts we are of the considered opinion that disallowances restricted to 1/5th of the total expenses by the ld.CIT(A) are appears to be reasonable hence this ground of appeal of the assessee is dismissed. Disallowance of vehicle expenses - HELD THAT - AO disallowed 1/5th of the said amount and worked out the disallowance of 2, 41, 061/-. The ld.CIT(A) has also restricted the disallowances to 1/5th of the vehicle expenses. However before us that the ld.Counsel has argued that the disallowance on account of personal element in respect of car depreciation is not justified and against the Law. We find this argument of the ld.Counsel is valid therefore 1/5the of the disallowances attributable to car depreciation of 8, 33, 187/- are deleted. The AO is directed to recalculate the disallowance accordingly out of vehicle expense. Remaining disallowances @1/5th restricted by ld.CIT(A) are upheld accordingly this ground of appeal is therefore partly allowed. Rate difference on cancellation of contract of purchase of goods - HELD THAT - Transaction could be effected by orgal agreement which not prohibited by law. Since the Om Exim is a unit of M/s.Ram Kishore Chemical Co. therefore non-appearing the name of Om Exim is of no consequence. The evidences filed by the assessee in the form of debit notes confirmation bank accounts and payments has not been refuted by the AO. In view of these facts we are of the considered opinion that the assessee has incurred a business loss hence same is allowable as business expenditure accordingly the disallowance / additions made by the AO are therefore deleted.

Issues Involved:
1. Disallowance of business promotion expenses.
2. Disallowance of traveling expenses.
3. Disallowance of vehicle expenses.
4. Addition due to rate difference on cancellation of contract for purchase of goods.

Issue-wise Detailed Analysis:

1. Disallowance of Business Promotion Expenses:
The assessee claimed ?23,64,969/- under business promotion expenses, including ?13,35,653/- for a business conference at Taj Palace Hotel. The AO disallowed ?13,50,000/- as it was deemed a pre-wedding lunch, not a business event. The remaining ?10,14,969/- was partially disallowed (1/5th) for personal use, totaling a disallowance of ?15,52,993/-.

Upon appeal, the CIT(A) upheld the AO's decision, citing the improbability of 500 business delegates and the personal nature of the event. The Tribunal, however, found that the assessee regularly organized business conferences and there was no wedding in the family in the relevant period. The Tribunal concluded that the expenditure was for business promotion and deleted the disallowance of ?13,50,000/-. However, the 1/5th disallowance of the remaining expenses was upheld due to the personal element involved.

2. Disallowance of Traveling Expenses:
The assessee claimed ?12,48,556/- as traveling expenses. The AO disallowed 1/4th of this amount, citing personal travel expenses of family members totaling ?38,379/-. The CIT(A) reduced the disallowance to 1/5th.

The Tribunal upheld the CIT(A)'s decision, noting specific instances of personal travel and agreeing that 1/5th disallowance was reasonable.

3. Disallowance of Vehicle Expenses:
The assessee incurred ?12,05,304/- in vehicle expenses, including ?8,33,187/- for car depreciation. The AO disallowed 1/5th of the total expenses. The CIT(A) upheld this disallowance.

The Tribunal agreed with the disallowance of 1/5th of vehicle expenses but excluded car depreciation from this calculation, directing the AO to recalculate the disallowance accordingly.

4. Addition Due to Rate Difference on Cancellation of Contract:
The assessee claimed ?19,92,557/- as a rate difference due to the cancellation of a purchase contract. The AO disallowed this, treating it as speculative and unsupported by evidence. The CIT(A) upheld the AO's decision, citing a lack of primary evidence and logical explanation.

The Tribunal found that the assessee provided sufficient evidence, including debit notes, bank statements, and confirmations from suppliers. The Tribunal concluded that the loss was a business expense and allowed the claim, deleting the disallowance.

Conclusion:
The appeal was partly allowed, with the Tribunal providing relief on the disallowance of business promotion expenses and the addition due to rate difference, while upholding the disallowances related to traveling and vehicle expenses, subject to recalculations.

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