The Income Tax Appellate Tribunal (ITAT), Bangalore bench has held that the foreign travel expenses relating to secure the capital investment in the business cannot be allowed as expenditure for the purpose of sections 30 to 38 of the Income Tax Act, 1961.
The assessee, M/s. Balkrishna Live Stock Breeders Pvt. Ltd, travelled to foreign countries so as to secure more sales in foreign countries in the product in which it is dealing. The assessee claimed that the assessee during this period April, 2016 to August, 2016 has carried out various market survey and met various dignitaries in foreign countries namely Oman, UAE, Bangkok, Doha, Bucharest and Thailand. Assessee also made visit to slaughter plant so as to establish similar slaughter center in India to maintain hygiene. It was contended that the travel cost was primarily incurred for travel to Middle East and a few poultry seminars held outside the country and the initial expenditure on travel for exploration of new markets and business opportunities outside the country as a legitimate expenditure of the Company expended wholly and exclusively for the purpose of business which are admissible under section 37(1) of the Income Tax Act,1961
The department, on the other hand, rejected the claim observing that the assessee has incurred expenditure not for carrying out the day to day business of the assessee and it was incurred towards secure the investment from foreign country for its business so as to create the capital asset and not directly linked to the day to day carrying of business of the assessee. Being so, the said expenditure cannot be allowed u/s 30 to 38 of the Act.
A bench of Shri Chandra Poojari, Accountant Member and Smt. Beena Pillai, Judicial Member observed that there is a documentary evidence that assessee entered into an agreement between the partners in Dar AI Tomouh Projects LLC on 27.2.2017 for securing various investments only as a share capital in the assessee’s company.
Rejecting the claim of the assessee, the Tribunal observed that “So there is direct nexus between assessee’s undertaking foreign travel and incurring expenditure and entered into collaboration agreement with the Dar AI Tomouh Projects LLC on 27.2.2017. Further, we have noted that the assessee furnished only supplementary agreement with the above party and not furnished the main agreement also. From this, we can infer that the assessee wants to hide the real intention of going abroad for going foreign countries and incurring expenditure. In our opinion, carrying out foreign travel directly relating to securing the capital investment in the assessee’s business and this expenditure incurred by the assessee cannot be in the revenue nature. On the other hand, it is capital in nature. Being so, it cannot be allowed u/s 30 to 38 of the Act as this expenditure has not been laid down wholly and exclusively for the purpose of assessee’s business in day to day operation of the same. Hence, said expenditure is not to be treated as a revenue expenditure while computing income of the assessee.”
Smt. Pratibha R appeared for the assessee.
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