RAJPAL YADAV, JUDICIAL MEMBER 
AND JASON P. BOAZ, ACCOUNTANT MEMBER

ORDER

The order of the Bench was delivered by

Rajpal Yadav, Judicial Member - The assessee is in appeal before us against the order of the learned Commissioner of Income-tax (Appeals) dated September 20, 2012 passed for the assessment year 2008-09. The grounds of appeal taken by the assessee are not in consonance with rule 8 of the Income-tax (Appellate Tribunal) Rules, 1963, and they are descriptive and argumentative in nature. The assessee has taken eight grounds of appeal, but its grievance revolves around two issues namely :

2. The brief facts of the case are that the assessee is a company engaged in the business of dealing farm equipment, machinery, spares, wind power generation etc. It has filed its return of income on October 18, 2007 declaring total income of Rs. 42,82,050. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) was issued and served upon the assessee. According to the Assessing Officer, twelve opportunities of hearing were granted to the assessee. On an analysis of the accounts, it revealed to the Assessing Officer that the assessee had debited an amount of Rs. 22,19,188 towards directors' travelling expenses. Out of this amount, a sum of Rs. 17,43,047 was incurred on the foreign travel of four Directors. The learned Assessing Officer analysed the details as under :

3. He confronted the assessee to submit the supporting vouchers and other evidence of these expenditure. According to the Assessing Officer the assessee failed to submit necessary details, therefore, he disallowed the total claim. The brief findings of the Assessing Officer read as under :

"6.3 In response to the above, the assessee-company has not been able to substantiate the above amount of Rs. 17,43,046 with documents and evidence including bills, vouchers, names and address of entities who were met and nature of business transaction from the same.

6.4 Therefore, an amount of Rs. 17,43,046 is disallowed and added back to the total income of the assessee-company".

4. On appeal, the learned Commissioner of Income-tax (Appeals) concurred with the conclusions of the Assessing Officer that the amount under travelling expenditure was not wholly incurred for the purpose of the visit. The learned first appellate authority has confirmed the disallowance of 50 per cent. of the expenditure on an estimated basis by recording the following findings :

"6.2 On an examination of the ledger account, I find that in respect of the foreign tours, while the hotel bills and ticket expenses are reflected in the vouchers, the purpose of the tours and the expediency thereof are not established on a tour-wise basis. For example, Sri Vasudeva Murthy travelled extensively in Europe and UK for 15 days from September 6, 2007-September 21, 2007 and likewise the ledger account reveal extensive payments made to the directors in cash and in the form of air tickets. However, I have to note that the expediency of these trips is not established before me, apart from submission of some copies of bills from foreign hotels. The appellant's only general defence is that it imports goods from Italy, China and 'other European countries'. On a conspectus of the issue, I am of the view that the expenses have not been fully justified, though the claim of having made certain trips on account of business expediency is generally acceptable, if evidence is adduced. In view of the facts of the case, I feel that only 50 per cent. of the expenditure of Rs. 17,43,047 can be fairly allowed in the absence of justification for incurrence of the same for business purposes. Accordingly, an amount of Rs. 8,71,024 is deleted and the balance is sustained."

5. Learned counsel for the assessee submitted that the assessee used to import farm equipments from these nations and therefore, its directors had to undertake journeys. The expenses were incurred for the purpose of the business visit and no disallowance ought to have been made. On the other hand, the learned Departmental representative relied upon the order of the Assessing Officer.

6. We have duly considered the rival contentions and gone through the record carefully. In order to claim any expenditure incurred for the purpose of the business, an assessee has to demonstrate that the expenses were laid down wholly and exclusively for the purpose of the business only. The expression "wholly" denotes the quantum of expenditure, whereas "exclusively" denotes the purpose. Both these conditions should be fulfilled before claiming the expenditure. The details of expenses are available in the account, but whether these were incurred wholly for the purpose of the business or not, the supporting evidence was not produced. The learned Commissioner of Income-tax (Appeals) has observed that it cannot be construed that total expenses were not incurred for the purpose of business. Therefore, on an estimate basis, she has upheld disallowance up to 50 per cent. of the claim.

