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Facts
The assessee claimed expenses for 'Travelling and Boarding Expenses'. The Assessing Officer disallowed 50% of these expenses, amounting to Rs. 11,10,110/-, citing insufficient documentation for the business purpose of the foreign travel to Iran. The CIT(A) upheld this disallowance.
Held
The Tribunal noted that similar disallowances in the preceding assessment year were restricted to 25%. Considering this precedent and the partial substantiation of the business purpose, the Tribunal directed the Assessing Officer to restrict the disallowance to 25% of the total expenditure.
Key Issues
Whether the disallowance of 50% of foreign travel expenses is justified when the business purpose is partially substantiated and similar past disallowances were restricted to 25%?
Sections Cited
250, 143(3), 143(1)
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Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD
Before: MS.SUCHITRA R. KAMBLE & SHRI MAKARAND V.MAHADEOKARShri Amit Pratap Singh, Sr.DR
आदेश आदेश/O R D E R आदेश आदेश
PER MAKARAND V.MAHADEOKAR, AM:
This appeal is filed by the assessee against the order dated 20.01.2025 passed by the Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter “CIT(A)”] under section 250 of the Income-tax Act, 1961 [“the Act”] for the assessment year 2016–17, arising from the assessment order passed under section 143(3) of the Act by the Income Tax Officer, Ward 1(1)(3), Ahmedabad on 24.12.2018.
Facts of the Case 2.1 The assessee is engaged in the business of import and export of chemicals and filed its return of income for A.Y. 2016–17 on 16.10.2016 declaring total income of Rs.11,06,742/-. The return was processed under section 143(1) and subsequently selected for scrutiny under CASS.
2.2 During the course of assessment proceedings, the Assessing Officer noted that the assessee had debited a sum of Rs.22,20,220/- towards “Travelling and Boarding Expenses” in the profit and loss account. The AO issued a show-cause notice dated 10.12.2018 proposing disallowance of 50% of the said expenses on the ground that the assessee had failed to justify the business purpose of the expenditure with adequate documentation. In response, the assessee filed submissions dated 18.12.2018 enclosing bills, invoices, and a copy of an email dated 08.06.2015 addressed to the Confederation of Indian Industry (CII), indicating its interest in joining the Business Delegation to Iran. The Assessing Officer held that the evidences furnished were general in nature and did not conclusively establish actual participation in the delegation or business purpose of the foreign travel. Accordingly, he disallowed 50% of the travel expenses, amounting to Rs.11,10,110/-, and added the same to the total income of the assessee.
2.3 The assessee carried the matter in appeal before the CIT(A), NFAC. The CIT(A), after considering the submissions, noted that the assessee failed to furnish any additional documentary evidence to substantiate the business purpose of travel. It was held that the burden of proof lay on the assessee to rebut the findings of the Assessing Officer. The CIT(A) upheld the entire disallowance of Rs.11,10,110/- and dismissed the appeal.
Aggrieved by the order of CIT(A), the assessee is in appeal before us raising following grounds of appeal before us:
1.1 The order passed by U/s.250 passed on 20.01.2025 by NFAC [CIT(A)], Delhi (for short CIT(A)" upholding the disallowances in respect of travelling expenses of Rs. 11,10,110/- made by A.O. is wholly illegal, unlawful and against the principles of natural justice. 2.1 The Id. CIT(A) has grievously erred in law and or on facts in upholding the disallowance in respect of travelling expenses of Rs.11,10,110/.
2.2 That the in the facts and circumstances of the ld. CIT(A) ought not to have upheld the disallowance in respect of travelling expenses of Rs.11,10,110/- It is, therefore, prayed that the disallowances of Rs. 11,10,110/- upheld by the CIT(A) may kindly be deleted.
During the course of hearing before us, the learned Authorised Representative reiterated the submissions made before the lower authorities and submitted that the disallowance pertains to the Director's travel to Iran in connection with a CII-organised Business Delegation. It was argued that partial documentation including communication with CII and invoices had been submitted, and the expenditure was wholly and exclusively incurred for the purpose of business.
4.1 The AR further contended that the issue is squarely covered by the decision of the Co-ordinate Bench of this Tribunal in assessee’s own case for A.Y. 2013–14 in wherein under similar circumstances, the disallowance of foreign travel expenses was restricted to 25% of the total claim.
The learned Departmental Representative relied on the order of Assessing Officer.
We have considered the rival submissions and perused the material on record. It is not in dispute that the disallowance of Rs. 11,10,110/- represents 50% of the total travelling and boarding expenses of Rs. 22,20,220/-, incurred by the assessee during the year. The Assessing Officer disallowed the same on the ground that business purpose of the travel, specifically the foreign travel of the Director to Iran under the banner of CII Business Delegation, was not adequately established through supporting documentation. It is also noted that in the immediately preceding assessment year (A.Y. 2013–14), under similar facts and circumstances, the Co-ordinate Bench of this Tribunal, in the case of Archi Exim Pvt. Ltd. v. ITO in order dated 14.02.2025, upheld the restriction of disallowance to 25% of the foreign travel expenses. The relevant finding of the Tribunal is extracted below:
"… the CIT(A) has disallowed 25% of the confirmed total expenses after taking into account past history of the expenses and in consonance with the business acquired by the assessee from the foreign parties. Therefore, the disallowance out of travelling expenses made by the Assessing Officer and the 25% confirmed by the CIT(A) is accordingly sustained."
6.1 In the present case, the Director’s visit to Iran was undertaken in connection with the CII Business Delegation, which, though not supported by complete evidence of actual participation, has been substantiated in part through contemporaneous correspondence and submission of invoices. The business nature of such international engagement is not disputed by the Department, and in our considered opinion, some benefit of doubt is warranted. In view of the consistent approach taken by the Co-ordinate Bench in assessee’s own case, and considering the principle of judicial discipline, we find it appropriate to follow the earlier decision and restrict the disallowance to 25% of the total expenditure.
6.2 Accordingly, we direct the Assessing Officer to restrict the disallowance to Rs.5,55,055/- (i.e., 25% of Rs.22,20,220/-) and delete the balance disallowance of Rs.5,55,055/-.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the Court on 12th August, 2025 at Ahmedabad.