Case Law Details
Arms Communications Pvt. Ltd Vs ACIT (ITAT Delhi)
In the case of Arms Communications Pvt. Ltd Vs ACIT, the ITAT Delhi has permitted the deduction of foreign travel expenses of the directors, contending that such expenses directly contribute to business advancement. The decision overrules a prior disallowance of the expenses, acknowledging the business necessity of the directors’ foreign travel.
The initial disallowance was due to the Assessing Officer’s belief that the foreign travel expenses, amounting to Rs.9,15,702, were personal in nature rather than business-related. The officer contended that the assessee had not sufficiently demonstrated how the foreign visits were for business purposes.
However, upon appeal, the ITAT Delhi noted that the directors’ travels to local places abroad could potentially enhance the company’s business prospects. The company, which operates in the advertising sector, reasoned that such tours are integral to the exploration of potential shooting or advertisement locations and meeting with clients, subsequently aiding the development of advertisement campaigns. Given these business-related reasons and the nature of the company’s operations, the ITAT Delhi concluded that the foreign travel expenses are indeed deductible.
FULL TEXT OF THE ORDER OF ITAT DELHI
The present appeal has been filed by the assessee against the order of ld. CIT(A)-I, New Delhi dated 04.01.2019.
2. The assessee has raised the following grounds of appeal:
“1. That in the facts and circumstances of the case, the ld. CIT(A) has erred in confirming the disallowance made by the AO out of travelling expenses on account of foreign travel of Rs.9,15,702/-.”
3. The observation of the Assessing Officer on this issue is as under:
“During the examination of travelling expenses, it revealed that expenses debited under the said there are ‘Foreign Travel expenses to the tune of Rs.9,15,702.00. The said expenses appeared to be personal in nature and not incidental to business. The assessee vide order sheet entry dated 04.12.2017 was asked to justify the same. The bills and vouchers produced were put to test check.
It revealed that the bills and vouchers in respect of Foreign Travel are in the name of Ms. Devika Nayyer and Ms. Anisha Sigh. Both the said persons are Directors in the company. On confronting the AR contended that the travel had been undertaken to meet with client and study possible local places etc. for potential shoots/advertisements. These are important to provide alternative to clients while preparation of “Pitch”, as part of advertisement campaigns. The visits have been made only in furtherance of business and cannot be considered as excessive.
The above submission has been considered. It revealed that the assessee has not substantiated with material that how the Foreign visit was for business purposes. Therefore, it cannot be taken that the expenses debited Rs.9,15,702 are incidental to business.
Therefore, the same are disallowed and added to the total income taking as personal in nature.”
4. We find from the Assessment Order itself that the assessee has explained the compulsion and utility of such tour for business purpose. The assessee is in the business of advertising with a returned income of Rs.48,97,260/- on 29.09.2015. It was the Directors of the company who have visited the local places which would augment and aid the business prospects. Hence, in the facts and circumstances of the instant case, we hold that the amount be treated as a deductible expenditure.
5. In the result, the appeal of the assessee is allowed.
Order Pronounced in the Open Court on 07/06/2023.
