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Income Tax Appellate Tribunal, DELHI BENCH ‘F’, NEW DELHI
This appeal by the assessee has been filed against the order of the CIT(A)--I, New Delhi dated 16.12.2013 was in first appeal no. 108/12-13 for AY 2010-11. Grounds raised by the assessed read as under :-
2 Pradip Baijal 1. Because on facts and in law and on grounds taken and basis adopted, the addition to the total income of the assessed on account of disallowance to the extent of Rs. 3,48,186/- is totally wrong, unjustified and illegal.
Because the Assessed has incurred expenses for the purpose of his profession/ occupation taxable under the head ‘ Business and profession’ . The ld. CIT(A) has failed to appreciate the nature of profession/occupation of the assessed and has not taken into consideration the supporting documents including the Auditors’ Report and books of accounts of the assessed.
Because the disallowance of expenditure has been made arbitrarily and without reference to any material on record.”
2. Apropos Ground no. 1 : The brief facts are that the Assessing Officer made addition of Rs. 10,97,582/- by alleging that these expenses are incurred for personal purpose by the assessed for his family members and the said amounts includes various expenses of personal in nature. The first appellate authority after considering the explanation and submissions of the assessee gave part relief and sustained the disallowance to the extent of Rs. 3,48,186/-.
3. The ld. Counsel of the assessed pointed out that the assessing officer without any justified reason made disallowance and after considering the explanation of the assessee, the CIT(A) granted part relief to the assessed. The ld. Counsel further submitted that the foreign transfer expenses of Rs. 93727/- was incorrectly disallowed by the authority below as the same was related to the profession of assessee. The ld. Counsel of the assessee submitted that the assessee supported consultancy 3 Pradip Baijal business as a Director of Noesis Strategic Consulting Services Pvt. Ltd. in the year 2007 and subsequently the assessee took independent consultancy work for ITU and World Bank and he was given advisory work by Vaishnavi Advisory Services (Pvt.) Ltd. and other consultancy firms. The ld. Counsel also explained that the assessee took work from MF Global Consultancy firm and made presentations in various countries regarding their investments in power sector in India and this work involved lot of preparation by the assessee and the travel expenses as well as advisory fees payment by advisory global. The ld. Counsel pointed out that travelling account ledger placed that page no. 53-54 of the assessee’s paper book shows travelling expenses incurred by the assessee and reimbursed by the clients and also shows remaining amount of travelling expense has been shown as closing balance which could not be reimbursed by the clients and the assessed claimed the same as professional expenses and there is no element of personal use or use by the family members by the assessee. Therefore, this expense has to be allowed to the assessee.
Replying to the above the ld. Departmental Representative strongly supported action to the AO and contended that since the impugned amount was not reimbursed by the clients of the assessed, therefore, the same was not pertaining to his professional activity and in this situation, the AO was quite justified in treating 4 Pradip Baijal the same as personal of in nature and not linked to the assessee’s professional receipt.
On careful consideration on above, we observe that the assessee has submitted ledger account of travelling expenses incurred by assessee from 28.4.2009 to 28.3.2010, (assessed’s paper book page 53-54) which shows that the assessee incurred travelling expenses through his bank card and receipt payments have been properly recorded. We also observe that the assessee incurred travelling expenses which has been reimbursed by the clients and after recording total amount of reimbursement there was a balance of Rs. 93.728/- which could not be reimbursed and the same was claimed by the assessee as foreign travelling expenses linked with his consultancy profession. The authorities below have not brought out any fact to show that the impugned amount was incurred by the assessee for his personal use or for his family members or the amount claimed is bogus or incorrect.
From relevant operative part 3.1 of the Assessing Officer, we observe that the Assessing Officer made this addition by the only alleging that travelling expenses claimed by the assessed which were not reimbursed to him by the said companies cannot be allowed and the AO treated the same of personal in nature and not linked to the assessee’s professional receipt. We are not in agreement with this conclusion because when the assessee is 5 Pradip Baijal offering to tax entire professional receipt from consultancy profession amounting more then Rs. 1.54 crores and if some amount of travelling expenses which could not be reimbursed from the clients and which is not expressly linked with his personal use or used by the family members then the same deserves to be allowed as professional expenses. Thus, we inclined to demolish conclusion to the authority below and direct the AO to allow the same as professional expenses.
