Ajit Kumar Ganguly v. Assistant Commissioner of Income-tax, Cir.-1, Hooghly
[Citation -2007-LL-0320-5]

Citation 2007-LL-0320-5
Appellant Name Ajit Kumar Ganguly
Respondent Name Assistant Commissioner of Income-tax, Cir.-1, Hooghly
Court ITAT-Kolkata
Relevant Act Income-tax
Date of Order 20/03/2007
Assessment Year 2001-02
Judgment View Judgment
Keyword Tags personal expenditure • proprietary business • business expenditure • capital expenditure • chamber of commerce • business interest • capital nature • foreign tour • new business
Bot Summary: During the year under appeal, the assessee debited an amount of Rs. 1,39,723 as expenses on travel to People Republic of China as a trade delegate on behalf of Bengal National Chamber of Commerce Industries, which certified that the assessee represented the Brickfield Owners Association and was a member of BNCCI delegation which visited the Peoples Republic of China to promote trade and business cooperation between India and China. The Assessing Officer elaborately discussed various facts and reasons and also considered that as an alternate it may be in nature of capital expenditure or personal expenses of the assessee but it cannot be allowed as deduction under section 37 of the Income-tax Act as there was no business interest to undertake the journey and the expenses were not exclusively for the purpose of business. At the time of hearing the Ld. Counsel for the assessee reiterated the stand taken by him before the lower authorities and submitted that the assessee visited China as a member of trade delegation of BNCCI representing the Brickfield Owners Association of which he was the then President. Disputing stand of the Assessing Officer that these expenses can only be categorized as capital expenditure or personal expenditure, the Ld. Counsel for the assessee argued that a business trip as a member of the business delegation can never be equated with a personal tour and, therefore the question of expenses on foreign travel cannot be categorized as personal expenses. The Ld. Counsel for the assessee further submitted that the assessee did not go to China with the aim of setting up of a new business these expenditure on foreign tour cannot be capitalized as part of a fresh investment. Concluding his argument the Ld. Counsel for the assessee submitted that the expenditure incurred by the assessee for foreign tour was allowable in nature and the same may be allowed. The Ld. Counsel for the assessee by relying on the various case laws which have been mentioned by us in earlier paragraphs has been able to make out a case that for allowing expenses of a foreign trip it is not necessary that it should result in introduction of new methodology as observed during the course of such visit for the business of the assessee or increase in production must result because of the foreign tour undertaken by the assessee.


assessee has preferred this appeal against order of Ld. CIT(A) dated 15-11-2006 for assessment year 2001-02 on following sole ground: "For that Ld. Commissioner of Income-tax (Appeals) XXXVII, Kolkata gravely erred in upholding decision of Ld. Assessing Officer of disallowing expense of Rs. 1,39,723 incurred on account of tour to Peoples Republic of China as delegate of Bengal National Chamber of Commerce & Industries, observing that same was not expended wholly, necessarily and exclusively for purpose of business under section 37 of Income-tax Act, 1961 and his purported findings on that behalf are altogether arbitrary, baseless, unwarranted and perverse." 2. Brief facts of case are that assessee is engaged in business of manufacturing and trading of bricks. During year under appeal, assessee debited amount of Rs. 1,39,723 as expenses on travel to People Republic of China as trade delegate on behalf of Bengal National Chamber of Commerce & Industries (In short BNCCI), which certified that assessee represented Brickfield Owners Association and was member of BNCCI delegation which visited Peoples Republic of China to promote trade and business cooperation between India and China. Assessing Officer examined object of journey, relevance for business of assessee and came to conclusion that this expenditure cannot be allowed as deduction under section 37. Assessing Officer elaborately discussed various facts and reasons and also considered that as alternate it may be in nature of capital expenditure or personal expenses of assessee but it cannot be allowed as deduction under section 37 of Income-tax Act as there was no business interest to undertake journey and expenses were not exclusively for purpose of business. He was also of view that as there was no adoption of new methodology following such visit nor any direct benefit resulted therefrom and further held that, such expenses were at best be personal or capital nature which cannot be debited in P & L Account. He, therefore, disallowed this amount of Rs. 1,39,723 and added it to income of assessee. This action of Assessing Officer stands confirmed by Ld. CIT(A). 