Allowability of deduction towards Foreign travel expenses of director
There was an interesting case regarding the allowability of deduction towards Foreign travel expenses of director. It was before Chandigarh bench and the case was DCIT Vs. Oswal Garments Ltd.
The court observed that the tour undertaken by the Director of the assessee-company was as per the directions of the company to visit U.K., France, and Switzerland to study the export market and to explore the possibilities of export since the assessee was in the business of manufacturing hosiery goods, etc. The disallowance was made by the AO on account of non-submissions of the details of business talks held with the companies visited. The foreign exchange was released by the Govt. for undertaking such tour. The assessee had submitted complete details of the countries visited, names of the companies with whom the Director held the talks and the number of days spent. It was not necessary to furnish the details of the talks held. Thus, the AO was not justified for making the disallowance of Rs. 3,12,835 treating the expenditure was not for business.
Court concluded that Assessee having submitted complete details of the countries visited, names of the companies with whom the director held the talks and the number of days spent, AO was not justified in disallowing the expenditure on the ground that details of talks were not furnished.
DEPUTY COMMISSIONER OF INCOME TAX vs. OSWAL GARMENTS LTD.
ITAT, CHANDIGARH ‘A’ BENCH
Hemant Sausarkar, J.M. & Joginder Pall, A.M.
ITA No. 706/Chd/1998
29th November, 2002
(2002) 21 CCH 0450 ChdTrib
(2004) 1 SOT 0078
Legislation Referred to
Section 37(1)
Case pertains to
Asst. Year 1995-96
Decision in favour of:
Assessee
In favour of:
Assessee
Counsel appeared:
D.P. Dhankar, for the Appellant : M.L. Joshi, for the Respondent
ORDER
HEMANT SAUSARKAR, J.M. :
ORDER
The Revenue is in appeal against the order of CIT(A), Ludhiana, dt. 19th March, 1998, for the asst. yr. 1995-96 on the following grounds :
- (a) Both on the facts and in law, the learned CIT(A) has erred in allowing relief of Rs. 3,12,835 on account of foreign travelling expenses of Shri Rahul Oswal, director of the company, which was disallowed by the AO by considering these expenses incurred not for the purposes of the business.
(b) The CIT(A) has also erred in holding that the expenses incurred on account of foreign travel are covered by r. 6D(1) of the IT Rules, 1962 as foreign visit of the Director has not resulted in trade transactions of any kind with the countries visited by him.
(c) He has also failed to appreciate that the assessee failed to furnish any documentary evidence of either boarding/lodging abroad or minutes of business meetings authorising the foreign travel of the director or concrete evidence regarding meetings held with the foreign companies for business purposes during the course of his foreign visits.
- Briefly stated, the facts of the case are that the assessee filed its return of income for the asst. yr. 1995-96 for Rs. 42,450 on 30th Nov., 1995. The return was processed under s. 143(1)(a) vide D&CR No. 99 dt. 25th March, 1996 at Rs. 60,635 and refund of Rs. 4,83,376 was issued. In the Return of income, the assessee has claimed deduction under s. 80-IA @ 30 per cent While processing the case under s. 143(1)(a), it was observed that the assessee returned gross total income of Rs. 60,635 which includes income from other sources at Rs. 1,49,909 being interest received. After deducting the income from other sources, the assessee’s business income becomes negative i.e. Rs. 60,635—Rs. 1,49,904. Since there was no business income, therefore, the assessee does not become entitled to claim deduction under s. 80-IA. Therefore, while processing the case under s. 143(1)(a), the AO disallowed the deduction under s. 80-IA.
2.1 During the assessment proceedings, the assessee filed details of interest income received. Interest income has been received from the funds given on loan to M/s Oswal Exim Trade Ltd. Since giving funds on loan is not the business of the assessee, interest income received against loan and on TDS refund, is income of the assessee from other sources. So, the assessee was disallowed deduction under s. 80-IA being no income from business.
The assessee-company has been doing fabrication work for domestic market. Till date, no foreign exports has been carried on by the assessee. The expenditure incurred on foreign tour by the Director for asst. yr. 1995-96 related to the air ticket fare for Rs. 1,04,810, value of foreign currency for Rs. 208,025. Since the assessee has not given names of the foreign companies where he has visited for the business purposes and business talks, the AO concluded that the expenditure incurred on foreign tour by the assessee-company was not for the business purposes and hence, the same was disallowed. The AO while completing the assessment under s. 143(3), made addition on account of foreign travel expenses and computes total taxable income at Rs. 373,570. The AO further directed for initiating penalty proceedings under s. 271(1)(c) while issuing the assessment order dt. 30th Sept., 1997.
2.3 The first appellate authority allowed a relief of Rs. 3,12,835 while allowing the appeal of the assessee.
2.4 Now in appeal before us, learned Departmental Representative submitted that the AO disallowed the expenditure on foreign tour only on account of cogent of evidence i.e. the names of the companies where the Director of the assessee-company visited and the business talks held being not substantial averments. The learned Departmental Representative relied on the order of the AO.
2.5 Learned Aurthorized Representative for the assessee, on the other hand, submitted before us that the assessee was in the business of manufacturing of woollen garments, in addition to the job work for its sister companies.
In the course of business in order to explore the possibility of export, Shri Rahul Oswal, Director of the Company was deputed to study the overseas market. The visit was as per the directions of the company. The visit was with a view to export hosiery goods to European countries. The expenditure incurred on air ticket fare, value of foreign currency incurred was a matter of record which was submitted before the AO. The tour was undertaken by the Director of the assessee-company to U.K., France, Switzerland to study the export market and as such, the tour was fully for business purposes and in the interest of the assessee-company. Learned Aurthorized Representative for the assessee relied on the CBDT Circular No. 4(C) issued vide No. 27(3)-IT(50) dt. 19th June, 1950.
2.6 We have heard both the parties and perused the records. It is observed that the tour undertaken by the Director of the assessee-company was as per the directions of the company to visit U.K., France, and Switzerland to study the export market and to explore the possibilities of export since the assessee was in the business of manufacturing hosiery goods, etc. The disallowance was made by the AO on account of non-submissions of the details of business talks held with the companies visited. The foreign exchange was released by the Govt. for undertaking such tour. The assessee had submitted complete details of the countries visited, names of the companies with whom the Director held the talks and the number of days spent. It was not necessary to furnish the details of the talks held. Thus, the AO was not justified for making the disallowance of Rs. 3,12,835 treating the expenditure was not for business. We, therefore, find no justification to disturb the findings given by the learned CIT(A) in his appellate order.
- In the result, the appeal filed by the Revenue is dismissed and allowed in favour of the assessee
