2011 (6) TMI 964 - AT - Income Tax

Summary

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.