By TIOL News Service

NEW DELHI, SEPT 12, 2017: THE issue before the Tribunal is - Whether expenses incurred on the Director's relocation to a foreign destination and his annual holiday with the family are to be construed as business expenses rather than perquisite. YES is the answer.

Facts of the case

The assessee company is engaged in providing services to its holding company, subsidiaries and its associates. In the year concerned, the assessee started trading of home appliances such as refrigerators and washing machines manufactured by its associate companies. The assessee filed its return of income at Rs. 15436200/-, but on assessment, the AO enhanced it to Rs. 22574110/-. The AO also made several disallowances such as - a) legal and professional expenses, b) advances written off, and c) travelling & conveyance expenses. The assessment order was then upheld by the CIT(A). The assessee also contested penalty proceedings initiated against it and claimed to have been denied a proper opportunity to present its case, and alleged violation of the principles of natural justice.

On appeal, the Tribunal held that,

++ during the year concerned the assessee claimed travelling and conveyance expenses and submitted details of such expenses. The AO held that there was a substantial increase in the expenses compared to previous year and further certain expenses had been paid through credit card and also for travelling of the family members of the staff. Hence, it was disallowed, and the same was confirmed by the CIT(A). The assessee submitted that traveling expenses of Rs. 16518633/- were paid for club expenses through credit card which are related to travelling expenses. An amount of Rs. 387584/- was paid for a Director, who is an employee of the company and his family members for travelling expenses and further Rs. 325170/- was also paid for air ticket for Tokyo. It was submitted that these expenses were incurred by the assessee for the relocation of employee, who are designated as directors by the company with their family as well as in connection with annual holiday of the directors. These expenses are in terms of employees employed with the assessee. The assessee is a subsidiary company of a Japanese company. Therefore, a person such as Director can be travelling for the purpose of business etc by the employee of the company to Japan and hence, these expenses are necessarily incurred for the purpose of business of the assessee. None of the expenditure of travelling are related to the share holder owners of the assessee company;

++ as the relocation expenditure and transfer expenditure which is incurred for the purpose of the business is not the perquisite in the hands of the assessee therefore, naturally they are not entering into the Form No. 16 issued to those employees. It was further stated that merely because FBT is not paid does not make the expenditure disallowable. The AO & CIT(A) have not appreciated the contention of the assessee in the right perspective and merely compared the increase in expenditure with the previous year and then disallowed the same. They have completely overlooked the fact that during the year company has started trading activities of refrigerators and washing machine. Hence the disallowance of Rs. 877940/- on account of travelling and convenience expenses merits being deleted.

(See 2017-TIOL-1246-ITAT-DEL)