2011 (5) TMI 839 - HC - Income Tax

Court upholds decisions limiting disallowance of expenses for AY 2002-03

The Court dismissed the Revenue's appeal against the orders of the CIT(A) and the Tribunal regarding the disallowance of staff welfare expenses, sales and ... Whether ITAT was right in law in confirming the order of the Ld. CIT(A) in deleting the addition on account of sales & business promotion expenses even though there was no evidence to the effect that the amounts debited under this head are wholly and exclusively for business purposes and are not personal in nature as such it would meet the ends of justice to disallow 10% of the expenditure under this head – Held that:- CIT(A) did not agree with the plea raised on behalf of the Revenue regarding adhoc 10% disallowance claimed by it on account of sales and business promotion expenses. The CIT(A) on appreciation of material on record, however, restricted the disallowance to an amount of Rs. 1,00,000/- and deleted the balance amount. No substantial question of law, appeal fails and is accordingly dismissed Issues:1. Disallowance of staff welfare expenses2. Disallowance of sales and business promotion expenses3. Disallowance of vehicle and telephone expensesAnalysis:Issue 1: Disallowance of staff welfare expensesThe appeal was filed by the Revenue against the order of the Income Tax Appellate Tribunal confirming the deletion of an addition of Rs. 8,28,512 made by the Assessing Officer on staff welfare expenses. The Court considered whether the expenses were incurred wholly and exclusively for business purposes. The CIT(A) restricted the disallowance to Rs. 1,00,000, deleting the balance amount. The Tribunal upheld this decision. The Court held that this issue was not a substantial question of law and dismissed the appeal.Issue 2: Disallowance of sales and business promotion expensesThe Revenue challenged the deletion of an addition of Rs. 3,31,539 made by the Assessing Officer on sales and business promotion expenses. The CIT(A) restricted the disallowance to Rs. 1,00,000, deleting the rest. The Tribunal upheld this decision. The Court found no illegality in the findings and concluded that no substantial question of law arose for adjudication. The appeal was dismissed.Issue 3: Disallowance of vehicle and telephone expensesThe Revenue contested the deletion of an addition of Rs. 3,62,175 made by the Assessing Officer on vehicle and telephone expenses. The CIT(A) deleted this addition, and the Tribunal upheld the decision. The Court noted that previous challenges by the Department on similar issues were not considered substantial questions of law. Therefore, this issue was also dismissed, and the appeal failed.In summary, the Court dismissed the appeal by the Revenue against the orders of the CIT(A) and the Tribunal regarding the disallowance of staff welfare expenses, sales and business promotion expenses, and vehicle and telephone expenses for the assessment year 2002-03.