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2016 (6) TMI 26 - AT - Income TaxAddition u/s 40A(2) - excessive of expenditure - Held that:- So far as the expenditure on foreign travel is concerned, the payment is not made to the specified persons. Section 40A(2) specifically deals with the situation in which the payment is made to the specified persons. That is not the case here. The payment is made in respect of foreign travel of the specified persons but that does not bring the expense within the scope of disallowance under section 40A(2). The very foundation of impugned disallowance is thus wholly unsustainable in law. As for the element of personal expenses being present is concerned, the assessee before us is a legal entity. Even if an expenses incurred by the assessee results in a personal advantage to its directors, such a fact of personal advantage to the directors does not affect the deductibility of expenses as long as the expenses are incurred wholly and exclusively for the purposes of business of the company. A personal advantage to the directors, even if that be so, cannot be a reason enough for resorting to the disallowance. Hon’ble jurisdictional High Court’s decision in the case of Sayaji (2001 (7) TMI 70 - GUJARAT High Court ) supports this proposition. The decision that the assessee’s senior directors, who are on their way out, personally meet the vendors and introduce the newer directors is essentially a business decision and it cannot be open to the Assessing Officer to question same. The element of business needs in such circumstances is clearly present. The assessee company may or may not have direct tangible benefit as a result of the expense but then just because the assessee does not get immediate tangible benefit, the expense does not cease to be deductible in nature. The disallowance has been made under section 40A(2) and, in any event, it cannot be open to the Assessing Officer to improve upon his case at this stage and add the reasons which were not even taken up at the assessment stage. Keeping in view these discussions, as also bearing in mind entirety of the case, we deem it fit and proper to delete the entire disallowance - Decided in favour of assessee.
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