2011 (11) TMI 369 - AT - Income Tax

Validity of revisionary powers of Commissioner exercised u/s 263 in directing the A.O. to re-examine assessee s claim of expenses in respect of foreign travel expenses incurred by the relatives of Rs 12, 01, 113 A.O. disallowed similar provision for foreign travel expenses by relatives of Rs 49, 73, 450 in its order however did not make any observations at all in respect of aforesaid - Held that - Once the A.O. takes the stand that the expenditure in respect of traveling expenses of these persons are to be disallowed on the ground that the expenses are not incurred for the business of the assessee and the expenses are personal expenses for traveling of the assessee s relatives it could not have been indeed open to the A.O. to allow the similar expenses on the ground inter alia by simply taking the submissions on record and not dealing with the merits. There was thus clear incongruity in the approach of the A.O. and this intricacy is indeed erroneous and prejudicial to the interest of the revenue Decided against the assessee.

Summary

Issues:
Adjudication of expenses for foreign travel by relatives under section 263 of the Income Tax Act, 1961.

Analysis:
The appeal concerned the justification of the Commissioner of Income Tax (CIT) directing the Assessing Officer (AO) to re-examine the assessee's claim of expenses for foreign travel by relatives. The AO disallowed expenses of Rs. 12,01,113 for foreign travel by relatives, citing lack of supporting documents and insufficient details to justify the claim. The AO also noted the absence of agreements between the assessee and the relatives, lack of nexus to the business, and inconsistency in accounting methods. The CIT found the AO's failure to address these expenses erroneous and prejudicial, leading to revision proceedings.

Subsequently, the CIT issued a show cause notice to the assessee, who claimed the expenses were for legitimate business purposes involving professionally qualified relatives. The CIT disagreed, stating the assessee failed to establish a direct nexus between the expenses and business purposes. The CIT directed the AO to re-examine the matter after providing the assessee with a proper opportunity to be heard.

During the appeal, the counsel argued that the expenses were legitimate due to the professionalism of the relatives and the submission of relevant details to the AO. However, the tribunal found no merit in this argument, emphasizing that professionalism alone does not prove services rendered. The tribunal noted the inconsistency in the AO's treatment of similar expenses and the lack of inquiry into the legitimacy of the claimed expenses, leading to an erroneous and prejudicial approach.

The tribunal upheld the CIT's decision to invoke revisionary powers under section 263, emphasizing the need for a thorough examination of the expenses' admissibility. The tribunal dismissed the appeal, affirming the CIT's actions as justified and necessary to rectify the AO's errors in assessing the claimed expenses.

In conclusion, the tribunal upheld the CIT's directive for the AO to re-examine the expenses for foreign travel by relatives, emphasizing the importance of thorough inquiry and proper justification for claimed deductions under the Income Tax Act.