The ld. Counsel further pointed out that the assessing officer disallowed Rs. 20,000/- which were incurred by the assessee for charges for preparation and filing of Income Tax Return for relevant AY 2009-10 to M/s. Madhur Investments without any justified reason and basis. The ld. Counsel also pointed out that admittedly and undisputedly assessed submitted audited financial statement of his income along with auditors report in form no. 3CB before the AO which could not be prepared without assistance of a professional, therefore, this expenses cannot be disallowed. The Ld. DR strongly oppose the contention of the ld. Counsel of the assessee, however, he could not controvert this fact that the assessee submitted audited financial statement along with auditors report in form no. 3CB and also filed income tax return showing the huge professional consultancy income. Therefore, the element of the expenditure incurred in this regard is allowable.
6 Pradip Baijal 8. In our considered opinion when the assessee is filing audited financial statements along with auditors report in form 3CB and had also filed Income Tax Return then the professional expenses on this account should be allowed and we direct the AO to allow the same.
On the issue of one third disallowance of Rs. 2,22,974/- i.e. Rs. 74,264/- for personal uses of telephone, car maintenance and car lease. The ld. Counsel submitted that there was no element of personal use of telephone and car, therefore, this disallowance cannot be held as sustainable. The ld. DR strongly supported the action of the AO and pointed out that the assessee has claimed entire expenses incurred on telephone and car and the element of personal use cannot be ruled out. Therefore, the AO was quite correct in making disallowance of 1/3rd of claimed expenditure.
On careful consideration of above submissions, we are of the view that on specific query from the bench. The Ld. Counsel of the assessee could not show us, the assessee was having any other telephone or car exclusively for his personal use. Therefore, the element of personal use cannot be ruled out and part disallowance in this regard is obvious. However, we made pointed out that the 1/3rd amount was disallowed is very high after careful consideration and entire facts and circumstances of the case, we are of the view that the 15% of the claimed expenditure would be 7 Pradip Baijal justified for making disallowance in this regard for the use of telephone and car by the assessee for his personal and family purposes. Therefore, the AO is directed to reduce the disallowance to the 15% of the total claim of the assessee on telephone, car maintenance and car lease. Accordingly, this issue is partly allowed in favour of the assessee.
Next issue for adjudication is the impugned addition is made by the AO on account of business promotion expenses by disallowing Rs. 1,60,194/- on the allegation that in absence of exact details as to link between these expenses and profession of the assessed. This expenditure cannot be allowed for tax purposes.
The ld. Counsel pointed out that the assessee has to meet various national and international clients on various locations including his consultancy office situated at Noida, India International Centre, Delhi Gymkhana Club Delhi and Noida Golf Club and for this purpose the assessee has to make payments to these entities as membership fee and bills of restaurant. The ld. Counsel also pointed out that when the assessed is offering Rs. 1.54 crores as professional fees for tax then the amount of Rs. 1.60 lakh is very meager amount towards meeting with the clients which cannot be disallowed on bald and vague allegations.
8 Pradip Baijal 13. The ld. DR oppose the contentions of the ld. Counsel of the assessee and supported the first appellate order by drawing our attention to para 3.4 of the order of the CIT(A).
On careful consideration on above submissions, we are of the view that the consultancy business. The assessed is required to meet various clients at his office and also at the other locations as per convenience of his clients. For this purpose, the assessed has used India International Centre, Delhi Gymkhana Club, Noida Golf Club for professional meetings and this fact has not been demolished by the authorities below. Even in the relevant part of 3.4, second part last page of the impugned order, we observe that the CIT(A) has noted that it is possible that he may be using these facilities, further, his professional interest but in absence of details to link these expenses with the profession of the assessee this amount is disallowed. The CIT(A) has not doubted the quantum of amount incurred by assessed but on the possibility of personal use this claim has been dismissed which is not a proper and justified approach of a tax authority. In totality of facts and circumstances of the case, we satisfied that when on one hand the assessee offering Rs. 1.54 crore income from consultancy business and if against said huge amount the assessed is claiming 1,60,194/- as business promotion expenses which was incurred for meetings various clients then the same cannot be disallowed on the basis of 9 Pradip Baijal surmises and conjectures without bringing out any allegation or element or fact of personal use. Consequently we direct the AO to allow the same as business and promotion expenses of the assessee.
To sum up the assessee’s appeal is allowed on the issue of travelling expenses, business promotion expenses and professional expenses and further the assessee’s appeal is partly allowed on the issue of part this disallowance of telephone, car maintenance, expenses and car lease.
In the result, appeal of the assessee is partly allowed in the manner indicated above. Order Pronounced in the Court on 18/07/2016.