ITAT: Promotion & Tour Expenses by Partners for Discharging Firm’s Duties Not Disallowed

The Income Tax Appellate Tribunal (ITAT) Delhi Bench recently issued a ruling stating that the expenses incurred for business promotion and tour travel undertaken by firms to fulfil professional duties as partners should not be disallowed.

Bharat Anand, a full-time practising lawyer, became a Partner at Khaitan Co. Advocates Solicitors, located in New Delhi. Subsequently, the firm was converted into an LLP and renamed Khaitan Co. LLP. The assessee conducts all professional work on behalf of this firm.

Although KCO is associated with Khaitan Co. LLP, the assessee’s professional assignments for KCO are part of his role as a partner of the firm. There is no employer-employee relationship between him and KCO.

During the assessment process, the Assessing Officer (AO) disallowed the business promotion and tour travel expenses claimed by the assessee.

Unsatisfied with the decision, the assessee appealed to the Commissioner of Income Tax (Appeals), who dismissed the appeal. Consequently, the assessee filed a second appeal before the tribunal.

The assessee’s counsel, B. K. Anand, argued that these expenses were incurred to promote the firm and fulfil professional duties as a partner.

Read Also: ITAT: Re-adjudication to AO for Disallowance Made Basis of Absence of Business Vouchers

On the other hand, the revenue’s counsel, Kanv Bali, contended that the assessee, as a partner in Khaitan Co. LLP, had a contractual arrangement with KCO, which negated the justification for claiming expenses related to business promotion and tour travel.

Moreover, according to Bali, any “business and promotion expenditure” should be incurred by KCO or Khaitan Co. LLP, as these entities are responsible for running the business.

The assessee claimed the expenditure against receipts from KCO, where the relationship is purely contractual. Consequently, the assessee is not obligated to incur expenses for “business promotion” or “tour travel” in such a situation.

After considering the arguments presented, the tribunal observed that the income earned by the assessee is part of their total professional income. This income includes the partner’s salary, interest on the capital balance in the firm, share in profit, and professional remuneration received.

Furthermore, the tribunal noted that the remuneration received by the assessee from KCO is part of their professional duties as a partner in Khaitan Co. LLP and does not stem from an independent agreement or employment with the said entity.

Consequently, a two-member bench comprising Dr B. R. R. Kumar (Accountant Member) and Yogesh Kumar US (Judicial Member) allowed the appeals filed by the assessee.