7. On due consideration of these facts, we are of the view that import of machinery was not disputed by the Assessing Officer. The visits of the directors were also not disputed. The dispute is whether these visits were exclusively for the purpose of business or they were pleasure trips. Therefore, possibility of involvement of personal expenditure in the travelling expenses cannot be ruled out. However, the involvement of personal expenditure could not be to the magnitude of 50 per cent. The disallowance, even if made on estimate basis, should be a fair and justifiable estimate considering the surrounding circumstances. In our opinion, ends of justice would met, if such disallowance is restricted to the extent of 25 per cent. of the total expenditure of Rs. 17,43,047.

8. In the second fold of grievance, the assessee has pleaded that it had incurred expenditure for convening a meeting of dealers. The Assessing Officer was of the opinion that the assessee had taken services of an event organiser and therefore, it should have deducted the TDS. He disallowed the expenses. Brief finding recorded by the Assessing Officer in this connection read as under :

"12. Non-deduction of tax at source

12.1 The assessee-company has debited an amount of Rs. 4,84,147 towards the following :

12.2 On further verification, it was ascertained that the assessee-company has not deducted tax at source for the above amount of Rs.4,84,147.
12.3 In accordance to the provisions of the Income-tax Act, 1961, the assessee-company making any payment shall at the time of credit of such income to the account or at the time of payment thereof in cash or by issue of cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate applicable.

12.4 When the above issue was brought to the notice of aurhorised representative the authorised representative could not substantiate the reason for the same.

12.5 Therefore, an amount of Rs. 4,84,147 is added back to the total income of the assessee-company.
Thus, the addition under this head is Rs. 4,84,147."

9. On appeal, the learned Commissioner of Income-tax (Appeals) did not give any relief to the assessee. Learned counsel for the assessee submitted that the assessee has not availed of services of any event organiser. It simply booked the hotel and also arranged other items food, etc., from outside. On the other hand, the learned Departmental representative submitted that TDS ought to have been deducted by the assessee.

10. We have duly considered the rival contentions and gone through the record carefully. Section 194C of the Income-tax Act provide that any person responsible for paying any sum to any resident for carrying out any work (including supply of labour) for carrying out any work, in pursuance of a contract between the contractor and a specified person, shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by any other mode, deduct amount equal to one per cent., where the payment is being made or credit is being given to an individual or Hindu undivided family, 2 per cent. where the payment is being made or credit is being given to a person other than an individual or Hindu undivided family of such sum as income-tax on income comprise therein. The Explanation attached to this section provides the definition of work. In this definition payment to a hotel for boarding does not fall within the ambit of work. The assessee has not hired services of any event organiser. It simply booked the hotel for boarding. The hotel did not work on behalf of the assessee as a contractor. Otherwise every guest whosoever stay in a hotel ought to have deducted TDS while making booking or staying in it. The hon'ble Bombay High Court has considered this issue in the case of East India Hotels Ltd. v. CBDT [2010] 320 ITR 526/[2009] 179 Taxman 17 (copy of the order placed by learned counsel). The Central Board of Direct Taxes had issued a circular bearing No. of 681 dated March 8, 1994 ([1994] 206 ITR (St.) 299) which was challenged in the High Court. The hon'ble High Court has considered the following question based on the circular and has quashed the circular. The hon'ble court held that section 194C is not applicable for payments made by the customer to the hotel. The first and last three paragraphs of the judgment read as under :

"1. The said circular provides that all service contracts are covered under section 194C of the Income-tax Act, 1961 ('Act' for short). As a result whereof, every customer of the petitioner No. 1 hotel, while making payment to the hotel for occupying its room and availing of other facilities/amenities provided by the hotel is required to deduct income-tax at the rate specified in section 194C of the Act.

22. In the present case, we are concerned with the question as to whether the services rendered by the petitioner hotel to its customers is covered under section 194C of the Act ?

23. As noticed above, the facilities/amenities made available by the petitioner No. 1 hotel to its customers do not constitute 'work' within the meaning of section 194C of the Act. Consequently, the Circular No. 681 dated March 8, 1994 to the extent it holds that the services made available by a hotel to its customers are covered under section 194C of the Act must be held to be bad in law.

24. For all the aforesaid reasons, the petition is allowed by quashing the Circular No. 681 dated March 8, 1994 to the extent it holds that section 194C of the Income-tax Act applies to payments by the customers to the petitioner No. 1 hotel for availing of the facilities/ amenities made available by the petitioners."

11. Respectfully following the decision of the hon'ble Bombay High Court, we delete the disallowance made by the Assessing Officer.

12. In the result, the appeal of the assessee is partly allowed.

The order pronounced in the open court on the 5th September, 2014.