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2018 (12) TMI 1213 - AT - Income TaxDisallowance of conference expenses - Held that - No error in the order of the CIT(A) on the issue of disallowance of conference expenses and accordingly, we uphold the same. The grounds raised on the issue in dispute are accordingly dismissed. Travelling expenses disallowance - Held that - It is evident that the expenses have been incurred in relation to extension of the stay, cancellation of the air ticket, bar party, photographers, smoothies ordered by Mrs Gayathri Luthera in hard rock etc. Thus, the tour was for the entertainment of the counsels and their family members and it has not served any business purpose of the assessee firm. In the case law relied upon by the disallowance was in relation to staff welfare expenses and for arranging get-together of the employees along with the training session. In the instant case nothing has been brought on record that the trip was in relation to any business activity of the assessee firm, and thus ratio of the case law relied upon by the is not applicable over the facts of the instant case. The assessee has failed to establish that the expenses were incurred wholly and exclusively for the purpose of the business and thus same is not allowable under section 37(1).
Issues Involved:
1. Disallowance of conference expenses. 2. Disallowance of travelling expenses. Detailed Analysis: 1. Disallowance of Conference Expenses: The assessee, a law firm, claimed conference expenses of ?43,36,066/- against gross receipts of ?68,15,67,895/- for the assessment year 2010-11. The Assessing Officer (AO) noted a significant increase in conference expenses compared to the previous year and identified ?13,68,222/- as potentially personal expenses. Consequently, the AO disallowed 50% of these expenses, amounting to ?6,84,111/-. The disallowed items included the purchase of watches, T-shirts, caps, jackets, dinner, and media event expenses. The assessee argued that the watches were given as appreciation awards to employees, which is a normal business practice. However, the CIT(A) and the Tribunal found inconsistencies in the dates and lack of evidence supporting the distribution of the watches, thus upholding the disallowance. For the T-shirts, caps, and jackets, the assessee claimed these were distributed during the Annual Conference to promote the firm’s brand. The Tribunal, however, noted the absence of evidence regarding the distribution and how these items served the business purpose, thus supporting the disallowance. Regarding the dinner and video coverage expenses, the assessee argued these were for celebrating the firm’s achievements with clients and dignitaries. The CIT(A) and the Tribunal found the event to be personal in nature, with no evidence supporting its business purpose, thus upholding the disallowance. The sponsorship fee paid to PEI Media Ltd was claimed to enhance the firm’s visibility. The Tribunal noted that such sponsorships are prohibited for law firms under the Bar Council of India Rules and, therefore, disallowed the expenses under section 37 of the Act. 2. Disallowance of Travelling Expenses: The assessee claimed travelling expenses of ?1,99,18,038/-, mainly for foreign travel. The AO disallowed 10% of these expenses, amounting to ?19,91,803/-, citing the personal element in the expenses. The CIT(A) further enhanced the disallowance to ?30,00,000/- after noting that ?30 lakhs were paid in advance to M/s Thomas Cook for a trip to Beijing, which included family members and was not for official purposes. The assessee argued that the trip was for an annual event to announce promotions and rewards. However, the Tribunal found no documentary evidence supporting the business purpose of the trip. The invoice from Thomas Cook included expenses for bar parties, extended stays, and personal activities, leading the Tribunal to conclude that the trip was for personal entertainment and not for business purposes. Thus, the Tribunal upheld the disallowance of ?30,00,000/-. Conclusion: The Tribunal dismissed the appeal of the assessee, upholding the disallowance of ?6,84,111/- for conference expenses and ?30,00,000/- for travelling expenses. The Tribunal found that the assessee failed to substantiate the business purpose of the disputed expenses and noted inconsistencies and lack of evidence in the claims made by the assessee.
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