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Issues involved: Disallowance of travelling expenses u/s 37(3) and rule 6D of the Income-tax Act, 1961 for the assessment year 1978-79.
Summary: The appeal was filed by the assessee against the Commissioner (Appeals) order regarding the disallowance of a sum of Rs. 3,393 out of the travelling expenses of Rs. 9,933 incurred during the relevant previous year. The dispute arose from the excess payments in relation to the amounts laid down u/r 6D of the Income-tax Rules, 1962, read with section 37(3) of the Income-tax Act, 1961. The ITO allowed only Rs. 2,000 and disallowed the balance of Rs. 5,458. The Commissioner (Appeals) confirmed the disallowance of Rs. 3,393 pertaining to seven out of the eight tours listed by the ITO. The main argument was whether the assessee, as a sole proprietor, falls under the purview of 'any other person' in section 37(3). The assessee contended that section 37(3) does not apply to self-incurred travelling expenses and argued that the provision is limited to 'employees or any other persons' excluding the assessee. The department representative supported the order of the Commissioner (Appeals) stating that the section applies to all persons, including the assessee, to prevent tax evasion through excessive travelling expenses debited to the business. The Tribunal considered both arguments and found that while the main argument of the assessee lacked merit, the alternative contention regarding the application of rule 6D to all tours made during the previous year had force. The Tribunal rejected the assessee's main argument, holding that the assessee falls under the phrase 'any other person' in section 37(3) and upheld the disallowance. However, the Tribunal accepted the alternative contention, directing the ITO to verify if the excess expenditure calculated for all tours combined comes to Rs. 503 as claimed by the assessee. If confirmed, the disallowance should be restricted to Rs. 503 only, modifying the assessment accordingly and providing an opportunity for the assessee to be heard. In conclusion, the appeal was partly allowed, with the Tribunal ruling in favor of the department on the main argument but in favor of the assessee on the alternative contention regarding the consolidation of all tours for determining excess expenditure under rule 6D.
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