1995 (6) TMI 44 - AT - Income Tax

Tribunal upholds disallowance of expenses on air tickets & foreign exchange. Appeal dismissed.

The Tribunal upheld the disallowance of the entire expenditure on Mrs. Wadia's air tickets and restored the original disallowance of foreign exchange ... Assessing Officer, Business Expenditure, Foreign Exchange Issues Involved:1. Disallowance of expenditure on air tickets of Mrs. Wadia.2. Disallowance of foreign exchange expenditure attributed to Mrs. Wadia.Issue-wise Detailed Analysis:1. Disallowance of expenditure on air tickets of Mrs. Wadia:The primary issue in this case was whether the expenditure incurred on the air tickets of Mrs. Wadia, the wife of the Managing Director, could be considered as an expense for the business purposes of the assessee-company. The Assessing Officer disallowed the entire claim of Rs. 1,01,049 spent on Mrs. Wadia's air tickets, reasoning that her visit was not wholly and exclusively for the purposes of the assessee's business. This decision was upheld by the CIT (Appeals), who also found no business purpose in Mrs. Wadia's travel. The Tribunal noted that there was no evidence on record showing that Mrs. Wadia's travel was for the business of the assessee-company. The Tribunal emphasized that the Board's approval for the expenditure came significantly after the travel, which suggested that it might have been granted to suit the convenience of the Chairman, Mr. Wadia. Thus, the Tribunal upheld the disallowance of the entire expenditure on Mrs. Wadia's air tickets.2. Disallowance of foreign exchange expenditure attributed to Mrs. Wadia:The second issue was the disallowance of 50% of the foreign exchange expenditure incurred during the foreign tours, which the Assessing Officer estimated to have been spent by Mrs. Wadia. The CIT (Appeals) had reduced this disallowance to Rs. 10,000, considering that Mrs. Wadia was an incidental beneficiary of the expenses primarily incurred by Mr. Wadia. However, the Tribunal found that there was no material on record to show how much of the foreign exchange was spent by each individual. The Tribunal noted that the assessee-company had not provided specific details of the expenditure incurred by Mr. and Mrs. Wadia separately. The Tribunal found the estimate of Rs. 10,000 to be unreasonable and restored the original disallowance of Rs. 51,547 made by the Assessing Officer, reasoning that an equal amount should have been spent by each of them during their travels.Legal Precedents and Arguments:The assessee relied on several Tribunal and High Court decisions to argue that the expenditure should be allowed. However, the Tribunal distinguished these cases based on their specific facts. For instance, in the case of Indian Products Ltd., the wife of the Director was also a Director, which was not the case here. Similarly, in other cited cases, the accompanying spouses had specific roles or the expenditure was approved by relevant authorities beforehand, unlike in the present case.The Departmental Representative argued that the expenditure was personal and not for business purposes, citing decisions from the Madras and Gujarat High Courts which held that personal expenses, even if necessary for the businessman's comfort, do not qualify for deduction under section 37(1) of the Income-tax Act.Conclusion:The Tribunal concluded that the foreign travel of Mrs. Wadia was not for the purpose of the assessee's business, and hence, the expenditure on her air tickets and the attributed foreign exchange expenditure could not be allowed as deductions. The appeal filed by the revenue was allowed, and the appeal filed by the assessee was dismissed, upholding the disallowance of Rs. 1,01,049 for air tickets and restoring the disallowance of Rs. 51,547 for foreign exchange expenditure.