2017 (9) TMI 1225 - AT - Income Tax

Disallowance out of travelling expenses - proof of business purposes - Held that - The onus is on the assessee to demonstrate through verifiable and credible evidence that the travel expenditure on foreign trips has been incurred for the purposes of the assessee s business. The matter is accordingly remitted back to the file of the Assessing officer to examine the same afresh as per law after providing appropriate opportunity to the assessee. Sales promotion expenses - AO has disallowed 50% of the total expenses holding that the assessee has not fully justified the incurrence of such expenditure as incidental to business - Held that - If the AO has any apprehension that the expenditure has not been incurred for the purposes of business, he should specify the particular transaction/expenditure and in case, there are repeat transaction/expenditure of similar nature, the AO has to give a specific finding as to why he feels that the expenditure has not been incurred for business purposes. Similarly, no basis has been given by the AO for disallowance of advertisement expenditure of ₹ 77,000 towards advertisement in souvenir. The matter is accordingly remitted back to the file of the Assessing officer to examine the same afresh as per law and give a specific finding after providing appropriate opportunity to the assessee. The ground are thus allowed for statistical purposes. Addition on account of interest income - accrual of income - Held that - There is no dispute that the interest income accrues to the assessee during the year under consideration and as per the accrual method of accounting, the same should have been offered to tax in the instant year. Accordingly, we do not see any infirmity in the action of ld. CIT(A) in confirming the action of the AO in bringing the said interest to tax in the instant year. At the same time, given the fact that the said income has already offered to tax in the subsequent year, the assessee shall be at liberty, if so advised, to revise its return of income or make an appropriate application before the Assessing Officer stating that the income has already brought to tax in the instant year and the same cannot be brought to tax in the subsequent year and the AO shall examine the same as per law. The ground of appeal is disposed off accordingly

Issues Involved:
1. Disallowance of traveling expenses.
2. Disallowance of advertisement and publication expenses.
3. Disallowance of sales promotion expenses.
4. Addition on account of interest income.

Issue-Wise Detailed Analysis:

1. Disallowance of Traveling Expenses:
The assessee challenged the confirmation of an addition of ?20,14,362/- made by the AO on account of traveling expenses. The AO found that the directors' foreign travel expenses were not linked to the business of the assessee, as they traveled on tourist visas and failed to provide proof of business meetings or reports. The AO relied on the Karnataka High Court's decision in Commissioner of Income-tax, Bangalore Vs. HMA Data Systems (P) Ltd. The assessee argued that the travel was for exploring business opportunities and cited various judicial pronouncements to support the claim that such expenses are revenue in nature. The Tribunal remitted the matter back to the AO to examine the evidence afresh and provide the assessee an opportunity to substantiate the claim.

2. Disallowance of Advertisement and Publication Expenses:
The AO disallowed ?77,000/- out of ?2,69,298/- claimed under advertisement and publishing expenses, stating that the amount was spent on advertisement in souvenirs, which is not allowable. The assessee contended that the expenditure was wholly and exclusively for business purposes. The Tribunal remitted the matter back to the AO to re-examine the details and provide a specific finding after giving the assessee an opportunity to justify the expenses.

3. Disallowance of Sales Promotion Expenses:
The AO disallowed 50% of the sales promotion expenses amounting to ?3,07,887/-, reasoning that the expenses were mainly on hotel and restaurant bills, gifts, and sweets, which were not justified as incidental to business. The assessee argued that these expenses were for business purposes. The Tribunal directed the AO to specify particular transactions if they were not incurred for business purposes and to re-examine the expenses afresh, providing the assessee an opportunity to justify them.

4. Addition on Account of Interest Income:
The AO added ?4,42,192/- as interest income for the assessment year 2013-14, which the assessee claimed was received and offered to tax in the subsequent year 2014-15. The CIT(A) confirmed the addition, stating that the income accrued in the relevant year as per the mercantile system of accounting. The Tribunal upheld the CIT(A)'s decision but allowed the assessee to seek adjustment in the subsequent year to avoid double taxation by revising the return or making an appropriate application before the AO.

Conclusion:
The appeal was disposed of with directions to the AO to re-examine the disallowed expenses and provide the assessee an opportunity to justify them. The addition of interest income was upheld, with the provision for the assessee to avoid double taxation in the subsequent year. The order was pronounced in the open court on 15/09/2017.

← Previous Next →