2009 (2) TMI 819 - AT - Income Tax

Appeal Partially Allowed: Travel Expenses Adjusted, Seized Cash Treated as Advance Tax, Car Expenses Disallowed

The tribunal partially allowed the appellant's appeal on travelling expenses, treating expenses related to trading activities as revenue expenditure and ... Disallowance on claim of travelling expenses - assessee is in the business of liaison work - HELD THAT:- assessee has visited the various foreign countries and as a consequence of this travel as per the statement of the assessee itself in the notes filed, the assessee has purchased machinery and has also imported garments. it is noticed that as a consequence of the travel the assessee has done trading business as also invested in capital asset being plant and machinery. This being so, we are of the view that the expenses incurred by the assessee on his travel to Hong Kong and Germany being two places from where he has imported the machinery, should be treated as capital expenditure and in regard to the other travels, which have resulted in purchase of garments, the same should be treated as revenue expenditure. Hence, the finding of CIT(A) on the issue is reversed and AO is directed to allow the assessee the portion of foreign travel expenses in relation to the places from where the assessee has purchased the garments as revenue expenditure and the expenditure in relation to the purchase of machinery i.e., from Germany and Hong Kong as capital expenditure. Therefore, the assessee's appeal are partly allowed. Disallowance of l/10th out of car expenses - HELD THAT:- It is noticed that CIT(A) has been quite reasonable in restricting the disallowance to 1/10th of the expenditure as against 1/8th disallowed by AO. This being so, as no error in the order of CIT(A) has been specifically pointed out and the assessee has not been able to specifically show that all the expenses in regard to the car expenses were business expenses, the finding of CIT(A) on this issue stands confirmed. Therefore, the assessee's appeal stands dismissed. Levy of interest u/s. 234B - treating the seized cash as advance tax - HELD THAT:- It is noticed that this issue has been considered in the case of K.K. Marketing [2005 (5) TMI 58 - DELHI HIGH COURT] held that on request for adjusting the seized cash against advance tax due, it should be done and no interest u/s. 234B can be charged. We also face with the decision of the Hon'ble Madhya Pradesh High Court in the case of Ramjilal Jagannath & Ors.[1999 (4) TMI 45 - MADHYA PRADESH HIGH COURT], held that such request of the assessee for adjustment of the seized cash cannot be made against advance tax but considering the fact that the decision in the case of K.K. Marketing (supra) is by the Hon'ble jurisdictional High Court, it is held that the assessing authority was wrong in not adjusting the seized cash against the advance tax as requested for by the assessee. Therefore, respectfully following the decision of Hon'ble jurisdictional High Court in the case of K.K. Marketing, AO is directed to adjust the seized cash as requested by the assessee against advance tax from the date on which the assessee made the request for the adjustment and recompute the levy of interest u/s. 234B accordingly. Hence, appeal is held in favour of the assessee. Issues:1. Disallowance of travelling expenses as capital expenditure.2. Disallowance of car-related expenses.3. Treatment of seized cash as advance tax for interest calculation.Issue 1: Disallowance of Travelling Expenses as Capital ExpenditureThe appellant challenged the disallowance of travelling expenses amounting to Rs. 11,10,515, claiming it as revenue expenditure. The appellant argued that the travel was related to the business of liaison work and garments trading. The assessing authority disallowed the expenses, considering them unrelated to the liaison business. However, the tribunal found that the travel led to both trading activities and capital asset investments. It ruled that expenses from the places where garments were purchased should be treated as revenue expenditure, while those from machinery purchases should be considered capital expenditure. Thus, partially allowing the appeal.Issue 2: Disallowance of Car-Related ExpensesThe appellant contested the 1/10th disallowance of car-related expenses, asserting they were solely for business purposes. The tribunal noted the personal element in such expenses and upheld the CIT(A)'s decision to restrict the disallowance to 1/10th of the expenditure. Since the appellant failed to prove all car expenses were business-related, the tribunal dismissed this ground of appeal.Issue 3: Treatment of Seized Cash as Advance TaxThe appellant sought the adjustment of seized cash of Rs. 23,74,000 against advance tax to reduce interest under section 234B. The tribunal referred to precedents and held that the seized cash should indeed be adjusted against advance tax upon the assessee's request. Citing the decision in the case of K.K. Marketing, the tribunal directed the assessing authority to adjust the seized cash against advance tax and recalculate the interest under section 234B accordingly. Consequently, this ground of appeal was held in favor of the appellant.In conclusion, the tribunal partially allowed the appellant's appeal concerning travelling expenses, dismissed the appeal on car-related expenses, and ruled in favor of the appellant regarding the treatment of seized cash as advance tax for interest calculation.