ITAT Upholds Allowance Of Foreign Travel Expenses, Says No Income From Visited Countries Alone Cannot Justify Disallowance

The Mumbai Income Tax Appellate Tribunal (ITAT) has upheld the deletion of disallowance of foreign travel expenses made against a company engaged in global management and financial consultancy services.

The court held that in the facts of the case, the expenditure could not be disallowed merely because no income was directly earned from certain countries visited during the relevant year where the taxpayer had produced material showing business purpose and nexus with its activities.

The case arose from an appeal filed by the Revenue against the order of the Commissioner of Income Tax (Appeals) in the case of Blend Financial Services Limited for Assessment Year 2018–19.

The company is engaged in providing global management and financial consulting services to corporates, banks, financial institutions, and sovereign enterprises and also renders technology-enabled and knowledge-based backend support services to its associated enterprise in Dubai on a cost-plus basis.

During the assessment proceedings, the Assessing Officer noted a substantial increase in foreign travel expenditure as compared to the preceding year. Upon examination, it was observed that directors and employees of the assessee had undertaken travel to multiple countries.

The Assessing Officer further observed that in several instances, no corresponding income had been earned from the countries visited during the year. On this basis, without identifying any specific instance of non-business travel or unverifiable expenditure, the Assessing Officer disallowed a sum of Rs. 1.11 crore, treating the same as not incurred wholly and exclusively for business purposes.

The Commissioner (Appeals), after considering the material on record, deleted the disallowance, holding that the Assessing Officer had failed to establish any lack of business nexus or falsity in the expenditure claimed.

Before the Tribunal, the Revenue contended that the Commissioner (Appeals) had erred in deleting the addition and had also allegedly admitted additional evidence without granting an opportunity to the Assessing Officer, thereby violating procedural provisions.

The assessee, on the other hand, reiterated that all relevant details were already furnished during the assessment proceedings and no additional evidence was admitted at the appellate stage.

It was emphasized that the travel was undertaken for legitimate business purposes, often at the behest of clients, and that a significant portion of the expenditure was reimbursed by the associated enterprise, clearly establishing the commercial expediency of such expenses.

The bench observed that the Assessing Officer had proceeded to disallow the expenditure on a blanket basis solely on the ground that no income was generated from certain countries, without examining the nature of the assessee's business or the purpose of the travel undertaken.

The bench stated that "Considering the nature of the assessee's business, which involves providing consultancy and advisory services to international clients, foreign travel by directors and employees cannot be regarded as unusual. The Assessing Officer has disallowed the expenditure on a blanket basis merely because no income was directly generated from certain countries during the year. Such reasoning, in our considered view, is not sufficient to disallow otherwise legitimate business expenditure."

The Tribunal stated that a disallowance based on broad assumptions, without identifying specific defects or non-business elements in the expenditure, is not legally sustainable.

The bench opined that "In the absence of any specific finding that the expenses were not incurred for business purposes or that the supporting documents were unreliable, the disallowance made by the Assessing Officer cannot be sustained."

In view of these findings, the Tribunal upheld the order of the Commissioner (Appeals) deleting the disallowance of Rs. 1.11 crore towards foreign travel expenses and held that the action of the Assessing Officer was unsustainable in law. The appeal of the Revenue was accordingly dismissed.

For Appellant: Advocate, Rajesh Sanghvi

For Respondent: Sr. Dr. Swapnil Choudhari