1981 (3) TMI 108 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of Foreign Tour Expenses
2. Penalty under Section 271(1)(c) of the Income Tax Act

Detailed Analysis:

1. Disallowance of Foreign Tour Expenses:

First Foreign Tour:

The assessee, M/s. Hazarimal Milapchand Soorana, incurred Rs. 18,860.70 for a foreign tour undertaken by its Managing Partner, Mr. Mannalal Soorana, and his wife. The Income Tax Officer (ITO) disallowed Rs. 6,502, noting that the tour was primarily for medical purposes, allowing only 1/4th of the expenses for business purposes. This decision was upheld by the Appellate Assistant Commissioner (AAC) and the Tribunal, which noted that half of the expenditure was for Mrs. B.D. Surana, and the tour was mainly for medical purposes.

Second Foreign Tour:

The second tour involved an expenditure of Rs. 19,240, with 1/4th disallowed by the ITO, as Mr. Mannalal Soorana's daughter accompanied him for medical treatment. The AAC and the Tribunal upheld this disallowance, noting that part of the expenditure was for non-business purposes.

2. Penalty under Section 271(1)(c) of the Income Tax Act:

The ITO initiated penalty proceedings under Section 271(1)(c) for furnishing inaccurate particulars of income, asserting that the expenses claimed included personal expenses of the Managing Partner and his relatives. The CIT(A) upheld the penalty, noting that the circumstances and documentary evidence indicated the visits were for medical treatment, and the provisions of Section 37(1) were clear.

Assessee's Argument:

The assessee argued that the expenses were claimed under a bona fide belief that they were allowable under law, citing the Bombay High Court decision in Mehboob Production Pvt. Ltd. vs. CIT, which allowed similar expenses for a Managing Director's medical treatment. The assessee maintained that the Managing Partner's fitness was crucial for the business, justifying the expenses on commercial expediency grounds.

Tribunal's Findings:

The Tribunal found that the first tour was for Mr. Mannalal Soorana's medical treatment, with his wife accompanying him as an attendant. Only $300 were released for her expenses, and $700 for his treatment. The Tribunal agreed that the entire expenditure could be considered on commercial expediency grounds.

For the second tour, the Tribunal noted that Mr. Mannalal Soorana went for business purposes, with no extra expenditure incurred for his extended stay due to his daughter's treatment. The Tribunal concluded that the assessee had a bona fide belief that these expenses were allowable.

Conclusion:

The Tribunal held that the assessee was under a bona fide belief regarding the allowability of the foreign tour expenses and that the Explanation to Section 271(1)(c) was not attracted. The penalty under Section 271(1)(c) was not exigible, citing Supreme Court decisions in Hindustan Steel Ltd., Anwar Ali, and Khoday Eswarsa & Sons. The appeal by the assessee was allowed.