Disallowance made for foreign visit travel expenses, delegate fee and related expenses incurred for the spouses of the chartered accountant partners upheld by ITAT Mumbai.
Case Law Details:
ITA No. 5088/Mum/2014 Assessment Year : 2010-11
M/s. Sharp & Tannan vs. ACIT
Date of Judgment/Order: 29/04/2016
Brief Facts of the Case:
The assessee was a firm of Chartered Accountants. The assessee’s source of income consisted of income from business or profession and income from other sources. For the relevant assessment year, the assessee had claimed expenses of Rs. 12,22,557/- towards sundry expenses and Rs. 8,72,600/- towards foreign travel. The assessee was asked by the Assessing Officer to submit documents in support of the claim of those expenses. The assessee submitted only break-up of the expenses without any supporting bills/vouchers. The AO holding that in view of the nature of expenses, personal expenses cannot be ruled out, disallowed 20% of the expenses as under:
Rs. 2,44,511/- being 20% of Sundry expenses, and
Rs. 1,74,520/- being 20% of Sundry expenses
Aggrieved by the orders dated 30-11-2012 passed by the AO u/s 143(3) of the Act , the assessee preferred an appeal before the CIT(A).
The assessee firm submitted supporting bills and vouchers were before the CIT(A) who called for the remand report from the AO under Rule 46A.
The AO furnished his comments in remand report that expenses of Rs. 45,000/- in respect of Diwali sweet and Pooja expenses, snacks, it was observed that though the bills are on record, the expenses are not incurred wholly and exclusively for business purpose. Water charges, wedding expenses and staff welfare expenses are supported by self made vouchers, the AO in remand report observed that the element of personal usage cannot be ruled out
In reply to remand report proceedings of the AO, the assessee submitted before the CIT(A) that the assessee was a professional firm of eleven partners who were chartered accountants, 55 employees and consultants and 65 articled clerks. On the occasion of Diwali Pooja performed in the office and attended by the partners, employees and consultants along-with their spouses, diwali sweet and pooja expenses were incurred which as per the assessee cannot be held to be non-professional purposes since the employees and their family members have been traditionally participating in the said pooja and look forwards for this event and receiving sweets. Therefore, these expenses must be considered to be part of staff welfare. With respect of the water charges expenses, it was submitted by the assessee that the expenses of Rs. 33,480/- towards cost of mineral water and balance expenses of Rs. 1,10,350/- is to be paid towards leave and license agreement. Wedding gift of Rs.17,506/- represents chandlas/gifts given to the employees of the firm or business contacts on the occasion of their children’s marriage. Similarly, for staff welfare expenses, most of these expenses are in the nature of reimbursement of expenses like washing allowance of Rs.10,100/-paid to peons since they attend to outdoor work. Conveyance expenses of Rs. 2,03,400/- reimbursed to audit staff and tea, snacks , lunch expenses of Rs. 75,110/- reimbursed to all persons for working on holidays or weekends or outdoor work during lunch time. Such reimbursements were made on the basis of office vouchers. Staff welfare expenses also include special allowance of Rs. 1,32,755/- paid to staff, as per the terms of employment paid along with monthly salary. Thus it was requested by the assessee that the entire additions of Rs.2,44,511/- be deleted.
Learned CIT(A) considered the submissions and held that certain expenses were supported by self made vouchers and certain expenses are in the nature of entertainment, element of personal usage cannot be ruled out and hence additions were restricted to Rs. 50,000/- instead of Rs. 2,44,511/-
Similarly with respect to the foreign travel expenses, the AO in the remand report held that the travelling expenses incurred by the assessee was supported by vouchers but personal element cannot be ruled out.
The assessee firm submitted that expenses on foreign travel included ‘spouses expenses’ Rs. 236218/- be allowed which consisted of airfare, visa fee and delegates fee for the spouse of three partners.
CIT(A) held that these expenses were incurred on the travel and related expenses of the spouses of the partners, which included cost of hotel accommodation and it is not explained by the assessee as to how the spouses of the partners were covered by the definition of ‘business purposes’ so as to make the said expenditure as allowable deduction.
Therefore it was held by the CIT(A) that it could not be held that the said expenditure was incurred wholly and exclusively for the purpose of business or profession and hence the disallowance was enhanced from Rs. 1,74,520/- to Rs. 2,36,218/-, vide orders dated 21.3.2014 passed by the CIT(A).
The assessee firm filed the second appeal before ITAT.
ITAT held that disallowance of Rs. 50,000/- out of sundry expenses of Rs.12,22,557/- was quite reasonable keeping in view the facts and circumstance of the case. Regarding foreign travel expenses incurred for the spouse of the chartered accountants partners, ITAT did not provide any relief.
However, it held that the disallowance of foreign travel expenses of Rs. 2,36,218/-, was enhanced by the CIT(A) without giving notice of enhancement of income to the assessee from Rs. 1,74,520/- as made by the AO. Therefore to that extent issue was set aside to the file of CIT(A) for fresh adjudication.
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