TaxTMI 
TaxTMI 
TaxTMI 
2025 (9) TMI 367
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.... medicines which involves purchase of medicines/pharmaceutical products from its parent company Mankind Pharma Ltd. and selling the same to chemists, pharmacies, stockist of medicines across country. Assessee claims that the said business involves door to door marketing at doorsteps of each chemist and/or doctor through Medical Representatives ('MRs'), who keep on travelling for the said purpose. During the year under consideration, the assessee incurred total expense of Rs. 18,73,43,027/-. The case of assessee is that this amount was spent towards the aforesaid travelling and conveyance, which included Rs. 18,19,13,422/- towards reimbursement of claims raised by the MRs, constituting more than 97% of the total travelling and conveyance expenditure. Out of the aforesaid total expenditure, a portion of the expenses was directly incurred by the assessee company through payments made to vendors such as taxi operators, hotels, etc., duly supported by bills raised by the vendors. However, the predominant portion of the expenditure comprised reimbursements made to employees in accordance with the company's duly approved policy and subject to approval of claim by higher management. 3. ....
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.... with the question, whether the assessee employer was under statutory obligation to collect evidence to show that its employees had actually utilized the amount(s) paid towards leave travel concession/ conveyance allowance. While deciding the matter in the favour of assessee-employer the Hon'ble court ruled that in the absence of any specific requirement under the law or CBDT circular in this regard assessee-employer is under no statutory obligation to collect the evidence to show that its employees had actually utilized the amounts paid towards leave travel concession/conveyance allowance. The relevant extract of the decision is reproduced as under: "2. It may be noted that the beneficiary of exemption under section 10(5) is an individual employee. There is no circular of Central Board of Direct Taxes (CBDT) requiring the employer under section 192 to collect and examine the supporting evidence to the declaration to be submitted by an employee(s). "Though the decision is in relation with exemption under section 10(5) of the act, however the ratio of same in somewhat limited perspective cannot be overlooked in present case. ...............................
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....al) "1. That the Ld. CIT(A) erred on facts and in law, in not deleting the entire disallowance of Rs. 14,98,74,721/- being 80% of the travelling and conveyance expenses, made by the Assessing Officer ('AO') in the assessment order passed under section 143(3) of the Income-tax Act, 1961 ('the Act'), and in restricting the said disallowance to Rs. 3,74,68,605/-, being 20% of the travelling and conveyance expenses on the ground of probable manipulation/ exaggerated claims for reimbursement made by the employee in their expense declaration forms even after observing that the appellant's reimbursement policy is reasonable, consistent and backed by a robust system of checks and balances. 1.1. That the Ld. CIT(A) erred on facts and in law, in observing that the expenses can be disallowed on the basis of estimation and thereby confirming the disallowance made by the AO to the extent of 20% of total travelling and conveyance expenses incurred during the year. 1.2. That the Ld. CIT(A) erred on facts and in law, in upholding the theory of disallowance on ad-hoc basis/on the basis of estimation, merely on hypothesis of probable excess claims by th....
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.... not even be having regulated and organized hotel or travelling facilities. So the employees may have to go for some unorganized vendors and avail these facilities which may not be properly vouched or invoiced. 6. Ld. AR has cited before us a policy to compensate/reimburse the employee for the aforesaid expenses incurred by them while travelling for the purpose of business. The excerpts of the policy are as provided to bench is reproduced below; * As regards conveyance expenses or travelling allowance (TA'), the appellant had fixed the reimbursement as per fixed rate per kilometer (Rs.2.80) notwithstanding the mode of travel by the employee i.e. own vehicle / taxi / train / airplane etc. * For the purposes of covering other travel expenditure like boarding / lodging / Meal etc,; the appellant had fixed a ceiling limit by way of providing daily allowance(DA) to the employee, which could be claimed depending upon the designation and place of travel in the following manner: * A screenshot of the conveyance expense policy as approved by the administration department of the Appellant company is reproduced as below:- 7. As per the above policy, it can be ....
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....;s) of the Company procure orders from all retailers and stockiest by meeting them physically. It is stated that each C & F agent caters to an area within a radius of 500 kms. approx. therefore, each MR has to travel across that area to fetch orders. Further, the MR's also personally visit the doctors in that area to apprise them of the products of the Company and also to give presentations regarding new launches of medicines. Therefore, the Company has to incur a substantial amount of expense under this head. All the payments are made to employees of the Company on submission of bills which are approved by their controlling managers. All the payments are made by way of direct bank credit to the employees of the Company or by account payee cheques. All the expenses are properly vouched and underwent scrutiny by two joint statutory auditors, namely M/s. Deloitte Haskins & Sells LLP and M/s Bhagi Bhardwaj Gaur & Co. As desired the complete ledger account of the said expense is enclosed by way of separate annexure". 9. One thing that strikes us, at outset, is that the aforesaid policy of making reimbursement of Travelling & Conveyance Expenditure has been consistently followed ....
