2006 (9) TMI 218 - AT - Income Tax

Summary

Issues Involved:
1. Use of property for business purposes.
2. Disallowance of foreign travel expenses.
3. Disallowance of consultancy expenses.

Issue-wise Detailed Analysis:

1. Use of Property for Business Purposes:
The Revenue contested the CIT(A)'s decision that 2/3rd of the property at 45-A, Friends Colony (East), New Delhi was used for business purposes. The AO found that the property was used as a residence by the assessee and his family, based on a local inquiry and an Inspector's report. The CIT(A) reversed the AO's decision, citing the Department's acceptance of 2/3rd business use in previous years. The Tribunal noted that the principle of res judicata does not apply to income tax matters, and each year must be assessed independently. The Tribunal found that the CIT(A) did not properly address the AO's findings and the Inspector's report. Consequently, the Tribunal set aside the CIT(A)'s order and remanded the issue back to the CIT(A) to obtain a remand report on the actual use of the property during the relevant period and to provide a specific finding on the matter.

2. Disallowance of Foreign Travel Expenses:
The AO disallowed Rs. 5,40,754 out of the total foreign travel expenses of Rs. 7,81,015, as the assessee did not furnish documentary evidence for the business purpose of the trips. The CIT(A) reduced the disallowance to Rs. 2,70,377, considering that the assessee had already added back Rs. 2,40,261 for family members' airfares and had withdrawn $4000 for personal expenses. The Tribunal upheld the CIT(A)'s decision, noting that the partial disallowance served the Revenue's purpose and that the CIT(A) had reasonably considered the business needs and the disallowance shown by the assessee.

3. Disallowance of Consultancy Expenses:
The AO disallowed Rs. 7,37,000 claimed as consultancy expenses, as the assessee failed to provide evidence of services rendered by M/s Hi Tech Engineering. The CIT(A) deleted the disallowance, accepting a copy of the agreement provided by the assessee, which described the scope of services and noted that proper TDS had been made. The Tribunal found that the CIT(A) did not follow the provisions of Rule 46A by not giving the AO an opportunity to examine the agreement. The Tribunal restored the issue to the AO for a fresh decision, directing the assessee to furnish the agreement and related documents to justify the consultancy payment.

Conclusion:
The Tribunal allowed the Revenue's appeal for statistical purposes, remanding the issues regarding the use of property for business purposes and consultancy expenses back to the CIT(A) and AO, respectively, for further examination and specific findings. The Tribunal upheld the CIT(A)'s decision on the partial disallowance of foreign travel expenses.