2018 (5) TMI 126 - AT - Income Tax

Tribunal limits disallowance on foreign travel expenses for business, emphasizes exclusivity rule

The tribunal partially allowed the appeals filed by the assessees regarding disallowances under the head of T.A. & Conveyance for Assessment Years ... Disallowances under the head of T.A. & Conveyance - business expediency - expenses related to the foreign travels of the family members alleged to have been borne by the assessee company and claimed as expenses can not be considered genuine, because foreign visit of the family members are the private visits - Held that:- The nexus with business has to be clear and straightforward, and not remote or vague, as would appeal to a man of business, i.e., motivated and guided solely by business consideration. The same cannot be said in the present case/s. The accompaniment of wife/s appears to be purely for social purpose, as clearly her interaction is restricted to social platforms. As regards son/s, he is an outsider to the business, at least for the relevant years. As for the later year (A.Y.2014-15),AR clarified that the son/s had joined business, and which may perhaps led to the acceptance of the assessee’s claim for that year (at 80%). The nexus of the impugned expenditure with the business for the years under reference is tenuous and, in the least, not total. In other words, the expenditure bears a significant component of personal (non-business) element. As the assessee may stand to derive some business benefit from such social intercourse and, further considering that the son/s has joined business subsequently, indicating a business purpose as well, we consider it proper to restrict the disallowance to 40% of the impugned expenditure, i.e. qua TA and conveyance Issues:Dispute over disallowances under the head of T.A. & Conveyance for Assessment Years 2010-11 to 2012-13 based on foreign travel expenses of family members.Analysis:The appeals filed by the Assessees challenged the orders relating to Assessment Years 2011-12 & 2010-11 to 2012-13, passed by the ld. CIT(A)-5, Ludhiana. The main issue in all appeals was the disallowance under the head of T.A. & Conveyance. The Assessing Officer disallowed an amount claimed by the assessee for foreign travel expenses of family members, stating they were not genuine business expenses. The Ld. CIT(A) upheld the disallowances, emphasizing the lack of evidence showing the expenses were wholly and exclusively for business purposes. The assessee argued for consistency based on a previous year's treatment, but the tribunal found no estoppel or consistency requirement across years. The tribunal held that the expenses did not have a clear nexus with the business and contained a significant personal element. Therefore, the disallowance was restricted to 40% of the claimed expenditure.The tribunal's decision was based on the principle that business expenses must be incurred wholly and exclusively for business purposes. The tribunal found the association of family members with the business to be primarily social, lacking a direct business nexus. While the son later joined the business, indicating a business purpose, the tribunal still found a substantial personal element in the expenses. As a result, the disallowance was limited to 40% of the expenditure under the head of T.A. & Conveyance for the relevant years. The tribunal also clarified that the findings in one appeal applied mutatis mutandis to other similar appeals by the assessees for different assessment years. Ultimately, the tribunal partly allowed all the appeals filed by the assessees, pronouncing the order on 23.03.2018.