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2016 (1) TMI 225 - PUNJAB AND HARYANA HIGH COURT

2016 (1) TMI 225 - PUNJAB AND HARYANA HIGH COURT - TMI - Business expenditure on account of foreign travel - professionally qualified son and daughter-in-law of only male partner of the appellant firm, both son and daughter-in-law being legal heirs of the partner also and having shown growth in firms business as a consequence of their foreign travel - Tribunal disallowing the entire foreign travel expense on the only premise that it was not incurred by a competent person - Held that:- The findin .....

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purposes or not. The view taken by the Assessing Officer and the Tribunal is a plausible view and, therefore, does not call for any interference by this Court. - Decided against assessee. - ITA No. 312 of 2009 (O&M) - Dated:- 28-8-2015 - MR. AJAY KUMAR MITTAL AND MR. RAMENDRA JAIN, JJ. For The Appellant : Mr. Rajiv Sharma, Advocate For The Respondent : Mr. Vivek Sethi, Advocate Ramendra Jain, J. 1. The present appeal has been filed by the assessee under Section 260A of the Income Tax Act, 1961 ( .....

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9;Foreign Travel'. The appeal was admitted by this Court vide order dated 16.11.2009 to consider the substantial questions of law proposed in para 12 of the appeal which are to the following effect:- A. Whether, on the facts and circumstances of the case, the Tribunal was justified in reversing a well versed order of CIT(A) in rejecting the claim of business expenditure on account of foreign travel of professionally qualified son and daughter-in-law of only male partner of the appellant firm .....

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e assessee firm? C. Whether impugned order of ITAT is against the well settled law and principles as laid down in the case of Sassoon J. Davi and Co. P. Ltd. vs. CIT Bombay (1979) 118 ITR 261 (SC) and other judgments on the issue in dispute? D. Whether the order of the Tribunal is perverse and against the provisions of law? 2. Briefly stated, the facts necessary for adjudication of the instant appeal as narrated therein are that the appellant-assessee, a partnership firm having two partners name .....

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rtaken by Deepak Aggarwal and his wife Shilpa Aggarwal (son and daughter-in-law of partner of appellant firm) as they were neither its Manager nor employees or agents. The appellant-assessee vide letter dated 14.1.2004 (Annexure A-4) submitted that 50% of such expenses incurred by Deepak Aggarwal and his wife Shilpa Aggarwal after marriage were debited to the capital account of one of the partners acknowledging that the foreign travel undertaken in May 2000 was not solely and exclusively for the .....

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ion Department since 18.4.2000. The foreign trip of Deepak Aggarwal and Shilpa Aggarwal was purely business trips to know about the pulse of the market, demand and supply and the future prospect of the garden tools industries. However, the Assessing Officer did not agree with the aforesaid assertions of the appellant-assessee and disallowed the expenses incurred on 'Foreign Travel' done by Deepak Aggarwal and Shilpa Aggarwal treating the same as not related to the appellant firm as reven .....

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its order dated 31.8.2007 (Annexure A-7) remitted the matter to the Assessing Officer to decide the same afresh. Against the order dated 31.8.2007 (Annexure A-7), the assessee moved miscellaneous application under Section 254(2) of the Act before the learned Tribunal to recall its order dated 31.8.2007 (Annexure A-8), remanding the matter to the Assessing Officer. The revenue filed its reply dated 1.2.2008 (Annexure A-9 Colly) to the said application. The Tribunal vide order dated 17.7.2008 (An .....

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ssee on the question of claim of the assessee in respect of foreign travel expenses. 3. We have heard learned counsel for the parties and gone through the case file carefully. 4. Learned counsel for the appellant-assessee argued that the Tribunal has erred in setting aside the order of the CIT (A) without considering the fact that the same was based on the judgments in Sassoon J. David and Co. P. Ltd. v. CIT, Bombay, (1979) 118 ITR 261 (SC); CIT v. Aspinwall and Co.Ltd. (1999) 235 ITR 106 (Keral .....

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rs. They were looking after the appellants business since last 5 years. After marriage Shilpa Aggarwal too had joined Deepak Aggarwal being a qualified MBA having knowledge of business. These facts were not disputed by the revenue. Hence, the learned Tribunal has erred in not appreciating the same and not considering the documentary evidence relatable to the business of the appellant firm which had enhanced in the subsequent years due to the personal efforts made by Deepak Aggarwal and Shilpa Ag .....

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gn travelling expenses of Shri Deepak Aggarwal and Smt. Shilpa Aggarwal had concluded that their tours were completely personal tours and not wholly and exclusively for the purpose of business. It was recorded as under:- 3. During the year assessee has claimed travelling expenses of ₹ 39,93,187/-. Assessee was asked to furnish the details along with evidence and justification of the same for business purpose. Assessee furnished copy of account of the aforesaid expenses. Details furnished r .....

