2019 (11) TMI 578 - AT - Income Tax

Tribunal overturns Revenue's disallowances of travel and trademark expenses, finding actions unjustified.

The tribunal allowed the appellant's appeal, overturning the disallowances of both foreign traveling expenses and trade mark registration expenses. The ... Allowability of business expenses - disallowance for unverifiable vouchers and cash payments - burden on assessing officer to specify defects in evidence - capital versus revenue expenditure - treatment of trademark registration expensesAllowability of business expenses - disallowance for unverifiable vouchers and cash payments - burden on assessing officer to specify defects in evidence - Addition disallowing a percentage of exhibition and foreign travelling expenses claimed as business expenditure. - HELD THAT: - The assessee, an exporter, claimed exhibition and foreign travelling expenses supported by bills and vouchers; some minor items (local travel and food in foreign cities) were paid in cash. The AO disallowed 10% of the claimed expenses because some vouchers were 'handmade' and certain payments were in cash, without pointing out specific instances of unverifiable or personal expenditure. The CIT(A) reduced the disallowance to 5% treating some cash expenditures as justification for an ad hoc restriction. The Tribunal found that the AO neither alleged the expenditures were personal nor identified particular defects in the vouchers, and the assessee had produced supporting documents for the expenses. Given the absence of specific findings by the AO about non-business or unverifiable items and the production of vouchers, the ad hoc disallowance by the AO and the partial restriction by the CIT(A) were unsustainable. [Paras 3]Addition disallowing exhibition and foreign travelling expenses deleted and Ground No. 1 allowed.Capital versus revenue expenditure - treatment of trademark registration expenses - burden on assessing officer to specify defects in evidence - Treatment and disallowance of trademark registration-related fees debited by the assessee. - HELD THAT: - The AO treated fees paid for trademark registration as capital in nature, allowed depreciation @25% and disallowed the balance. The CIT(A) confirmed the disallowance on the basis that the assessee failed to produce supporting evidence. The assessee, however, had placed an invoice and documentary evidence in the paper book (page 105) showing consultancy fees paid to professionals for registration, and submitted that registration had not yet been completed. The Tribunal observed that the document was on record and that the Revenue proceeded to disallow the expenditure without verifying the authenticity of the placed document. On the facts, the fees were consultancy charges for registration and the Revenue's disallowance lacked basis. [Paras 4]Addition in respect of trademark registration expenses deleted and Ground No. 2 allowed.Final Conclusion: The appeal is partly allowed: additions disallowing a portion of exhibition and foreign travelling expenses and disallowing trademark registration (consultancy) fees are deleted; appeal otherwise disposed of with no order as to costs. Ground No. 3 was withdrawn by the assessee and dismissed as such. Issues involved:1. Disallowance of foreign traveling expenses2. Disallowance of trade mark registration expensesIssue 1: Disallowance of foreign traveling expensesThe appellant contested the addition of Rs. 4,39,464 for foreign traveling expenses out of total expenses of Rs. 8,78,928. The AO disallowed 10% of the expenses, which the CIT(A) reduced to 5%. The appellant argued that all expenses were supported by vouchers and bills, with only a small portion incurred in cash. The tribunal noted that the appellant, engaged in gold and silver jewelry export, participated in foreign exhibitions, incurring the expenses in question. The AO's disallowance was solely based on handmade vouchers and cash payments, without disputing the business nature of the expenses. The tribunal held that the Revenue's actions were unjustified as all expenses were adequately supported. Consequently, the tribunal allowed the appellant's appeal on this ground.Issue 2: Disallowance of trade mark registration expensesThe AO disallowed Rs. 36,750 out of Rs. 49,000 trade mark registration expenses, treating it as capital expenditure. The CIT(A) upheld this decision, stating lack of evidence from the appellant. However, the appellant argued that the expenses were for consultancy charges, a revenue expenditure. The tribunal found evidence of consultancy charges in the documents submitted by the appellant. The Revenue's disallowance was based on the appellant's alleged failure to provide evidence, despite the document's presence in the record. The tribunal held that the disallowance lacked a basis and reasoning, leading to the deletion of the addition. Consequently, the tribunal allowed the appellant's appeal on this ground.In conclusion, the tribunal partly allowed the appellant's appeal, overturning the disallowances of both foreign traveling expenses and trade mark registration expenses.