2010 (5) TMI 58 - HC - Income Tax

Foreign traveling expenditure claim of provision made for warranty - The Assessing Officer had disallowed 25% of the foreign travel expense and had also made disallowance with regard to the claim in respect of the provision for warranty made by the Assessing Officer. The disallowance of 25 % was reduced to 10% by the Commissioner of Income Tax (Appeals) in respect of foreign travel expenditure. Ultimately, the Income Tax Appellate Tribunal deleted the entire disallowance. Held that It is clear that the field engineers, who were sent abroad, were actually earning revenue for the company in the form of service charges and the company was earning as much as US 600 per day. The Commissioner of Income Tax (Appeals) thought this to be a ground for reducing the disallowance from 25 % to 10 % which, in the view of the Income Tax Appellate Tribunal, was ground enough for deleting the entire disallowance. Once the assessee company was receiving charges in respect of the field engineers, who had gone abroad, the travel expenses in respect of such field engineers could not have been disallowed. claim of provision made for warranty allowed

Summary

Issues:
1. Disallowance of foreign travel expenses
2. Disallowance of provision for warranty

Analysis:
Issue 1: Disallowance of Foreign Travel Expenses
The Revenue appealed against the disallowance of 25% of foreign travel expenses and the disallowance related to the provision for warranty made by the Assessing Officer. The Commissioner of Income Tax (Appeals) reduced the disallowance of foreign travel expenses to 10%, while upholding the disallowance of the provision for warranty. However, the Income Tax Appellate Tribunal later deleted the entire disallowance. The Tribunal found that the expenditure on foreign travel for employees was justified based on commercial expediency. The Tribunal noted that the field engineers sent abroad were generating revenue for the company through service charges, justifying the travel expenses. The Tribunal concluded that there was no evidence to suggest otherwise, leading to the deletion of the disallowance.

Issue 2: Disallowance of Provision for Warranty
Regarding the provision for warranty, the Tribunal allowed the claim based on the expenditure incurred on meeting warranty claims exceeding the provision made. Citing a judgment of the Delhi High Court, the Tribunal ruled in favor of the assessee, stating that the claim for expenditure through provision for warranty was valid. The High Court found no reason to interfere with this finding, as no substantial question of law arose for consideration. Consequently, the appeal was dismissed, affirming the Tribunal's decision on both issues.

In conclusion, the High Court upheld the Tribunal's decision to delete the disallowance of foreign travel expenses and allowed the claim for provision for warranty, emphasizing the commercial justification and expenditure exceeding the provision, respectively.