2003 (6) TMI 182 - AT - Income Tax

Summary

Issues:
1. Disallowance of travelling and conveyance expenses claimed by the assessee for foreign tours.
2. Disallowance of the refunded amount by partners as a deduction.

Analysis:
1. The Assessing Officer disallowed a portion of the travelling and conveyance expenses claimed by the assessee for foreign tours to the U.S.A. and European countries. The disallowance was based on the grounds that certain expenses were not incurred for business purposes and lacked supporting evidence. The CIT (Appeals) modified the quantum of disallowances but upheld the disallowance of the refunded amount by partners. The assessee contended that the refund was made after the relevant previous year and should not be considered as income for that year. The learned counsel argued that the refund was accounted for in the subsequent year as per the cash system of accounting followed by the firm. However, the Tribunal held that the deduction of an expenditure depends on whether it was actually incurred during the relevant previous year, regardless of the accounting method. As the unspent amount was never used for travelling expenses, it was not allowed as a deduction, leading to the dismissal of the appeal.

2. The Tribunal emphasized that the crucial test for deductibility of an expenditure is whether it was actually incurred during the relevant previous year. In this case, the unspent amount refunded by the partner was considered as travelling advance and not as travelling expenses. The Tribunal noted that the firm was aware of this fact before filing the return of income, indicating that the amount was never spent on travelling expenses. Therefore, irrespective of the accounting method employed, the unspent amount could not be allowed as a deduction. The appeal was dismissed accordingly, upholding the disallowance of the refunded amount by partners as a deduction in computing the taxable income of the assessee-firm for the relevant assessment year.