2012 (12) TMI 664 - AT - Income Tax

Prior period of expenses - the expenditure incurred by the employees of the assessee on account of travel which are of very petty sums. Once the employees have submitted their bills to the assessee company, the same has to be reimbursed. Insofar as the assessee is concerned, as and when the bills were submitted, payments have been made and has been claimed as business expenditure. - held that - Looking to the fact that the assessee has a substantial turnover, such reimbursement of expenditure cannot be disallowed simply on the ground that travelling by the employees have been undertaken in the earlier years and bills by them are submitted in this year. - Since they are directly related to business of the assessee, the same has to be allowed. - Decided in favor of assessee. Foreign travel expenditure - business purposes - AO disallowed the claim of expenditure holding that the expenditure incurred is not for business purpose as the assessee has no business transactions i.e., sale or purchase with these countries. - held that - The assessee, being a global company, which has business interest all over the world, such kind of business trip by senior officials cannot be disallowed simply on the reason that the assessee does not have direct transactions of sale or purchase from such countries. Such a myopic perception cannot be upheld in this era, as there can be several reasons in relation to the business. The term wholly and exclusively for the business purpose has a very wide meaning and the assessee s perception as to what is the business purpose has to be given importance. The only requirement is that the assessee has to prove that such expenditures are genuine and for its business purposes. - Decided in favor of assessee. Advertisement expenses - The Assessing Officer disallowed the claim of the assessee on the ground that the services have been rendered in earlier years and, therefore, the same cannot be allowed in this year even if the bills have been raised by these parties in this year. - held that - Since both the authorities have not examined this issue properly, matter remanded back. Ad-hoc disallowance of expenses - held that - It is now a settled proposition of law that the Appellate Tribunal under section 254(1) of the Act, had no power to take back the benefit conferred by the Assessing Officer or enhance the assessment. Once the matter has been restored by the Tribunal, the income cannot be enhanced from what was determined at the time of original assessment proceedings, which was the subject matter of dispute before the Tribunal. - the enhancement of assessment by making 100% disallowance in respect of free food allowance cannot be sustained and the same is restricted to 50%, as was made by the Assessing Officer in the original round of proceedings. - Decided in favor of assessee.

Issues Involved:
1. Disallowance of traveling expenses as prior period expenses.
2. Disallowance of foreign travel expenditure.
3. Disallowance of advertisement expenses.
4. Disallowance of free food allowance.
5. Alternative claims for disallowed expenses in respective assessment years.

Detailed Analysis:

1. Disallowance of Traveling Expenses as Prior Period Expenses:
The assessee challenged the disallowance of traveling expenses considered as prior period expenses. The Assessing Officer disallowed these expenses on the grounds that they related to a prior period, even though the genuineness of the expenditure was not in doubt. The Commissioner (Appeals) upheld this disallowance, stating the liability for these expenses did not crystallize during the year under appeal.

Tribunal's Decision: The Tribunal noted that these expenses were petty sums incurred by employees and reimbursed upon bill submission. Given the substantial turnover of the assessee, such reimbursements should not be disallowed merely because the travel occurred in earlier years. The Tribunal set aside the order of the Commissioner (Appeals) and allowed the expenses.

2. Disallowance of Foreign Travel Expenditure:
The assessee contested the disallowance of Rs. 23,01,621 for foreign travel expenses. The Assessing Officer disallowed these expenses, arguing they were not for business purposes as the assessee had no business transactions with the countries visited. The Commissioner (Appeals) confirmed this disallowance.

Tribunal's Decision: The Tribunal found that the foreign trips undertaken by senior officials were for business purposes, as evidenced by the details submitted. The assessee, being a global company, justified these trips as part of business strategy discussions. The Tribunal emphasized that the term "wholly and exclusively for the business purpose" has a wide meaning and should be interpreted from the assessee's perspective. The Tribunal set aside the disallowance and allowed the expenses.

3. Disallowance of Advertisement Expenses:
The assessee challenged the disallowance of Rs. 1,19,30,783 for advertisement expenses paid to Hindustan Thomson Associates. The Assessing Officer disallowed these expenses, stating they related to services rendered in earlier years. The Commissioner (Appeals) upheld this disallowance, noting the assessee followed a mercantile system of accounting.

Tribunal's Decision: The Tribunal observed that most bills were dated within the current assessment year, and some bills dated March 2002 were received and paid in the current year. The Tribunal set aside the order of the Commissioner (Appeals) and remanded the matter to the Assessing Officer for re-examination, directing him to consider the details and decide afresh.

4. Disallowance of Free Food Allowance:
The assessee contested the disallowance of Rs. 39,47,212 for free food allowance. In the first round, the Assessing Officer made a 50% ad-hoc disallowance, which the Commissioner (Appeals) reduced to 25%. Upon remand, the Assessing Officer disallowed 100% of the expenses, claiming double deduction, which the Commissioner (Appeals) confirmed.

Tribunal's Decision: The Tribunal held that the income could not be enhanced beyond the original assessment once the matter was remanded. Citing Supreme Court judgments, the Tribunal restricted the disallowance to 50%, as initially made by the Assessing Officer, and allowed the ground to this extent.

5. Alternative Claims for Disallowed Expenses:
The assessee made alternative claims for disallowed expenses to be allowed in the respective assessment years if not allowed in the current year.

Tribunal's Decision: Given the findings on the primary grounds, the alternative claims were rendered infructuous and dismissed accordingly.

Conclusion:
The Tribunal allowed the appeals partly, setting aside some disallowances and remanding certain issues for re-examination. The decisions emphasized the importance of considering the business context and genuine nature of expenses while adhering to legal precedents on reassessment and enhancement limitations.

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