High Court limits disallowance of foreign travel expenses under Income Tax Act

The Kerala High Court dismissed the Revenue's appeal seeking 100% disallowance of expenses for foreign travel under Section 37 of the Income Tax Act for assessment years 2008-09 and 2009-2010. The Court upheld the Tribunal's decision to limit disallowances to 1/5th of expenses for one year and 20% for the other, based on factual analysis. The Court emphasized that the Tribunal's rulings were factually grounded and did not pose legal issues, ultimately rejecting the appeals and denying costs.

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Issues: Disallowance of expenses for foreign travel under Section 37 of the Income Tax Act for assessment years 2008-09 and 2009-2010.

In this judgment by the Kerala High Court, the appeals were filed by both the assessee and the revenue against the common order of the Tribunal for the assessment years 2008-09 and 2009-2010. The primary issue revolved around the disallowance of expenses incurred for foreign travel of the staff of the assessee company under Section 37 of the Income Tax Act, 1956. The Assessing Officer had disallowed varying percentages of the expenses in different instances, ranging from 20% to 100%, based on the personal element perceived in the foreign travels. The First Appellate Authority had allowed full allowance of expenses, following a decision in the case of the assessee for previous years. The Tribunal, however, refused to follow the earlier judgment of equal strength, citing differing facts each year. The High Court noted that the Assessing Officer had provided reasons for the disallowance in the present years and had granted 1/5th of the expenses as disallowances for the year 2009-10, which was upheld by the Tribunal. For the year 2008-09, where the Assessing Officer had made varying disallowances, the Tribunal limited the disallowance to 20%, aligning with the approach taken for the subsequent year. The Revenue's appeal for 100% disallowance in all instances was dismissed by the High Court, emphasizing that the Tribunal's decision was based on factual analysis and did not raise any legal questions. Therefore, the appeals were rejected, and no costs were awarded.

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