prpri Foreign travel expense for commercial expediency allowable as deduction Reasonable foreign travel expenditure on grounds of commercial expediency allowable as deduction

Case Law Details

Case Name : DCIT vs. Nokia India (P) Ltd.(ITAT Delhi)
Appeal Number : ITA No. 2380/Del/2010
Date of Judgement/Order : 06.12.2017
Related Assessment Year : 2003-04
Advocate Akhilesh Kumar Sah

In DCIT vs. Nokia India (P) Ltd. (ITAT Delhi), ITA No. 2380/Del/2010 one of the ground taken by Revenue was that on the facts and circumstances of the case and in law, the CIT(A) erred in deleting the disallowance of Rs.57,23,201/- out of foreign travelling expenses made by the AO.

AO disallowed 20% of total foreign travel expenses during the year under consideration. CIT(A) recorded that for assessment year 2000-01 and 2001-02 the disallowance was restricted to 10% of the total expenses incurred for foreign travel, against which Revenue preferred appeal to Delhi ITAT. The Counsel of the assessee submitted that the issue stands settled by various decisions of this Tribunal in assessee’s own case from A.Y.s 1998-99, 1999-00, 2000-01, 2001-02 and 2002-03. He also submitted that, consistent view taken by Delhi ITAT for A.Y.s 2000-01 and 2001-02 has been upheld by Hon’ble jurisdictional High Court.

In respect of appeal by Revenue, the learned Members of the Delhi ITAT perused the submissions advanced by both the sides in the light of the records and decisions relied upon by Counsel in assessee’s own case for various A.Y.s placed in the paper book.

The Delhi ITAT in assessee’s own case has earlier observed as under:

“15. We have heard both the parties and perused record placed on record. Apropos ground no.1, we are of the view that assessee had filed sufficient evidence in the form of foreign travel expenses incurred by the assessee on its employees who went abroad to carry out business activities of the assessee in respect of various services relatable to software, maintenance etc. Apart from expenditure incurred on foreign tours of employees. CIT(A) has observed duration of stay, purpose of visit etc. In our considered view, assessee filed sufficient compliance to establish its claim that the foreign travel expenditure incurred on employees was in relation to business. CIT(A) has held that AO’s action was not proper. However, at the end of his order, without giving any reason has retained 10% by observation supra. Hence, an addition of 10% out of foreign travel expenses appears to be reasonable. Once, the AO;s findings are not found to be incorrect, then CIT(A) was under obligation to explain what he means by reasonableness. In our view, once the assessee discharged its burden and revenue does not rebut, the same in factual terms no disallowance called for. Hon’ble High Court in the case of SA Builders (supra) has held that the expression purpose of business has provided connotation and includes expenditure incurred for commercial expediency. In our view, assessee has established that the expenditure on foreign travel of employees was in the realm of commercial expediency. In view thereof, we hold that the assessee is entitled to the claim of travelling expenditure, 10% retained by CIT(A) is deleted. This ground of the assessee is allowed and revenue’s sole ground in this behalf is dismissed.”

Hon’ble High Court upheld the findings of Delhi ITAT, by observing as under:

“We find from the order of CIT as well as ITAT that the explanation given by assessee was that this provision was made on the basis of past experience and other relevant consideration. The very fact that the provision for lesser amount is made in spite of the fact that as well as had indicates in this issue would itself demonstrate that there was a proper application of mind on the part of the assessee in making this provision. Merely on this ground, the AO could not have disallowed the provision to the extent of 25% and thus the ITAT rightly allowed the entire provision towards warranty. We may also observe here that such provision has been made in preceding as well as subsequent AYs and has been allowed in full by the ITAT and affirmed by this Court. Therefore, no question of law arises.”

The Counsel submitted that, for the year under consideration, there has been no change in factual position in so far as foreign travel expenses are concerned. He submitted that for the year under consideration foreign travel expenses incurred were Rs.2,86,16,007/-. Further CIT(A) categorically observed that these expenses have been incurred in accordance with international travel policy of Nokia group, which regulates and facilitates the movement of personnel of the assessee across international locations, and there is no expenses which could be termed as not incurred for purposes of assessee company. From the submissions made by assessee before the authorities below, it appears that assessee has filed all the relevant details in respect of travelers and their status of employment with Nokia.

The learned Members of the Delhi ITAT held that we therefore do not find any reason to interfere with the consistent approach followed by CIT(A) which is supported by various orders of Delhi ITAT for various assessment years and which have been affirmed by Hon’ble jurisdictional High Court in appeal filed for A.Y. 2000-2001 and 2001-02. Accordingly the ground raised by Revenue was dismissed.

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