ITAT rules entertainment expenses not income, allows standard deduction under s. 16(1)

The Appellate Tribunal ITAT Gauhati allowed the appeal by the assessee, holding that the reimbursement of entertainment expenses was not income but a return of amount spent on behalf of the employer. The Tribunal directed the deletion of the disallowance made by lower authorities. Additionally, the Tribunal ruled that the standard deduction under s. 16(1) should be allowed at Rs. 3,500 as claimed by the assessee, as the car provided by the employer was for official duties, not personal use.

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Issues:
1. Entitlement to deduction for reimbursement of entertainment expenses and standard deduction under s. 16(1) of the IT Act, 1961.

Analysis:
The appeal before the Appellate Tribunal ITAT Gauhati involved the assessment year 1976-77 for an individual assessee who was an employee of United Commercial Bank. The assessee claimed deduction for reimbursement of entertainment expenses and a standard deduction under s. 16(1) of the IT Act, 1961. The Income Tax Officer (ITO) had added back the reimbursement of entertainment expenses to the assessee's income and allowed a standard deduction of Rs. 1,000 instead of the claimed Rs. 3,500. The assessee contended that the reimbursement was not an entertainment allowance and that the standard deduction should be allowed at Rs. 3,500 as the car provided by the employer was for official duties and not for personal use.

Upon appeal, the Appellate Assistant Commissioner (AAC) held that 50% of the entertainment expenses could be attributed to the assessee and allowed a standard deduction of Rs. 1,000. However, the Appellate Tribunal, upon careful consideration, observed that the reimbursement of entertainment expenses was not income but a return of amount spent on behalf of the employer. Therefore, the disallowance made by the lower authorities was directed to be deleted.

Regarding the standard deduction, the Tribunal noted that the assessee did not receive any conveyance allowance and the car provided by the employer was meant for official duties, not personal use. As such, the standard deduction under s. 16(1) should have been allowed at Rs. 3,500 as claimed by the assessee. Consequently, the Tribunal allowed the appeal by the assessee, directing the standard deduction to be Rs. 3,500 as per the provisions of the IT Act, 1961.

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