2006 (11) TMI 251 - AT - Income Tax

Summary

Issues involved: Disallowance of foreign travelling expenses u/s 11,69,850 incurred by two employees who are son and daughter-in-law of the assessee.

Details of the Judgment:

Issue 1: Disallowance of expenses by AO and confirmation by CIT(A):
The AO disallowed expenses of Rs. 11,69,850 related to foreign travelling of son and daughter-in-law of the assessee, stating it was not commercially dominated and purely a pleasure trip. CIT(A) upheld the disallowance citing lack of evidence for business purposes and non-utilization of foreign currency for business. The visit was deemed a pleasure trip, and expenses were not considered wholly and exclusively for business.

Issue 2: Assessee's contentions and evidence:
The assessee claimed the expenses were for business purposes to negotiate purchases of imported fabrics, explore markets, and reduce dependence on old suppliers. Detailed explanations were provided, including educational qualifications, language skills, and business justifications for the foreign tour. The assessee submitted evidence of purchases made from new suppliers after the visit, along with vouchers and certificates supporting the purpose of the trip.

Issue 3: Departmental Representative's arguments:
The Departmental Representative contended that the expenses were not for business purposes, emphasizing lack of justification for foreign currency utilization and educational qualifications of the daughter-in-law. The representative argued that the visit was more of a pleasure trip disguised as a business purpose, and bills and vouchers were not produced in a timely manner.

Judgment and Conclusion:
The Tribunal reviewed the submissions and evidence provided by both parties. It noted that the expenses were incurred for business purposes, supported by vouchers, purchases from new suppliers, and negotiations with foreign parties. The daughter-in-law's language skills and contributions to negotiations were acknowledged, and the expenses were deemed allowable. The disallowance of Rs. 11,69,850 was overturned, and the appeal was allowed.