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....e amount(s) paid towards leave travel concession/conveyance allowance. While deciding the matter in the favour of assessee-employer the Hon'ble court ruled that in the absence of any specific requirement under the law or CBDT circular in this regard assessee-employer is under no statutory obligation to collect the evidence to show that its employees had actually utilized the amounts paid towards leave travel concession/conveyance allowance. The relevant extract of the decision is reproduced as under: "2. It may be noted that the beneficiary of exemption under section 10(5) is an individual employee. There is no circular of Central Board of Direct Taxes (CBDT) requiring the employer under section 192 to collect and examine the supporting evidence to the declaration to be submitted by an employee(s)." 12. Reliance is also placed on the judgement of Hon'ble High Court of Gujarat in the case of CIT vs. Oil and Natural Gas Corporation Ltd. [277 Taxman 284 (Gujarat)] wherein it was held that Self-certification by employees that they had incurred expenditure towards uniform was sufficient for assessee employer not to deduct TDS on reimbursement made by it to said employees tow....
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....ng such exemption that is to be fulfilled by him. Whether the employee is able to substantiate his claim to exemption has no bearing on the estimate of income liable to tax to be made by the employer. Under the circumstances, there is no legal infirmity in the impugned order passed by the Tribunal in placing reliance upon the above circular for holding that self-certification on the part of the employees was adequate for the assessee not to deduct tax from the reimbursement allowance towards expenditure incurred for uniforms." 13. Same ratio was upheld by the co-ordinate bench at Delhi in the matter of Hero MotoCorp Ltd. vs. ACIT [156 TTJ 139 (Delhi - Trib.)] wherein it was held that allowance fixed by assessee-company for foreign travel of employees and directors, as per grade was reasonable, but all vouchers could not be produced due to practical difficulties in submitting bills of petty expenses, amount could not be disallowed. The relevant extract of the decision is as under: "51.15 The assessing officer in this case has not doubted the fact that employees/ directors of the company travelled abroad and the fact that they have incurred incidental expenses in foreign ....
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....and as per the conveyance reimbursement policy (reproduced above at para 9) he is entitled to conveyance reimbursement of Rs. 400/- per day (for intra-city movement) and Rs. 1,050/- per day for inter-state movement. During the month the employee was granted intra-state conveyance reimbursement for 19 days and inter-state reimbursement for 5 days aggregating to Rs. 12,850/- [Rs. 400 X 19 + Rs 1,050 X 5]. Therefore, it can be said that the travelling and conveyance reimbursement amount depends upon the travelling of the employee/MR, the more travelling they do on behalf of the company more will be the amount of reimbursement. This can be proved by the fact that Mr. Sudarshan was paid travelling and conveyance reimbursement of Rs. 22,941/- during the month of October, 2016 as against the reimbursement of 40,773/- in the month of February, 2017, as discussed above. Above proves that, the employee reimbursement claims were not mere formality but were subjected to checks and balances placed in the system by the management of the Appellant company, where the excess claims made by the employee were appropriately reduced. In the light of the above it can be said that AO failed to understand....
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....g adhoc disallowance of 80 percent of the total travelling and conveyance expenses of Rs. 18,73,43,027/-, on the ground that same were not supported by bills/voucher, failing to appreciate that the same were backed by self - certificates/ voucher of employees, which were passed after through examination/ verification / approval of multiple layers as per company standard policy. Consequently the conclusion of learned CIT(A) in restricting 20% ad-hoc disallowance, is not sustainable. The Ld. CIT(A)'s own finding at page 22 confirms that these expenses were examined and no specific defects were identified. Jurisprudence is clear: ad-hoc disallowance based on general suspicion or guesswork without pinpointing deficiencies is legally impermissible. The learned CIT(A) has also erred in concluding that certain employee reimbursement claims were reduced by higher management, implying possible excess claims. However, any such excess initially claimed cannot render the employer liable for alleged personal or non-business expenditure. There is force in the contention of ld. AR, that even assuming without admitting, that employees were reimbursed higher than the actual expenditure, even then t....