Delhi HC Permits Travel Expenses as It is Related to Business and Not Personal by Directors

The Delhi High Court has ruled that the directors’ travel expenses were incurred for business purposes of the company.

In this case, the bench of Justice Rajiv Shakdher and Justice Girish Kathpalia observed that there was no evidence presented by the Assessing Officer (AO) to establish that these expenses were of a personal nature. Consequently, the AO’s decision to disallow travel expenses was deemed unjustified.

The AO had disallowed a portion of the travel expenses, amounting to Rs. 8,30,748, which constituted 70% of the total claimed by the assessee, while framing the assessment order under Section 143(3) read with Sections 153 and 153B of the Income Tax Act, 1961.

The assessee, aggrieved with the AO’s disallowance, appealed to the Commissioner of Income Tax (Appeals) (CIT(A)), who ruled in favour of the assessee, resulting in the deletion of the disallowance made by the AO.

The revenue department’s appeal against the CIT(A) decision before the Income Tax Appellate Tribunal was not accepted. Subsequently, the department filed an appeal under Section 260A of the Income Tax Act against the Tribunal’s order.

The department, relying on the assessment order, argued that the AO had the clarity in disallowing the travel expenses claimed by the assessee.

However, the court observed that the AO had disallowed 70% of the expenses without properly examining the materials involved.

The expenses in question covered hotel accommodation, air passage, and vehicles arranged by the assessee for its directors’ travel to various destinations, including Goa, Mumbai, Bangalore, Zurich, and Kuala Lumpur.

The Commissioner of Income Tax, Appellate (CIT(A)) observed that the Assessing Officer (AO) made a conclusion without adequately evaluating the material, stating that the expenses were of a personal nature. Consequently, the AO decided to disallow 70% of the total amount of Rs. 11,86,783, which amounted to Rs. 8,30,748.

The court agreed with the CIT(A) and the Tribunal, concluding that the expenses incurred by the assessee were indeed connected to its business interests.