The case of Late Sudhir Kapoor, represented by his legal heir Rita Kapur, brings into focus the contentious issue of disallowance of travel expenses. Filed on February 5, 2019, this appeal contested the additions made by the Assessing Officer (AO) and the subsequent partial relief granted by the Commissioner of Income Tax (Appeals) [CIT(A)]. The assessment year in question is 2014-15, and the final judgment was pronounced by the Income Tax Appellate Tribunal (ITAT) Delhi Bench on August 11, 2022.
Late Sudhir Kapoor, proprietor of M/s. XLAR Enterprises, engaged in wholesale trading, filed his income tax return for AY 2014-15 on November 22, 2014, declaring an income of Rs. 44,43,230/-. The case was selected for scrutiny, and the AO determined the total income at Rs. 89,34,060/- on December 5, 2016. The AO’s order was primarily based on the disallowance of travel expenses, both domestic and foreign, which amounted to Rs. 73,34,377/-.
The appellant raised several grounds, primarily challenging the adhoc disallowance of Rs. 14,66,875/- out of the total travel expenses. The CIT(A) upheld the AO’s order, prompting the appeal to the ITAT.
During the ITAT hearing on July 26, 2022, the appellant’s counsel, Shri Navin Garg, reiterated that the disallowed expenses were legitimate business expenditures. The counsel emphasized that the appellant’s business involved importing goods from various countries, necessitating travel by employees, including Mr. Anuj Kapoor, whose travel expenses were disallowed despite him being an employee of the firm.
The Tribunal, comprising Shri Anil Chaturvedi (Accountant Member) and Shri Anubhav Sharma (Judicial Member), noted that the AO’s disallowance was based on assumptions rather than concrete evidence. The Tribunal acknowledged the appellant’s business nature, which required substantial foreign travel for importing goods.
The Tribunal observed that:
The Tribunal concluded that the disallowance of Rs. 14,66,875/- was unjustified and lacked substantive evidence. Therefore, the ITAT set aside the addition made by the AO and upheld by the CIT(A), allowing the appeal in favor of the appellant.
This case underscores the importance of substantiating disallowances with concrete evidence rather than adhoc assumptions. It highlights the necessity for the Revenue authorities to provide reasoned orders, particularly when disallowing business expenses.
The ruling also reinforces that legitimate business expenses, essential for the operation and growth of a business, should not be disallowed without just cause. This decision provides significant relief to taxpayers facing similar adhoc disallowances, ensuring that their business expenditures are recognized and respected.
The final order was pronounced in the open court on August 11, 2022, with the appeal of the assessee allowed, and the adhoc disallowance of travel expenses reversed.
The case of Late Sudhir Kapoor, represented by Rita Kapur, against the DCIT, Circle-II, Ghaziabad, sets a precedent for handling similar disputes involving business expenses and the importance of evidence-based disallowances.
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