Business expenditure of a company cannot be disallowed as personal use without proof of lack of business nexus.

For a company, telephone and car expenses cannot be treated as personal expenditure merely because employees or directors may use them. A disallowance requires a factual finding that the spending lacked a business nexus, and cursory assessment findings are insufficient. Where similar disallowances had already been deleted in earlier years and there was no material change in facts, consistency supported the allowance of the claim. On that basis, the disallowance of one-sixth of the telephone and car expenses was held unjustified and the expenditure was treated as allowable business expenditure.

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Issues: Whether disallowance of one-sixth of telephone expenses and car expenses as personal expenditure was justified in the case of a company, and whether the Tribunal was bound to maintain consistency with earlier years where similar disallowances had been deleted.

Analysis: The addition for earlier assessment years had already been deleted by the first appellate authority and affirmed by the Tribunal, and there was no material change in facts. A company is a separate legal person, but that character does not make its business expenditure personal in nature. Disallowance on the ground of personal use may arise in the case of an individual assessee, but the same reasoning does not apply to a company. Expenses incurred for employees or directors as part of the company's business arrangement are allowable, and the assessment findings were held to be cursory and insufficient to justify the disallowance.

Conclusion: The disallowance of one-sixth of the telephone expenses and car expenses was unjustified and was set aside in favour of the assessee.

Final Conclusion: The Tribunal's view could not be sustained, and the expenditure was held allowable as business expenditure.

Ratio Decidendi: In the case of a company, expenditure cannot be disallowed as personal merely because it may involve employee or director use; a disallowance requires a finding that the spending lacked nexus with business.

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