3. Aggrieved by these orders of lower authorities assessee is in appeal before us. 4. At time of hearing Ld. Counsel for assessee reiterated stand taken by him before lower authorities and submitted that assessee visited China as member of trade delegation of BNCCI representing Brickfield Owners Association of which he was then President. Neither Brickfield Owners Association nor BNCCI paid for cost of visit to China and each member of delegation was asked to bear his own expenses and as such expenses so incurred by assessee were debited to in his P&L Account. It is undisputed fact that during visit to China in January, seminars and meetings were attended concerning businesses of manufacture of tools, machinery, bricks etc. at which there was exchange of views and discussions as to how manufacturing of such items is carried out. Two factories, where bricks were manufactured, were also visited by assessee n d he studied mechanical and electrical system of production adopted there. Assessing Officer did not dispute this fact but only proceeded on basis that since these methods have not been applied by assessee in his proprietary business of manufacturing and trading of bricks, requirement of clause "purpose of business" have not been satisfied and, therefore, disallowed this expenditure. Ld. Counsel for assessee further submitted that there was no requirement in law that visit to foreign country must result in improvement of business carried on in India and compulsory incorporation of changes as observed during course of such visit. assessee undertook expenses of foreign tour to study methods of manufacture in operation in China and any changes can be adopted in India only if they were cost effective and viable within parameters of all circumstances obtaining and laws governing conduct of such enterprise bearing in mind repercussions to be faced from labour and feasibility of arrangements of power etc. assessee could not adopt mechanical methods in operation in China as they were not suitable in current business environment at time. Thereby expenses incurred in connection with such foreign tour did not become inadmissible. Relying on decision of Honble Andhra Pradesh High Court in case of CIT v. S. Krishna Rao [1970] and submitted that in order that such expenses be admissible as deduction, there is no requirement that introduction of new method or increase in production must result because of foreign tour. Disputing stand of Assessing Officer that these expenses can only be categorized as capital expenditure or personal expenditure, Ld. Counsel for assessee argued that business trip as member of business delegation can never be equated with personal tour and, therefore question of expenses on foreign travel cannot be categorized as personal expenses. Where Assessing Officer disallowed deduction on ground that assessee had chosen to go as delegate of association though association was not willing to meet expenditure and no direct benefit resulted it was held that expenses incurred for such foreign tour was rightly allowed as business expenditure by Honble Andhra Pradesh High Court in S. Krishna Rao (supra). Ld. Counsel for assessee further submitted that assessee did not go to China with aim of setting up of new business, therefore, these expenditure on foreign tour cannot be capitalized as part of fresh investment. Concluding his argument Ld. Counsel for assessee submitted that expenditure incurred by assessee for foreign tour was allowable in nature and same may be allowed. 5. On other hand, Ld. Departmental Representative relied on orders of lower authorities. 6. Heard both parties, perused records and find force in contention of Ld. Counsel for assessee. While perusing papers enclosed by Ld. Counsel for assessee in his paper book, we find certificate from BNCCI dated 11-9-2003 which reads as under: "TO WHOM IT MAY CONCERN This is to certify that Shri Ajit Kumar Ganguly of Bengal Brickfield Owners Association, body affiliated to Chamber, was member of BNCCI Delegation which visited Peoples Republic of China during June 25 - July 4, 2000, under leadership of Shri B. N. Kumar, then President of Chamber, and interacted with various organizations for promotion of trade and business cooperation between India and China. Sd/- D.P. Nag Secretary" 7. It is clear from this that foreign tour of assessee was neither personal nor for purpose of setting up new business therefore, Assessing Officer as well as Ld. CIT(A) were wrong in holding that expenses incurred can at best be treated as capital expenditure/personal expenditure. Ld. Counsel for assessee by relying on various case laws which have been mentioned by us in earlier paragraphs has been able to make out case that for allowing expenses of foreign trip it is not necessary that it should result in introduction of new methodology as observed during course of such visit for business of assessee or increase in production must result because of foreign tour undertaken by assessee. In light of these facts and legal position on issue, we have no hesitation in holding that Assessing Officer and Ld. CIT(A) were not right in making this disallowance of Rs. l,39,723 on account of expenses incurred on foreign visit to China by assessee as delegate of BNCCI and same is, therefore, deleted. 8. In result, appeal filed by assessee is allowed. *** Ajit Kumar Ganguly v. Assistant Commissioner of Income-tax, Cir.-1, Hooghly
Report Error