2017 (9) TMI 183 - AT - Income Tax

Business promotion expenses and foreign travelling & conveyance - disallowance on adhoc basis - business expediency - Held that - The assessee on the basis of the direction of the Assessing Officer has filed the details of foreign travelling expenses during the financial year 2011-12 giving the name of the person his/her designation country visited the purpose for such visit and the duration of the visit. The assessee has also given the details of expenses incurred which includes cost of Tickets Insurance etc. The details of such foreign travelling expenses are also filed before the Assessing Officer. A perusal of the details shows that the Director Mr. Deepak Kapoor has not visited any country with spouse or children. Similarly the Director Smt. Priyanka has also not visited any country along with her husband or family. The other persons namely Shyamjee Sudhakar and Shuchita Singhal are employees of the assessee company and they are not directors. Since full details are given regarding such foreign travelling expenses therefore under the facts and circumstances of the case no ad-hoc disallowance in our opinion out of such expenses is called for. On account of business promotion expenses, assessee has given the full details of such expenses exceeding of Rs. 1, 00, 000/-. Therefore we find no merit in the order of the Assessing Officer going for ad-hoc disallowance of 10% on account of non-submission of details. The assessee is not expected to file the detail which has not been asked for by the Assessing Officer. Further the accounts of the assessee company are audited and the Auditors have not pointed out any irregularities in the books of account. Under these circumstances we are of the considered opinion that the CIT(A) is not justified in upholding the ad-hoc disallowance 10% out of business expenses made by the Assessing Officer. - Decided in favour of assessee. Addition u/s 14A read with Rule 8D - disallowance of Rs. 25, 200/-- Held that - There is some computational error while computing the average investment for the purpose of calculating disallowance u/s 14A. We restore this issue to the file of the Assessing Officer with a direction to compute the average investment as per law after giving due opportunity of being heard to the assessee. We hold and direct accordingly.

Summary

Issues:
1. Disallowance of business promotion and foreign traveling expenses.
2. Disallowance under section 14A read with Rule 8D.

Analysis:

Issue 1: Disallowance of business promotion and foreign traveling expenses
The first issue pertains to the disallowance of expenses amounting to Rs. 2,64,817 on an ad-hoc basis by the Assessing Officer and upheld by the CIT(A). The Assessing Officer observed that the major expenses were incurred on the visits of the company's Directors, including personal visits, without adequate supporting evidence to prove business purposes. Consequently, 10% of the expenses were disallowed to prevent possible leakage. The CIT(A) confirmed the disallowance, noting that the appellant failed to provide complete details of the expenses, except for a portion related to business promotion expenses. The appellant argued that full details were submitted, emphasizing that expenses below Rs. 1,00,000 were not required to be detailed. The appellant also cited the Hon'ble Gujarat High Court's decision that no part of a company's expenditure can be disallowed for probable personal expenses without specific instances. After considering submissions and evidence, the ITAT observed that detailed foreign travel expenses were provided, showing no personal visits, and the business promotion expenses exceeding Rs. 1,00,000 were adequately explained. Consequently, the ad-hoc disallowance was deemed unjustified, and the addition was directed to be deleted.

Issue 2: Disallowance under section 14A read with Rule 8D
The second issue concerns the disallowance of Rs. 25,200 by the Assessing Officer under section 14A read with Rule 8D. The appellant contended a computational error in computing the average investment, as the closing investment was not considered. Both the appellant and the ld. DR agreed to set aside the matter to the Assessing Officer for correct computation of the average investment. Consequently, the ITAT restored this issue to the Assessing Officer for proper calculation, providing the appellant with a hearing opportunity. The second issue was allowed for statistical purposes.

In conclusion, the ITAT allowed the appeal for statistical purposes, directing the Assessing Officer to delete the disallowance on business promotion and foreign traveling expenses and to recompute the average investment for the disallowance under section 14A read with Rule 8D.