In a recent decision, the Kolkata bench of the ITAT, while allowing business travel expenses to the assessee under section 37(1) of the Income Tax Act, held that the same can be allowed even on the basis of self-made vouchers considering the nature of the expenses.
The assessee-company- engaged in the manufacturing of allopathic medicines, had claimed deduction in respect of travel expenses. The assessing officer denied the claim by pointing out that the genuineness of the claim has not been established since the assessee had produced self-made vouchers in support of their claim.
The bench noted that though both the assessing authority and the first appellate authority had disallowed the claim suspecting the genuineness of the self-made vouchers, none of them had an opinion that the expenses had not been actually incurred. “In our view, it is very pertinent fact that collecting the external documentary evidence for each and every travelling cost is not realistic. It is because the nature of such expenses cannot be organized or systematically incurred for the purposes of the business. In such a situation, the reliance is placed to see the purpose for which it was incurred. If the purpose of travelling is found having nexus with the business and amount of such expenditure is reasonable then the issue of disallowance is not warranted.”
It was further noted that since the Act do not have any specific provision to allow tour expenses in connection with the business, the same has to be preferred in terms of section 37(1) of the Act subject to certain conditions, Firstly, Expenditure have to be in the nature of revenue expenditure—not in the nature of capital expenditure. Secondly,it must be laid out or expended wholly and exclusively for the purpose of business or profession. Thirdly, it must not be of the nature described in sections 30 to 36; and lastly, the expenditure should not be personal expenditure of the assessee.
“In the context of travel/tour expenses, Specially in the cases of non-corporate assessees like individuals, Hindu undivided families, firms and partnerships, these tests are generally applied rigidly/instinctively with a set mind that considerable personal benefit is derived from such expenses and hence, at least part of these should be disallowed, treating the same as non-business expense. This causes considerable hardship to the taxpayers involving them in unfruitful litigation.”
Allowing the expenditure to the assessee, it was noted that,the fact of expenditure was well established by the self-made vouchers but the lower authorities failed to bring any instance on record any unreasonableness in the amount of expenditure and the purpose for which it was incurred whether personal or commercial.
Read the full text of the order below.
