2022 (9) TMI 150 - AT - Income Tax

Foreign Travelling Expenses - Disallowance as expenses not incurred for business purposes - HELD THAT - We are of the considered opinion that owing to the nature of business of the assessee company, which works as an agent in India and abroad dealing in non conventional energy engineering equipments, it is obligatory for the directors to travel abroad for the purpose of business of the assessee. It is also pertinent to point out that the assessee has earned commission income arising out of the foreign travel in subsequent years also. We conclude that the said expenses claimed by the assessee was for business purpose thereby allowing this ground of appeal filed by the assessee. Revision u/s 264 - CIT- A directing the AO to reduce sale consideration due to revised sale price and the share of M/s WMI Cranes Ltd as the assessee had finally received lesser consideration from the funds that was in the escrow account as per the terms of sale agreement - HELD THAT - As observed that the assessee has raised an additional ground before the Ld.CIT(A) claiming that the actual consideration received on sale of shares of WMI Cranes Ltd was less than the consideration taken for computing the capital gains after reducing the amount of consideration which was transferred to the escrow account. CIT(A) though has called for the remand report from the AO has failed to adjudicate on the additional ground filed by the assessee on the contention that the same was a subject of petition under section 264 before the Principal CIT-7, Mumbai. CIT(A) has held that since this ground was raised in an application u/s 264 before the PCIT thereby rejected, the Ld.CIT(A) held that he had no jurisdiction to consider the same grounds in appeal before him. CIT(A) has erred in not deciding this ground of appeal filed as additional ground before him by the assessee which ought to have been decided on merits. CIT(A) is not barred from deciding this ground of appeal on merits inspite of the fact that section 264 application was rejected by the PCIT-7, Mumbai. On the above observation, we direct the Ld.CIT(A) to consider this ground of appeal on merits and adjudicate the issue pertaining to the reduction of capital gain. We remand back this file to the Ld.CIT(A) for deciding this issue on merits.

Summary

Issues Involved:
1. Disallowance of Foreign Traveling Expenses
2. Adjudication of Additional Ground for Reducing Long Term Capital Gain
3. Direction to Reduce Sale Consideration Due to Revised Sale Price

Analysis:

Issue 1: Disallowance of Foreign Traveling Expenses
The assessee, a domestic private limited company, engaged in facilitating foreign consultancy and business, filed an appeal against the disallowance of Foreign Travel Expenses by the Ld.CIT(A). The expenses were incurred for the foreign travel of the Chairman and Director of the company. The lower authorities disallowed the claim stating lack of supporting documents to prove business purpose. However, the ITAT Mumbai, after considering the nature of the assessee's business and subsequent commission income from foreign travel, concluded that the expenses were indeed for business purposes, thereby allowing the appeal.

Issue 2: Adjudication of Additional Ground for Reducing Long Term Capital Gain
The assessee raised an additional ground before the Ld.CIT(A) to reduce the Long Term Capital Gain earned on the sale of shares of M/s WMI Cranes Ltd. The Ld.CIT(A) did not adjudicate on this issue, citing it as a subject matter of a petition under section 264. The ITAT Mumbai observed that the Ld.CIT(A) erred in not deciding the ground on merits, despite rejection under section 264. The ITAT directed the Ld.CIT(A) to consider the ground on merits and adjudicate the issue regarding the reduction of capital gain, remanding the file back for further consideration.

Issue 3: Direction to Reduce Sale Consideration Due to Revised Sale Price
The third issue pertained to the direction to reduce the sale consideration due to a revised sale price of shares of M/s WMI Cranes Ltd. The assessee contended that certain liabilities paid from the escrow account should be reduced from the sale consideration to compute capital gains accurately. The Ld.CIT(A) rejected this claim, stating no provision in the Income-tax Act for such reduction. However, the ITAT Mumbai found that the Ld.CIT(A) should have decided this issue on merits and directed the Ld.CIT(A) to reconsider the reduction of capital gain based on the revised sale price, remanding the file for further adjudication.

In conclusion, the ITAT Mumbai partly allowed the appeal, emphasizing the need for a thorough consideration of all issues raised by the assessee and directing the Ld.CIT(A) to decide on the reduction of capital gain and sale consideration based on the merits of the case.