2018 (1) TMI 1741 - AT - Income Tax

Professional script writer's London research trip and business expenses allowed under sections 37/38 against blanket disallowance

The ITAT Delhi allowed the assessee's appeal against disallowance of expenses under sections 37/38. The AO had disallowed 1/5th of all expenses excluding ... Disallowance of various expenses u/s 37/38 being 1/5th of all expenses excluding Foreign Travelling stating personal expenses - HELD THAT:- We find that the assessee is professional and is a script writer, which involves developing ideas, creativity, knowledge and understanding of the topic with regard to developing/writing of script and she wanted to write a script on the topic ' life of a London couple' and therefore, trip to London was necessary and the expenditure incurred thereon was a business expenditure. Accordingly, the authorities below should not have disallowed part of the expenditure in view of the decision of Givo Ltd.[2010 (7) TMI 151 - DELHI HIGH COURT] Disallowance out of other expenses, we find that the expenses incurred by the assessee are of professional nature - AO without pointing out any expenditure of personal nature has disallowed a part of expenditure which is not in accordance with law as held by various courts including case of Tripat Kaur [2012 (9) TMI 1012 - ITAT DELHI] wherein held travelling expenses and salary expenses, addition made on estimate basis cannot be justified - disallowance is also, not justified merely on the ground that similar disallowance was made in the previous year. Accordingly, we hold that the addition on account of travelling expenses is liable to be deleted. Assessee appeal allowed. Issues:1. Disallowance of various expenses under sections 37/38.2. Disallowance of foreign traveling expenses.3. Sustainability of the order of the Commissioner of Income Tax (Appeals).Analysis:1. The appeal was filed against the order of the Commissioner of Income Tax (Appeals) confirming the disallowance of expenses under sections 37/38. The Appellant contended that the Assessing Officer and the Commissioner had made adhoc disallowances without proper basis, contrary to legal principles established in relevant case laws. The Appellant argued that the expenses were related to the professional activities of the scriptwriter and should not have been disallowed without justification. The Appellant cited precedents to support the claim that adhoc disallowances without cogent basis are not permissible. The Appellant specifically challenged the disallowance of a portion of foreign traveling expenses and other miscellaneous expenses.2. The Respondent argued that the disallowed expenses, particularly foreign traveling expenses, were not entirely related to business purposes and contained personal elements. The Respondent contended that expenses like membership fees, depreciation on personal assets, and other miscellaneous costs were of a personal nature and should not be considered as legitimate business expenses. The Respondent supported the decision of the Assessing Officer and the Commissioner in disallowing a portion of the expenses.3. The Tribunal analyzed the nature of the expenses and the justifications provided by both parties. In the case of foreign traveling expenses, the Tribunal found that the scriptwriter's profession necessitated exposure to different cultures and environments to enhance creativity and understanding, making the expenses legitimate business expenditures. Citing the decision of the Hon'ble Delhi High Court, the Tribunal ruled in favor of the Appellant, overturning the disallowance of foreign traveling expenses. Regarding other expenses, the Tribunal noted that the Assessing Officer had made disallowances without specifying any personal nature of the expenses, which was not in line with legal principles. Relying on relevant case laws, the Tribunal allowed the appeal on the grounds of disallowance of miscellaneous expenses.In conclusion, the Tribunal allowed the appeal of the assessee, overturning the disallowances of various expenses, including foreign traveling expenses, based on the professional nature of the activities and the lack of proper justifications for the disallowances.