TMI Blog2016 (6) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - I.T.A. No.2215/Ahd/2011, I.T.A. No.2297/Ahd/2011 - - - Dated:- 17-2-2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and as the assessee himself accepts one of the reasons for fall in GP which implies that the assessee Company is not benefited in any way by these expenses. Accordingly, the Assessing Officer proceeded to disallow the travelling expenses of ₹ 16,10,967/-. Aggrieved by the stand so taken by the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A). 4. During the appellate proceedings, it was submitted by the assessee that the Assessing Officer failed to appreciate that the persons who visited US were directors of the Company and not only family members of the Directors. It was also submitted that the travelling was for the purpose of negotiations and discussions with the Vendors. The assessee further explained that the Directors stay at US was also to explore possibilities of alternate source of material and the benefit of travelling to U.S. by them was not only in the current year but also in the subsequent year. It was also contended that the Assessing Officer has disallowed entire expenses under section 40A(2)(a) read with section 40A(2)(b), but then this section did not come into play for the reason that no payments were made to the speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted by the appellant are not genuine during the assessment proceedings or in remand report. Hence just on the basis of presumption expenses claimed by the appellant cannot be disallowed. The AO has disallowed the expenses u/s. 40A(2)(b) being excessive and unreasonable. It is not payment made to person covered under section 40A(2)(b). Hence it cannot be disallowed u/s. 40A(2)(b). Also, to disallow the expenses under this section the AO had to bring on the record the comparative cases. 4.6 It is fact that directors are relatives. As they all visit together personal expenditure cannot be ruled out. In the details of expenses submitted it can be observed that ticket expenses were also incurred for Internal USA trip. It may include some pleasure trip. In Hotel and other expenses there may be some pleasure expenses which might have not required for business purpose. Considering all the above facts and in absence of particular information, I confirm the disallowance to the extent of 50% of total expenditure which comes to ₹ 8,05,484/- and deleted the addition for remaining amount. 5. None of the parties satisfied by the stand so taken by the ld. CIT(A). While the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... losely related being Grandfather, Daughter and Grand children and have been on a trip to United States for two (2) weeks at the cost of the company camouflaging it lo be a business trip and accordingly the company has claimed these as business expenses in its books. From the records available, it is learnt that the assessee failed to submit any evidence which may prove that there was a business requirement which required all the four close relatives to travel to the US in the business interest of the company. Your Honour, the parties to whom these directors were introduced in U S as stated by the company had a long past business relations and not something which has cropped up overnight and warranted their physical presence in the U S. Neither has the company submitted anything to prove or substantiate that the presence of these directors was the need of the hour in the interest of the assessee company and the foreign travel was undertaken on a business visa for the company. (iv) The assessee in its submission seeking relief has relied upon the decision of Sayaji Iron Engg. Co. Vs Commissioner of Income Tax, High Court of Gujarat (172 CTR 0339, 253 ITR 0749). In my humble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer was bound to conduct an enquiry and to afford an opportunity to the assessee to establish its claim by adducing evidence, if any, as provided under section 143(2) and (3). The first appellate authority and the Tribunal also did not consider the matter keeping in mind the legal principles. They went by the decisions rendered by them for the earlier years. The resultant position was that no factual finding was rendered by the authorities and the Tribunal as ordained under law. [Para 21] (c) In all cases where an assessee makes a claim for deduction of an expenditure under section 37(1), the Assessing Officer is bound to consider the said claim, be it in respect of expenses for the foreign tour of the Director of a company or in respect of the expenses for the foreign tour of the wife of the Director accompanying him, meticulously keeping in mind the legal principles governing the question and to arrive at a decision either way after affording a reasonable opportunity to the assessee. The appellate authorities are also bound to consider the matter in accordance with law and in the light of the broad legal principles. Of course the burden is on the assessee to furnish al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him therefrom, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction but then 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. 10. 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 deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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