2012 (7) TMI 478 - AT - Income Tax

Tribunal allows appeal for foreign travel expenses, citing business promotion nexus with Australian unit.

The Tribunal allowed the appeal, setting aside the disallowance of foreign travel expenses claimed as business promotion expenses for a tour to Australia. ... Addition on account of expenses incurred by the appellant on its foreign visit on business visa to Melbourne - Business trip to expand present business offsore at Melbourne – Held that:- where the existing business is to expand or set up a new unit in the same fold, the expenditure incurred in setting up such a unit of existing business is admissible business expenditure - management of its aforesaid overseas unit at Melbourne and its old proprietary business Jeevan Enterprises here in India is the same – In favor of assessee Issues:Disallowance of foreign travel expenses claimed as business promotion expenses for a tour to Australia.Analysis:The appeal was against the order of the Ld. Commissioner of Income Tax (Appeals) upholding the addition of expenses incurred on a foreign visit to Melbourne for business purposes. The Assessing Officer disallowed the foreign travel expenses claimed as business promotion expenses, stating that the business in Australia was not related to the business in India. The CIT(A) confirmed the disallowance, citing precedents that expenses for initiation of a new business are not allowable under section 37(1).Upon hearing the contentions, the assessee argued that the visit was to expand the existing business by setting up a branch overseas. The company formed in Australia was a sole proprietary company of the appellant, with unity of control and common fund between the Australian unit and the business in India. The assessee relied on various judgments supporting that expenditure for expanding or setting up a new unit of an existing business is admissible. The Tribunal found that the expenditure had a direct nexus with the existing business in India and was a supplement to it, thus allowing the appeal and setting aside the disallowance.The Tribunal noted that the management of the overseas unit in Melbourne and the business in India was the same, with complete unity of control and common fund. The business activities of the Australian company were aligned with those in India. It was established that the assessee had expanded the business by setting up a unit in Australia, justifying the allowance of the claimed expenditure. The Tribunal held that the revenue authorities erred in disallowing the expenses and decided the issue in favor of the assessee.In conclusion, the Tribunal allowed the appeal filed by the Assessee, setting aside the orders of the authorities below and ruling in favor of the assessee regarding the disallowed foreign travel expenses incurred for business promotion purposes during the tour to Australia.