Tribunal Partly Allows Appeal: Upholds 25% Travel Expense Disallowance, Reverses Reimbursement Disallowance Under Section 40(a)(ia)

The Tribunal partly allowed the appeal of the Assessee. It upheld the CIT(A)'s decision to disallow 25% of the travelling expenses, considering the past expense history and business dealings. However, the Tribunal reversed the disallowance under Section 40(a)(ia) concerning reimbursement expenses, agreeing with the Assessee's reliance on judicial pronouncements and a CBDT circular, thus allowing this part of the appeal.

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The appeal in this case was filed by the Assessee against an order dated 21.05.2024 by the CIT(A), National Faceless Appeal Centre (NFAC), Delhi for the Assessment Year 2013-14. The Assessee raised grounds of appeal challenging the disallowances in respect of travelling expenses and reimbursement of expenses under Section 40(a)(ia) made by the Assessing Officer (AO). The Assessee is engaged in the trading business of chemicals, seals, stationery items, and other products both locally and internationally.The Assessing Officer disallowed expenses related to travelling and reimbursement of expenses under Section 40(a)(ia) after scrutinizing the Assessee's returns and investments. The disallowances included expenses towards travelling, including foreign trips, and reimbursement of expenses amounting to Rs. 64,41,834 under Section 40(a)(ia) of the Income Tax Act, 1961.The Assessee appealed the Assessment Order before the CIT(A), who partly allowed the appeal. The Assessee contended that the disallowances were unjustified as the expenses were incurred for business purposes. The CIT(A) restricted the disallowance of travelling expenses to 25% but upheld the disallowance under Section 40(a)(ia).During the hearing, the Assessee's representative argued that the travelling expenses were solely for business exigencies, especially related to a significant business transaction with M/s. International Chem Limited in China. The representative provided details and invoices to support the business purpose of the expenses. On the other hand, the Revenue's representative supported the CIT(A)'s decision, emphasizing the reasonableness of the 25% disallowance.The Tribunal observed that the CIT(A) had considered the past history of expenses and the business acquired from foreign parties in determining the disallowance percentage. The Tribunal upheld the 25% disallowance of travelling expenses as confirmed by the CIT(A) based on the records and reasoning provided.Regarding the disallowance under Section 40(a)(ia) related to reimbursement of expenses, the Assessee had made TDS for agency charges but not for reimbursement, citing judicial pronouncements and CBDT Circular No.715 dated 08.08.1995. The Assessee relied on the decision of the Hon'ble Gujarat High Court in a similar case to support the non-disallowance of the reimbursement expenses. The Tribunal agreed with the Assessee's argument and allowed this component of the appeal.In conclusion, the Tribunal partly allowed the appeal of the Assessee, upholding the disallowance of 25% of travelling expenses while allowing the reimbursement expenses under Section 40(a)(ia) based on the judicial pronouncements and circulars cited by the Assessee.

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