2025 (2) TMI 608 - AT - Income Tax

Disallowance of 25% of travelling expenses - taking into account past history of the expenses and in consonance with the business acquired by the assessee from the foreign parties - HELD THAT - It is pertinent to note that from the perusal of the records it can be seen that the CIT(A) has disallowed 25% of the confirmed total expenses after taking into account past history of the expenses and in consonance with the business acquired by the assessee from the foreign parties. Therefore the disallowance out of travelling expenses made by the AO and the 25% confirmed by the CIT(A) is accordingly sustained. Disallowance u/s 40(a)(ia) - reimbursement of expenses - assessee made TDS in respect of agency charges but being reimbursement has not made any TDS on such parties relying upon various judicial pronouncements CBDT Circular No.715 dated 08.08.1995 - HELD THAT - The assessee had availed services of clearing and forwarding agency for clearing of its goods from Customs and had to make payment of agency charges to the C F Agent. Assessee also made payment of reimbursement of expenses incurred by C F agency on behalf of the assessee like Freight Charges Transportation charges Customs duty etc. on actual basis. AR rightly relied upon the decision of Consumer Marketing (India) (P.) Ltd 2015 (11) TMI 124 - GUJARAT HIGH COURT . Therefore the CIT(A) was not right in disallowing the same. Appeal of the assessee is partly allowed.

Summary

The appeal in this case was filed by the Assessee against an order dated 21.05.2024 by the CIT(A), National Faceless Appeal Centre (NFAC), Delhi for the Assessment Year 2013-14. The Assessee raised grounds of appeal challenging the disallowances in respect of travelling expenses and reimbursement of expenses under Section 40(a)(ia) made by the Assessing Officer (AO). The Assessee is engaged in the trading business of chemicals, seals, stationery items, and other products both locally and internationally.The Assessing Officer disallowed expenses related to travelling and reimbursement of expenses under Section 40(a)(ia) after scrutinizing the Assessee's returns and investments. The disallowances included expenses towards travelling, including foreign trips, and reimbursement of expenses amounting to Rs. 64,41,834 under Section 40(a)(ia) of the Income Tax Act, 1961.The Assessee appealed the Assessment Order before the CIT(A), who partly allowed the appeal. The Assessee contended that the disallowances were unjustified as the expenses were incurred for business purposes. The CIT(A) restricted the disallowance of travelling expenses to 25% but upheld the disallowance under Section 40(a)(ia).During the hearing, the Assessee's representative argued that the travelling expenses were solely for business exigencies, especially related to a significant business transaction with M/s. International Chem Limited in China. The representative provided details and invoices to support the business purpose of the expenses. On the other hand, the Revenue's representative supported the CIT(A)'s decision, emphasizing the reasonableness of the 25% disallowance.The Tribunal observed that the CIT(A) had considered the past history of expenses and the business acquired from foreign parties in determining the disallowance percentage. The Tribunal upheld the 25% disallowance of travelling expenses as confirmed by the CIT(A) based on the records and reasoning provided.Regarding the disallowance under Section 40(a)(ia) related to reimbursement of expenses, the Assessee had made TDS for agency charges but not for reimbursement, citing judicial pronouncements and CBDT Circular No.715 dated 08.08.1995. The Assessee relied on the decision of the Hon'ble Gujarat High Court in a similar case to support the non-disallowance of the reimbursement expenses. The Tribunal agreed with the Assessee's argument and allowed this component of the appeal.In conclusion, the Tribunal partly allowed the appeal of the Assessee, upholding the disallowance of 25% of travelling expenses while allowing the reimbursement expenses under Section 40(a)(ia) based on the judicial pronouncements and circulars cited by the Assessee.