ITAT partially allows appeal, overturns car expense disallowance, upholds entertainment & business promotion disallowances.

The ITAT partly allowed the appeal of the assessee, upholding disallowances to the extent consented by the assessee. The order of the CIT (A) regarding car expenses disallowance was overturned, stating disallowances solely based on personal use were not justified for a corporate assessee. However, disallowances of entertainment and business promotion expenses were upheld due to discrepancies and lack of verification, with the ITAT sustaining the disallowances to the extent consented by the assessee, which was 10% of the total expenses claimed under these heads.

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Issues involved: Appeal against order of CIT (Appeals) for assessment year 2005-06 regarding disallowance of car expenses, entertainment expenses, and business promotion expenses.

Car Expenses Disallowance:
The assessee, a private limited company, appealed against the disallowance of car expenses for personal use, citing precedents from the Hon'ble Gujarat High Court. The ITAT held in favor of the assessee, stating that disallowances based solely on personal use were not justified for a corporate assessee. The disallowance was directed to be deleted.

Entertainment Expenses Disallowance:
The CIT (A) confirmed disallowance of entertainment expenses provision and part of business promotion expenses. The ITAT upheld the CIT (A)'s decision, noting discrepancies in expenses claimed and lack of verification for expenses incurred in cash. The ITAT sustained the disallowances to the extent consented by the assessee, which was 10% of the total expenses claimed under these heads.

Business Promotion Expenses Disallowance:
The CIT (A) allowed part relief on business promotion expenses disallowance, reducing it from 20% to 10%. The ITAT upheld this decision, emphasizing the lack of verification for expenses incurred in cash and failure to establish nexus with the business. The addition of provision made under entertainment expenses was sustained as it was not actually incurred during the year.

Conclusion:
The ITAT partly allowed the appeal of the assessee, upholding the disallowances to the extent consented by the assessee. The order of the CIT (A) on these issues was sustained, and the appeal was partly allowed on June 3, 2011.

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