2017 (8) TMI 1596 - AT - Income Tax

Disallowance of 10% of the hospitality expenses on adhoc basis in the hands of the assessee being a Corporate entity/ artificial person - HELD THAT - Following decisions lay down the ratio that a company being an artificial person there cannot be any personal element in expenses incurred by a company and subsequently no disallowance in the hands of a company can be made u/s 37 of the Act. The addition if any can be made in the hands of a person (e.g. employee directors etc.) receiving such benefits. As relying on Sayaji Iron Engg. Co 2001 (7) TMI 70 - GUJARAT HIGH COURT Ramkishin Textiles (P.) Ltd vs ITO 2011 (1) TMI 903 - ITAT MUMBAI KSS LTD. (FORMERLY KNOWN AS K SERA SERA PRODUCTIONS LTD.) VERSUS DCIT RG 2 (3) (1) MUMBAI 2015 (12) TMI 1784 - ITAT MUMBAI we do not find any merit for the disallowance of 10% of the hospitality expenses on adhoc basis in the hands of the assessee being a Corporate entity/ artificial person. - Decided in favour of assessee.

Summary

Issues:
Adjudication of hospitality expenses disallowance in the hands of a corporate entity.

Analysis:
The Miscellaneous Application pertains to an appeal for the Assessment Year 2010-11. The issue raised was the disallowance of an amount related to hospitality expenses in the appellant's business. The appellant argued that the expenses were incurred in the course of carrying on business and provided evidence to support this claim. The Tribunal's order dated 22/07/2016 did not adjudicate on this specific ground, leading to the current application.

The learned AR contended that the disallowance made by the Assessing Officer was baseless and should be deleted entirely. The Tribunal acknowledged that ground no. 3 had not been adjudicated upon despite being argued at length during the hearing. The Tribunal recognized this as a mistake apparent from the record and proceeded to hear both parties on the issue of disallowance in the hands of the corporate entity.

The Tribunal referred to various judicial decisions that established the principle that expenses incurred by a company, as an artificial person, do not contain any personal element. Therefore, no disallowance can be made in the hands of the company under section 37 of the Income Tax Act. Any addition should be made in the hands of individuals receiving such benefits, such as employees or directors. The Tribunal relied on a series of judgments to support this position.

Based on the legal precedents and the nature of expenses incurred by a corporate entity, the Tribunal concluded that there was no merit in disallowing 10% of the hospitality expenses on an adhoc basis in the hands of the corporate entity. Consequently, the Miscellaneous Application filed by the assessee was allowed, and the order was pronounced in open court on 23/08/2017.