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TMI Blog2016 (6) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... Your appellant submits that as the expenditure has been incurred for the purpose of business, the same should be allowed as deduction. Your appellant submits that it be so allowed now. (ii) The learned CIT(A) has erred in confirming ad-hoc disallowance of 50% on assumption and presumption without any basis. It b so held now." ITA No.2297/Ahd/2011 (by the Revenue) 1. The learned CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 16,56,367/- made on account of foreign travelling expenses without appreciating the fact that the assessee failed to prove that the expenditure was incurred for the business purpose. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer." 3. Briefly stated, the relevant material facts are like this. During the course of scrutiny assessment proceedings the Assessing Officer noted that certain family members of Director and Ex-Directors have travelled to US and the expenses on these travelling have been claimed as deduction on account of travelling expenses. It was explained by the assessee that the foreign visits of the Directors were to negotiate business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t year is submitted on page 23 and 24 of paper book and on page 6 & 7 of further submission. The details of total material imported and its comparison with previous year is placed in paper book at page 42. The appellant is a private limited company. Relation between all the directors were given vide submission dated 8th December, 2010. It is also clarified that Shri R. M. Shah, promoter of the company is 87 years old. His daughter Mrs. Surekhaben Shah had joined the company way back in 1972, while Rajiben and Khusiben are joined with company in 1995 and 1996 respectively. Rajiben and Khusiben are Mechanical Engineers and are looking after the production of the company. The purpose behind all the four directors visit together is to introduce Rajiben and Khusiben to business associates before Mrs. Surekhaben get retire in May 2006 as well as to know the technicalities that how basic raw material was processed and what chemical properties it had. From the above facts it is clear that the purpose behind visit to USA was commercial and for the benefit of the business of the appellant. The directors succeeded in negotiating the price of Raw Material. To continue the business relationsh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly allowed the appeal in favour of the assessee and against the revenue. The sole issue which was allowed in favour of the assessee was the one relating to Foreign Travel expenses borne by the assessee company for its Directors (comprising of Grandfather, Daughter, and Grand Children) who had been on a so called Business trip to the US. 4. Sir, now the Revenue and the assessee are in appeal before your Honours against the C1T (A's) decision partly allowing Travelling Expenditure. Apropos the findings of the AO and the Ld. C1T(A). my submission in brief arc as under. (i) Your Honours may kindly appreciate that, as per section 37(1) of the Income Tax Act. 1961. "Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of the business or profession shall be allowed in computing the income chargeable under the head ''profits and gains of the business or profession.": (ii) Hence, it is the onus on the assessee company to prove by laying down evidences that the amount expended towards the travel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r is also entitled to be satisfied as to the commercial necessity of spending that amount. In other words, there must be nexus between the expenditure and the business purpose. The capacity in which the assessee spends will also be relevant. The purpose must be for the purpose of business, i.e., the expenditure must be incurred for carrying on of the business and the assessee should have incurred it in his capacity as a person carrying on the business. The term 'wholly' refers to the quantum of the expenditure and 'exclusively' refers to the motive, objective and purpose of the expenditure. The true test of an expenditure laid out wholly and exclusively for the purposes of trade or business is that it is incurred by the assessee as incidental to his trade for the purpose of keeping the trade going and making it pay and not in any other capacity than that of a trader. (b) The Assessing Officer had allowed the foreign travel expenses of the director of the assessee-company and also rejected the foreign travel expenses of the wife of the Director both in a mechanical manner. The Assessing Officer simply assumed that the foreign travel of the Director of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fall in the gross profit and the persons travelling were family members. As for the emphasis on the fact that the persons travelling together were family members, we may only add that all the four persons were directors of the assessee company, and, take note of the following controverted finding of the CIT(A): "....Shri R. M. Shah, promoter of the company is 87 years old. His daughter Mrs. Surekhaben Shah had joined the company way back in 1972, while Rajiben and Khusiben are joined with company in 1995 and 1996 respectively. Rajiben and Khusiben are Mechanical Engineers and are looking after the production of the company. The purpose behind all the four directors visit together is to introduce Rajiben and Khusiben to business associates before Mrs. Surekhaben get retire in May 2006 9. On these facts, nothing really turns against the assessee so far as relationship of the directors is concerned. In any event, the reason of disallowance is under section 40A(2) but then the disallowance under that section comes into play only when the payment is made to the specified persons. Section 40A(2) specifically provides that, "Where the assessee incurs any expenditure in respect of which ..... X X X X Extracts X X X X X X X X Extracts X X X X
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