2008 (12) TMI 360 - HC - Income Tax

Business Expenditure- the assessee-company is engaged in the manufacturing and sale of writing instruments under the brand name of Rotomac and located at Kanpur. The payment was made to the director pertaining to the telephone, electricity, and travelling expenses, etc. He further submitted that as per section 17(2) of the Income-tax Act, it falls under the perquisites and the same is allowable expenditure, which may be considered in the hands of the beneficiary. However, the Assessing Officer has disallowed the said expenses for both the assessment years under consideration. The first appellate authority has disallowed the expenses pertaining to the electricity and telephone. However, the matter pertaining to the travelling expenses was restored to the Assessing Officer. In second appeal, the Tribunal by the impugned order has given the relief of rupees one lakh for each assessment year under consideration by mentioning that this amount has already been considered as perquisites in the hands of the director. He finally made request that the entire expenses may kindly be allowed by modifying both the orders of the Tribunal. Held that- going through the material available on record the house was partly used for purpose of business. The partial relief of Rs. 1 lakh given by the Tribunal for each assessment year was on estimate basis and needed no interference. Thus dismiss the appeal.

Summary

Issues:
Assessment of expenses as perquisites under section 17(2) of the Income-tax Act for assessment years 2000-01 and 2002-03.

Analysis:
The appellant, an assessee engaged in manufacturing and sale of writing instruments, appealed against the disallowance of expenses by the Assessing Officer for the assessment years 2000-01 and 2002-03. The appellant, a whole-time director operating from his residence, claimed expenses for telephone, electricity, and traveling, in addition to monthly remuneration, as per section 17(2) of the Income-tax Act. The first appellate authority disallowed some expenses, while the Tribunal granted partial relief of one lakh rupees for each assessment year, considering it as "perquisites value" in the hands of the director.

The respondent's counsel supported the Tribunal's order, arguing that similar additions were upheld for another director in earlier assessment years. The expenses were claimed on an estimated basis, with details of credit card expenses not provided. The Tribunal found the house partly used for business, leading to the estimation of "perquisites value." The Tribunal's decision was based on fair estimation, considering previous decisions accepted by the assessee.

The High Court, after hearing both parties, observed that the issue revolved around the fair estimation of "perquisites value" for the incurred expenses. The Tribunal's decision to grant partial relief was upheld, as it was based on facts and previous accepted decisions. The Court emphasized that the Tribunal is the final fact-finding authority. The Court noted that the addition was sustained on an estimated basis without scientific investigation, following precedents that discourage interference in such cases. Consequently, the Court found no substantial question of law emerging from the Tribunal's order and dismissed both appeals at the admission stage.