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found that travelling has been undertaken by Sh. Deepak Aggarwal along with his wife Smt. Shilpa Aggarwal in the capacity of the son and daughter-inlaw of the partners. During the course of assessment proceedings it was submitted that they are neither an employee nor Manager nor Agent of the firm. Assessee was asked to establish that the travelling expenses have been incurred and the incurrence is wholly and exclusively for the purposes of business. Audit report did not indicate incurrence of t .....

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not have any relationship otherwise than being son and daughter-in-law of the two of the partners. In view of above facts, the assessee was asked to justify the foreign travel expenses claimed by the firm in respect of their travel. 3.2. Assessee submitted vide letter dated 14.01.2004 that 50% expenses pertaining to tour in May 2000, which was the tour undertaken immediately after the marriage of Sh. Deepak Aggarwal to Smt. Shilpa Aggarwal have already been debited to the capital a/c of one of t .....

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assessee firm. According to the assessee the travelling expenses were incurred to train Sh. Deepak Aggarwal and Smt. Shilpa Aggarwal, who were not associated with firm during the year under consideration, but later on associated themselves with the business. Thus even if, it is presumed and expenses have been incurred to train partner's son and daughter-in-law, these are not the expenses of the firm since these two persons are neither an employee nor partner, agent, Manager of the firm. More .....

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ple. Assessee was also confronted with these observations while examining books of accounts vide examination notes dated 21/01/04. The reply given by the assessee has already been discussed above. 3.4. Thereby it is clear and beyond doubt that the foreign tours undertaken by Sh. Deepak Aggarwal and Smt. Shilpa Aggarwal, being the son and daughter in law of the partners were completely personal tours and not wholly and exclusively for the purpose of business. Therefore the expenses debited under .....

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the following observations:- 10. We have heard the parties and have perused the material on record. Out of total expenses charged of ₹ 39.93 lacs, the assessee had suo moto debited the amount of ₹ 3.78 lacs to the capital account of the partner, as personal in nature, incurred on the foreign travelling of Shri Deepak Aggarwal and his wife, Smt. Shilpa. It was observed by the learned CIT (A) that all the correspondence in support of the expenditure was with the parties with whom busi .....

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ee undertaken by Shri Deepak in connection with the business of the assessee. Apropos the tour expenses of ₹ 39.43 lacs during the year, ₹ 32.54 lacs was found related to Shri Deepak and his wife, Smt. Shilpa. Documentary evidence in support of the expenditure had been filed before the A.O. This documentary evidence comprises correspondence with foreign customers, dealers and agents. A summary of each and every place visited, the purpose of the visit, the business fetched etc., were .....

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rlooked by the learned CIT(A) that none of the evidence filed on behalf of the assessee before the A.O. proved that the expenditure in question was incurred wholly and exclusively for the business purpose of the assessee firm. The learned CIT(A) has accepted that the correspondence in respect of the expenses was not in the name of the assessee firm but was in the name of the individuals. However, this was not considered material holding that the correspondence related to the business of the asse .....

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rm; that it was the firm of the parents of Shri Deepak; and that Shri Deepak and Smt. Shilpa did not have any relationship with the firm other than being son and daughter-in-law of the two partners of the assessee firm. The assessee had, rather, contended before the learned CIT(A) that taking Shri Deepak and Smt. Shilpa on the rolls of the assessee firm as a employee would have downgraded the status of would be owners of the family firm. Moreover, before the A.O., the stand had been that Shri De .....

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ccount of personal tours and not expended wholly and exclusively for business purposes and was, thus, inadmissible under Section 37(1) of the Act. It would primarily be a question of fact whether in a given facts and circumstances, the expense is wholly and exclusively for business purposes or not. The view taken by the Assessing Officer and the Tribunal is a plausible view and, therefore, does not call for any interference by this Court. 9. Adverting to the judgment relied upon by learned couns .....

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minees in the company in favour of Tatas or their nominees for a sum of ₹ 155 lakhs. The said agreement, inter alia, provided that the sum voted by the company for payment of gratuities and/or as compensation for loss of employment to existing directors and employees of the company with respect to their service upto and inclusive of 31.3.1956 and a further amount of ₹ 16188/- payable to the Managing Director Mr. Mathalone, should be paid with respect to his services in accordance wit .....

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solution. During the assessment year 1957- 58, the claim in respect of entire sum of ₹ 1,64,899/-was disallowed by the ITO on the ground that services of the Directors and employees had been terminated not because of the business expediency, but because of Tatas, purchaser of the shares, made it a condition precedent under the agreement. Aggrieved with the decision of the Income Tax Officer, the company filed an appeal, which was dismissed. Further appeals before the AAC, the Tribunal and .....

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of services was not liable to claim deduction. The High Court was of the view that a sum of ₹ 1,27,511/- paid to the employees and Director of the company by way of retrenchment of compensation had been incurred by the company for personal expediency and/or consideration, accordingly, disallowed the claim of the company to that extent. Still dissatisfied, the company approached the Apex Court, who held that as per the case of the company that many of its employees were old and superfluous .....

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