No Income Tax Deduction to Law Firm for Expenses incurred for Pleasure Tour by Counsels and Family: ITAT [Read Order]

The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has held that no income tax deduction can be given to the law firm, Luthra and Luthra for the expenses incurred by it for the pleasure tour by the counsels and their family members.

The Assessing Officer traveling expenses of Rs. 1,99,18,038/- claimed by the firm for foreign traveling expenses. It was claimed that the assessee firm provides services worldwide and for that purpose, it is needed to visit various places for client meetings, rendering services outside India, client development etc. the Assessing Officer noted that there is a personal element involved. He held that the assessee failed to establish that traveling expenses were incurred exclusively for the purpose of business and accordingly he disallowed 10% of the foreign traveling expenses, which was worked out to Rs. 19, 91, 803/-.

On the first appeal, the CIT(A) observed that the assessee claimed Rs. 30 lakhs for an advance made to M/s Tomas Cook for traveling by the Counsels of the firm and their family members to Beijing in the month of April 2010 which is not allowable under the IT Act.

Before the Tribunal, the assessee claimed that expenses are incurred for annual day event of the firm, but no documentary evidence of any kind has been produced before us, which could establish that the trip to Beijing was in relation to the business activity of the assessee.

Dismissing the claim, the Tribunal noted that the expenses have been incurred in relation to the extension of the stay, cancellation of the air ticket, bar party, photographers, smoothies ordered by Mrs. Gayathri Luthera in hard rock etc.

“Thus, in our opinion, the tour was for the entertainment of the counsels and their family members and it has not served any business purpose of the assessee firm. In the case law relied upon by the Ld. Counsel, disallowance was in relation to staff welfare expenses and for arranging a get-together of the employees along with the training session. In the instant case nothing has been brought on record that the trip was in relation to any business activity of the assessee firm, and thus ratio of the case law relied upon by the Ld. counsel is not applicable over the facts of the instant case. The assessee has failed to establish that the expenses were incurred wholly and exclusively for the Section 37(1) of the Income Tax Act, purpose of the business and thus same is not allowable under ” the Tribunal said.