2019 (9) TMI 253 - AT - Income Tax

Addition on account of travelling expenses - disallowance of Directors Travelling Expenses - non business purposes - HELD THAT - No evidence or details have been produced by the assessee before the authorities below as to what was necessary for Smt. Lalita Nijhawan to visit Abroad. Since assessee claimed business expenditure, therefore, assessee shall have to prove that expenses have been incurred wholly and exclusively for the purpose of business. In the absence of any evidence on record for the purpose of personal visit to Abroad by the wife of the Director of the assessee company, the same cannot be allowed as business expenditure. An employee who is getting small salary of ₹ 4,20,000/- per annum, it is difficult to believe that huge expenses would be spent for her visit Abroad. Assessee made only general explanation that she was associated with travelling business, but, it is not supported by any evidence or material on record. - Decided against assessee Addition on account of business promotion expenses - entitlement to deduction of the expenditure under section 37 - HELD THAT - The assessee could explain the issue relating to expenses of ₹ 74,000/- only before A.O, however, no explanation has been given for remaining amount. It is an admitted fact that the entire expenses have been incurred for payment of restaurant bills. These clearly appear to be personal in nature which assessee has debited as business expenditure for which no bills/explanation or evidence have been furnished. Merely because auditor has not given any remarks that expenses are not personal in nature, would not entitle the assessee to claim deduction of the expenditure under section 37 of the I.T. Act. Burden is upon the assessee to prove that expenses have been incurred wholly and exclusively for the purpose of business. The assessee further failed to prove the same. - Decided against assessee

Summary

Issues:
1. Addition of ?1,16,353 on account of travelling expenses.
2. Addition of ?2,89,410 on account of business promotion expenses.

Issue 1: Addition of ?1,16,353 on account of travelling expenses:

The Assessing Officer (A.O.) disallowed ?1,16,353 claimed as Directors Travelling Expenses by the assessee, as the wife of a director accompanied him on a business trip without sufficient justification. The Ld. CIT(A) upheld this addition, noting the lack of evidence regarding the business purpose of the foreign visits. The assessee argued that the wife was integral to the business, referring to relevant case laws and the absence of personal expenses in the tax audit report. However, the tribunal found the explanations unsubstantiated, emphasizing the need for expenses to be wholly and exclusively for business purposes. As no concrete evidence was presented to justify the expenses, the tribunal dismissed this ground of appeal.

Issue 2: Addition of ?2,89,410 on account of business promotion expenses:

The A.O. disallowed ?2,89,410 claimed as business promotion expenses, mainly comprising high-class restaurant bills, as personal in nature. The assessee failed to provide detailed records justifying these expenses, leading to their disallowance. The tribunal noted that while a portion of the expenses was explained, the majority remained unsupported and appeared personal. Despite the absence of remarks in the tax audit report regarding personal expenses, the burden was on the assessee to prove the business nature of the expenditures, which was not satisfactorily done. Consequently, the tribunal dismissed the grounds of appeal related to these expenses, emphasizing the requirement for expenses to be exclusively for business purposes.

In conclusion, the tribunal upheld the additions made by the A.O. for both the travelling and business promotion expenses, as the assessee failed to provide sufficient evidence to demonstrate that these expenses were wholly and exclusively for business purposes. As a result, the appeal of the assessee was dismissed.