Balkrishna Live Stock Breeders Pvt. Ltd. Vs ACIT (ITAT Bangalore)
Held that foreign travel directly relating to securing the capital investment in the assessee’s business is capital in nature. Accordingly, such expenditure is not allowable expenditure u/s 30 to 38 as expenditure is not laid down wholly and exclusively for day to day operation of the assessee’s business.
Facts-
During the course of scrutiny, the assessee was served with a show cause notice proposing among other things to disallow the foreign travel expenses. The company had been looking to expand / explore opportunities outside country especially in Middle East since their operations in India are restricted by their franchise agreement. The travel cost was primarily incurred for travel to Middle East and a few poultry seminars held outside the country. The assessee has claimed the initial expenditure on travel for exploration of new markets and business opportunities outside the country as a legitimate expenditure of the Company expended wholly and exclusively for the purpose of business which are admissible u/s 37(1) of the Income-tax Act,1961.
Conclusion-
In our opinion, carrying out foreign travel directly relating to securing the capital investment in the assessee’s business and this expenditure incurred by the assessee cannot be in the revenue nature. On the other hand, it is capital in nature. Being so, it cannot be allowed u/s 30 to 38 of the Act as this expenditure has not been laid down wholly and exclusively for the purpose of assessee’s business in day to day operation of the same. Hence, said expenditure is not to be treated as a revenue expenditure while computing income of the assessee.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This appeal by assessee is directed against order of CIT(A), NFAC Delhi dated 23.9.2021 for the assessment year 2017-18. The assessee has raised following constructive grounds:-
2. The learned CIT(A) ought to have appreciated that the Appellant is carrying on business for several years and the expenditure towards foreign travel was incurred for exploiting the expansion of business 111 foreign countries and accordingly ‘die expenditure incurred was \ incidental to ‘the business and thus was liable tobe allowed as revenue expenditure under Section 37(1) of the Act.
3. The learned CIT(A) failed to appreciate that the expenditure incurred was for the expansion of the business and not towards setting up of a new business to justify upholding thedisallowance as made by the AO.
4. The learned CIT(A) ought to have appreciated that the case law cited fully supported the claim of the Appellant and accordingly he ought to have allowed the expenditure.
5. Without prejudice, the disallowance as upheld by the learned CIT (A) is arbitrary, excessive and ought to be reduced substantially.
2. The crux of above grounds is with regard to the disallowance of sum of Rs.13,51,168/- incurred towards foreign travel by assessee.
3. Facts of the case are that the appellant is a Private Limited Company, engaged in the business of hatchery and was dealing in layer operations during the year. The assessee had filed its return of Income for the assessment year 2017-18 declaring a net assessable loss of Rs. 17,15,042/-. The case was selected for scrutiny and during the course of the hearing, the assessee was served with a show cause notice proposing among other things to disallow the foreign travel expenses. The company had been looking to expand / explore opportunities outside country especially in Middle East since their operations in India are restricted by their franchise agreement. The travel cost was primarily incurred for travel to Middle East and a few poultry seminars held outside the country. The assessee has claimed the initial expenditure on travel for exploration of new markets and business opportunities outside the country as a legitimate expenditure of the Company expended wholly and exclusively for the purpose of business which are admissible u/s 37(1) of the Income-tax Act,1961 [‘the Act’ for short]. One of the leads resulted in a business opportunity in the form of a joint venture in Oman, namely Dar Al Tomouh Projects, LLC (DATP). The Joint venture initially crystalized in Septembe,r 2016 and the actual investment was made on February 28, 2017. However, the travel costs incurred after September, 2016 were not claimed by the assessee as an expenditure and the same was recovered from the investee company.
