2011 (4) TMI 1369 - AT - Income Tax

Summary

Issues involved: Appeal by Revenue against deletion of addition of expenses of personal nature for Assessment Year 2005-06.

Deletion of Addition of Expenses of Personal Nature:
The only issue in consideration was the deletion of addition of Rs. 14,87,799/- made by the Assessing Officer on account of expenses of personal nature. The Assessing Officer disallowed the amount after finding that the expenses claimed were in the shape of hotel bills of the directors, concluding them to be personal expenditure. However, on appeal, it was argued that the company's accounts were audited under the Companies Act and Income Tax Act without any qualification regarding unverifiable expenses. The Ld. CIT(A) observed that no ad-hoc disallowance could be made on the ground of personal expenses in the case of the assessee, and hence, deleted the addition.

Arguments and Decision:
During the appeal, the Ld. Sr. DR supported the assessment order, stating that the disallowance was justified as the expenses were of personal nature. Conversely, the Ld. A.R. for the assessee contended that as a legal entity, the company would not have any element of personal nature, citing a decision of the Hon'ble Gujarat High Court. The Tribunal noted that the Assessing Officer did not establish how the expenses were not incurred wholly and exclusively for business purposes. Additionally, the audited books of account did not indicate personal expenses of directors. It was emphasized that expenditure incurred by directors for business purposes should not be disallowed without proper justification. As there was no evidence to suggest the expenses were not for business purposes, the Tribunal upheld the Ld. CIT(A)'s decision to delete the addition.

Conclusion:
The Tribunal dismissed the appeal filed by the revenue, affirming the deletion of the addition of expenses of personal nature.