2021 (4) TMI 465 - HC - Income Tax

Disallowance on account of expenditure incurred and claimed on foreign travel u/s 37 by the employee few the firm - HELD THAT - It is pertinent to note that in the Assessment Order, M/s.Shoetek Agencies is the assessee's proprietary concern and is engaged in the business of leather and leather products. In the Assessment Order, though the assessee contended that Mrs. Swetha Reddy went aboard in the capacity of Marketing Executive, he has not produced any document to prove that her visit was exclusively for business purpose. AO observed that since Mrs. Swetha Reddy had accompanied the assessee on several occasions , the element of personal tour cannot be denied. When the assessee is contending that Mrs. Swetha Reddy was an employee of the firm, he should have produced sufficient documents to establish the said contention. Further it is not the case of the assessee that there is perversity in the order passed by the Income Tax Appellate Tribunal, Commissioner of Income Tax(Appeals) and in the order of the Assessing Officer. No substantial question of law.

Summary

Issues:
Challenge to disallowance of foreign travel expenses for an employee and the appellant under section 37 of the Income Tax Act.

Analysis:
1. The appellant challenged the disallowance of foreign travel expenses incurred for an alleged employee and the appellant. The Assessing Officer disallowed the expenses based on the assumption of personal expenditure due to the relationship between the appellant and the individual.

2. The appellant contended that all foreign visits were for business marketing purposes and the expenses were allowable under section 37 of the Income Tax Act. However, both the Assessing Officer and the Commissioner of Income Tax disallowed the claims under section 37(1) along with other additions.

3. The appellant appealed to the Income Tax Appellate Tribunal, which confirmed the disallowances made by the lower authorities and dismissed the appeal. The substantial questions of law admitted for appeal focused on the correctness of the disallowances and the restriction of claimed expenses.

4. The appellant argued that relevant details regarding the alleged employee's employment status were provided, but the authorities did not consider them. The appellant asserted that the documents should have been accepted to support the claim.

5. The respondent countered by stating that the appellant failed to provide adequate proof of the alleged employee's employment status. The respondent argued that no substantial question of law was raised regarding the non-consideration of documents by the authorities.

6. The Tribunal found that the evidence presented was insufficient to establish the alleged employee's status, noting that crucial details were not provided to prove employment. The burden of proof regarding the employment status rested on the appellant, which was not adequately discharged.

7. The Assessing Officer observed that the appellant did not provide conclusive evidence that the alleged employee's foreign travel was solely for business purposes. The lack of documentation supporting the business purpose of the trips led to the disallowance of expenses.

8. The Court upheld the decision of the lower authorities, emphasizing the appellant's failure to provide substantial evidence supporting the employment status and business purpose of the foreign travel. The Court found no grounds or substantial questions of law to interfere with the Tribunal's decision, dismissing the Tax Case Appeal.