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November 2, 2023

Disallowance of overseas travel expenses justified because there is insufficient evidence of business necessity

Disallowance of overseas travel expenses justified because there is insufficient evidence of business necessity

Fact and issue of the case

This appeal has been filed against the order of CIT(A)-11, New Delhi dated 13.11.2017 for A.Y. 2012-13.

The grounds have been raised by the assessee are as follows:-

That the order of the learned CIT(Appeal) is bad both in law and on facts.

That the order of the learned CIT(A) on the issue of holding statutory deduction claimed u/s 24(a) as income to tax as “income from other sources” is perverse in as much as he has not classified the stand of granting depreciation which will only enhance the deduction in favour of the appellant.

That the learned CIT(A) has not distinguished the facts of the assessee’s case as noted by the Hon’ble apex court decision relied upon by the appellant before it at the time of hearing of the appeal.

That the learned CIT(A) has therefore not complied with the provision of section 251 of the Income Tax Act ,1961 and the issue be decided in favour of the appellant on the facts and circumstances in confirmedly with the squarely applicable facts as rendered in the case of Raj Dadarkar & Associates VS. ACIT(2017)81 taxman.com 193(SC).

That the Id. CIT(A) has erred in holding the sum of Rs. 16,84,235/- to be disallowed us 40(a) (ia) patently wrong on assumptions & presumptions without pointing out contradiction in the submission of the appellant assessee before it. The “cost of sales ” cannot be covered by the provision of section 194C(6) & 194C(7) as erroneously discovered by him. There was no contract to be filled by applying the provision o f section 194C at all. The same be directed to be deleted.

That the learned CIT(A) has erred in holding the expenditure incurred on foreign travel by the employees and partners for non-business purpose by disallowing the claim of Rs. 7,34,657/- is patently incorrect as the assessee is an exporter and had to travel abroad for for exhibiting the products exported where orders are received for conducting the business of the assessee in the impugned year. The same should have been allowed in full.

That the learned CIT(A) has erred in confirming the addition u/s 68 inspite of having verified the identity, credit worthiness and genuinity of the credits in the capital amount of the partner being amounts transferred from the partners mother in the same branch of the bank. The learned CIT(A) has misinterpreted the facts of the assessee’s case inspite of having been furnished with written submission. The addition is therefore without any basis and should be deleted.

Observation of the court

On careful consideration of above submissions, first of all, we note that undisputedly the assessee firm received capital contribution of Rs. 67,45,000/- from Shri Dinesh Kumar Gaind during the relevant period. From the order of ITAT Delhi Bench in the case of Alliance Engineers and Construction vs. ACIT (supra) para 17 is relevant to note that wherein the Tribunal held that when a partner introduces the money/capital in the firm either in the shape of capital or loan to the partnership firm, addition, if any, can be made only in the hands of partner and not in the hands of partnership firm as long as the partner confirms to have invested towards capital or as loan to the firm. In the present case the assessee has filed documents at pages 2 to 35 of assessee paper book but we are unable to see any confirmation from the contributing partner Shri Dinesh Kumar Gaind confirming the capital contribution to the firm. The Assessing Officer and the ld. CIT(A) has noted detailed findings while confirming the addition u/s. 68 of the Act but they have not show cause the assessee to file relevant documentary evidence including confirmation etc. substantiating the claim of capital contribution. Therefore in our consider view the assessee should be allowed to explain his case before the Assessing Officer with the support of all relevant material, documentary evidence etc. Hence the issue of capital contribution by the partner is restored to the file of the Assessing Officer for readjudication of issue after allowing due opportunity of hearing to the assessee and without being influenced with the earlier order. Accordingly, ground no. 7 is allowed for statistical purposes.

In the result, the appeal of assessee is partly allowed for statistical purposes on grounds no. 5 & 7.

Order pronounced in the open court on 13.10.2023.

Read the full order rom here


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