ITAT disallows unreasonable Foreign Travel Expense due to non-correlation between huge expenditure & increase in sales

ITAT disallows unreasonable Foreign Travel Expense due to non-correlation between huge expenditure & increase in sales

CA Ayushi Goyal | May 17, 2022 |

ITAT disallows unreasonable Foreign Travel Expense due to non-correlation between huge expenditure & increase in sales

ITAT disallows unreasonable Foreign Travel Expense due to non-correlation between huge expenditure & increase in sales

The issue in this appeal of the assessee is regard to the disallowance of foreign travel expenses amounting to Rs.4,35,627/- .

In this case, the Assessing Officer had disallowed foreign travel expenditure incurred by the assessee towards air ticket purchased for Director to travel to USA, London and also to Singapore on the ground that the assessee could not establish expenditure incurred towards foreign travel and business exigency. It was the explanation of the assessee that Directors have travelled to foreign countries in connection with business, which resulted in increase in turnover for the impugned assessment year.

ITAT observed that there was no dispute with regard to the fact that two Directors of the assessee company have travelled to USA, London and Singapore. Although, there is no direct nexus between the foreign travel expenses incurred by the assessee and business receipts from those destinations, but fact remains that there is an increase in turnover when compare to previous financial years. Therefore, it can be safely concluded that there is a business exigency in incurring foreign travel expenses by the assessee company. But, fact remains that there is no correlation between huge expenditure incurred for foreign travel and increase in volume of the business of the assessee.

Therefore, considering the facts and circumstances of the case, ITAT was of the view that a reasonable amount should be disallowed from the foreign travel expenditure incurred by the assessee and thus, it direct the AO to restrict the disallowance of foreign travel expenses to the extent of 50% of actual expenses incurred by the assessee.

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